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The World Bank Third Highway Project

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The World Bank Third Highway Project Document of The WorldBank FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 3343-BU BURUNDI STAFF APPRAISAL REPORT Public Disclosure Authorized OF A PILOT PROJECT TO ASSIST THE LOCAL CONSTRUCTION INDUSTRY Public Disclosure Authorized March 25, 1982 Public Disclosure Authorized Eastern Africa Projects Department Industrial Development and Finance Division This document has a restricted distribution and may be used by recipients only in the performance oet their official duties. Its contents may not otherwise be disclosed without Worid Bank authorization. CURRENCY EQUIVALENTS Currency Unit Burundi Francs (BuF) US$1.00 = BuF90 US$0.0111 BuFl BuFl million US$11,111 WEIGHTS AND MEASURES (metric system) 1 cubic meter 35.31 cubic feet (cu ft) 1 meter (m) 2 39.37 inches (in) or 3.28 feet (ft) 1 square meter (m ) = 10.9 square feet (sq ft) 1 kilometer (km) 0.62 milrs (mi) 1 hectare (ha) 10,000 m or 2.471 acres 1 kilogram (kg) 2.2 pounds (lbs) 1 metric ton = 1,000 kgs or 2,204 pounds GLOSSARY OF ABBREVIATIONS BANCOBU - Banque Commerciale de Bujumbura BCB - Banque de Credit de Bujumbura BNDE - Banque Nationale pour le Developpement Economique (Development Bank) BRB - Banque de la Republique du Burundi (Central Bank) CADEBU - Caisse d'Epargne du Burundi (Savings Bank) CAMOFI - Caisse Centrale de Mobilisation et de Financement (National Bank for Savings and Investments) DETN - Direction des Etudes et Travaux Neufs (New Works Directorate) EDF - European Development Fund EEC - European Economic Community EIB - European Investment Bank ENACCI - Entreprise Nationale de Chaux et de Ciment IDA - International Development Association ILO - International Labor Organization MTPEM - Ministere des Travaux Publics, de l'Energie et des Mines (Ministry of Public Works, Energy and Mining) OCIBU - Office des Cultures Industrielles du Burundi ONABOIS - Office National du Bois ONIMAC - Office National d'Importation et de Commercialisation des Materiaux de Construction et d'Equipement Domesti- que (National Office for the Import and Marketing of Construction Materials and Domestic Equipment) ONL - Office National du Logement (National Housing Office) REGIDESO - ("Regie des Eaux") National Water and Electricity Authority FOR OFFICIAL USE ONLY SOMIBUROM - Societe Mixte Miniere et Industrielle Burundo - Roumaine (Burundo-Rumanian Mining & Industrial Company) SIP - Societe Immobiliere Publique (Public Housing Corporation) SSE - Small Scale Enterprises g UNCDF - United Nations Capital Development Fund UNDP - United Nations Development Programme UNIDO - United Nations Industrial Development Organization UPRONA - Union pour le Progres National (Union for National Progress) GOVERNMENT OF BURUNDI FISCAL YEAR January 1 - December 31 This documenthas a restricteddistribution 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. I f0 I tr BURUNDI APPRAISAL OF A PILOT PROJECT TO ASSIST THE LOCAL CONSTRUCTION INDUSTRY *~~~~~~~~~~~~~~~~~~~~~~~~~~ Table of Contents Page No. I. INTRODUCTION ...... - .......... ...... 1 II. THE LOCAL CONSTRUCTION INDUSTRY ........... ....... - 2 A. Construction Activities. 2 B. Construction Materials. 8 C. The Financial Framework of the Construction Industry. 13 III. THE PROJECT ................. 17 A. Background and Objectives ....................... 17 B. Detailed Features .................. 19 C. Terms and Conditions Specific to the Credit Component .23 D. Project Cost ............... 24 E. Financing Plan .26 F. Project Management and Implementation 28 IV. PROJECT JUSTIFICATION .32 A. General Justification and Project Benefits 32 B. Benefits from Specifie Project Components 33 C. Risks Associated with the Project .35 V. RECOMMENDATIONS AND CREDIT CONDITIONS.36 This report was prepared by Messrs. Philippe Beuzelin, Michel Cramer, Ms. Fatoumata Sylla, Mrs. Fernande Lancksweirt (Consultant) on the basis of an appraisal mission which visited Burundi in September 1980. List of Annexes Page No. 1. Selected Major InvestmentProjects to be Implementedin 1981-1984 .................................... 39 2. The Main Imported ConstructionMaterials in Burundi (1977-1979)................................................. 40 3. The Production of Local ConstructionMaterials (1979) ....... 41 4. Staffing of the Project Unit ................................ 42 5. Selected Documents and Data Available in the Project File ... 43 BURUNDI STAFF APPRAISAL REPORT OR A PILOT PROJECT TO ASSIST THE LOCAL CONSTRUCTION INDUSTRY I. INTRODUCTION Project Background 1.01 The proposed project is the first systematic effort by the Bank to assist in the development of the local construction industry in a country of the Eastern Africa Region. The idea of providing assistance to the sector was prompted by a growing recognition by the Bank of the significance of the construction industry in the development process. Furthermore, the implemen- tation of Bank-financed projects have, in many instances, been hindered by weaknesses of the industry. Typically, this occurred on projects involving construction works not large enough to be of interest to the large construc- tion enterprises and which small local firms were not technically nor finan- cially equipped to carry out. 1.02 Burundi was selected for an initial effort because of the strong iiuterestwhich the Governnent showed toward Bank assistance to the sector and also in view of the acute needs of the local industry: the local construction industry, which is largely foreign-controlled, is overstretched and cannot meet the demand and, furthermore 90%, by value, of the materials used by the formal sector are imported. 1.03 Being experimental in nature, this project does not purport to address itself to all the needs of the construction industry but only to those which have been identified as priority or those where something effective could be done within the framework of a relatively small operation. On that basis the following components have been included in the project: (1) develop- ment and improvement of the local production of construction materials; (2) assistance to the Ministry of Public Works, Energy and Mining; (3) assis- tance to the local enterprises to expand their activities in the building sector where their share is still relatively small; it does not aim at promoting their role in road construction nor maintenance which most of the local firms are not prepared to tackle. - 2 - II. THE LOCAL CONSTRUCTION INDUSTRY A. Construction Activities 1/ The Demand for Construction 2.01 Overall Volume of Investment in Burundi. In recent years, the Government has engaged in important efforts to mobilize external aid financing to step up Burundi's investment rate, which had long been one of the lowest in the world, averaging about 7% of GDP in 1960-76. Gross fixed investments have increased in real terms by 47% in 1977, 15% in 1978, 4% in 1979; and reached s BuF11.5 billion in 1980, representing still a moderate share of about 14% of GDP. During 1977-80, 91% of investments were made by the public sector; 57% were financed by external grants and soft-term loans. 2.02 Future investments are mostly constrained by the implementing capa- city and financial condition of the country. Burundi continues to have a low external debt and has secured donors commitments for many multi-years investment programs, particularly for roads, education, power and housing (para. 2.04). Since 1978, however, it has been affected by large trade deficits and increased budgetary constraints, like many other African countries. In the medium term, Burundi may have to call upon some general external financing for balance of payment support, probably accompanied with conditions limiting investments. Although the Planning Ministry has revised downwards the level of the investment program in the 1978-82 Plan, it continues to project an investment growth of 12% per year in real terms through 1984. In view of th- abave. < ie findings of IDA's economic mission in December 1979 also suggest a concinued but more moderate investment growth in a range of 5%-8% per year (Economic Memorandum No. 3071-BU). 2.03 The Demand for Construction Investment. Construction investments which have accounted for a fairly stable proportion of 52% to 60% of total investments in the years 1977-79, would thus be expected to increase from the actual amount of BuF5.5 billion in 1979 to around BuF7-8 billion at 1979 prices in 1984. In 1980, however, the large majority of locally based con- struction enterprises were found to be already working at almost full capacity, and major obstacles, such as shortages on construction materials, were prevent- ing further increase in construction output. Clearly, the capacity of the construction industry is likely to become a serious cause of delays in the implementation of major investment programs, and a significant constraint to economic development in general. The Government needs therefore to promote the rapid development of domestic contractors. 2.04 Structure of the Demand. Based on the investment projections of the Planning Ministry for 1980-1984, it may be estimated that the future demand for construction works will be composed of: 20% for roads, 17% for energy, 1/ Defined to include both buildings and civil work. - 3 - 15% for the rural sector, 13% for education,8% for manufacturing,6% for housing, and 21% for investmentsin other sectors. Annex 1 presents the constructioncosts of some 15 major investmentprojects in various
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