Document of The World Bank FIl COPY FOR OFFICIAL USE ONLY Public Disclosure Authorized ReportNo. P-2991-SL REPORTAND RECOMMENDATION OF THE Public Disclosure Authorized PRESIDENT OF THE INTERNATIONALDEVELOPMENT ASSOCIATION TO THE EXECUTIVEDIRECTORS ON A PROPOSED DEVELOPMENTCREDIT TO THE Public Disclosure Authorized REPUBLIC OF SIERRA LEONE FOR A SECOND HIGHWAY PROJECT March 18, 1981 Public Disclosure Authorized lhisdocument hs A restricteddisributin and may be usedby recipientsonly Inthe performnceof their official dutles. Its contentsmay not otherwisebe disclsd without Wrld ank anho aon. CURRENCY EQUIVALENTS Currency Unit = Leone (Le) Le 1.00 US$0.95 US$1.00 = Le 1.05 Le 1.0 million = US$0.95 million FISCAL YEAR July 1 to June 30 WEIGHTS AND MEASURES: BRITISH SYSTEM British/US Metric 1 foot = 0.305 meter (m) 1 mile (mi) = 1.61 kilometers (km) 1 square mile (sq mi) = 2.59 square kilometers (km2) 1 ton (long ton) 1.016 metric tons (m tons) 1 imp gallon = 4.54 liters 1 US gallon = 3.78 liters ABBREVIATIONS AND ACRONYMS ADF African Development Fund adt average daily traffic ARE Area Road Engineer CARE Cooperative for American Relief Everywhere EDF European Development Fund ERR Economic Rate of Return HDM Highway Design and Maintenance Model KfW Kreditanstalt fur Wiederaufbau LTS Land Transport Survey MDEP Ministry of Development and Economic Planning MoW Ministry of Works MTC Ministry of Transport and Communications OPEC Fund OPEC Fund for International Development PPAR Project Performance Audit Report RTC Road Transport Corporation SHE Senior Highway Engineer SLA Sierra Leone Airways SLPMB Sierra Leone Produce Marketing Board SLR Sierra Leone Railway UNDP United Nations Development Programme voc vehicle operating costs FOR OFFICIAL USE UIN LI SIERRA LEONE SECOND HIGHWAY PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Sierra Leone Amount: SDRs 8.1 million (US$10.0 million) Terms: Standard Project Description: The project aims at improvingthe efficiencyof road maintenanceoperations in Sierra Leone, preserving the links between Freetown and the provinces,and improving road transportationamong the major towns in the pro- vinces. It includes: (a) planning and implementing routine maintenance on about 4,400 miles of primary, secondary and subsidiaryroads; (b) resealing of about 200 miles of paved roads; (c) rehabilitationof some 370 miles of gravel roads; and (d) consulting services and training. The project will benefit the rural and urban population by helping to lower transportationcosts, improve accessibilityto remote agriculturalareas and increase availabilityof food. It will also help improve agriculturalextension services and facilitate the distributionof farm inputs on a more extensive scale. Further expected benefits include savings from reduced road re-constructioncosts and enhancementof institutionalcapacity to plan and execute road mainte- nance programs. The possible risks involved are mainly institutional. The successfulimplementation of the project depends on institutionalimprovements and the Government'sability to provide the necessary funds for maintenanceoperations. The risks are not unusual for this type of project. Estimated Costs: US$ Million Total Total with Local Foreign net of taxes Taxes Taxes Equipment 0.4 5.1 5.5 - 5.5 Incrementaloperating costs of 0.3 2.5 2.8 0.6 3.4 routine maintenance Resealing of paved roads 0.7 5.2 5.9 0.1 6.0 Rehabilitationof gravel roads 0.9 2.7 3.6 0.7 4.3 Consultingservices and training 2.4 2.5 4.9 - 4.9 Contingencies 1.1 3.4 4.5 0.4 4.9 TOTAL 5.8 21.4 27.2 1.8 29.0 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: US$ Million Local Foreign Total IDA 0.5 9.5 10.0 OPEC Fund 0.5 6.5 7.0 ADF 0.5 5.4 5.9 Government 6.1 - 6.1 TOTAL 7.6 21.4 29.0 Estimated Disbursements: US$ Million FY81 FY82 FY83 FY84 FY85 Annual 0.1 1.9 3.2 3.7 1.1 Cumulative 0.1 2.0 5.2 8.9 10.0 Rate of Return: Over 100 percent Staff Appraisal Report: No. 1923a - SL dated March 11, 1981. Map: IBRD 13244 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT FOR A SECOND HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Sierra Leone for the equivalent of SDR 8.1 million (US$10.0 million) on standard IDA terms to help finance a second highway project. The OPEC Fund for International Development is expected to co-finance this project on a parallel basis with a loan of US$7.0 million for 20 years, including five years of grace, without interest. The project would also be co-financed on a parallel basis by the African Development Fund (ADF) with a loan of US$5.9 million equivalent substantially on the same terms as the IDA credit. PART I - THE ECONOMY 1/ 2. A basic economic report, "Sierra Leone - Current Economic Position and Prospects" (No. 494a-SL dated November 28, 1974) was distributed to the Executive Directors. Subsequently, two updating Economic Memoranda (No. 1106-SL dated June 25, 1976 and No. 2153-SL dated June 26, 1979) have also been distributed to the Executive Directors. A Bank economic mission visited Sierra Leone in May 1980 and its principal findings are incorporated into this report. Country data sheets are contained in Annex I. Structural Characteristics 3. The economy of Sierra Leone is dualistic in character, a rela- tively small modern sector co-existing alongside a large traditional agri- cultural sector. For its source of income and growth, Sierra Leone relies heavily on agriculture and mining, although in recent years depletion of the country's richest mineral deposits has led to a decline in their relative contribution to the economy. Diamonds, the largest export earner, accounted for nearly 56 percent of exports in 1979. 4. The agricultural sector, still largely outside the monetized economy, provides livelihood for nearly 80 percent of the population. Its contribution to GDP, however, is around 35 percent, implying a low level of agricultural productivity and food output per capita on the average. Rice is the staple food and is grown by over 80 percent of the farmers, primarily 1/ Substantially unchanged from the President's Report for the Eastern Integrated Agricultural Development Project III dated December 19, 1980 (Report No. P-2929-SL). - 2 - for subsistence, although the country still faces rice shortages. Coffee, cocoa and oil palm products are the major export crops and also the princi- pal sources of cash income for the agricultural population. 5. Sierra Leone-s social and economic infrastructure is not yet well developed. Although the extent of the road transportnetwork is generally adequate for its present needs, there is an urgent need for improved mainte- nance and the development of feeder roads. The country has good water resources, although the hydro power potential is still relatively untapped. Only about 12 percent of the population has access to a safe drinking water supply, mostly in the urban areas. Health facilities are inadequate and infant and childhood mortality rates are among the highest in Africa. Although the Government has in recent years invested quite heavily in education, primary and secondary school enrollment ratios are low (37 percent and 11 percent, respectively) and the country's illiteracy rate remains high, around 85 percent. 6. The dualistic economic structure is reflected in income dispari- ties between the modern and traditional sectors. With a population of about 3.3 million, average per capita GNP in 1979 was estimated at about US$250. The average per capita rural income is around US$120 while it averages about US$600 in the urban centers. About 23 percent of the population lives in urban areas. The urban migration rate (4.9 percent) is relatively low compared with neighboring countries; however, approximately 30 percent of the urban population has an income level below the urban absolute poverty threshold estimated at around US$105. Economic Performance (1) Production and Income 7. During its first decade of independence between 1962 and 1972, the financial resources available to Sierra Leone did not come under undue pressure as a result primarily of a reasonable rate of growth in domestic resources. Throughout this period, a nearly 5 percent growth in GDP per annum provided substantial foreign exchange earnings and also contributed to a satisfactory growth in public revenues. Beginning in 1972, however, this situation changed. Diamond output began to decline, mainly as a result of the depletion of alluvial deposits; there was a sharp increase in oil prices in 1973 coupled with rising import prices of manufactured goods; and in 1975 the country lost its second largest source of export earnings when the only iron ore mine closed due to rising production costs and a declining iron ore grade. As a consequence, the GDP declined by 4 percent in 1975/76 and remained virtually stagnant thereafter. During this period (1974 and 1979) the growth of GDP was less than one percent (0.9 percent) per annum on the average. With a population growth rate of about 2.5 percent per year, this resulted in a sharp decline in already low per capita real incomes. -3- (2) Fiscal Performance 8. From 1973, the slowdown in economic growth and the erosion of the export base were accompaniedby a marked deteriorationin fiscal performance characterizedby stagnatingpublic revenues and expandingpublic expenditure policies. During the period 1973 to 1979, while public revenues increased an average of 12 percent a year, public expendituresgrew about 21 percent per annum and the overall budget deficit widened from Le 21 million in 1973 (about 6 percent of GNP) to approximatelyLe 114 million in 1979 (about 13 percent of GNP).