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lIE COPY The Doument of. RETURr TO FPLE X The World Bank REPORTSRETURN 07SKTO FOR OFFICIAL USE ONLY WITH N ONE WEEK Public Disclosure Authorized Report No. P-2128-BEN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE PEOPLE'S REPUBLIC OF BENIN FOR A THIRD HIGHWAY PROJECT Public Disclosure Authorized October 21, 1977 Public Disclosure Authorized 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 authoriation. CURRENCY EQUIVALENTS Currency Unit CFA Francs (CFAF) US$1.00 = CFAF 245 CFAF I million US$4,081 Fiscal Year January 1 - December 31 System of Weights and Measures: Metric Metric US Equivalents 1 meter (m) 3.28 feet (ft) I square meter (e2) 10.8 square feet (sq. ft) I cubic meter (m ) 35.3 cubic feet (cu ft.) 1 kilometer (km) 2 0.620 mile (mi) 1 square kilometer (km ) 0.386 square mile (sq. mi) 1 hectare (ha) 2.47 acres 1 metric ton (t) 2,204 pounds (lb) Abbreviations and Acronyms DLT Directorate of Land Transport DRB Directorate of Roads and Bridges DSP Directorate of Studies and Planning EDF European Development Fund FAC Fonds d'Aide et de Cooperation GSD General Studies Division OCBN Organization Commune Benin-Niger des Chemins de Fer et des Transports STI Services des Techniques Industrielles UNDP United Nations Development Programme USAID United States Agency for International Development FOR OFFCIL Uu ONLY BENIN THIRD HIGHWAY PROJECT CREDIT AND PROJECT SUMMARY Borrower: People's Republic of Benin Amount: US$10.0 million in various currencies Terms: Standard Project Description: The project would facilitate access to the port of Cotonou by providing for the rehabilitation of a 107 km section of the country's main north-south road axis. The project would also expand the highway maintenance program begun under the two previous highway projects, including the elimination of the backlog of bituminous and laterite roads resurfacing. It would provide technical assistance for highway mainte- nance and for strengthening the country's transport planning and coordination capacity. Finally, it would include some pre-investment studies. The major beneficiaries of vehicle operating cost reductions would be the local truck owners and operators, but cost reductions are expected to be passed on to farmers in the form of higher farmgate prices. About 300,000 people live in the area influenced by the main road and more than one million in the areas served by the other project roads. Estimated Costs: US$ million equivalent (net of taxes and duties) Local Foreign Total (i) Rehabilitation of Godomey- Bohicon-Abomey road (107 km) 2.3 8.0 10.3 (ii) Re-surfacing about 195 km of bituminous roads 1.0 4.2 5.2 (iii) Re-graveling about 273 km of laterite roads 0.4 1.4 1.8 (iv) Equipment procurement 0.2 2.2 2.4 (v) Technical assistance and fellowships 0.3 1.0 1.3 (vi) Pre-investment studies 0.1 0.2 0.3 TOTAL 4.3 17.0 21.3 This document hu 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. of which: Physical Contingencies 0.3 1.2 1.5 Price Contingencies 0.5 2.1 2.6 Financing Plan: US$ million equivalent Local Foreign Total IDA 1.0 9.0 10.0 Kuwait Fund 0.6 6.4 7.0 The OPEC Fund - 1.6 1.6 Government 2.7 - 2.7 TOTAL 4.3 17.0 21.3 Estimated Disbursement (US$ million) 1978 1979 1980 Annual 3.8 4.3 1.9 Cumulative 3.8 8.1 10.0 Estimated Completion Date: June 30, 1980 Economic Rate of Return: The overall economic rate of return of the project is expected to be about 75 percent. Appraisal Report: No. 1506-BEN of October, 1977 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE PEOPLE'S REPUBLIC OF BENIN FOR A THIRD HIGHWAY PROJECT I submit the following report and recommendation on a proposed development credit to the People's Republic of Benin for the equivalent of US$10.0 million on standard IDA terms to help finance a Third Highway Proj- ect. The project would be co-financed by the Kuwait Fund for Arab Economic Development (US$7.0 million) and The OPEC Special Fund (US$1.6 million). PART I - THE ECONOMY 1. An economic mission visited Benin recently, from September 19 to October 7, 1977. The following paragraphs are consistent with its main findings and incorporate the conclusions of the 1975 IMF consultation mission report. The Bank's last economic report is dated August 20, 1973. Annex I contains basic country data. Past Development 2. With a GDP per capita of only US$130, Benin is classified by the UN as one of the world's 29 least developed countries. It is an overwhelmingly rural nation: about 70 percent of the population is dependent on agricul- ture which accounts for 30 percent of GDP and 90 percent of foreign exchange earnings. Insufficient and irregular rainfall limits the production of high value tree crops. Seventy percent of the total agricultural output consists of subsistence low-value root crops (yams and cassava). Palm oil, cotton and groundnuts are the country's major export crops. GDP per capita in the rural sector is very low, averaging about US$50. 3. Transport and commerce are the second most important activities in Benin. The port of Cotonou has traditionally been the door to the sea for landlocked Niger and a transit port for the western part of Nigeria. A sizeable share of the imports of consumer goods (beverages, tobacco, radios, etc.) and exports of agricultural products registered as Benin trade, is in fact unofficial border trade to and from Nigeria. Due to the recent conges- tion of the port of Lagos, the transit function of the Cotonou port has further developed. In 19.76 it is estimated that about half of the port's total traffic (960,000 tons) originated in or was destined for neighboring countries (30 percent to Niger and 20 percent to Nigeria). Transport and commerce generate about one third of Benin's GDP (at factor cost), account for 10 percent of its foreign exchange earnings, and employ about 12,000 persons. 4. The country has an embryonic industrial sector, and the known mineral resources .- limestone and phospha~te - have not yet been exploited. There are plans in the near future to start exploiting the Onigbolo lime- stone deposit. There are also indications of the existence of oil offshore. - 2 - Political Situation and Recent Economic Development 5. Since independence in 1960, there have been numerous changes of Government, in part due to regional and ideological differences. A major turning point occurred at the end of 1972 when the present military Govern- ment came to power and established a socialist regime which took measures aimed at decreasing foreign influence and increasing the country's self-reli- ance. Nationalization of foreign private interests in key sectors (banking and credit, gasoline distribution, services related to the port and industry) took place and the various technical assistance programs were scaled down. These measures disrupted the economy since there was an inadequate number of Beninese to replace the departing expatriates. The situation was further aggravated by changes in the staffing of public services which resulted in further losses of productivity. 6. The agricultural sector was most seriously affected by these de- velopments. Support services, especially input distribution, deteriorated. Furthermore, the Government's pricing and marketing policies, being mainly guided by the Government's desire to keep the cost of living and the level of salaries low in the urban centers, did not provide enough incentive to the farmers. Production of most cash crops stagnated during 1974-1976 and cotton production dropped sharply from 50,000 tons in 1972/73 to less than 20,000 tons in 1975/76. Maize production was also affected by attempts by the Government to prohibit traditional border trade with Nigeria and by the establishment of a state grain trading monopoly. 7. Farmer incentives have recently been improved. Farmgate prices were increased to generally more satisfactory levels for the 1976/77 season and farm inputs were distributed on time for the first time in four years. But the farmers' response has been limited and preliminary results for the 1976/77 season are not encouraging. Low rainfall may also have contributed to this. 8. In the modern sector, transport and other economic activities have been stimulated by the rapid growth of transit trade with Nigeria. Transport was the only growing sector in Benin over the 1971-75 period. In 1976, the Government took further measures to improve the port's handling capacity which had fallen to a low 12 tons/hour in 1975 as opposed to 23 tons/hour in 1972/73. To attract Nigerian traffic away from the congestion at the Lagos Port, border formalities are being simplified. A project for the expansion of the part facilities has just been appraised. The Government of Nigeria has financed construction of a coastal expressway linking Cotonou with the Nigerian border and is planning to build several other roads linking the western part of Nigeria to the Benin-Niger axis. 9. Public investment in recent years has been at a low level.