World Bank Document

D=Mong of RETURN TO ~fltOT REPORTS DESK WRTHIN IME1 OfClAL UW$ OWL! ONE WEEK Public Disclosure Authorized ZMput N.P-<Dp21 413-T REORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA Public Disclosure Authorized FOR A TRUCKING INDUSTRY REHABILITATION AND IMPROVEMENT PROJECT Public Disclosure Authorized September .20 1977 dk~~00bMNqMD* m2A omdbymy mopoomb emoy~~~~~~~~~~ CURRENCY EQUIVALENTS Tanzanian Shilling = US$0.12 US$1.00 = TSh8.30 (As the Tanzanian 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 TSh8.30 which is close to the short-term average exchange rate.) ABBREVIATIONS ADS Agricultural Development Services EAA East African Airways EAC East African Community EARC East African Railways Corporation Government Government of Tanzania MOW Ministry of Works MCT Ministry of Communications and Transport NRHC National Road Haulage Corporation NIT National Institute of Transport NTC National Transport Corporation SMC State Motor Corporation TANU Tanganyika African National Union TAZARA Tanzania Zambia Railway Authorfty TRDB Tanzania Rural Development Bank FOR OnFICIAL USE ONLY TANZANIA TRUCKING INDUSTRY REHABILITATION AND IMPROVEMENT PROJECT CREDIT AID PROJECT SUMHARY BORROWER: United Republic of Tanzania AMOUNT: US$15.0 million equivalent TERMS: Standard IDA terms PROJECT DESCRIPTION: The major component will assist the Government in the development of five public trucking companies including technical assistance, the rehabilitation of existing vehicles, purchase of new vehicles, and the provision of truck repair facilities. The training component will increase the supply of trained trucking personnel through the provision of instructors, teaching aids and workshop equipment. Financing is also provided for replenishing depleted vehicle spare parts inventories. PROJECT COSTS: (US$ million) Local Foreign Total Project Coordination 0.3 0.3 Transport Companies Technical assistance 0.3 2.4 2.7 Truck rehabilitation 0.2 0.3 0.5 New trucks 1.3 4.8 6.1 Repair facilities 0.2 0.4 0.6 Assistance to NIT 0.1 0.5 0.6 Spare Parts Component Technical assistance 0.2 0.2 Financing spares 0.3 3.0 3.3 Base costs 2.4 11.9 -14.3 Physical Contingencies 0.2 0.9 1.1 Price Contingencies 0.5 2.3 2.8 Total Costs 3.1 15.1 18.2 Total costs (net of taxes and duties) 2.2 15.1 17.3 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. FINANCING PLAN ($ million) Local Foreign Total IDA Credit - 15.0 15.0 Government 2.2 0.1 2.3 Total costs (net of taxes and duties) 2.2 15.1 17.3 ESTIMATED DISBURSEMENTS ($ million) Bank Fiscal Year 1978 1979 1980 1981 1982 1983 Annual 0.3 3.7 4.3 4.0 1.7 1.0 Cumulative 0.3 4.0 8.3 12.3 14.0 15.0 Retroactive financing of up to $75,000 is recommended for costs incurred after July 1, 1977 in relation to project start-up. CONSULTANCY SERVICES Extensive technical assistance is included in this project. A total of 815 man months ranging from US$3,000 to US$5,000 per man month has been included in project costs. To date no consultants have been hired. RATE OF RETURN 37% on the public trucking companies component, and 38% on the spare parts component. APPRAISAL REPORT Report No. 1526b-TA dated September 21, 1977. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A TRUCKING INDUSTRY REHABILITATION AND IMPROVEMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the United Republic of Tanzania for the equivalent of US$15.0 million on standard IDA terms to help finance a Trucking Industry Rehabilitation and Improvement Project. PART I - THE ECONOMY1 / Introduction 2. While the last full economic report on Tanzania (AE-26) was distributed to the Executive Directors in 1972, an updating report on the economy was included as Annex V to the President's Report on a Proposed Program Credit (No. P-1781a-TA dated February 22, 1977)and was distributed to the Consultative Group Meeting (held in Paris in May 1977). This report summarized the findings of the Basic Economic Mission which visited Tanzania in July - August 1976. The draft of the Basic Economic Report was sent to the Government in July and is expected to be reviewed with the Government in November 1977. It had earlier been planned that the report would be reviewed in August, but since the planning authorities are presently involved with preparation of the Third Five-Year Plan, the review has been delayed at the Govern- ment's request. 3. Tanzania has experienced a degree of continuity and stability in political structure, leadership and objectives which is virtually unrivaled in Africa. The TANU 2/ 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 of early 1967, Tanzania has pursued the objectives of social equality, self-reliance, the eradication of absolute poverty and economic and social transformation. The fundamental strategy underlying Tanzania's development has emphasized rural development, 1/ This section is essentially the same as that of the President's Report on the Tanzania Second National Sites and Services Project dated June 24, 1977. 2/ TANU (the mainland political party) was merged with the Zanzibar political party (the Afro-Sharazi Party) in February 1977. The new party is now called Chama Cha Mapinduzi (CCM). -2- social ownership of the principal means of production, and full parti- cipation 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 tor longer-term structural change and more equitable distribution. In restructuring the political, economic and social life of the country the leadership has introduced a series of far-reaching institutional reforms. The most important of these measures are well known: most large-scale units in manufacturing, finance and wholesale trade have been nationalized; the Government has sharply increased its share of revenue in GDP through progressive taxation; a significant portion of public expenditure control has been delegated to the regions and districts; and incomes policy has prevented a further widening of the urban-rural gap and has narrowed wage differentials within the formal urbea sector. There is also state intervention in market pricing; prices of capital, labor, land, imports, industrial and agricultural products and consumer goods are controlled directly and by indirect methods such as import licensing. 4. With a per capita income of $170 in 1975, Tanzania is classi- fied 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 annum 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. The growth rate of GDP was not commensurate with the magnitude of the investment effort, how- ever, in part because of the high proportion of investment which was directed into slow-gestation infrastructure(such as the transportation links with Zambia)and social services projects, but also because of sluggish growth in the agricultural sector and stagnant or declining productivity in parastatal enterprises. During this period Tanzania's overall balance of payments situation was generally satisfactory, despite the disappointing performance of the export sector. The rapid growth in imports was more than compensated by increasing capital inflows, largel; 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 5. In 1974 Tanzania was suddenly confronted with a severe economic crisis, caused in part by drought and dramatic import price escalation. Failure of rains in late 1973 and early 1974 caused major declines in production and marketing of the major foodgrains. In response the Government was compelled during 1974 to import large quantities of grain, particularly maize, on commercial terms in order to -3- alleviate the hardshlips inflicted by drought. Tanzania's main export crops were also affected by the drought, and the resultant declines in export volumes prevented Tanzania from takting advantage of the commodity price boom during 1974. On the import side, total cost of merchandize 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. 1/ Irndustrial production aiso stagnated in 1974 due to shortages of imported raw materials resulting from the growing foreign exchange cons;:raint, and to interruptions in powez and water supplies.

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