FILE COPY Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2314-TA REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A SECOND CASHEWNUT DEVELOPMENT PROJECT MAY 1, 1978 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit 5 Tanzania Shilling (TSh) US$ 1.00 x TSh 8.30 TSh 1.0 US$ 0.12 (As Tanzania Shilling is officially valued at a fixed rate of 9.66 TSh to the SDR, the US Dollar/ Tanzania Shilling exchange rate is subject to change. Conversions in this Report were made at US$ 1.00 to TSh 8.30 which is close to the recent average exchange rate.) GLOSSARY OF ABBREVIATIONS CATA - Cashevnut Authority of Tanzania CcM - Chama Cha Mapinduzi CNSL - Cashewnut Shell Liquid EAC - East African Community MDB - Marketing Development Bureau MOA - Ministry of Agriculture NBC - National Bank of Commerce PMO - Prime Minister's Office TANU - Tanganyika African National Union FISCAL YEAR Government - July 1st to June 30th CATA - October 1st to September 30th FOR OFFICIAL USE ONLY TANZANIA: SECOND CASHEWNUT DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY BORROWER: United Republic of Tanzania BENEFICIARY: Cashewnut Authority of Tanzania AMOUNT: US$27.5 million equivalent TERMS: Standard RELENDING TERMS: Fifty percent of the proceeds of the credit (i.e. US$13.75 million equivalent) would be relent to the Cashewnut Authority of Tanzania (CATA) for 15 years including 5 years of grace, with interest at 10 percent per annum. The balance would be passed on by the Government to CATA as equity. PROJECT DESCRIPTION: The proposed project would increase Tanzania's annual processing capacity from 73,000 tons to 103,000 tons of raw cashewnuts all produced by smallholders, thereby increasing the local value added and creating employment for about 3,000 persons. It would increase Tanzania's foreign exchange earnings and contribute to raising producers income. The project would fiiiance the construct- tion and equipping of three factories with a total processing capacity of 30,000 tons of raw nuts, the expansion of cashewnut shell liquid storage facilities, the construction of staff accommoda- tions and water and power supply facilities. It would also finance a cashewnut research program, an occupational health hazards study, and the provision of technical assistance for CATA. The project faces commercial risks, typical of under- takings of this nature, giventhe uncertainty of future raw cashewnut and cashewnut kernels export prices. However, it is considered unlikely that cashewnut kernels prices would fall below a level which would reduce the economic rate of return to an unaccept- able level. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ESTIMATED PROJECT COST : US$ Million Local Foreign Total Civil Works and Water Supply 4.8 8.7 13.5 Equipment and Vehicles .5 10.2 10.7 Technical Assistance .5 5.5 6.0 Base Cost Estimates 5.8 24.4 30.2 Physical Contingencies .4 1.5 1.9 Price Contingencies .4 1.6 2.0 NET PROJECT COST 6.6 27.5 34.1 Working Capital .9 1.3 2.2 TOTAL COST 7.5 28.8 '36.3- FINANCING PLAN: US$ Million % IDA 27.5 76 Government 6.6 18 NBC 2.2 6 3-6.3 100 ESTIMATED DISBURSEMENTS: US$ Million FY79 FY8O. FY81 FY82 FY83 -fY4 FY85 Annual 4.6 10.4 7.6 2.0 1.4 1.2 0.3 Cummulative 4.6 15.0 22.6 24.6 26.0 27.2 27.5 RATE OF RETURN: 16 percent APPRAISAL REPORT: Report No. 1868-TA, dated April 26. 1978 Southern Agriculture Division Eastern Africa Region 1/ As goods imported under the project would be free of taxes and duties, the cost estimates include only negligible amounts of taxes, mainly sales taxes on locally procured goods. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A SECOND CASHEWNUT DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed credit to the United Republic of Tanzania for the equivalent of US$27.5 million on standard IDA terms to help finance a project for cashewnut development in Tanzania. Fifty percent of the proceeds of the credit (i.e., US$13.75 million equivalent) would be relent to the Cashewnut Authority of Tanzania (CATA) for 15 years including 5 years of grace, with interest at 10 percent per annum. The balance would be passed on by the Government to CATA as equity. PART I - THE ECONOMY Introduction 2. A Basic Economic Mission visited Tanzania in August 1976. The Basic Economic Report was distributed in December 1977 (Report No. 1616-TA). 3. Tanzania has experienced a degree of continuity and stability in political structure, leadership and objectives which is unrivaled in Africa. The TANU2/ party, under the leadership of President Nyerere, has been the unifying force in Tanzania's political evolution since the early 1950s. For the past decade, following the Arusha Declaration in early 1967, Tanzania has pursued the objectives of social equality, self-reliance, the eradication of poverty and economic and social transformation. The Government has emphasized rural development, social ownership of the principal means of production, and full participation of all regions and population groups in the development process. Economic growth has been an important objective but the leadership has been willing to forego short-term income gains for longer-term structural change and more equitable distribution. In restructuring the political, eco- aiumic anid social life of the country the leadership has introduced a series of far-reaching institutional reforms: most large-scale units in manufacturing, finance and wholesale trade have been nationalized; the Government has sharply increased its share of revenue in GDP througlh progressive taxation; a signi- ficant portion of public sector expenditure control has been delegated to the regions and districts and a massive campaign of villagization has been ini- tiated to bring the rural population together into viable long-term development units. 1/ This section is essentially the same as that of the President's Report on the Tobacco Handling Project dated May1,1978. 2/ TANU (the mainland political party) was merged with the Zanzibar political party (the Afro-Shirazi Party) in February 1977. The new party is now called Chama Cha Mapinduzi (CCM). - 2- 4. With per capita income of $180, Tanzania is classified as one of the least developed countries as defined by the United Nations (country data are provided in Annex I). Between 1967 and 1973 Tanzania's GDP at factor cost was growing at an annual rate of 4.5 percent. With population growing at 2.7 percent per year, per capita output was rising at only 1.8 percent per year on average. Domestic savings reached 18 percent of GDP while gross investment was sustained at between 20 to 25 percent of GDP, extremely high rates for a country at Tanzania's low level of per capita income. However, the growth rate in GDP was not commensurate with the magnitude of the investment effort, in part because of the high proportion of investment which was directed into slow-gestation infrastructure and social services projects but also because of sluggish growth in the agri- cultural sector and stagnant or declining productivity in parastatal enter- prises. During this period Tanzania's overall balance of payments situation was generally satisfactory, despite the disappointing performance in the export sector. The rapid growth in imports was more than comipensated by increasing capital inflows, largely from bilateral sources on soft terms. The overall balance of payments was in surplus in most years during 1969-73, resulting in a modest buildup in net foreign exchange reserves to slightly over $150 million at the end of 1973, the equivalent of almost four months imports. The Economic Crisis of 1974 and the Government's Response 5. In 1974 Tanzania was suddenly confronted with a severe economic crisis. Failure of rains in late 1973 and early 1974 caused a massive decline in production and marketing of the major foodgrains and the Govern- ment was compelled to import large quantities of grain. Tanzania's main export crops were also affected by the drought, and the resultant declines in export volumes prevented Tanzania from taking advantage of the commodity price boom of 1974. These agricultural problems were compounded by the disloca- tion resulting from the rapid expansion of the villagization program (para 2L). On the import side, total cost of merchandise imports rose by over 50 percent between 1973 and 1974, despite a slight decline in volume. As a result of these factors the trade deficit widened from $158 million in 1973 to $340 million in 1974 while the overall balance of payments moved from a surplus to a deficit of $140 million. This balance of payments gap was financed largely through drawings from the IMF and a rapid depletion of reserves. Net reserves fell to $60 million at the end of 1974, equivalent to only one month's import requirements. Industrial production also stagnated in 1974 due to shortages of imported raw materials and interruptions in power and water supplies. While production declined, domestic demand'increased rapidly because of expansionary fiscal, monetary and wage policies. The imbalance between domestic demand and supply, combined with the sharp escalation in import prices, resulted in severe pressure on the domestic price level. 6. Once the extent of the problems facing the country was realized, the Government formulated a comprehensive package of policy actions to bring the balance of payments under control while maintaining the pace of its development effort. The principal elements of the package included a -3- reallocation of investment in favor of directly productive sectors, measures to raise agricultural output, and constraints on wages and on public and private consumption. Government budget allocations to agriculture and industry were substantially increased; significant increases were approved in agricultural producer prices; tight import controls were implemented; indirect taxes on consumer goods increased; user charges for water and electricity were raised and an extremely restrictive wage and salary policy was followed. This package was reviewed with the Bank at the time of appraisal and negotiation of the Program Loan in late 1974, and approval of that Loan was based on the Bank's agreement with and support of the policy package. Approval of the subsequent Program Credit in 1977 was based on the Government's overall performance in implementing the agreed upon program. Economic Performance since 1974 7. The major macroeconomic indicators have generally improved since 1974, reflecting both improved weather conditions and the effects of the policy measures introduced to deal with the crisis. Agricultural production increased by 6.5 nernent in 1975 compared to a decline of 3.3 percent in 1974, while total GDP grew by 4.6 percent compared with only 2.2 percent in 1974. This was despite the fact that during 1975 production of cotton and some other cash crops still suffered from disorganization due to villagization. In 1976 some of the problems of villa- gization were being rectified through "operation correction," and since rains were once again favorable, agricultural production was generally good. Agricultural production increased by about 4.5 percent in real terms in 1976, industrial product- ion expanded 6.2 percent and GDP grew 5.2 percent. Preliminary estimates are that agriculture and total production expanded by about 5 percent in 1977. 8. The goods and services account of the balance of payments continued to deteriorate in 1975 due to continuing production difficulties, declines in some agricultural export prices and the continuing need to import food for part of the year. The trade deficit increased from $340 million in 1974 to $400 million in 1975, Even after allowing for a high level of project-related capital inflows and-a huge increase in grant assistance and concessional food aid, there was a residual deficit of almost $75 million. Whereas the 1974 residual deficit was filled almost entirely through the combination of DfF assistance and reserve depletion, the 1975 deficit was met through foreign assistance from a variety of sources, including the $30 million Program Loan from the World Bank (para 6). In 1976 and 1977 the balance of payments picture improved. The trade deficit declined due-to strong export performance, especially for coffee and cotton, and to a slight fall in the "value of imports occasioned by a greatly lessened need for foodgrain imports and continuing tight restrictions on all other categories of imports. The overall balance of payments surplus was about $35 million during 1976 and continued in surplus throughout 1977. Gross foreign exchange reserves at the end of 1977 amounted to US$280 million or about four months imports. Because of the very concessional terms on which aid has been given to Tanzania and the Government's refusal to use higher cost commercial loans and suppliers' .credits, _the overall debt service ratio has remained low. Including a notional - 4 - 40 percent share of the debt of the East African Community Corporations, it was less than 8 percent in 1977. While the favorable terms of much of Tanza- nia's foreign assistance (particularly the increasing proportion of grants) significantly reduce the debt service burden they also increase Bank exposure. Debt servir- payments to the Bank Group will be about 28.6 percent of Tanzania's total debt service payments in 1977. This is projected to rise to approximately 30 percent in 1980. East African Community (EAC) 9. The recent developments in the East African Community were outlined in a report to the Executive Directors dated December 29, 1977. Dr. Victor Umbricht, thc independent mediator recently appointed by the Partner States, visited East Africa in February and has begun work on the questions involved in appraising the assets and liabilities of the EAC Corporations and making recommendations on their allocations. The de facto breakup of the Community is expected to have some impact on Tanzania's budget as new national corpo- rations take over the services formerly provided by the EAC Corporations. Wlhile substantial initial investments are required (particularly in the formation of the airways corporation and the rehabilitation of the railways), the burden on the Government budget will hopefully be temporary as the new corporations should become self financing. A major development related to the EAC difficulties was the closure of the border with Kenya. Kenya was a major trading partner of Tanzania and in the short run considerable adjust- ments have had to be made in locating new suppliers for some items and developing outlets for some manufactured goods and agricultural products. PART II - BANK GROUP OPERATIONS IN TANZANIA * 10. Tanzania joined the-Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1962, 30 IDA credits, 13 Bank loans and two Third Window loans amounting to $506.0 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of 10 loans totalling $244.8 million which have been extended for the development of the common services and development bank operated regionally by Tanzania, Kenya and Uganda through their association in the East African Community. The only IFC investments in Tanzania to date, totalling $4.7 million, were made to 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. A proposal for an IFC investment in soap manufacturing is now under consideration. Annex II contains summary statements of Bank loans and IDA credits to Tanzania and the East African Community organizations as of March 31, 1978 and notes on the execution of ongoing projects. * This section is substantially the same as that of the President's Report on the Tobacco Handling Project dated May 1, 1978. - 5 - 11. In keeping with Tanzania's overall development strategy, Bank Group lending operations are increasingly focusing on the rural sector and directly productive projects. Up to the end of FY72, 10 out of 14 loans and credits made individually to Tanzania had been for infrastructure. The overwhel1ing majority of the operations approved since then have been for directly productive projects. Furthermore, a number of Bank Group supported infrastructure projects have been closely linked with specific activities. For example, the Urban Water Supply Project (Loan No. 1354-TA) approved in December 1976, will support the recently approved Industrial Complex in Morogoro (Loans No. 1385-T-TA and 1386-TA). Other directly productive projects are supporting both the agricultural and industrial sectors, including the Kigoma Integrated Rural Development Project (Credit No. 508-TA), the National Maize Project (Credit No. 606-TA), Cashewnut Development Project (Loan No. 1014-TA), the Fisheries Development Project (Credit No. 652-TA), three Tanzanian Investment Bank Projects (Credit No. 460-TA and Loans No. 1172-TA and No. 1498-TA), and the Mwanza Textile Project (Loan No. 1128-TA). The first Bank Group assisted project in the forestry sector, the Sao Hill Forestry Project (Loan No. 1307-TA), was approved in July 1976 and will provide the raw materials for Tanzania's first paper and pulp plant, also under preparation for consideration by the Bank Group for financing. A Second National Sites and Services Project (Credit No. 732-TA) and a Trucking Industry Rehabilitation and Improvement Project (Credit 743-TA) were recently approved by the Board. Three other projects are scheduled for presentation to the Executive Directors before the end of this fiscal year -- A Rural Development Project in Mwanza and Shinyanga, a Tobacco Handling Project and the Morogoro Textile Project. Projects which have been appraised include a Second Urban Water Supply for Iringa and Moshi, a Tourism Project, a Fifth Highway Project and a Sixth Education Project. A Rural Development Project in Mara, an Agricultural Services Project, a Harbours Project and a line of Credit to the Tanzanian Rural Development Bank are also under preparation. 12. Although the comparatively high proportion of undisbursed loans and credits, detailed in Annex II, is in large part a result of the recent approval of many of these projects, it also reflects the fact that overall project implementation has been slower than was projected. It is clear in retrospect that both the Bank and Tanzania have been optimistic regarding Tanzania's absorptive capacity. The causes of the difficulties in implementation are varied. Some stem from the scarcity of suitably trained and experienced manpower, some reflect the problems in identifying agronomic input packages appropriate to the needs of smallholder farmers while others result from the strains associated with attempting a "frontal attack" on poverty. These problems have been compounded by frequent and drastic administrative changes, which -- though potentially the source of long-term benefits -- have certainly disrupted orderly execution of projects and made parts of earlier project concepts obsolete. In general, these difficulties have been most severe in agriculture, par- ticularly in the smallholder rural sector. As our lending program has increasingly concentrated on this sector, these problems have become correspondingly more apparent and severe. By contrast, the "modern" sector projects have tended to fare better. The Tanzania Investment Bank, Mwanza Textile, Cashewnut Processing and Tobacco Processing Projects, for example, are proceeding well. 13. As the Bank's lending program has expanded, increasing attention has been given to measures designed to improve project implementation. A course was conducted in Dar es Salaam in 1973 on the Bank's procurement policies and procedures with the relevant Government officials. A special project imple- mentation unit was set up in the Ministry of Agriculture and nine Agricultural Development Service staff have been assigned to Bank projects. The need to establish a close and continuous working level dialogue between responsible Tanzanian officials and Bank staff on following-up implementation problems was one of the prime reasons for the expansion of the Resident Mission to two professionals in October 1976. In February 1977 a regular Government/Bank review of project implementation was established. Discussions, chaired by the Ministry of Finance and attended by Bank staff and officials from implementing agencies, were held in Dar es Salaam on the entire Bank Group program. Steps to strengthen this review procedure were taken in August 1977 when those meetings were shifted to a monthly basis. The Government also agreed that periodically these reviews will be conducted on an "in-depth" basis to discuss in detail individual problem projects and problems which are affecting project implementation across a number of sectors. As a result of these reviews a number of positive developments have been noted. Most of the actions agreed to during the reviews have been completed. In addition, the reviews have significantly improved coordination and communication by providing an oppor- tunity for project agencies to discuss their problems with all ministries involved and with high level officials in the Ministry of Finance and Planning. During the two in-depth reviews in October 1977 and January 1978 a series of general implementation issues were discussed with senior Tanzanian officials and follow-up actions or investigations agreed upon. 14. The Government has also become increasingly conscious of implementation. In addition to fully supporting the project implementation review system, the the Ministry of Finance and Planning has now set up an internal unit to oversee project performance. Furthermore, there have been more consistent responses to Bank suggestions and a willingness to openly discuss project problems raised by Bank staff. As a consequence, the project disbursement record has i'.pro-ed som"""hat over the last two ycars and a recent analysis indicated that the Tanzanian disbursement performance is about equal to the Bank-wide average. However, it should be noted that significant potential for further improvements exists as a wide range of serious long-term bottlenecks remain. This is particularly true in the agriculture and rural development sector where individual projects face a considerable number of constraints in trying to increase the incomes of smallholders (the lack of proven technical packages, a weak extension system, problems in input distribution and output collection, etc.). PART III - THE AGRICULTURAL SECTOR General Background 15. Agriculture and related activities constitute the largest single sector in the Tanzanian economy. About 94 percent of the population lives in rural areas, and 90 percent of the economically active population is - 7 - engaged in agriculture. Roughly 40 percent of GDP is derived from the sector, of which about half constitutes subsistence production. in addition, agricultural exports (processed and unprocessed) account for about 80 percent of total exports. The major export commodities are coffee, cotton, tobacco, sisal, cashewnut and tea. 16. Most agricultural production is from smallholdings using family labor. Large-scale agriculture is confined to a small number of private estates and state farms producing sisal, coffee, tea, sugar, wheat, rice and livestock. Estate production has diminished in importance since Inde- pendence and the state farm program remains small. Tanzania's national livestock herd, the second largest in Africa, is grazed extensively over the 40 percent of the country which is free from tsetse fly infestation. It is largely managed along traditional lines. 17. Recent performance of the agricultural sector has been disappointing. The long-term growth rate of agricultural output between 1967 and 1976 was only 2.8 percent per annum -- about equal to population growth. Moreover, food crop production has failed to keep pace with the expanding population and Tanzania has become increasingly dependent on imports of maize, rice and wheat. This deteriorating food balance position was seriously aggravated by the poor drought-affected harvests of 1973 and 1974 which necessitated large foodgrain imports. While real agricultural production increased by 6.5 percent in 1975 and by a further 4.5 percent in 1976, these increases represent prima- rily a recovery from the drought and only return agricultural expansion to its long-term growth path. Concern with increasing the historical long-term growth rate remains central to the Bank Group's investment strategy in Tanzania. Agricultural Development Strategy 18. The Government has undertaken a comprehensive program to support the development of productive activities in the agricultural sector, in con- junction with efforts to achieve balanced regional growth and more equitable income distribution (para. 3). While there has been a major emphasis on im- proving the availability of social services (particularly in health, water supply and education), in the aftermath of the drought and the balance of payments difficulties the Government has made increasing output the major focus of its investments in rural areas. Specifically, it has placed consi- derable attention on those crops which represent sources of foreign exchange earnings. The proposed project fits into this strategy, and, although cashew- nut generates only about 7 percent of current foreign exchange earnings from agricultural exports, the potential for expansion of output and exports of processed nuts is significant. In addition to according priority to the ex- pansion of selected export crops, the Government has given greater emphasis to its program of self-sufficiency in food production, assisted by an IDA Credit of US$18.0 million for a National Maize Project (Credit No. 606-TA). 19. Long-term support for the Government's focus on increasing produc- tion was expected to be channeled through the National Agricultural Develop- ment Program (NADP), a series of projects identified in the Agricultural Sector Report (No. 541a-TA dated December 10, 1974). These projects were expected to involve the development of "national" programs designed to con- centrate and coordinate development efforts on the 40 or so agro-economic zones of the highest potential. However, recent developments in the sector, particularly in Bank-supported projects, have raised serious questions as to the feasibility of this approach. While "national" projects oriented toward production were expected to be consistent with Tanzania's decentralized Government structure, this has not been achieved. The regions have not in practice felt responsible for implementing "nationally" conceived and directed programs. At the same time the regions have complained that many of the central services which they require (e.g., research, input delivery and mar- keting), and clearly accept as national responsibilities, are not being effectively provided. As a result of these developments, a new Bank strategy for agriculture has emerged. In order to ensure regional responsibility and the development of locally appropriate technical packages (particularly those required by the more intensive cultivation practices in the new villages), a number of regional projects have been approved or are being prepared (para 11). While these projects will focus on production efforts, we will not hesitate to support regional infrastructure when its absence is constraining production. At the same time, attempts to strengthen the ability of central ministries to provide essential support services to the regional "production units" will be made via national projects, e.g., in processing, marketing, and storage. The proposed project fits into this latter category. With this revised and consistent strategy, we expect that a basis will be established for improving the disappointing growth rate in agriculture (para 17). Rural Organization 20. In order to improve the design and execution of development projects and programs and to mobilize local resources, the Government, in 1972, adopted a decentralized administrative structure. Regions (20 in all) and Districts (80) were granted primary responsibility for the planning and implementation of development activities within their jurisdictions, and were given a high degree of administrative autonomy. The Prime Minister's Office provides over- all policy direction, coordinates regional plans and budgets and assists Regions as appropriate in preparing their development programs. While it is clear that this decentralization of authority has improved communication between the Government and the villages (as the civil service operating at the district and regional levels are directly involved in integrated rural development efforts) problems of manpower, and of ill-defined division of re- sponsibility between the regions, central ministries and parastatals persist. 21. In order to facilitate the provision of infrastructure and services to the rural population and to encourage self-reliance, the grouping of farm families into villages, villagization, is a key element of Government stra- tegy. The acceleration of the Government's villagization program was given high priority in 1973-74 and at present, over three-quarters of Tanzania's - 9 - rural population are contained in about 7,700 registered villages. These registered villages, each containing 250 families or more, elect a Village Council which exercises wide judicial and administrative powers over the political, eculnomic and social development of the village. It is too early to judge how effectively the villages will be able to meet their ambitious goals. However, it has been established that more attention to village siting and size is needed to overcome problems of overgrazing, soil deple- tion, and of increased travel to water, firewood and fields. Agricultural Services 22. The Ministry of Agriculture (MOA) is responsible for the overall planning and monitoring of the sector as well as coordinating agricultural research, training of extension staff, pricing policy in the sector, seed multiplication and supervision of agricultural parastatals. Agricultural research is undertaken by a wide variety of government agencies and while MOA has been given the responsibility of overall coordination, research resources have not always been allocated in accordance with development priorities. Agricultural extension services are provided by staff trained by MOA, and are under the control of the Regional Administration. The links between research and extension are weak, and field staff are often poorly trained and inadequately supervised. A major review of the extension system has been under way in Tanzania for about two years, and IDA has agreed to work with the Government on a survey of the needs in this area with the intention of subsequently preparing a research and extension training com- ponent in the proposed Agricultural Services Project (para.ll ). Pricing policy is an important tool of the Government in the agricultural sector. Since 1974, Government has accorded greater recognition to the need to give farmers production incentives; crop and livestock prices are now reviewed annually and substantial producer price increases have been made in recent years. A related issue which MOA is involved with is that of input pricing. In recent years, Government has encouraged the use of inputs (in particular, fertilizer) through subsidization. In 1974 fertilizer was distributed at no charge; the subsidy is now 50 perdent. However, because of ensuing problems (wastage, use on areas where inputs are uneconomical, etc.), greater atten- tion is being paid by the Government to ensuring that inputs are distributed for use only where their use is profitable. In the past Tanzania has suffered from a shortage of good quality seed, and bilateral aid has been directed at attempting to improve this situation. Consideration will be given to supple- menting these efforts under the proposed Agricultural Services Project. Agricultural Marketing Parastatals, which exist for major crops and livestock, play a key role in agricultural marketing. The tendency has been for progres- sive enlargement by Government of the role and scope of these institutions, and this has, in many cases, placed a severe strain on their manpower resources. Overall operational efficiency is low, with correspondingly high trading margins. The Government is aware of the problems and is beginning to develop a comprehensive program for addressing them. The Cashewnut Industry 23. After Mozambique, Tanzania is the world's second largest producer of raw cashewnuts (about 120,000 tons annually) followed by India, Brazil and Kenya. Tanzania's exports of raw nuts in 1977 represented 30% of the world's total. Cashewnuts rank fifth among Tanzania's export crops in earnings, and - 10 - accounted for export receipts of $25 million in 1975/1976. Cashewnut trees grow in Southern Tanzania and along the Coast. Cashewnuts are produced almost entirely by smallholders whose incomes are below the poverty line (per capita incomes are below US$50). The marketed products of the cashew trees are kernels and cashewnut shell liquid (CNSL). While the kernels are con- sumed directly (as roasted and salted nuts, or in bakery products) the CNSL is used commercially for paints, varnishes and friction materials. The cashewnut kernels are exported to North America and Europe (para. 49), and the CNSL is mainly exported to Japan and USA (para. 51). 24. Presently, Tanzania has a processing capacity of about 26,000 tons of raw cashewnuts (6,000 tons of kernels) per year and the remainder is pro- cessed overseas, mainly in India. Additional processing capacity of 52,500 tons per year is under construction, of which 40,000 are being financed under the first Cashewnut Development Project (Loan No. 1014-TA, para. 11). About 80 percent of existing domestic processing is mechanized. The remainder is processed by hand at a financial loss due to low labor productivity and low quality of production. In view of the poor record of hand processing, the two existing hand processing units will be closed shortly and their workers absorbed in the new mechanical processing factories. 25. During the last 15 years, the production of raw cashewnut in Tanzania has increased from 43,000 tons to an average of 120,000 tons annually. While cashewnut production from existing trees and natural replacements is expected to remain at the level of 120,000 tons per year, the Government and CATA in 1977 initiated the implementation of a 150,000 ha plantation program which is expected to be carried out during a five-year period. By 1982, the plantation program would be completed and by 1992 at full development, the new plantations are expected to produce about 100,000 tons of raw nuts annually, increasing the country's production to 220,000 tons annually. About 700 vil- lages would be involved in this program and about 150,000 smallholder families in lower income rural areas would benefit. The Government's parallel efforts to improve research and extension services would increase production and sub- sequently the smallholder incomes. 26. Prices paid to raw nut producers in Tanzania are established annually after a review by CATA and the Marketing Development Bureau (MDB) of MOA, and published before the harvest season after approval by MOA and the Cabinet Economic Committee. Presently, producer prices are computed on the basis of export prices of raw nuts with net benefits passed on to farmers directly. This producer price setting mechanism is satisfactory and is in conformity with the agreement reached under the first Cashewnut Development Project (Loan 1014-TA). 27. Tanzania's strategy for the development of the cashewnut industry is consistent with the Basic Industrial Strategy (BIS) adopted in 1974 *ith its emphasis on the use of domestic resources and expansion of export- oriented production. By expanding processing of domestic production, Tan- zania is expected to increase local value added and hence export earnings. Also, in conformity with the country's policy of fighting poverty and wide distribution of development benefits, the proposed project would contribute to increasina the income of the rural smallhol1ers who idominAtp ehRhtwnaii production. - 11 - The Cashewnut Authority of Tanzania (CATA) 28. CATA was established in 1973 as a statutory authority designed to coordinate all aspects of production, research, processing and marketing of cashewnuts. CATA has complete control over the cashewnut indusi.iy. The Minister of Agriculture has direct responsibility for overseeing CATA's activities, and appoints the Directors of the Board representing concerned Government Ministries and Regions and Districts within which CATA is oper- ating. Day-to-day control over CATA's activities rests with the full time General Manager, who is appointed by the President. CATA is organized into five functional Departments: Crop Development and Procurement, Marketing and Planning, Finance, Manpower Development and Administration, and Factory Operation and Development. CATA has also been entrusted with a few ancillary activities such as the distribution of fertilizers in the Mtwara Region and the operation of service stations in Mtwara. These activities have a marginal impact on CATA's finances and management capabilities. 29. Until now CATA has been financed through Government grants and loans, and by borrowing from financial institutions in Tanzania for invest- ment expenditures and working capital. CATA's performance is satisfactory in general. However, it is experiencing management problems due to lack of specialist staff, particularly in the Finance Department. CATA's financial reporting is weak and the audited accounts for the year ending September 30, 1976 are expected by mid-1978. CATA's management responsibilities will increase once the factories now under construction become operational. Technical assistance to strengthen CATA's technical and financial management would be provided under the proposed project (para 40). Previous Bank Group Projects and Experience 30. A Bank loan of $21 million for the first Cashewnut Development Project (Loan No. 1014-TA) was extended in May 1974. The project was designed to increase the cashewnut processing capacity by 40,000 tons of raw nuts annually. The project included construction, installation and equipping of five new cashewnut processing factories, cashewnut shell liquid storage facil- ities at the port of Mtwara and provision of technical assistance during the first four years of the factories' operation. The project also provided for five road maintenance units, extension services, research and training program, construction of CATA's Headquarters and staff houses, rural water supply facil- ities, community education centers and professional services. When bids for civil works and equipment were received, the combined costs were about 30 percent above the appraisal estimate, with construction costs twice the original estimate. To meet part of these additional costs, CATA obtained two loans totalling $1.8 million from the Tanzania Investment Bank (a devel- opment finance company supported by the Bank) and it was agreed to exclude certain components (community education centers, rural water supplies and road maintenance units) which would not have significant effect on the pro- ject's financial and economic performance. The factories, by far the largest component of the project's cost, are being satisfactorily completed slightly behind the original implementation schedule. The producer price setting mechanism is satisfactory and in conformity with the assurances received at that time. Also, the training program provided for under the project is now being prepared. However, the post of Finance Director provided under the project has not been satisfactorily filled and CATA's financial - 12 - reporting is weak with poor accounting practices (para. 47). A consultant study for the design of a management information system was completed in December 1977, and its implementation is proposed for financing under the second proiect. Preparation of the research program is about one year behind schedule and the Government is now expected to use a grant from the Italian Government to finance two years of the program. PART IV - THE PROJECT 31. The project was prepared by the Government of Tanzania with the assistance of the Regional Mission in East Africa as a follow-up to the first cashewnut development project, and was appraised in June/July 1977. The proposed credit would be the Bank Group's second investment in cashew- nut processing in Tanzania; the first was a loan for $21 million (Loan No. 1014-TA) approved in 1974. A staff appraisal report entitled "Tanzania Second Cashewnut Development Project" dated April 26 , 1978 is being circulated separately to the Executive Directors. Negotiations were held in Washington in April 1978 and the Tanzanian delegation was led by Dr.S.Madallali Principal Secretary, Ministry of Agriculture. A credit and project summary is at the front of this report and a supplementary project data sheet is in Annex III to this report. Project Objectives and Description 32. The proposed project would increase cashewnut processing capacity by 30,000 tons annually through the establishment of new factories. It would increase Tanzania's foreign exchange earnings and the local value added utilizing local raw materials. It also continues the Bank Group's efforts at increasing CATA's ability to support development of Tanzania's cashewnut subsector. Specifically, the project would include financing for: (a) construction, installation and equipping of three cashewnut processing factories each with the capacity of processing 10,000 tons of raw nuts annually, including water supply facilities; (b) the expansion of port storage facilities of cashewnut shell liquid (CNSL) by 750 tons and the procurement of truck tankers to transport CNSL and vehicles; (c) the construction of staff houses for two factories; (d) strengthening cashewnut research program; (e) a study to determine occupational health hazards in cashewnut industry and to formulate monitoring criteria; and (f) technical assistance for project implementation and strengthening CATA's financial and technical management. - 13 - Detailed Features 33. Proc. -sing Factories. The project would provide three factories, each with a capacity to process 10,000 tons of raw nuts, in Kibaha (in the Coast Region), Newala and Mtwara (in the Mtwara Region). The factories would process cashewnuts produced in their respective areas. The total mechanical processing capacity in Tanzania (103,000 tons) including the existing factories (20,500 tons), the proposed factories (30,000 tons)and those under construction (52,500 tons) will be 17,000 tons below the raw cashewnut annual production of 120,000 tons, even if the new planting program (para.25) is excluded. One further factcry with a capacity to process 10,000 tons of raw nuts annually is planned. 34. Provision has been made under the project to ensure the continued adequacy of water supply and power facilities in the factories. Workers would come from adjacent areas and neighboring villages close to the factories. Housing would be provided under the project for Newala and Kibaha factories' staff where no alternative housing is available (para 37). CNSL Storage Facilities, Truck Tankers and Vehicles 35. The cashewnut shell liquid (CNSL) is a by-product of cashewnut processing and consists of the liquid between the hard outer shell and the brittle inner shell protecting the kernel. While adequate storage facilities are available for CNSL in Dar es Salaam, existing facilities in Mtwara would not be enough to meet the CNSL production of the Southern Region. A storage tank, pumps and piping would be provided under the project to expand the CNSL storage facilities being built in Mtwara under the first project. The storage tank would have a capacity of 750 tons allowing for an annual throughput of about 3,000 tons. After completion, Mtwara would have a total annual through- put of about 6,000 tons of CNSL which would cover the requirements of the cashewnut processing industry in Southern Tanzania. 36. In order to transport the CNSL from the factories to the port storage facilities, the project would finance the procurement of about six truck tankers. These tankers would transport almost all of Tanzania's CNSL production of about 8,000 tons annually. At present, CNSL is trans- ported in drums, which is dangerous and inefficient. The project would also provide for improved transport of cashewnut kernels and packing material between the three factories and the ports through financing of six 7-ton lorries. Reduction of delays in kernels and packing material transport would improve handling efficiency. Also, each of the project factories would be provided with three vehicles. Staff Housing 37. The Kibaha and Newala factories would each be provided with 17 houses for the senior staff (seven) and for the skilled and semi-skilled workers (ten). No houses would be built in Mtwara, as housing is already available. - 14 - Research 38. In Tanzania, the Mtwara Research and Training Institute (a multi- disciplined research station run by the Ministry of Agriculture) is entrusted with the cashewnut research. As no intensive research had taken place since 1968, under the first project the Bank had provided for carrying out a cashewnut research program through provision of equipment and staff for the Mtwara Research and Training Institute. However, due to delays in recruiting the research staff, the research program is only now being drafted, about one year behind schedule. Research so far has concentrated on planting programs and seed production; however, the Government recognizes the need for additional cashewnut research in the fields of variety selection, breeding and pest and disease control to improve the overall quality of cashewnuts. The Government expects to use a grant from the Italian Government to finance a two year cashewnut research program. The proposed project would finance the services of experts along with the necessary research equipment to continue the efforts at establishing a satisfactory research program. Occupational Health Study 39. A study to assist the Government to determine occupational health hazards in Tanzania's cashewnut industry and to formulate criteria for monitoring such hazards, would be carried out and financed under the project. The recommendation of the study would be implemented, as appropriate, to mini- mize the hazards for the workers in the factories and the surrounding environ- ment. 4n. Technical Assistance. In order to strengthen CATA's capacity to implement the project and to improve its technical and financial management, funds would be provided for the employment of the following: a Finance Director, a Chief Engineer, consultants to implement the Management Infor- mation System designed under the first project and to train CATA's finance and accounting staff and consultants for supervision of project construction. In addition, the project would finance the technical and management services provided to CATA by experts for the operation of the factories and the training of factory personnel. Project Costs and Financing 41. The total cost of the project 1/ would be TSh301.8 million (US$36.3 million), including about TShl8.3 million (US$2.2 million) working capital requirements. The foreign exchange component would amount to US$28.8 million or 79% of total costs. Details of project costs are included in the credit and project summary. The proposed IDA Credit of US$27.5 million would finance 76% of total project cost and would cover all of the foreign exchange cost except the foreign exchange component of the working capital. The Government would provide the local cost cuS$6,6 million) and the National Bank 1/ As goods imported under the project would be free of taxes and duties, the cost estimates include negligible amounts of taxes, mainly sales taxes on locally procured goods. - 15 - of Commerce (NBC) is expected to provide the working capital (US$2.2 million). Fifty percent of the proceeds of the Credit (i.e. US$13.75 million equivalent)and fifty percent of the funds to meet local cost would be relent to CATA for 15 years including 5 years of grace at an annual interest rate of 10 percent under a Subsidiary Loan Agreement satisfactory to the Association (Section 3.01(b)(i) of the draft Development Credit Agreement). The balance of the Credit proceeds and of the funds to meet local cost would be passed on by the Government to CATA as equity. Execution of the Subsidiary Loan Agreement between the Govern- ment and CATA is a condition of credit effectiveness (Section 5.01(a) of the draft Development Credit Agreement). Procurement and Disbursements 42. Contracts for civil works, processing equipment, vehicles and for goods that can be bulked in amounts of US$100,000 or more financed under the project would be procured on the basis of international competitive bidding in accordance with Bank Group guidelines. In evaluating bids domestic civil works contractors would be allowed 7-1/2 percent preference. Orders for goods less than US$100,000 would be procured following existing Government procedures which are satisfactory. These procurement arrangements are set out in the Schedule to the Project Agreement. All consultants and experts financed under the project would be selected in accordance with Bank Group guidelines, and employed on terms and conditions acceptable to the Association. 43. To avoid repeating the problem of cost overruns faced by the first project, and as the type of equipment which would be purchased would determine the processing coefficients and the economic and financial performance of the project, bids for civil works and equipment were invited and evaluated by CATA before Credit negotiations, following international competitive bidding in accordance with Bank Group guidelines. Notification was made to the Executive Directors, through the Monthly Operational Summary. All bidders were foreign contractors and suppliers. To avoid delays and cost escalation on the civil works contracts (which bidders indicated would apply if bid validity period were to be extended), the Government/CATA awarded these contracts with a total value of $14 million to the lowest evaluated bidders. About $9 million would be eligible for financing under the Credit. The Government was advised that although there was no objection to the advanced contracting there was no commitment by the Association to provide the necessary financing. The bids for processing equipment for about US$11 million equivalent have been received and evaluated by CATA but no award has yet been made. 44. Disbursements from the credit would be on the basis of 100 percent of the foreign expenditures on equipment, vehicles and technical assistance and 65 percent of total expenditure on civil works and water supply facilities. It is recommended that retroactive financing for civil works contracts up to an amount of $2.5 million incurred after April 15, 1978 be approved. Project Implementation 45. CATA would have overall responsibility for implementation of the project. Construction of the factories would be carried out by contractors under the supervision of a qualified and experienced engineering consultant to be employed by CATA no later than June 30, 1978 (Section 2.02(b) of the - 16 - draft Project Agreement). This arrangement is satisfactory as it has been successful under the first project. All project factories would be fully owned and operated by CATA as self-accounting branches responsible to CATA's Director of Factory Operations and Development. Factory operations would be supervised and coordinated from CATA's headquarters in Mtwara by the General Manager and his staff. The ability of CATA to manage the project would be strengthened through the provision of technical assistance under the project (para 40). On the technical and management side, CATA agreed to employ no later than the beginning of equipment assembly and for a period of four years thereafter, qualified and experienced technical and management experts to assist in operating the project factories and in training project factory staff (Section 2.02(a) of the draft Project Agreement). During negotiations CATA agreed that, until June 30, 1983, CATA shall inform the Association on any proposed appointments to the positions of Project Factory Managers sufficiently in advance of such appointments so as to allow the Association time to comment thereon (Section 3.03 of the draft Project Agreement). Also to complement the training program provided under the first Cashewnut Development Project (Loan 1014-TA), and to ensure adequate provision for training of the project factories' staff, CATA shall by June 30, 1979, submit to the Association for its review and approval a detailed description of a training program for the staff to be employed in the project's factories (Section 2.05 of the draft Project Agreement). To assist CATA in supervising all engineering aspects of its activities, CATA shall no later than June 30, 1979 and until at least June 30, 1983, employ a qualified and experienced Chief Enzineer (Section 2.02 (d) of the draft Project Agreement). 46. Until the 1976/77 season, CATA employed 550 grading assistants to undertake extension work at the village level and to inspect the quality of raw nuts during the purchasing season. The grading assistants were supervised by CATA's District Extension Officers who report to the Cashew Development and Research Manager at CATA's headquarters. This system was working satisfactorily. A major review of the agricultural extension system (para 22) has resulted in the implementation of a new system based mainly on village graders employed by the cashewnut producing villages. Many of CATA's graders became village graders. As the future organization of extension services and grading is not precisely known, and as the consequences of any change especially on grading can only be assessed through experience, the Government agreed that the new cashewnut grading system shall be reviewed no later than June 30, 1980 and if such review indicates that the new system is not satisfactory, CATA shall be authorized to follow the 1976/77 system or such other systems as shall be satisfactory to the Association and CATA (Section 3.03 of the draft Development Credit Agreement). Accounting, Auditing, Monitoring and Reporting 47. CATA's financial reporting is weak, its accounting practices are poor and its accounts are in arrears. Accounts for the year ending September 30, 1976 are being audited. The post of Finance Director pro- vided for under the first Cashewnut Development Project (Loan 1014-TA) has not been filled satisfactorily. CATA's management recognizes this defi- ciency and is taking the appropriate actions to improve the situation. It is expected that with the reinforcement of CATA's financial management to be undertaken under the proposed project (para 29) satisfactory performance would be realized. The appointment by CATA of a qualified and experienced - 17 - Finance Director is a condition of Credit effectiveness (Section 5.01(b) of the draft Development Credit Agreement) and during negotiations CATA agreed that until June 30, 1983 the position of Finance Director shall be filled by a pt.son whose qualifications and experience are satisfactory to the Association (Section 2.04 of the draft Project Agreement). To ensure proper control over the project's funds, a separate account relating to receipts and payments under the project would be kept by CATA (Section 4.02 of the draft Project Agreement). Accounts maintained by CATA would be audited by independent auditors acceptable to the Association and within six months of the end of each financial year CATA would submit the audited accounts together with the auditor's report to the Association (Section 4.03 of the draft Project Agreement). During negotiations CATA agreed to employ no later than June 30, 1978, qualified and experienced experts to assist CATA in implementing the Management Information System designed under the first project (Loan 1014-TA) and in training CATA's financial and accounting staff (Section 2.02(c) of the draft Project Agreement). 48. CATA is consistently recording and analyzing the data related to its operations. CATA would be responsible for monitoring all of the proposed project's activities and for preparing periodic progress reports. At the end of the disbursement period CATA would prepare and submit to the Association a project completion report within three months from the Closing Date (Section 2.07(d) of the draft Project Agreement). Markets and Prices 49. Most of the processed cashewnut kernels are sold in the international market through dealers established in the importing countries. North America's share of total imports is about 60 percent, Eastern Europe including the USSR 25 percent, Western Europe 10 percent, and the remaining 5 percent a number of other countries. India is the main exporter of kernels, although her share of the market declined from 95 percent in 1962 to about 65 percent at present, because of the rise of Brazilian and Eastern African (mostly Mozambique) exports. The trade in raw cashewnut is practically limited to exports from East Africa to India. The export price of raw cashewnuts is negotiated each year at tripartite meetings including India, Tanzania and Mozambique. The outcome reflects a combination of the bargaining powers of the participants and of the price level of kernels. 50. In view of the limited information available on future world cashew production, the uncertainty of raw nuts and kernels export prices is relatively high. Sensitivity analyses based on a range of variations of prices of kernels and raw nuts were carried out (para. 55) and show that the Project should remain economical under foreseeable circumstances. 51. The CNSL, a by-product of cashewnut processing is mainly exported to Japan and USA for use in the automobile and paint industries. By 1984/85 Tanzania's export capacity of CNSL would reach about 8,000 tons. Other by- products from the cashew fruit residues are under experimental research with prospects of producing alcoholic and non alcoholic drinks which could satisfy the local market in Tanzania. Sales value of CNSL represents about 3 percent - 18 - of total sales value. CNSL future prices are estimated at TSh 2,500.00 per ton (US$300) f.o.b. Tanzania in 1978 prices. This is about the same, in real terms, as in the past. 52. At present, out of Tanzania's average production of 120,000 tons raw nuts annually, 80,000 tons are exported to India. This represents about half of India's total raw nut imports. The Government of India has, for several years, been aware of the development of mechanical processing in Africa and the intention of the African producing countries to process their own production domestically. India's current plans provide for raising raw nut production from about 110,000 tons to 260,000 tons annually in 10 years. Project Benefits and Financial Results 53. The main benefits of the project would be an increase of about US$7.0 million equivalent annually in Tanzania's net foreign exchange earnings by 1984 (in 1978 prices) when factories would have reached their maximum capacity. As a result of exporting processed nuts rather than unprocessed raw nuts, Tanzania would increase its local value added by about TSh 650 per ton of raw nuts, and employment for about 3,000 workers would be created, of which 2,000 would be women, at an average investment cost of about $9,000 per job which is satisfactory. In addition, the project would contribute to increasing producer prices, affecting all 400,000 smallholders cashewnut producers. By 1984 when most of the crop would be processed in Tanzania, producer prices would increase by about 40 percent (in constant terms). To ensure that farmers receive the appropriate price for their raw nuts, the Government agreed to continue to maintain a pricing structure for cashewnuts by closely relating farm gate prices to appropriate world prices (Section 3.04 of the draft Development Credit Agreement). 54. The project would have a positive effect on CATA's cash flow. The effect of the project on the Government cash flow would be negative during the period 1978/79 to 1980/81. The cumulative cash flow would reach a deficit of US$9 million equivalent in 1980/81 and would become positive starting from the third year of the factories' operations in 1983/84. 55. The project economic rate of return (ERR) is estimated at 16 percent. In addition, the project is expected to yield a number of benefits whose value cannot be quantified such as benefits derived out of development of industries in new areas. However, the value of the ERR largely depends on assumptions regarding relative bargaining powers of Tanzania and India in agreeing on the export price of raw nuts (para. 49). Sensitivity analyses on the two variables - export price of raw nuts and of cashew kernels - which are critical in the calculation of the ERR, showed that the ERR would most likely be in the 11 percent - 20 percent range. The ERR is moderately sensitive to other factors. A variation of 10 percent in capital or in operating costs would result in a change of the ERR of about 1 percentage point. A one year delay in the completion of construction would reduce the ERR by 0.5 percentage point. For each 10 percent decrease in the factories throughput during the entire life of the project, the ERR would decrease by about 2 percentage points. - 19 - Risks 56. The project faces technical, commercial and manageriEl risks typical for this type of project. Technical risks regarding plant design and operations and risks of substantial delays can be considered low as substantial experience is being gained during the construction of the first project and as the project provides for training of factory personnel by representatives of the equipment manuifacturers or consultants. The commercial risks are considered relatively high given the range of uncertainty of cashew kernels prices. However, it is considered unlikely that cashew kernel prices would fall by 25 percent which would reduce the economic rate of return to 10 percent. The managerial risks are minimized through provision of technical and management services (para. 40) under the project. As the three factories would be operated independently, this would mitigate the risk of unsatisfactory factory management. 57. The project would be implemented with due regard to the environment and to occupational health. As health consequences of exposure to cashewnut shell liquid and its fumes are not clearly perceived at present, during negotiations the Government agreed to carry out, by December 31, 1979, a study to determine occupational health hazards in its cashewnut industry and to formulate criteria for monitoring such hazards and thereafter in consultation with the Association to implement, as appropriate, the recommendations of such study (Section 3.02 of the draft Development Credit Agreement). The other environmental and health aspects of the project have been reviewed and the measures taken were found satisfactory. PART V - LEGAL INSTRUMENTS AND AUTHORITY 58. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the draft Project Agreement between the Association and CATA and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 59. Features of particular interest in the draft Credit and Project Agreements are referred to in the text and listed in Section III of Annex III. The draft Development Credit Agreement includes the following additional conditions of effectiveness: (a) Completion of a Subsidiary Loan Agreement between the Government and CATA (Section 5.01(a) of the draft Development Credit Agreement); and (b) Appointment by CATA of a Finance Director (Section 5.01(b) of the draft Development Credit Agreement). 60. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. - 20 - PART VI - RECOMMENDATION 61. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments Washington, D.C. May 1, 1978 - 21 - ANNEX I TAsLE 3A Page . TANZANIA - SOCIAL INDICATORS DATA SHEET LANO AREA (THOU KM2) ------- TANZANIA REFERENCE COUNTRIES (1970) TOTAL 945.1 MOST RECENT AGRIC. 508.3 1960 1970 ESTIMATE KENYA KOREA REP. OF MALAYSIA** _- -- - - - -- - - - -- - -----_ GNP PER CAPITA (USS) 60.0*/a 100.0*/a 180.0*/a 140-0* 280.0* 440.0* POPULATION AND VITAL STATISTICS _ _ _ __ _ -_ -- _ _ _ _ ------_ _---- POPULATION (MID-YP MILLION) 9.6/a 12.9/a 15.1/a 11.2 32.2 10.8 POPULATION DENSITY PER SQUARE KM. 10.0 14.0 16.0 19.0 327.0 33.0 PER SO. KM. AGRICULTURAL LAND 20.n 26.0 In.o 113.0 1371.0 185.0 VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 51.5 50.5 47.0 49.0 35.0 42.2 CRUDE DEATH RATE (/THOU.AV) 27.1 23.0 20.1 17.0 11.4 12.9 INFANT MORTALITY RATE (/THOU) 190.0 160-165/b .. . 40.8/a LIFE EXPECTANCY AT BIRTH (YRS) 36.7 41.8 - 44.5 49.1 65.0 56.7 - GROSS REPRODUCTION RATE .. 3.2 3.2 3.4 2.6 2.6/a POPULATION GROWTH RATE (M) TOTAL 2.3/a 3.0/a 2.7 /a 3.1 2.3 2.9 URBAN 5.0 5.5 7.5/b 6.3 6.4 3.0 URBAN POPULATION ({ OF TOTAL) 4.6 5.5/b 7.3 9.9 41.2 26.9 AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 42.5 /a_ 44.4/b 48.4 42.1 44 /a 15 TO 64 YEARS 5.5 /a, b 53.0/b - 48.0 54.5 52. 1/a 65 YEARS ANO OVER 2 0 /ab 2.6fS .. 3.6 3.4 AGE DEPENDENCY RATIO 0. /a 0.,/b . 1.1 0.8 0.g/a ECONOMIC DEPENDENCY RATIO 1.1 /c,b 1.2/a, .. 1.1/a 1.4 1.6/a FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. . ., 66.1 4424.7 222.2/a USERS ({ OF MARRIED WOMEN) .. .4 *2.0 8.0/a EMPLOYMENT _ __ __ __ --- TOTAL LABOR FORCE (THOUSAND) 4900.0/d s6oo.o/ab63oo.o/c o100.0/b 10200.0 3600.0 LABOR FORCE IN AGRICULTURE (%) 96.0 / 91.0 /a 83.1 90-0/5 s0.4/a 49.5 UNEMPLOYED (x OF LABOR FORCE) .. .. 10 /d .. 4.5 - 7.0 INCOME DISTRIBUTION % OF PRIVATE INCOME REC O BY- HIGHEST 5X OF HOUSEHOLDS .. 33.5 .. 20.2/C 17.1 28.3 HIGHEST 20X OF HOUSEHOLDS .. 63.3 .. 52.6/C 44.5 56.0 LOWEST 201 OF HOUSEHOLDS .. 2.3 .. 3.9 / 7.1 3.5 LOWEST 40% OF HOUSDIOLDS .. 7.6 - 1.7/ 7 7 1112 DISTRIBUTION OF LAND OWNERSHIP X OWNED BY TOP 10% OF OWNERS . .. .. .. 20.0 A OWNED BY SMALLEST 10% OWNERS .. .. .. .. 2.0 HEALTH AND NUTRITION POPULATION PER PHYSICIAN 21750.Oae 21570.0/a 20760.0/a,e 7830.0/d 2110.0 POPULATION PER NURSING PERSON 9240.0jef 4890.0/a 3130.0 /a 1470.00 2170.0/b *- POPULATION PER HOSPITAL BED 570.07, 700.O ..- 770.0 1900.0 270:;/a PER CAPITA SUPPLY OF - CALORIES (x OF REQUIREMENTS) 69.0 88.0 101.0 103.0 110 0 PROTEIN (GRAMS PER DAY) 42.0 43.0 41. L 71.0 65.o 49:0/b -OF WHICH ANIMAL AND PULSE 22.0/j 23.0 20.0 29.0 19.0 20.0/b DEATH RATE i :: - ,