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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Public Disclosure Authorized Not For PublicUse

ReportNo. P-1466-MOR

REPORTAND RECOMMENDATION

Public Disclosure Authorized OF THE

PRESIDENT

TO THE

EXECUTIVEDIRECTORS

ON A

PROPOSEDLOAN

TO THE Public Disclosure Authorized KINGDOMOP MOROCCO

FOR A SEBOUII DEVELOPMENTPROJECT

June 10, 1974 Public Disclosure Authorized

This report was prepared for official use only by the Bank Group. It mnaynot be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. Currency Unit =Moroccan Dirham (DH)

DH 1 = UV$O.23

US$1 Ili 4.35

Exchangerate fluctuateswith weighted averageof major currencies;rate used in AppraisalReport is US$1 = DH 4.08 (November1973)

FiscalYear: January 1 to December31 INTERNATIONALBANK FOR RECONSTRUCTIONAND DEVELOPMENT

REPORT AND RECOMMENDATIONOF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE KINGDOM OF MOROCCOFOR A SEBOU II DEVELOPMENTPROJECT

1. I submit the following report and recommendationon a proposed loan to the Kingdom of Morocco, for the equivalentof US$32 million to help finance the Sebou II Development Project. The loan would have a term of 25 years including 5 years of grace, with interest at 7.25 percent per annum.

PART I - THE ECONOMY

2. An economic report entitled "Current Economic Position and Prospects of Morocco" (No. 329-MOR, dated February 7, 1974) was distributed to the Executive Directors on March 6, 1974. The report is based on the findings of an economic mission which visited Morocco in September 1973 and completed its analyticalwork in December 1973. The impact on the Moroccan economy of more recent increases in the prices of crude oil, which Morocco has to import, and phosphate, which is the country's main export, is assessed in a preliminary way in para. 11. Country data sheets are attached in Annex I.

Past Developments

3. The overall performance of the Moroccan economy improved during the Second Five-Year Plan (1968-72),despite difficult political circumstancesin 1971 and 1972. Aided by favorable weather conditions and good crops in 1968, 1971 and 1972, real GDP growth accelerated from an average annual rate of about 3 percent in 1960-67 (barely above the rate of population growth) to 5.6 percent in 1968-72, thus exceeding the modest Plan target of 4.3 percent, and permitting real gains in private consumptionof about 2 percent a year per capita. At the same time, the implementationof prudent fiscal and mone- tary policies contributed to a significant improvementin Morocco's domestic and external financial situation, despite sh,rtfalls on planned capital inflows from official external sources. Government saving and investmentslightly exceeded the modest Plan targets, while price stabilitywas maintained. Fol- lowing a decade of recurring deficits, the balance of payments registered sizeable surpluses in 1969-72, mainly because of sharply rising receipts from merchandise exports, tourism and Moroccan workers in Europe. At the end of 1972, Morocco had accumulated net foreign assets worth $280 million, equivalent to 3.5 months' imports of goods and non-factor services. Performance in 1973 was affected by poor weather conditions; agriculturaloutput declined, and GDP increased only by an estimated 1.3 percent. The balance of payments continued to strengthen however, and by the end of 1973, net foreign assets amounted to $453 million. 4. Although the accelerationof GDP growth in 1968-72 was in part due to generally favorableweather conditions,it appears that the economy has moved onto a path of more rapid long-termgrowth. Agriculture,export industries,tourism and sectors with derivee demand (energy,transportation, communicationsand modern services)seem to have acquired a capacity for sustained growth, in part because of past investmentand training. In agriculture, expansionof irrigation,increased 'Use of key inputs in rainfed areas (improvedseeds, fertilizersand timely ploughing) and a larger number of trained extensionpersonnel have caused faster output growth. In the export sector, the phosphatecompany (OCP) has regained leadership in the world market as a result of internal reorganizationand investment carried out during he Second Plan; the export company (OCE), which has a monopoly over Morocco's exports of fresh and processed foodstuffs,improved its management and marketing, while a broad range of industries,including sub-contracting companies, built up a strong competitiveposition and sizeable sales abroad.

5. These achievementsshould not detract attention, however, from the serious difficultieswhich Morocco still had to overcome at the end of the Plan period. There was a need to revive private investment,which had stag- nated in 1971 and 1972 mainly because investors took a wait-and-seeattitude in the light of political developmentsand the expectationof new incentives and new regulationsregarding the associationof Moroccan and foreign capital in business ventures (Moroccanization laws). There was also a need to raise private saving which remained at an insufficientlevel, in part because of the relatively low returns on domestic financialassets. Finally, the Gov- ernment had to increase the investmentcapacity in the public sector by appropriatechanges in staffing and organization.

6. Difficult social problems also had to be tackled. Unemploymentre- mained at a high level, averaging 9 percent of the labor force nationwide and ranging between 12 and 16 percent in large urban centers. The urban population in substandardhousing was large and rising. Wealth and income differ- ences between cities and villages,among regions, and between rich and poor were widening, while about one third of the rural populationin the less fer- tile agriculturalareas was experiencinga slow decline in real consumption.

Long-term Development Prospects

7. Recognizingthese problems,the Governmentbegan in 1971 to revise Its developmentpolicies, paying increasingattention to social objectives. Reflecting the changed orientations,the Third Five-YearPlan (1973-77)aims at:

- sustainingreal GDP growth of 7.5 percent a year from 1973 to 1977, mainly through a 10 percent annual rise in exports and a doubling of investmentover the Plan period; and

- improving the distributionof growth benefits,mainly through further land distributionto poor farmers and more emphasis on rainfed farming in agriculture,the association of Moroccan nationalswith foreigners in services and several industrial sub-sectors,large increases in Government spending on social services and low-cost housing, a mDre progressive tax system, and appropriate changes in wages aad the prices oifbasic agriculturalcommodities.

Depart:ng from past financial orthodoxy, the Plan calls for an expansionary fiscal policy and a liberal credit policy, accepting the risk of less price stability. It recognizes that, in spite of faster economic growth, an increased public works program and continued emigration, unemploymentmay rise in absolute, and perhaps also in relative, terms because the growth of the working-age population is accelerating (from 2 percent a year in the 1960's to 4 percent a year in the 1970's).

8. In accordance with its export-orientedstrategy, the Plan gives priority to sectors contributingto exports (agriculture,fishing, mining, food processing, sub-contractingindustries, transportationand tourism). This priority is reflected in the allocation of Government resources to investment in these sectors, as well as in the new measures taken in August 1973 to encourage industrial exports and private investment. Achievement of the Plan's export target will depend on further improvementsin some export sectors (fresh and processed foodstuffs, tourism and sub-contracting),and also on continued external demand. While external demand for phosphate is expected to remain strong, demand for other Moroccan goods and services may weaken over the next few years as a result of an economic slowdown in developed countries following the recent increases in petroleum prices. On balance, real export growth, which exceeded Plan expectationsin 1973, will probably be somewhat below Plan targets during most of 1974-77.

9. The Plan proposes significant changes in investment strategy to increase labor intensity, and improve the situation of less favored groups of society and less developed areas of the country. Education, health and housing together receive a significantlyhigher share (23 percent) of planned Government investment than during the Second Plan (11 percent). Among sectors, the main change concerns agriculture. The Plan places less emphasis on dam constructionand favors equipment of existing irrigation areas, intensificationof rainfed cropping, improvementof animal husbandry and implementationof land reform. New incentivesfor private investment are less biased in favor of imported equipment than the previous system and encourage efficient operations and location in less developed areas.

10. In changing its investment strategy,Morocco is breaking new ground, and significant shortfallson planned investmentcould well be experienced in new priority sectors as a result of staffing and organizationalconstraints, which can only be relieved progressively. Shortfallswill probably affect rainfed cropping, livestock production, low-cost housing and tourism infrastructure. In addition, most of 1973 was lost for the revival of private investment, since the new incentiveswere introducedonly in August, and the start of new public investmentprograms was delayed, since the Plan was issued only in July. Finally, measures taken in 1973 to complete the recovery of foreign-ownedfarms andlto 'Norocanise"business imply management changes which may temporarilyrestrain production and investment. For these reasons, investmentmay fall short of the Plan's target, and GDP growth may not exceed 7 percent a year in 1974-77. The attainment of the Plan's income distribution objectives will to some extent be compromiselby the investment shortfalls affecting programs designed to increase the ,roductivecapacity and situation of less favored groups in rural and urban areas.

Ia. Financial resources are not expected to be a constraint in the meciur. term provided increased inflows of official assistance are forthcoming. The strengtheningof the balance of payments since 1969 continued in 1973, and in 1974 Morocco will benefit from a tripling of the price of phosphate rock. Increased earnings from this source vill exceed the increase in the country's petroleum import bill (due to higher prices) by an estimated $300 million in 1974. This net gain may be eroded in later years, since the price of phosphate is likely to decline due to increased supply by Morocco's compet- itors, while the prices of imports and import requirementswill keep rising. Nonetheless,until the end of the Plan period, phosphate and other exports, workers' remittancesand capital inflows should provide enough foreign exchange to meet import requirementsand maintain reserves at a sufficient level. On the domestic side, the phosphate company (OCP) will be able to make large, additional remittances to the Government,which will help finance the planned level of public investment. However, the Governmentwill have to proceed with planned tax measures in order to-make the tax system more responsive to economic growth and more equitable, and with planned developmentof the capital market to facilitate the mobilizationof private saving and the financing of private investment.

12. The financialsituation may become more difficult beyond 1977, if the predicted trends in exports (with no further gains from phosphate prices) and import requirementscontinue. To prepare for this eventuality,Morocco needs to increase, as planned, the level of external borrowing on favorable terms from official sources, and this will require improved project preparation. PreliminaryIBRD estimates are that Morocco's disbursed external debt amounted to about $890 million at the end of 1973, and that public external debt service representedclose to 8 percent of 1973 exports of goods and non- factor services. Although lorIg-termprospects are for more pressure on the balance of payments than at present and a rise in the debt service ratio, Morocco can service substantialadditional debt.

PART II - BANK GROUP OPERATIONS IN MOROCCO

13. Bank and IDA lending to Morocco has supported 19 projects with financing totalling $428.0 million (net of cancellations),of which $221 million was lent since the beginningof 1972. IDA credits, totalling $36.8 million, have been made available for four projects. IFC investmentshave amounted to $2.9 million. Implementationof projects has often been slow to start, but with time performance .aas usually improved. The water supply project (Loan 850-MOR of July 19, 1972 for $48 million) suffered from initial difficulties - 5 - and delays in implementinga number of basic measures aimed at reorganizing the major agency in the sector. Following substantialefforts by the Govern- ment, significantprogress has been made. Difficultieswhich arose in the course of 1973 concerningprocurement procedures for a major contract under this project have been resolved satisfactorily. Project implementationby the three autonomous financial institutionsin agriculture,industry and tourism to which the Bank lends, has been geaerally satisfactory. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of April 30, 1974, and notes on the execution of on-going IBRD/IDA projects.

14. The Bank Group's lending strategy is to support the achievementof the objectives of the third Five-Year Plan through projects which (a) contribute to production and improve the balance of payments, (b) support institu- tion building and sector development,and (c) attack the problems of poverty in Morocco. Particularlyin agriculture and urbanizationand to a lesser extent in industry, projects are expected to yield substantial benefits in traditional economic terms and at the same time contribute directly to improving income distribution. The program includes projects, mostly in agriculture, which might serve as pilot schemes for repeater projects. Because the pace at which Bank Group lending can be carried out will continue to depend largely on the speed at which the Government prepares projects and takes related policy decisions, special efforts will be made to help prepare projects.

15. In the agricultural sector, previous projects have helped to develop large-scaleirrigation schemes and agriculturalcredit. The Bank now stresses the importanceof efficient organizationof the sector, land reform and the development of small farms with emphasis on attacking the problem of rural poverty. The Governmenthas accelerated land distributionto smallholders and landless families and is preparing a number of projects aimed at small farmers, some of them in rainfed areas, for which it is likely to seek Bank financing.

16. Education is a critical bottleneck in Morocco's development. Two IDA credits have been made to improve technical and vocational training. A UNESCO project identificationmission, in the framework of the Bank UNESCO cooperativeprogram, visited the country in September 1973 to review the sector's development and to help formulate future Bank projects.

17. Industry and tourism development has so far been financed through the two DFC 's ("BanqueNationale pour le DeveloppementEconomique" and "Credit Immobilieret Hotelier"). These DFC's are expected to remain the main channels for Bank lending in these sectors. However, as Executing Agency for a UNDP financed study, the Bank is helping to prepare a tourism infrastructureproj- ect which would alleviate the scarcity of improved land for hotel development. On May 30, 1974, the Bank approved a loan to Maroc Phosphore, for the development of a large phosphoricacid plant. Projects in these sectors help Morocco to increase its foreign exchange earnings and provide an opportunity for the Bank to help improve sectoral policies. - 6 -

18. A substantialshare of Bank lendin; has financed infrastructure development. The first transportationloan, a $14.6 million Bank/IDA blend, was for a highway project and included financing of a sector review which served as a basis for a second loan of $29 million approved in December, 1973, as well as recommendationson transport policy. The first Bank financing of public utilities in urban areas was the $48 million Water Supply loan signed in July 1972. A second loan of $25 million, for a power project, was signed in October 1973. Both prcjects aim to improve the organizationof public utilities. The social problems due to rapid urbanizationare expected to be tackled through a site and services project presently being prepared by the Government, in line with the emphasis on urban housing and infrastructure in the Third Plan.

19. A Consultativevroup for Morocco was formed in April, 1967 under the chairmanshipof the Bank. It presently includes Belgium, Canada, France, Germany, Italy, Japan, Kuwait, Spain, the U.K., the U.S., IMF, UNDP, OECD/DAC, the African Development Bank and the European Investment Bank. The last meeting of the Group, on March 28 and 29, 1974, expressed satisfactionwith the improvement in Morocco's economic performance in recent years, and the emphasis in the Third Five Year Plan (1973-77) on improving the distributionof growth benefits.

20. The gross inflow of official loans and grants to Morocco rose from $129 million in 1966 to $159 million (of which $18 million in grants) in 1971, but temporarily fell to $115 million in 1973. Major sources were the U.S., Germany, the Bank Group and France. At the end of 1973, the Bank Group's share in Morocco's external public debt was estimated at 13.4 percent on a disbursement basis. The share of the Bank Group in debt service was 11.2 percent in 1973. By the end of the 1970's the Bank Group's share in public debt and debt service are estimated to rise to about 20 percent.

PART III - AGRICULTURE IN MOROCCO

21. Agriculture is the most important economic activity in Morocco. Some six million ha are presently cultivated,of which about 1/3 million ha have modern sad efficient irrigation systems. About 70 percent of the population is dL*cUv dependent upon agriculture for a livelihood. The sector contributesabout 30 percent to GDP and accounts for over 50 percent of merchandise exports. Poor perfor-maniceof the agriculturalsector in the decade after independencecontributed to general economic stagnation,while 4s-the years 1967-72 more rapid growth of agriculture --mainly because previous large investments in t.ae moderm sector began to oear fruit - was accompanied by overals expansion. In 1973, inadequate rainfall seriously affected crop production and as a result, overall GDP only increasedby about 2 percent, despite rapid expansion in mining and manufacturing. - 7 -

22. The Government'sintervention in the agriculturalsector until recently concentratedon the expansion of irrigated farming, while rainfed agriculture received less attention. During the Second Five Year Plan, 29 percent of total Governmentinvestment expenditure was devoted to dams and irrigated farming and 12 percent went to the developmentof rainfed agriculture and livestock. Moreover, investmentin irrigation facilitieswas concentrated on the constructionof dams but the constructionof irrigation networks and on-farm development lagged behind. Thus during the Second Plan, while three dams capable of irrigating106,000 ha were completed (and three more, capable of irrigatinga further 96,000 ha, were under construction), main canalisationwas provided for only 83,000 ha., and on-farm irrigation works for 71,000 ha. (excludingprivate irrigation schemes, which covered an additional 8,000 ha.).

23. The Third Five-Year Plan (1973-1977)proposes to remedy these defi- ciencies. Greater attention is being given to improvementof rainfed agriculture and livestock production,within an expanded overall developmentprogram for agriculture. Within the program for irrigation, the emphasis is upon completingirrigation systems served by newly constructed dams, to reduce the lags already mentioned. Only two new dams are to be started during the Plan period. Greater emphasis is being given to training, improvementof the extension service, credit to small farmers, research and marketing. Farmgate prices have recently been sharply increased to encourage the production of cereals, sugar and edible oil seeds.

24. In many parts of the country, the small size and fragmentationof holdings, and complex traditional tenure systems, frequently involving joint ownership, have been major obstacles to improving agriculturalproductivity. To overcome these problems, and to encourage the adoption of modern cultivation methods, particularlyon lands with high production potential, the Gov- ernment has taken various measures. First, under legislation introduced in 1963, the Government has successfullystarted a program of land consolidation; during the Second Five Year Plan, 1968-72, 190,000 ha, mainly in irrigated perimeters, benefitted. Secondly, the Government has acquired land previously held by foreignersfor distribution to the rural poor, both small farmers and landless. Two hundred and twenty thousand ha. were acquired between 1963 and 1965, and legislationpassed in 1973 provides for the acquisitionnow under way of at least a further 326,000 ha. Under a law of 1966 (amended in December 1972) the Government is distributing this land to Moroccan farmers meeting competence, poverty, age and character criteria, recipients being obliged to group themselvesinto production cooperatives. Some 180,000 ha were distributed by the end of 1972, and the Plan target is to distribute a further 395,000 ha by end 1977. Thirdly, the Agricultural InvestmentCode enacted in 1969 gave powers to the Government to organize agriculturaldevelopment in irrigated areas. The code provides for transformationof some collectively held land into individuallyheld freehold plots, prevents excessive fragmenta- tion of holdings and obliges farmers to follow a cropping pattern in exchange for various subsidies. The legislation as a whole has been carefully designed to ensure that changes in the tenure system, particularlythe transfer of foreign-ownedfarms to small Moroccan farmers, do not lead to declines in - 8 - productivity. Implementation,however, is complex and slow due to the limits of the Government's administrativecapacity. So far the land reform program has touched only a very small proportion of poor farmers (about 1 percent), and this proportionwill rise to only about 5 percent with the implementation of the 1973-77 program. Its impact will, nevertheless,be substantial in irrigated areas, including the Sebou project area, which are being given priority.

25. Government activity in the agriculturalsector in Morocco is the primary responsibilityof the Ministry of Agriculture and Agrarian Reform. The Ministry's activities are concentrated in the Directorate of Agricultural Development,which operates through prorincial services in rainfed areas, and largely autonomousregional development offices (ORWJA's) in irrigated areas. There are also three public institutionswith country wide responsibilities in the sector: The AgriculturalBank (CNCA), the Cereals and Pulses Office (ONICL) and the Export Trade Company (OCE). Two state-ownedcompanies are responsible for managing the land acquired by the Government from foreigners; SODEA, established in 1972 is primarily responsible for managing plantation while SOGETA, established in 1973, is primarily responsible for managing the annual crop land acquired from foreign owners in March 1973, prior to its eventual distributionunder the land reform programme.

PART IV - THE PROJECT

Background

26. The project is located in the Rharb plain, which lies northeast of Rabat and close to the major centers of consumption in Morocco. The Sebou river, the largest river in the country, flows through the plain. The excel- lent agriculturalsoils on the plain and the large amount of presently un- utilized water in the Sebou river give the region a high potential for the development of agriculture through irrigation. The Bank has been associated with the development of the Rharb plain since 1964, when a loan of $17.5 million (389-MOR)was made for the Sidi Slimane IrrigationProject, which involved the raising of an existing dam, and the improvementand extension of an existing irrigationnetwork.

27. At the time the Sidi Slimane Project was being executed, a UNDP/FAO study was under way, to determine the optimum outline plan for the overall developmentof the Sebou basin. This study was completed in 1968, and recom- mended the development for irrigation of 200,000 ha. on the Rharb plain, and the constructionof storage dams. In November 1969 the Bank made a loan of $46 million (643-MOR)for the Rharb-Sebou Irrigation project covering the first phase of development. The project consisted of:

(a) The construc:ionof the Idriss ler dam at Arabat on the Inaouene river, a tributary of the Sebou. - 9 -

(b) Land reorganizationover the project area of 90,000 gross ha., and redistributionof former foreign and state owned land to smallholdersand landless families.

(c) Land preparation and the constructionof new irrigationand drainage systems covering 38,300 net ha. and the improvement of existing irrigationon 5,000 net ha.

(d) The improvementof rainfed agriculture over 26,700 net ha.

(e) The improvementof roads and crop processing facilitiesin the project area.

(f) Engineering and supervision,including geological studies of the project area; experiments and investigationsto determine design criteria for subsurface drainage; and feasibilitystudies for sugarcane cultivation,and

(h) The strengtheningand reorganizationof the management of ORMVAG, 1/ the regional agriculturaldevelopment office.

28. The proposed Sebou II Development Project arises from events which could not be foreseen at the time of appraisal of the Rharb-Sebou Irrigation Project, and from studies financed under the project:

(a) At the time of appraisal of the Rharb-Sebou IrrigationProject, the risk of severe flooding was not considered sufficientto warrant immediate flood protectionworks. However, in early 1970 a disastrous flood occurred, affecting almost the entire project area and causing damage estimated at $7.5 million. The flood risk was reassessed,and the Bank agreed to add to the Rharb-Sebou IrrigationProject a study to determinemeas- ures to control flooding. The foreign exchange cost of the study ($1 million) was covered by reducing the unallocatedcat- egory of the loan. The study showed that in the long-term the development of further upstream storage together with construction of a diversion channel would eliminate the risk of serious flooding but that interim measures were justified to protect against flooding the area already being developed for irrigation under the Rharb-Sebou IrrigationProject. After making allowance for the land required for flood protectionworks and the results of a more detailed land survey, the area to be newly equipped for irrigationwas reduced from 38,300 to 35,200 net ha.

1/ Office Regional de Mise en Valeur Agricole du Gharb (Rharb). 10l -

(b) Experiments carried out under the Rharb-Sebou IrrigationProject have confirmed that the project area is well adapted for the cultivationof sugarcane. However, these experiments also showed that the sugarcane and beet harvesting periods overlap, so that it has not been possible to provide sugarcane processing capacity by adapting the existing sugar beet factory at Mechra-bel-Ksiri, as had originallybeen envisaged. A new cane processing factory is therefore needed. Traffic congestion arising from the overlap of the harvestingperiods also necessitates the strengtheningof the road network in the project area to a greater extent than envisaged under the Rharb-Sebou IrrigationProject, and the construction of a new bridge over the Sebou River at Mechra-bel-Ksiri.

In response to the new situation created by these events, and in order to ensure optimum developmentof the project area it is proposed to finance flood control works, a new sugarcane processing factory and the improvements to the project area road network mnder a Sebou II Development Project. The project was appraised in November 1973. At negotiationsheld in Washington in May, 1974, the Moroccan delegationwas led by Mr. Abdelaziz Belghiti of the Prime Minister's office.

Progress with the Rharb-Sebou IrrigationProject

29. After a slow start, progress in the physical execution of the Rharb-Sebou IrrigationProject has been good, and initial delays have been largely recouped. Constructionof the Idriss ler dam is complete, and re- servoir filling is now in progress. Land consolidation is nearly complete for all the area to be irrigated under the project. Work on land levelling and on constructingthe irrigationand drainage network is proceedingon schedule. While constructionof the irrigationdistribution system is slightly delayed, this will not affect the schedule of new areas to be irrigated each season. Five irrigationsectors, totalling 13,240 net ha., are now operational,practically in line with the rate of developmentestimated at appraisal.

30. The estimated cost of the Rharb-Sebou IrrigationProject has substantially increased due to physical contingencies,currency realignments and higher actual and forecast inflation rates, particularlysince 1973, than envisaged at the time of appraisal in early 1969. The total cost of the project, excluding the crop processing facilitiesand road network (originally estimated at $10.3 million), which would now be provided under the Sebou II DevelopmentProject, is now estimated to be about $117 million, compared to the appraisal estimate of $86.7 million (in both cases including contingencies but excluding interest during construction). This represents an increase of 34 percent. The increased costs will be met through the realloca- tion to other items of the $4.6 million included in the Rharb-Sebou Irrigation Project Loan for sugar processing facilitiesand the road network, and by an increase in the Government'scontribution. - 11 -

31. The Rharb-Sebou Irrigation Project envisaged a major improvement in the structure of land tenure in the project area. The appraisal report for that projeict suggests that up to about 23,500 ha., (out of a project area of 90,000 ha.) of previouslyforeign owned or private state annual crop land would be arailable for distributionto all smallholdersand landless families in the pro:ect area, under the terms of the 1966 Agrarian Reform Law. Progress with land reform has been slower and the amount of land available for redistri- bution may be less than the appraisal report envisaged. By the end of 1973, 3,500 ha. had been distributed to smallholdersand landless families and a further 14,500 ha. is available for distributionin the project area; up to about a further 5,300 ha., whose legal status is presently under dispute might also eventually be available for distribution. Furthermore,recent data sug- gest that the number of candidatesfor land reform benefits is much greater than estimated at appraisal. In this situation,the Governmenthas decided that beneficiarieswill be selected from amongst the very poorest smallholders and landless families in the project area. The beneficiariesof land distribution will have holdings of at least 5 ha. when distributionis complete, which the Government regards as the minimum viable size for irrigated holdings. The Government has submitted to the Bank a timetable which states that distribution of the remaining 14,500 ha., will be completed by the end of 1978. Any additional land which becomes available following the resolutionof litigation would be distributed as soon as possible.

32. A part of the land in the project area which has been taken over from foreign owners is under tree crop plantations. The Government is presently consideringarrangements for the long-term future of these plantations to ensure that their productivityis maintainedwhile the benefits from their operations are spread as widely as possible. Until these arrangementsare decided upon, the plantationswill not be distributed as smallholdings,and will remain under the management of SODEA and SOGETA (see para. 25).

33. Moroccan legislationprovides for the recovery from each farmer of the average operating and maintenance costs and a maximum of 40 percent of the average capital cost of all irrigationand drainage works, including the share of the cost of the dam attributableto irrigation developmentunder the project. Recovery is made through a land betterment levy of DH 1,500 per hectare, and through a water charge which is presently fixed at a base rate of DH 29 per thousand cubic meters within the area of responsibilityof ORMVAG. For holdings up to 20 ha, the first 5 ha. are exempt from the betterment levy; in addition, farmers can choose to pay the betterment levy through annual instal- lments over 20 years, with 3 years grace and at 4 percent interest. In the early years of irrigated cultivationthe amount of the water charge is increased linearly, to reach the full base rate by the fifth year of irrigation. The Government recently carried out a review of these charges as provided for under Section 5.09(b) of the Loan Agreement for the Rharb-Sebou IrrigationProject. No actual data for the operation and maintenance cost for the irrigationnetwork is available,since irrigated cultivation has only just begun. Esti-mat- ing depreciationand operation and maintenance costs as percentagesof capital costs at current prices, but excluding interest (the method followed in the Rharb-Sebou IrrigationProject Appraisal Report), the review shows that the present level of the charges is the maximum permitted under legislation. - 12 -

The Government has agreed that;in the future water charges will also cover the operation and maintenance cost of the flood protection works (Section 4.06, draft Loan Agreement). It has also agreed to maintain separate accounts for operation and maintenance costs and for revenues derived from the betterment levy and water charges, and that future reviews of water charges would be based on actual rather than estimated costs (Section 4.05(a), 4.05(b), draft Loan Agreement).

34. Cost recovery through the betterment levy and the water charge is progressive with incomes, since the first 5 ha of holdings up to 20 ha are exempt from the betterment levy and since cropping patterns which yield high returns tend to be intensive in water use. Incomes to farmers in the project area are subject to an Agricultural Income Tax and, for higher income groups, a Complementary Income Tax, both of which are progressive. It is estimated that at full development and depending on the cropping pattern, the betterment levy, the water charge and the two incomes taxes will absorb between 14 and 20 percent of income gross of such charges and taxes for a 5 ha holding, rising to 42 to 43 percent for a 50 ha holding.

Project Description

35. The project consists of:

(a) Construction of earth flood protection dikes and ancillary works to protect the 35,200 ha being developed for irrigated agriculture under the Rharb-Sebou Irrigation Project and to confine flood overspill from the Sebou River to three flood escape channels; resettlement of families now living in the channels;

(b) Strengthening of roads and railway tracks in the flood escape channels to prevent damage during floods;

(d) The Construction of a sugarcane factory at Mechra-bel-Ksiri with a capacity of 2,500 tons of sugarcane per day over a six-month harvesting season;

(e) A study of existing industrial pollution of the lower Sebou River and, if justified by such study, constructionof an effluent treatment plant to prevent pollution of the Sebou River by the wastewater of the new sugarcane factory and the existing sugar beet factory at Mechra-bel-Ksiri;

(f) Improvement of about 100 km of primary and secondary roads, bituminous surfacing of about 100 km of tertiary and unclassified access roads and constructionof a new bridge over the Sebou River at Mechra-bel-Ksiri; - 13 -

(g) Improvement of about 230 km of tertiary and unclassified access roads;

(h) Procurement of equipment for maintenance of the roads improved under (g) and for a study by the Regional Office of sugarcane transport;

(i) A study of bilharzia infestation iii the Rharb plain and the possibility for its eradication;

(j) Training, through a program of fellowshipsand on-the-job training, of staff of the Regional Office, of the Ministry of Agriculture and Agrarian Reform (DevelopmentService) and of SUNACAS in sugarcane production and processing and extension services. 36. A loan and project summary is given in Annex III. Appraisal Report No. 429-MOR dated June 7, 1974 is being distributedseparately to the Executive Directors. Project Execution

37. Execution of physical constructionof the project is the responsibility of three separate government departments. The flood protectionworks will be built under the supervision of ORMVAG, assisted by consultantsaccept- able to the Bank and with technical assistance from the Hydraulic Directorate of the Ministry of Public Works and Communications. Final designs and bidding documents would be prepared for the Hydraulic Directorate of the Ministry of Public Works by consultants. Final designs will be submitted to the Bank for approval and will avoid any risk to the population living within the sectors, should flood-water breach or overtop the dykes. On-going studies for the overall protection of the Rharb plain against floods will continue under the responsibility of the Hydrauli( Directorate. The Government has undertaken that adequate provision will be made in the ORMVAGannual budget for maintenance of the flood protection dykes (Section 4.07, draft Loan Agreement).

38. Improvement of bituminous surfaced primary and secondary roads will be executed under the supervision of the Roads Directorate of the Ministry of Public Works and Communications. These are comparativelyminor works, well within the capacity of the Directorate,which has completed implementation of a first Bank highway project and is now supervising implementationof a second. Improvement of tertiary and unclassifiedroads will be carried out by ORMVAG, with technical assistance from the Roads Directorateof the Ministry of Public Works and Communications. Primary and secondary roads will be maintained by the Roads Directorate of the Ministry of Public Works, and bituminous tertiary roads will be maintained by the Kenitra Provincial Authority. Ter- tiary gravel roads and the roads which remain unclassified following improvement will be maintained by ORMVAG, under the technical supervision of the Ministry of Public Works in the case of roads with a bituminous surface (Sec- tion 4.08, draft Loan Agreement). The Government has undertaken to provide ORMVAG with adequate current funds for the maintenance of the roads which remain its responsibility(Section 4.07, draft Loan Agreement). - 14 -

39. The construction of the sugarcane factory is being supervised by SUNACAS, a Government owned company, established to own and operate the factory, under the responsibility of the Ministry of Commerce, Industry, Mines and Merchant Marine. Morocco has substantial experience in sugar production from sugar beet and SUNACAS is staffed by a team which is capable of supervising constructionof the factory and operating it, once completed; consultant serv- .ces will only be provided under the Project to SUNACAS for acceptanceof the factory. The Government has agreed that SUNACASwill appoint a Chief Engineer and a Chemist, with clearly de.'ined responsibility for operation and maintenance of the factory and for processing and process control respectively (Section 4.04(c), draft Loan Agreement)).

40. The timely supply and quantity and quality control of sugarcane to be delivered to the SUNACASfactory is the overall responsibility of ORMVAG, through its sugarcane office. In order to assist ORMVAGin this task in the early stages of the operation of the factory, the project includes consultant services, particularly a sugarcane specialist who will be responsible for advising ORMVAGin experiments to be carried out during the first, 1975, harvest season to determine the best method of transporting cane from the fields to the factory.

41. To ensure the effective execution of its sugarcane development programme, the Governmenthas agreed to reorganize the Agricultural Production Division of ORMVAG (Section 4.04(b), draft Loan Agreement). The intention is to provide services on a crop-specific rather than a job-specific basis, (see organization chart (World Bank 8610) attached to the Appraisal Report). ORMVAG and the Ministry of Public Works would create separate accounts for the flood control and roads components of the project, and audit reports for each account would be submitted to the Bank within six months of the close of each fiscal year (Section 3.05(c), draft Loan Agreement).

42. Both the first and second Rharb-Sebou Projects involve several different agencies for their implementation,and the complex nature of both projects makes coordinationbetween these agencies important. A Project CoordinatingCommittee, under the chairmanshipof the Minister of Agriculture, was established under the Rharb-Sebou Irrigation Project. However, the Commit- tee has met only on rare occasions and lack of effective coordinationhas im- peded implementationof the project. The Government agreed that in future the Project Coordinating Committee should meet at least once every three months, to approve quarterly progress reports, review past achievements and future work programs of each of the agencies concerned, and ensure that coordination between these agencies is maintained (Section 4.10, draft Loan Agreement).

Cost Estimates and Financing Plan

43. Cost estimates are shown in Annex III and are summarizedbelow (excludingimport duties and local taxes): - 15-

Millions of US$ Local Foreign Total

Flood Protection 6.8 3.6 10.4 Roads and Bridges 5.2 5.2 10.4 Sugar Processing 3.4 13.6 17.0 Effluent Treatment Plant 0.3 0.5 0.8 Consultants,Studies, etc. 0.3 1.2 1.5 Contingencies 5.7 7.9 13.6

Total 21.7 32.0 53.7

44. The Bank loan will finance the full foreign exchange cost of the project, amounting to $32.0 million, 60 percent of total project cost. The Loan will be made to the Government,and that part for financingthe foreign exchange cost of the sugar factorywill be onlent by the Government to SUNACAS, on terms and conditionssatisfactory to the Bank, and at an interest rate not less than that of the proposed Bank loan (Section3.01(b), draft Loan Agree- ment). The local costs of the project will be-fully financed by the Govern- ment. In the case of the flood control and roads works the Governmentwill provide its share of project costs through normal budgetary allocations. In the case of the sugar factory, the local cost of the plant as well as all necessary funds for pre-operationcosts, start-up and working capital will be financed from SUNACAS' authorized share capital of DH 35 million. The Govern- ment has agreed that SUNACAS' accounts would be audited by an auditor acceptable to the Bank, and that audit reportswould be submitted to the Bank within five months of the close of each financialyear (Section4.02(a), draft Loan Agreement).

Markets

45. Morocco has a high per capita consumptionof sugar, at about 25 kg per year. In 1973 total sugar consumptionwas about 450,000 tons, of which 200,000 tons were imported. Consumptionis expected to increase by about 3 percent per year, to about 550,000 tons by 1980. Domestic sugar production began only,in 1963 followinga steep though temporary increase in the world residual market price. By the end of the Third Five Year Plan, 1977, Morocco intends to satisfy two thirds of domestic consumptionfrom domestic production. The incrementalproduction of sugar from the project (45,000 tons per year by 1980) will be easily absorbed on the domestic market. The Governmentmain- tains fixed domestic producer prices, in the past considerablyhigher than the world residual level. At the present high world residual market price, domestic productionof sugar receives no protectionbut in financiallyat- tractive.

Procurement

46. Procurementof all goods to be financed from the loan will be through internationalcompetitive bidding in accordancewith the Bank's guidelines,and consultantsservices will be procured under terms and conditionsacceptable to the Bank. The Borrower has agreed to group civil works contracts into amounts of at least $1,000,000 to help attract foreign competition. - 16 -

47. Constructionof the sugarcane processing factory has already started, in order to have processing facilities available in time for the first sugar crop in May 1975. Procurementwas carried out in accordancewith Bank guidelines and the contract for constructionof the factory was awarded to the lowest bidder, Societe Fives-Cail-Babcockof France, on January 22, 1974, for the equivalent of about $17.0 million. Retroactive financing of up to $2 million is proposed.

Disbursements

48. Disbursements would be made against:

- 80 percent of total expendituresfor the sugar factory;

- 60 percent of total expendituresfor the effluent plant;

- 40 percent of the total expendituresfor civil works for flood control and resettlementhousing;

- 50 percent of the total expendituresfor civil works for roads and the bridge;

- 100 percent of forei,gnexchange costs of equipment for road maintenance and the sugarcane transport study; and

- 100 percent of foreign exchange costs of consultants'services and the overseas training of local staff.

Disbursementsare expected to be completed by March 1979 (see Annex III for expected phasing).

Justification

49. The benefits from the project consist of protection against flood damage of 40,000 ha of irrigated agriculture,improvement of surface communications in the Rharb-Sebou Irrigationproject area, and the provision of sugar processing capacity. On the basis of the weighted average annual cost of flood damage in the absence of flood protectionworks, the economic rate of return to these works is estimated at 11 percent. However, such an estimate takes no account of the possible occurrence of a more damaging than average sequence of floods of different magnitudes and the risk of a major flood early in the life of the project. The economic return to the sugar factory, the largest component of the project, amounts to 15.8 percent, and remains satisfactory under a range of adverse conditions. Foreign exchange savings from substitutionfor sugar imports will amount to $14 million per year when full capacity operation is reached in 1980. The overall rate of return to the project, charging the cost of the access road network to the increase in sugar production, is estimated to be 15 percent. The combined rate of return to the first and second Sebou projects is estimated to be 8 percent. - 17 -

Ecological Aspects

50. There are several sources of pollution of the Sebou basin river system, amongst the most important of which are the existing sugar processing factories at Sidi Kacem, Mechra-bel-Ksiriand Sidi Allal Tazi, and the pulp mill at Sidi Yahia. The proposed loan includes financing for a study, to be carried out by the Government with consultant assistance,whose purpose will be to determine the incidence of pollution and to examine the economic and technical aspects of their control. It also includes an allocation for the installationof equipmentwhich would treat the effluent from the proposed sugarcane factory and the existing sugar beet factory at Mechra-bel-Ksiri, if this proves necessary.

51. The proposed loan includes financing for a study of the incidence of Bilharzia in the Rharb plaia, and of measures for its eradication.

PART V - LEGAL INSTRUMENTSAND AUTHORITY

52. The draft Loan Agreement between the Kingdom of Morocco and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and the text of a resolution approving the proposed loan are being distributed to the Executive Directors separately.

53. Features of the Agreement of special interest are described in paragraphs 37-42, 44 and 47 of this report.

54. The making of arrangementssatisfactory to the Bank for the on- lending to SUNACAS of the portion of the loan allocated to the sugar factory and for other financial assistance to SUNACAS by the Government,would be a condition of effectivenessof the Agreement (see paragraph 44).

55. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.

PART VI - RECOMMENDATION

56. I recommend that the Executive Directors approve the proposed loan.

Robert S. McNamara President

Attachments

June 10, 1974

ANNEDI Page 1 of 3 pages

ODtITRY DATA- IROmOc:

5-691F/ km 2 n5 ZLNBiion (mid-) 971) 30 Per kmI Peir b2f arable land

SOCIAL INDICATORS

T Moroc,co Ntherlands hn. g 1 2 ua -U 1.

OW PER CAPITA US$ (ATLAS BASIS) a 200/b 230 2,430 390 100

SODB.APIIIC lUrWth rats (per thouand) 47 Ic 50 18.3 28 47 Crude death rate (par thousand) 19 7a e 17 8.4 6 21 Infant mortality rate (per thousand live births) 149 150 12.7 18 /f 160-165 a Life expectancy at birth (years) 50 50 74 68 43

Gross reproduction rate /2 1.3 2.2 3.2 Population growth rate a 2.7 1.3 2.9 2.7 Population growth rate - urban 5 .3 /,i 2.5 / 7

Asg structure (percent) 0-14 44 46/h 27.3 40 44 15-64 52 49 7 62.6 57 53 65 and over 4 57? 10.2 3 3 Denendency ratio /4 1.7 2.4 7r 1.0 /k 1.3 /k 1.1 /k

Urban population as percent of total 29 /1 35 /hL 78 /m 61 /f 6 Az Family planning: NKmof acceptors cumulative (thoua. 67 979 No. of users (% of sarried women) 3 44

W-LODJT

ioesbor force (thousands) 3,300 4,000 /h 4,700 4,600 5,800 Percentage employed in agriculture Sn 55 79 7.2 /n 91 Percentage unemployed 9 9 7W 1.2 4

INOWS DISTRIBUTION Percent of nationsa income received by highest 5% 22 / Percent of national income received by highest 2C% 49 7 Percent of national incomw received by lowest 20% 3 7 Percent of national incoms recsived by lowest 40% 14 7

DIS7RIBUTIONOF LAiND°rP 5 owned by top l(t of owners... %owned by saliest lS Of owners

HEALTH AND NUTRITION Population per physician 9,700 /d 13,160 /f 820 If 3,170 If 21,570 /o PoPulation per nursing person 7,350 7a 1 2,760 7,p 210 7?, 4,170 77 2,980 7? o Population per hospital bed 620 7w8 68O 190 7.f 2, 7rRH 780 7;

Per capita calorie supply as % of requirmernts .5 91 It 121 Iu 111 /f 69 Per capita protein supply, total (gras per day) Lb 587? bS 7 68 7? 43 OfD hich, animal and pulse 1.4 7-t 577? 31 7 23 Death rate 1-4 years /7 0.8 3.3 7

lWCATION iJ13Ted /8 primary school enrollment ratio 49 55 If 102 /f 98 37 Adjusted 7? secondary school enrollment ratio 5 12 7? 71 7? 50 2 Tears of schooling provided, first and ascond level 12 12 12 12 13 Vocational enrollment as 5 of sec. school enrollment 30 3 /f 46 /f 16 6 Adult literacy rate 5 17 /v,w 24 fh v.w 99 7 y 73 - HDUSINE Average No. of persona per room (urban) 2.1 /z 2.8 /h ., 1.6 /aa Percent of occupied units without piped water 41 7fb 48 7f,ab,ac,ad,, 51 7a- 20 /ae Access to electricity (as S of total population) 77 7 68 7F/hac a£ 3 Percent of tural population connected to electricity 32 7;?

CONSUMPTION Rdio recivers per 1000 population 46 60 316 If 103 /f 11 Passenger cars per 1000 population 12 15 200 3 7? 2 If o Electric power consumption (kwh p.c.) 87 132 3,138 823 7? 29 f Newsprint consumption p.c. kg per year 0.2 0.2 29.1 1 77 0.1

Notee: Figures rfer either to the latwet perioda or to account of environmental teprature, body weights, am the latest years. Latest periods refer in principle to distribution by age and sex of national populations. the years 1956-60 or 1966-70; the latest years in prin- & Protein standards (requir_ents) for all eountries as estab- ciple to 1960 and 1976. Only aiguificantly different lisbed by USDA Economic Research Service provide for a minimiu periods or years are footnoted separately, allowance of 60 gra of total protein per day, and 20 grms of 1 The Phr Capita (kP estiaates for years other than 1960 animal and pulse protein, of which 10 grams should be aninal is at market priees, calculated by the same conversion protein. Thee standards are somewhat lovesr than those of 75 toitnique as the 1972 tlhbd Bank Atlas. grass of total protein and 23 gras of animal protein as an /2 Average number of daughters per woman or reproductive average for the world, proposed by FAO in the Third World Food Age. Survey. Population growth rates are br th decdes ending in ZI Some studies hove suggested that crude death rates of children 1960 and 197i. ages 1 through 4 say be used as a first approximation index of 4 Ratio of under 1£ and 65 snd over age brackets to malnutrition. thcwe in labor force bracket of ages 15 through 64. IS Perentage enrolled of corresponding population of school age FAoA reference standards reprweent physiological me- ms defined for each oountry. quirmsants for normal activity Andhealth, taking

a Eetinate: /b Computed by applying to the 1970 figure the growth ro,te of the GNP//cp. in real terms fro 1960 to 1970; /c UN estlmate; /d 1962; /e Estinute, based on sample survey; /f 1969; /I 1967; /h 1971; 1i7 Definition hoirogeneoua with 1960 census; fi 175-70; /k Rutio of population under 17 and 65 and over to total labor orce; /1 Urbun center, as par enumeration (1960 and 197? nomenclatures being different); /m Over 2,000 population; /n An a percentage of total enploysent; /o Tanganyika only; /P Including midwivea and assstant nurses; /q Including midvives and mater-ity assistants; /r 1968; Is Government only; /t 1964-66; /u 1966-68; /v Read and write; /w Over 5 years old, /x 15 years and overf, I Defit-ition of literacy unknown; /I UN statistical oflTos eatimate; /ea 71ban and rural; /ab Inside, /a. Urban only; /ad Percent of households; /ae 1966; 7af Percent of dwellings with electricity.

R3 February 21, 1974 ANNEXI Page 2 of 3 pages

MOROCCO- ECONOMICDEiMEWOPETl DATA SHET! (A-oot. In Millon. of LS Dollar.)

Act.al PR-o.ct.d 1965- 1970- 1974- 1965 1970 1972 1973 1974 1979 1970 1975 1979 1965 1970 1979 NaTIONAL ACCOUNTS 3-Veac llyeroie or 190'-1969I 6d Pete.. aad Eogh.oeh Rate,R Averooe Aenoo3YlGrtwth - Ar Porgoot of GDY

Gro-. Domestic Product 2561 3248 3535 3691 3877 5436 4.9 5.0 7.0 101.5 101.0 102.4 GOiOo from Terms of Tr-d. (.1 -39 -34 -17 45 42 -129 -2.3 . . -1.5 -1.1 -2.4 CewossIIo.oeoic Income 2523 3214 3518 3736 3919 5307 5.0 5.4 6.3 100.0 100.0 100.0 loports (including NFS) 504 772 832 896 973 1673 8.9 6.6 11.4 20.3 24.0 31.5 Erporto (loclodixo9FSIId neOrt C.o.,tiy) 510 671 767 8 986 1355 5.3 9.8 6.6 20,5 20.9 25.I 5 Ro..rce Cop -14 101 65 -2 -13 318 -S0. 3.1 6.0 Coroimptios OspeedliCrns 2218 2900 2995 3181 3345 4501 4.8 4.6 6.1 87.9 87.1 84.8 loveotoert Egpendrnoroo (looludlog Stock.) 291 515 588 553 562 1125 12,1 5.4 14.9 11.5 16.0 21.2 Dom-otic S-viOgs 305 414 522 578 607 807 6.3 11.3 5.9 12.1 12.9 15.2 a-tio..l S-viogs 259 432 570 630 661 852 10.8 12.2 5.2 10.3 13.4 16.0

M0RCOAHDISETRADE AND NFS A...al D.t. at Correot Price.. d loe.saoo Rates A. P.r-nt of Tot.l

Exports: Posphate, fob 113 113 144 203 '22 790 0.0 41.0 1.6 21.2 16.2 23.6 Other 110-3d, lob 323 375 490 699 309 1610 3.0 19.7 14.8 60.5 53.7 49.7 Nog-f-otor Sorcic-g 98 210 296 369 429 9!5 16.5 10.6 16.4 18.3 30.1 27.7 Total Eroporto 534 698 930 1271 1560 3305 5.5 23.8 11.0 100.0 100.0 100.0 Import s Potroleo., cit 23 37 55 75 269 644 9.9 52.0 19.1 4.5 4.3 15.S Other Coodo, cif 406 649 712 1038 1233 2829 9.8 16.6 18.0 S0.2 76.0 69.4 Nor-factor Services 77 168 197 245 291 602 16.9 14.9 15.6 15.3 19.7 14.8 Torl Import- 506 854 964 1358 1793 4075 11.0 19.0 17.9 100.0 100.0 100.0 price Idic-s A-r.ge 1967-69 100 Erport Price Indox 102 90 128 133 '80 203 -0.8 13.2 1.5 Import Price Indo- 118 103 110 127 153 204 -2.8 9.5 5.9 Terms of TrAde Indeo 86 95 109 105 123 100 2.0 3.5 -4.2 Export Volume loden 90 116 123 139 151 237 5.2 7.0 9.4 VALUE ADDEDBY SECTOR A.-oal Dot, at 1967-69 Price- aod E.choogo R.tea AV-rax. Arogal GroRth REtee - A. Perre..t of T7t.l

Agrci-lt-ro 755 891 980 921 994 1181 3.4 2.9 3.5 29.2 27.4 21.8 Indootry 630 807 903 942 '012 1610 5.1 6.5 9.7 24.3 24.9 29.7 Sercices 1204 1547 1688 1755 08la 2635 5.1 5.4 7.0 46.5 47.7 48.6 Total 2589 3245 3571 3618 3884 5426 4.6 5.0 6.9 100.0 100.0 100.0

CENTRAL OVERONMENTFINANCE Ar.tAl ta oR C.roaof Prices A. P-c...t of GDP

Ccrrror Receipt, 374 646 731 979 1365 2346 11.6 18.7 11.4 1A.4 -r. 20.1 Co Errort lopoodi tres 39D 544 684 910 1032 2000 6.9 16.9 15.0 15.0 16.2 17.8 Bodge.try Forpl-s -16 102 67 69 333 266 . .. . 0.6 3.1 2.3 Net Ecte.nal Borrowing 104 69 98 54 100 300 '8.5 12.6 25.0 4.0 2.1 2.6 Investment In-eodit.r-s 125 226 255 263 395 1080 12.5 16.4 22.3 4.8 6.7 9.3 CURRENI EXPENDITUREDETAILS Acct.l Es t. $'11110 lonrret PrIce As Perte.t of Total (A, of Tot-l CI rrent Expeodit-rno) 1965 1970 1972 1973 1960.72 1973-77 1968-72 1973-77 DETAIL ON GOVERNMENTINVET8MENT actual plannod actual pl-ooed Ed-catiot 24.5 28.2 31.1 27.4 Other Sociol Sorvicet 11.3 9.7 9.2 0.3 Social Sectors 525 635 50.7 22.3 Aoticol-tue 7.3 7 2 721 f Agric-ltore 462 798 40.9 28.5 Otht-I EcococIc Ormvtre 6.5 5.3 4.0 4.5 Ind-ttry a.d Mining 141 288 12.5 10.3 Administ-tion aid Soorsity 30.7 30.9 31.2 28.9 T-oris, - 30 67 2.7 3.4 Othen g9.3 18.7 16.6 24.4 Trans7port 4 Commnic-tions 187 247 i6.6 .2073 TotaL Comment Espesdi cores 100.0 100.0 100.0 100.0 Total 1129 280 100.0 100.0

SELECTED INDICATORS 1960- 1965- 1970- 1973- 273A.7CI3 (Colc,lotId Eroo 5-Year Ap-roged Cat.) 1965 1970 1975 1978 CErena Sorpl-r 353 9143 313 326 Average ICOR 3.1 2.8 3.2 2.5 Ionestic Borrowing 588 1152 52.1 41.1 Import Olasticity 0.05 1.90 1.76 1.50 Les-:Capit.l Repay, enot -126 -279 -11.1 - 9.9 Marginal Dossotic Savings Rate 0.07 0.16 0.15 0.12 Total Fi--an ig 1129 2800 100.0 100.0 Morginal N Savings-rional Rate -0.02 0.24 0.18 0.1I

Total Labor Force-alox Added Der Sorker (1967-69 Pr and 0:chango-ceO Raeot) W.kBORtORCE AND OUTP0T PbR WORKER In Millions 7.of TotAl Crowth Rate 7 p r. '" 'S Dollars Perecot of Average Orxsth R0t1 7. .a. 1960 1971 1960 1971 1960-71 1960 1971 1960 1971 1960-71 Agriculture - 2.2 - 55.7 . 4430 50 .3 Industry . 0.6 - 15.L . . 1410 . 165.1 Services - ~~~~~- ~~~~~30.0 ~~~1.2.- 1353 .158.4 ____ Total 3.3 4.0 100.0 100.0 1.8 - 854 100.0 100.0

not appli able ..not availoble EOENACP II -rgh 4, 1974 ANNa I Page 3 of 3 pages

MOROCCO - BALANCE OF PAYWErrS. EXTERNAL ASSISTANfCE ABD DEBT PROECTICNS (A-oots in wiliops of U.S. doSlra1 toorrnet price.)

Actoal EctiP ted Promoted Projected 1974- 979- 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1989 1979 1989

11384yT BALANCE OF PATMENTS Eoports875> ISnolodIng ~~~~~~~~698 ~~~~667737 930 1271 1960 2044 2226 2539 2883 3305 1122i) 11.0 13. lecorta (inclodina fPS) 6709 854 858 944 1357 1793 2036 2388 2882 3342 4074 13220 17.8 12.6° Riroorce Balane (X-M) -42 -156 -121 -34 -n1T -17 : RF :73

loterot: etr -63 -52 -54 -71 -79 -64 -50 -48 -52 -65 -82 -871 5 1 26.5 Direct Ioreereect Ino_m -23 -25 -25 -28 -36 -37 -38 -40 -43 -47 -52 -13 7 1 10.0 Aorkere Re ttaoces .. 60 e3 90 137 160 168 176 185 196 205 216 35L 5.1 5.0 Cotrent Transfers(net> 29 26 30 24 29 31 33 33 33 33 3 0 0. 0 -aln_coont Corcent __cocc-39 -__4 4 -77 28 -__S12 _ 265 129 -32 _209-333 5,3W -1e2727

Pri-ste Dicrct Ireetecot 4 19 20 20 14 19 17 19 24 30 35 14. 13.0 14.9 Official Capitl ore-t 27 20 18 17 14 12 12 12 12 12 12 25 0.0 7.6

Public 84LT Loans -Diehurne6ents 67 129 141 121 101 192 237 268 298 315 458 456t 19.0 25.5 R-;in.et.st -36 -35 -49 -49 -67 74 -82 .90 -09 -114 -1385 -1689 12.8 39.0 -Rt Dp sbor-ti 30 04 92 72 34 _74 153 178 198 201 3231 7118 22 .3 2

Other H6LT Loano -Dlcohoc,nenns - - - - - 10 21 22 23 24 25 82 20.1 12.6 SeNai lrnoepts - O- -3 -6 -9 -12 -46 . 18.6 Net lishororenoto - - - - - ~~~~~~~21 ~~~19 ~~~17 ~~15 ~13 ~~~17 ~~~~~~1.05.421

C.pltal Tronsections n-.i. -1 47 16 -63 40 19 12 2 -l 5 80 Change in Nt R-servee (--i-nreaa.. -21 -36 -71 -74 -109 -384 -315 -184 -40 76 266 -416

GRANT AND LOANDCOMITMEN)TS Oficial GScnt. nod Gra-t-likr Loans 27 20 16 17 14

Public MALT Loans IBRD 53 25 35 87 49 IDA 7 - 9 10 - cther Bltilatral 3 - - - Goveror=nots 31 87 74 53 49 Sopplioro 3 12 2 - Financial iostitotloo- 3 25 32 1 Bands I - _ _ _ _- Total Public M6LT Lo.-, 98 153 151 151 98

Actual cEbt Outotandico or D-ccrber 31. 1972 ACTUAL AMD PROJECTED EXTERNAL DEBT Diehucood Univ Prrocet IbED 85 10.0 IDA 15 1.8 Ocher Molciloterol 3 0.3 Govtroecoto 602 70.6 Suppli-ro 49 5.8 Financial Institutiono 65 727 Bonds 29 3.4 Public Ichi e.i 4 0.4 Total Poblic MALT Debt 852 100.0

S,ot opplicnbi -3Nil or negligibl F.b-uarEHuNA CP II28. 1974

ANNEXII Page 1 of 4 pages

THE STATUS OF BANKGROUP OPERATIONS IN MOROCCO

A. STATEHENT OF BANKLOANS AND IDA CREDITS (as of April 30, 1974).

Loan or US $ Million Credit Amount (less cancellations) * N,humberYear. Borrower Purpose Bank IDA Undisbursed

aix loans fully disbursed 79.1 19 1965 Kingdom of Morocco Education 11.0 1.6 167 1969 Kingdomof Morocco Highways 7.3 --- 642 1969 Kingdomof Morocco Highways 7.3 6.o 643 1969 Kingdomof Morocco Irrigation 46.o 29.7 704 1970 CIH DFC (Tourism) 8.8 2.7 736 1971 BNDE DFC 35.0 4.8 266 1971 Kingdomof Morocco Education 8.5 8.5 848 1972 CIR DFC (Tourism) 15.0 14.6 850 1972 ONEP Water oupply 48.0 35.4 338 1972 Kingdomof Morocco Agriculture 10.0 2.5 861 1972 CNCA Agriculture 24.0 24.0 890 1973 BNDE DFC 20.0 14.9 936 1973 ONE Power 25.0 21.1 * 955 1974 Kingdomof Morocco Highways 29.0 29.0 Total 341.2 36.8 194.8 of which has been repaid 42.3 Total now outstanding 298.9 36.

Amount sold 1.3 of whichhas been repaid 1.3

Total now held by Bank and IDA * 298.9 36.8

Total undisbursed 182.2 12.6 194.8

* This loan was declaredeffective on May 21, 1974. ** Prior to exchangeadjustment. B. STATEMENTOF IFC INVEST[ENTS(as of April 30, 1974). Amount in US $ Million Year Obliger Type of Business Loan Equity Total

1962 BNDE Development Bank -- 1.5 1.5 1966 CIH CanningFactory 0.9 0.5 1 .4 Total gross commitments 0.9 2.0 2.9 less cancellations,terminations, repaymentsand sales 0.5 0.6 1.1 Total commitmentsnow held by IFC 0.4 1.4 1.8 Total Undisbursed - - _ ANNEX II Page 2 of 4 pages

C. PROJECTS IN EXECUTION -

Cr. No. 79 First Education Project: US$11 million Credit of October 11, 1965; Closing Date: September 301 1974.

Considerabledelays have affected the implementationof the project, which has been considered a problem project since 1968. However, performance has improved significantlysince September 1972; constructionand equipment of all schools (except industrial equipment in two schools) has been completed, and all scAioolsare in use, project management is now satisfactory,construction accouuts have been brought up-to-date,local funds have been released for the project and the Association's procurementprocedures for international bidding for furniture and equipment are being followed. In 1968, as a result of educationalreforms, constructionof three agriculturalschools was dis- continuedwith IDA's approval. The Closing Date has been extended three times from the original date of June 30, 1971, to allow for rebidding of the industrial equipment and complete disbursements;a further postponement to December 31, 1974 will be necessary to complete procurement.

Cr. No. 266 Second Education Project: US$8.5 million Credit of August 18, 1971; Closing Date: April 30, 1976.

The project included the expansion and improvementof specific sections of the secondary, vocational and higher educational systems of the Borrower, and technical assistance for project administrationand school maintenance. Subsequentlythe Association agreed not to finance two Vocational Training Centers and the Department of Veterinary Medicine. Accordingly, an estimated amount of about US$1.0 million or 11 percent of the credit, repres- enting the financing of the above-mentionedproject items, has been transferred to the unallocated category for future reallocationand/or cancellation. The project unit has made significant effort to catch up with initial delays (about ten months) in the appointmentof consultant architects and in the recruitment of local personnel and technical assistance experts for the Project Unit. Implementationhas progressed significantlybut it is forecast that an exten- sloanof the Closing Date by about one year will be necessary.

1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered,and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 3 of 4 pages

Ln. No. 642. Cr. No. 167 Highway Project: US$14.6 million of November 13. 1969; Closing Date: February 28, 1974.

The project suffered from initial delays; however, it was substantially completed physically early in 1974 and within the estimated cost. By April 1974, $6.0 million was still undisbursed out of the combined credit/loan, mainly because of cumbersomeGovernment disbursementprocedures. Ways of ex- pediting payments were discussed by the last supervisionmission in July 1973 and at the negotiationsfor the Second Highways Project. The original closing date was extended to August 31, 1974.

Ln. No. 643 Rharb-Sebou IrrigationProject: US$46 million Loan of November 13, 1969; Closing Date: November 30, 1978.

After initial management difficulties,the progress in implementing the project is now satisfactoryand on schedule. In 1970, a disastrous flood occurred causing delays in project implementationwhile also indicating the need for additional flood protectionwork. The distributionto small farmers of foreign-ownedlands to be expropriatedproceeded slowly as Government revised its policy on land reform on a national basis. In March 1973 the Government decided to nationalize all foreign owned lands and a schedule for land distribution in the project area is now under preparation. Experience gained in the course of project implementationhas shown that the cultivation of sugar cane and sugar teet in the project area would require the constructionof a new sugar cane factory and reinforcementof the road network.

Ln. No. 704 First Hotel DevelopmentProject; US$10.0 million of August 12. 1970; Closing Date: December 31. 1973.

Disbursementshave been lagging behind commitments as construction of some hotels ran into difficultiesin 1971-73. The closing date was extended to December 31, 1974. About $1.2 million was cancelled out of the amount of the loan. Projects for 1974 have substantiallyimproved and the Loan is likely to be fully disbursed by the end of 1974.

Ln. No. 736 Fifth BNDE Project; US$35 million of May 30, 1971; Closing Date: June 30, 1975.

The Terminal Date for the submissionof projects has been postponed from June 30, 1973 to December 30, 1973, because of likely cancellationsof present commitments. Due mainly to sluggish investmentactivity, disbursements fell behind commitments in 1971 to 1973, but with the return of investors' confidence, disbursementsare expected to pick up the lag shortly. ANNEX II Page 4 of 4 pages

Ln. No. 848 Second Hotel Development Project; US$15 million of June 30, 1972; Closing Date: December 31, 1976.

Commitmentshave initially been lagging behind expectationsas in the case of Loan No. 704 due to sluggish investment activity, but the loan should be fully committed by the end of 1974, as against original estimates of year-end 1973. With the improved investment climate and with the publica- tion of the investmentcode, commitments are already picking up.

Ln. No. 850 Water Supply Project; US$48 million Loan of July 19, 1972; Closing Date: December 31, 1977.

The project includes a number of institutionbuilding measures. Only when these were substantially implementedwas the loan declared effective on May 2, 1973. After initial difficulties,substantial efforts have been made by the Government to clarify ONEP's functions,strengthen its financial autonomy, and enforce water tariffs applicable to distributionagencies. Difficultiesarose in the course of 1973 concerning procurement procedures for a major contract which have now been solved satisfactorily.

Ln. No. 861, Cr. No. 338 Second Agricultural Credit Project; US$34.0 million of October 10, 1972; Closing Date: August 31, 1976.

The project has been progressing satisfactorilyand disbu#sements had reached US$10 million by the end of February 1974 in line with the appraisal forecast. Progress under the Loan/Credit is satisfactory.

Ln. No. 890 Sixth BNDE Project; US$24 million of May 14, 1973; Closing Date: December 31, 1976.

The original date of effectivenesswhich was August 20, 1973 was extended to September 10, 1973, to allow time for the transmittal of necessary documents. The loan was declared effective on that date.

Ln. No. 936 Power Project; US$25 million of October 5, 1973; Closing Date: December_31,1975.

This loan was made effective on January 23, 1974.

Ln. No. 955 Second Highway Project; US$29 million of January 11, 1974; Closing Date: June 30, 1977.

This loan was made effective on May 21, 1974. ANNEX III Page 1 of 3 pages

MOROCCO- SECOND RHARB-SEBOU IRRIGATION PROJECT

Loan and Project Summary

Borrower: Kingdom of Morocco

Amount: US$32 million in various currencies, all of which would be for foreign exchange costs.

Terms: 25 years, including 5 years of grace, at 7-1/4 percent per annum.

Project The project consists of: Description: (a) Construction of earth flood protection dikes and ancillary works to protect the 35,200 ha being developed for irrigated agriculture under the Rharb- Sebou Irrigation Project and to confine flood overspill from the Sebou River to three flood escape channels; resettlement of families now living in the channels;

(b) Strengthening of roads and railway tracks in the flood escape channels to prevent damage during floods;

(d) The construction of a sugarcane factory at Mechra Bel Ksiri with a capacity of 2,500 tons of sugarcane per day over a six-month harvesting season;

(e) A study of existing industrial pollution of the lower Sebou River and, if justified by such study, construction of an effluent treatment plant to prevent pollution of the Sebou River by the wastewater of the new sugarcane factory and the existing sugar beet factory at Mechra Bel Ksiri;

(f) Improvements to about 100 km of primary and secondary roads, bituminous surfacing of about 100 km of tertiary and unclassified access roads and construction of a new bridge over the Sebou River at Mechra Bel Ksiri;

(g) Improvement of about 230 km of tertiary and unclassified access roads; ANNEX III Page 2 of 3 pages

(h) Procurement of equipment for maintenance of the roads improved under (g) and for a study by the Regional Office of sugarcane transport;

(i) A study of Bilharzia infestation in the Rharb plain and the possibility for its eradication;

Estimated Cost: The cost of the project is estimated at about US$53.7 million equivalent, and is summarized as follows:

Millions of US$ Local Foreign Total

Flood Protection 6.8 3.6 10.4 Roads and bridges 5.2 5.2 10.4 Sugar Processing 3.4 13.6 17.0 Effluent Treatment 0.3 0.5 0.8 Consultants,studies, etc. 0.3 1.2 1.5

Sub-Total 16.0 24.1 40.1

Physical Contingencies 1.9 2.8 4.7 Price Contingencies 3.8 5.1 8.9

Total Cost 21.7 32.0 53.7

Financing Plan: Bank Loan 32.0 GovernmentFunds 21.7

Total 53.7

Estimated Disbursements: Millions of US$ FY75 FY76 FY77 FY78 FY79

Annual 18.3 7.0 3.4 2.0 1.3 Cumulative 18.3 25.3 28.7 30.7 32.0 ANNEX III Page 3 of 3 pages

Procurement Constructionof the sugar factory was internationally Arrangements: tendered in accordancewith Bank procurement guidelines. The contract was awarded to the lowest bidder, Societe Fives-Cail-Babcockof France, on January 22, 1974. Eighty percent of advance payments by SUNACAS, expected to amount to $2 million by the date of loan signature, will be financed retroactivelyby the Bank. Civil works for flood protection and roads, and the effluent treatment plant will be procured through internationalcompetitive bidding, and grou3ed in lots of at least $1 million in order to attract foreign competition in bidding. Consultants'services will be procured on terms and conditions acceptable to the Bank.

Technical Consultants'services will be provided under the project Assistance: for:

- developing the productionand transport of sugarcane;

- the pollution control study;

- the schistosomiasis study;

- further studies, final design and preparation of bid documents for flood protectionworks, to be undertaken for the Ministry of Public Works;

- assisting the Regional Office in supervision of construction of flood protection works.

- other short-term consulting requirements (including sugarcane factory acceptance).

Consultantswill be required under their terms of reference to participate to the maximum extent possible within the limitations imposed by their primary commitments in the developmentof programs for the in-service training of staff and in the training programs themselves.

Fellowships for in-service training of Regional Office, AgriculturalResearch Directorate and SUNACAS staff out- side Morocco, totalling an estimated 42 man-months, will be provided for. Programs for such fellowshipswill be prepared annually by these organizations (Section 3.06), draft Loan Agreement).

Economic Rate 15 percent. Combined economic rate of return for first of Return: and second Rharb-SebouDevelopment project is estimated at 8 percent.

Appraisal Report: Report No. 429-MOR, dated June 7, 1974 EMENA Projects Department

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