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1 Public Disclosure Authorized D=Mong of ~fltot RETURN TO REPORTS DESK WRTHIN IME1 OfClAL UW$ OWL! ONE WEEK ZM put N.P-<Dp T Public Disclosure Authorized REORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A TRUCKING INDUSTRY REHABILITATION AND IMPROVEMENT PROJECT Public Disclosure Authorized Public Disclosure Authorized September dk~~00bmnqm D* m2a omd by my mopoomb emoy~~~~~~~~~~

2 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 EAA EAC EARC Government MOW MCT NRHC NIT NTC SMC TANU TAZARA TRDB Agricultural Development Services East African Airways East African Community East African Railways Corporation Government of Tanzania Ministry of Works Ministry of Communications and Transport National Road Haulage Corporation National Institute of Transport National Transport Corporation State Motor Corporation Tanganyika African National Union Tanzania Zambia Railway Authorfty Tanzania Rural Development Bank

3 FOR OnFICIAL USE ONLY TANZANIA TRUCKING INDUSTRY REHABILITATION AND IMPROVEMENT CREDIT AID PROJECT SUMHARY PROJECT BORROWER: AMOUNT: TERMS: PROJECT DESCRIPTION: United Republic of Tanzania US$15.0 million equivalent Standard IDA terms The major component will assist the Government in the development of five public trucking companies including technical assistance, the rehabilitation of existing vehicles, purchase of new vehicles, and the provision of truck repair facilities. The training component will increase the supply of trained trucking personnel through the provision of instructors, teaching aids and workshop equipment. Financing is also provided for replenishing depleted vehicle spare parts inventories. PROJECT COSTS: (US$ million) Local Foreign Total Project Coordination Transport Companies Technical assistance Truck rehabilitation New trucks Repair facilities Assistance to NIT Spare Parts Component Technical assistance Financing spares Base costs Physical Contingencies Price Contingencies Total Costs Total costs (net of taxes and duties) 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.

4 FINANCING PLAN ($ million) Local Foreign Total IDA Credit Government Total costs (net of taxes and duties) ESTIMATED DISBURSEMENTS ($ million) Bank Fiscal Year Annual Cumulative 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.

5 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 ECONOMY 1 / 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 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 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 Government'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, / TANU (the mainland political party) was merged with the Zanzibar political party (the Afro-Sharazi Party) in February The new party is now called Chama Cha Mapinduzi (CCM).

6 -2- social ownership of the principal means of production, and full participation 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 classified 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, however, 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 , 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 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

7 -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 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. While production declined, domestic demand iacreased rapidly because of expansionary fiscal, monetary and wage policies, The imbalance between domestic demand and supply, combined with tihe sharp escalation in import prices, resulted in severe pressure on the domestic price level. 6. Although the severity and suddenness of the crisis were largely the result of forces outside Tanzania's control, many of the problems were foreshadowed by longer-term economic trends which, at least partially, were subject to Tanzanian control. Onte important adverse trend'was in the composition of growth; the rate of growth of material production had been falling for several years and the overall GDP growth rate had been maintained only by an acceleration in the growth of services, particularly of public administration. Much of the slump in agricultural production was due to poor weather but the average growth rate of agricultural output failed to exceed the rate of growth of popuiation *-or the six years prior to the harvest failure of The mass villagization program inevitably caused some disruption in agricultural production, in part because of inadequate planning and preparation. In the modern sector many enterprises experienced deciining labor productivity which has been attributed to lack of incentives, poor discipline and ineffective management. Furthermore, while the ratio of domestic savings to GDP rose during the 1960s, reaching a high of 18 percent in i970, it had declined to 15 percent by Public savings were also falling as a share of GDP, mainly due to the slow growth of parastatai enterprises' surpluses and the rapi.d increase in Government recurrent expenditures. The Government's Besponse to the Economic Crisis 7. Once the extent of the problemis facing the country was realized the Government formulated a comprehens±'ve program of policy actions to 1/ The overall balance of payments gap was financed largely through drawings from the LE (gold tranche, first credit tranche and 1974 Oil Facility) and by a rapid depletion of reserves which fell to $60 million (net) at the end of 1974, equivalent to only 'one month's import requirements.

8 -4- bring the balance of payments under control while maintaining the pace of the development effort. The principal elements of the program include a reallocation of investment in favor of directly productive sectors, measures to raise agricultural output, and constraints on wages and on public and private consumption. This program was reviewed with the Bank at the time of appraisal and negotiation of the program loan in late 1974, and approval of that loan was based on the Bank's agreement with, and support for the proposed program. The Government has, over the past two years, successfully carried out most of this program, as described below. 8. From mid-1974 the Government tightened import controls, particularly for consumer goods and industrial raw materials. Imports were curtailed drastically and liquor and tobacco imports were banned. Import licensing was further tightened in 1975, leading to sharp volume declines in imports of consumer goods, including textiles, and industrial raw materials and spare parts. In addition, the Government took further politically difficult steps to slow down the rate of growth of private consumption demand. Retail prices of basic foodstuffs were raised sharply in late Indirect taxes on textiles, beer and cigarettes have been progressively increased since 1975 to absorb excess consumer demand for these items. User charges for water and electricity have also been raised. An extremely restrictive wage and salary policy has also been followed since May On the production side, the Government has taken a number of steps to stimulate agricultural production. The share of Government development expenditure allocated to the agricultural sector has increased from 16 percent in 1973/74 to 23 percent in 1976/77. During late 1974 and 1975 the Government urged farmers to grow more food under the campaign "farming as a matter of life and death." The Government also announced substantial increases in agricultural producer prices in May and November 1974 and established an agricultural price review unit in the Ministry of Agriculture. Producer prices were again increased in 1975 Land The Government has also made significant progress during the last three fiscal years in reallocating public investment in favor of the directly productive sectors of agriculture (cited above), industry and mining. 1/ This fundamental restructuring of public investment 1/ The Bank Group has supported this effort by significantly increasing the proportion of our own lending to these sectors over the past three years. See Part II for details.

9 -5- necessarily means that relatively less investment resources are available for other sectors, in particular for primary education and rural water supply. In recognition of this fact, and also because the recurrent and capital cost requirements of these targets would be entirely unmanageable even under normal economic circumstances if they were to be implemented using past methods, the Government is stressing the need for local self-help, particularly in village school construction, lower cost delivery systems based on lower design standards, and the development of appropriate cost recovery mechanisms. Economic Performance in 1975 and The major macroeconomic indicators have generally improved since 1974, reflecting both improved weather and the effects of the policy measures which were introduced to deal with the crisis. Agricultural production increased by 6.6 percent in 1975 compared to a decline of 3.3 percent in 1974, while total GDP grew by 4.6 percent compared with only 2.2 percent in This was despite the fact that during 1975 production of cotton and some other cash crops still suffered from disorganization due to villagization. In 1976, some of the problems of villagization were being rectified through "operation correction" and since rains were once again favorable agricultural production was generally good. Preliminary estimates are that both agricultural production and total GDP increased by about 5 percent in However, output in the modern sectors of industry and construction has remained at a depressed level, in part due to shortages of building supplies, raw materials and spare parts occasioned by the severe import restrictions which have been imposed to conserve scarce foreign exchange. 12. The goods and services account of the balance of payments continued to deteriorate in 1975 due to continuing production difficulties, declines in some agricultural export prices and the continuing need to import food for part of the year. As a result of these trends the trade deficit increased from $340 million in 1974 to $400 million in 1975, and even after allowing for a high level of project-related capital inflows and a huge increase in grant assistance and concessional food aid, there was a residual deficit of almost $75 million. Whereas the 1974 residual deficit was filled almost entirely through a combination of IMF assistance and reserve depletion, the 1975 deficit was met through foreign assistance from a wide variety of sources, including a $30 million program loan from the World Bank. In 1976 the balance of payments picture improved. The trade deficit declined due to strong export performance, especially for coffee and cotton, and to a slight fall in the value of imports occasioned by a greatly lessened need for foodgrain imports and continuing tight restrictions on all other categories of imports. The overall balance of payments is expected to show a surplus of about $35 million for the year and net foreign exchange reserves

10 -6- have increased to $115 million which is equivalent to two month's import requirements at the 1976 level, a modest improvement over end-1975 but still an inadequate level. Because of the very concessional terms on which aid has been given to Tanzania, and the Government's refusal to use higher cost commercial loans and suppliers' credits, the overall debt service ratio has remained low -- including a notional 40 percent share of the debt of the East African Community Corporations, it was less than 8 percent in East African Community (EAC) 13. The 1967 Treaty for East African Cooperation made provisions for far-reaching and comprehensive economic cooperation arrangements among Kenya, Tanzania and Uganda. In its initial years the EAC had set up institutions, policies and procedures for operating the common market and the large infrastructure services, and encouraging progress was achieved. It has been followed, however, by a period of tension and mutual suspicion concerning the distribution of net benefits derived from the Community. The infrastructure services were hampered by restrictive tariff policies; services declined, and Partner States subventions were required for the Railways from time to time to keep the services running. The poor performance of the common services in transport and communications also impaired trade and general movement of goods within the countries, affecting the general economic development program. These difficulties were aggravated by the severe budgetary and balance of payments constraints faced by all three Partner States in the past few years. As a consequence, there has been a continuous diminution in the authority of the Community institutions. Failure to agree on arrangements for transfer of funds between the Regional Offices and the service headquarters has often paralyzed the operation of the headquarters and on a number of occasions led to delays in meeting their external obligations. 14. In 1975 the Partner States recognized that their fundamental political and economic differences had so affected the working of the Community that a review of the 1967 Treaty was called for. A Commission was appointed for this purpose in November 1975 but adjourned sine die in November 1976 without being able to make agreed recommendations regarding the future structure of the EAC. Meanwhile, the continuing deterioration in Community relationships led to a further dismantling of the Corporations. The Railways Headquarters has in effect been disbanded and the nationals working in the headquarters joined their respective Regional Offices. More recently, the East African Airways Corporation (EAA) collapsed in part due to the lack of an effective mechanism for interstate transfer of funds. The headquarters of the East African Harbours has existed in name only for at least a year with the ports authorities in Mombasa and Dar es Salaam functioning autonomously.

11 -7- The East African Posts and Telecommunications Corporation has so far functioned with a semblance of Headquarters responsibilities but is now fast delegating its headquarters functions to its Regional Offices. The respective regional branches are responsible for providing the services, and domestic development programs in this sector are not likely to be impaired. The Government of Tanzania has recently taken steps to formalize this situation by enacting legislation for both a Tanzanian Railways and a Harbours Corporations. It is expected that the new corporations will be formally established in the near future and that the other Partner States will shortly follow suit. 15. The difficulties facing the EAC and the common services have affected the Bank's lending to the Community. Because of failure to meet debt service obligations, the Bank suspended disbursements last year for about a month. Except for a second line of credit to the EADB in March 1976, the Corporations have received no new loans from the Bank since The Bank has continued to disburse on its 5 ongoing loans to the Corporations and as of August 31, 1977 $32.5 million remains undisbursed. PART II - BANK GROUP OPERATIONS IN TANZANIA 16. Tanzania joined the Bank, IDA and IFC in Beginning with an IDA credit for education in 1962, 29 IDA credits, 12 Bank loans and two Third Window loans amounting to $476.0 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of 10 loans totalling $244.8 million which have been extended for the development of the common services and development bank operated regionally by Tanzania, Kenya and Uganda through their association in the East African Community. The only IFC investments in Tanzania to date, totalling $4.7 million, were made to the Kilombero Sugar Company in 1960 and This Company encountered financial difficulties and in 1969 IFC and other investors sold their interest in the Company to the Government. Annex II contains summary statements of Bank loans and IDA credits to Tanzania and the East African Community organizations as Of August 31, 1977 and notes on the execution of ongoing projects. 17. In keeping with Tanzania's overall development strategy, Bank lending operations are increasingly focusing on the rural sector and directly productive projects. Up to the end of FY72, 10 out of 14 loans and credits made individually to Tanzania have been for infrastructure. Of the 26 Tanzanian operations approved since, the overwhelming majority were for directly productive projects. In general the infrastructure projects which have been approved in recent years have been designed to support specific directly productive activities. For example, the Urban Water Supply Project (Loan No TA) approved

12 -8- in January 1977, will support the recently approved Industrial Complex Project in Morogoro (Loan No. 1385T-TA and 1386-TA). The directly productive projects are supporting both the agricultural and industrial sectors, including the Kigoma Integrated Rural Development Project (Credit No. 508-TA), the National Maize Project (Credit No. 606-TA), the Fisheries Development Project (Credit No. 658-TA), the Tanzanian Investment Bank Project (Loan No TA), the Mwanza Textile Project (Loan No TA), and the Morogoro Industrial Complex Project. The first Bank Group-assisted project in the forestry sector, the Sao Hill Forestry Project (Loan No TA), was recently approved and will provide the raw material for Tanzania's first paper and pulp plant, also under preparation for consideration by the Bank Group for financing. A Program Credit, which provides for essential imports,and a Second National Sites and Services Project were also recently approved by the Board. Projects which have recently been appraised include a Rural Development Project in Mwanza and Shinyanga, a Second Cashewnut Processing Project and a third line of credit to the Tanzania Investment Bank. A Second Textile Project, a Fifth Highway Project and an Agricultural Development Project are under preparation. 18. The comparatively high proportion of undisbursed loans and credits, detailed in Annex II, page 1, is in large part a reflection of the fact that many ot these projects have only recently been approved. It also reflects the fact that overall project implementation has been less than satisfactory, as both the Bank and the Tanzanians have been overly optimistic regarding Tanzania's absorptive capacity. The causes of the difficulties in implementation are varied. Some stem from the scarcity of suitable, trained and experienced manpower, some reflect difficulties in identifying agronomic input packages appropriate to the needs of small farmers in terms of marketable surplus production, others reflect the strains inevitably associated with attempting a "frontal attack" on poverty. These difficulties have been compounded by frequent and drastic administrative changes which -- though perhaps essential to translate the Tanzanian vision of the appropriate organization of society into practice and potentially the source of long-term benefits -- have certainly disrupted orderly execution of projects in the shorter term or made parts of earlier project concepts obsolete. In general, these difficulties have been must severe in agriculture, particularly in the smallholder rural sector. As our lending program -- as well as those of other donors -- increasingly concentrates on this sector, ths.e nroblems have become correspondingly more apparent and severe. By contrast, the "modern" sector projects have tended to fare better. The Tanzania Investment Bank (DFC), Mwanza Textile, Urban Development, and Cashewnut Processing projects, for example, are proceeding well. Furthermore, the causes and solutions of the problems in these sectors have been easier to identify, e.g. implementation of education projects has improved markedly now that required technical assistance has been recruited.

13 As the Bank's lending program has expanded, increasing attention has been given to measures designed to improve project implementation. A course was conducted on the Bank's procurement policies and procedures in Dar es Salaam in 1973 with the relevant Government officials. A special project implementation unit, supported by a seconded Bank adviser and an ADS staff member, has been established in the Ministry of Agriculture and eight other ADS staff members are presently assigned to specific projects. The need to establish a close and continuous working level dialogue between the responsible Tanzanian officials and Bank staff on following up implementation problems was one of the prime reasons for the expansion of the Resident Mission to two professionals in October A regular joint Bank/Government review of project implementation was established in late February 1977 when a meeting, chaired by the Ministry of Finance and attended by Bank staff and officials from implementing agencies, was held in Dar es Salaam. Steps to further strengthen this review procedure were taken in August 1977 when these regular meetings were shifted onto a monthly basis. The Government has also agreed that every third such review will be conducted on an "in-depth" basis. In addition to these across-the-board measures, specific in-depth reviews of a number of rural development projects have been taken to adjust them to the new institutional situation and reflect our experience to date,e.g.,for the Geita Cotton (Credit No. 454-TA) and Second Livestock (Credit No. 382-TA) projects. In designing and appraising new projects, attempts are being made to avoid past mistakes. In particular attempts to ensure that new projects are designed to work under existing institutional and human resource constraints are being made. 20. Partly as a result of these efforts, the Government has become increasingly conscious of implementation issues. President Nyerere is personally very concerned and has on a number of occasions taken senior civil servants and parastatal officials to task for inadequate performance on specific Bank projects. The Ministry of Finance and implementing agencies are now taking these problems more seriously. In general, there is a more consistent response to Bank suggestions and a willingness to openly discuss "problems" raised by Bank staff. For example, an earlier reluctance by the Government to recruit technical assistance and an unwillingness to pay appropriate salaries have been replaced by the acceptance of such help when it can be clearly demonstrated that it is required. As a consequence project implementation performance has clearly improved somewhat over the last two years or so. However, it is obvious that, even with the continued emphasis on project implementation, progress can only be expected to be gradual and new problems will continue to emerge particularly in the newer sectors of Bank involvement. The wide scope of the Bank's lending program and its increasing focus on the more difficult and complex sectors and issues combine to cause new difficulties which need to be addressed as they arise.

14 -10- PART III - THE TRANSPORT SECTOR Background 21. Tanzania's transport system comprises roads (about 33,400 km), two railway systems (totalling 3,570 km of track), three main ocean ports and a number of important lake ports, two international airports and over 50 smaller airfields. In addition, there is a 900 km pipeline between Dar es Salaam and Zambia, a transit facility for Zambian supplies of crude oil. 22. While the Government has concentrated road investments in recent years on bituminizing existing roads rather than building new ones, only 2,600 km (8 percent) are paved and 1,100 km (3 percent) are engineered gravel. Many of the remaining roads are in poor condition and are often impassable in the rainy season. The average road density is among the lowest in Eastern Africa, 38 km per 1,000 km 2 or 2.3 km per 1,000 inhabitants, and varies considerably from one region to another reflecting development and settlement patterns. The Ministry of Works (MOW) is responsible for construction and maintenance of primary roads, while regional administrations are responsible for the rest of the road network. Shortage of qualified staff, lack of equipment and lack of funds have long been problems in MOW and in the regional administrations. 23. Two railway systems serve Tanzania: the East African Railway Corporation (EARC) and the Tanzania-Zambia Railway Authority (TAZARA). The EARC, a joint venture of the three Partner States of the East African Community, serves central and northern Tanzania with about 2,600 km of 1.00 m gauge track. TAZARA, financed by the People's Republic of China and owned jointly by Tanzania and Zambia, was completed in 1975 and consists of m gauge track extending from Dar es Salaam into Zambia. The principal traffic at present is Zambia's exports of copper and its imports. 24. Though the principal Tanzania ocean ports of Dar es Salaam, Tanga and Mtwara are organized under the East African Harbours Corporation, they have been operating largely under regional control since the move towards decentralization of EAC organizations. The major port facility is Dar es Salaam (it handles about 85% of the total Tanzanian traffic), and nearly half of the tonnage through that port represents Zambian traffic. The major shipping line of domestic importance is the Tanzania Coastal Shipping Lines which has a monopoly on carrying passengers along the coast, and between the coast and island ports. Transport services on Lake Victoria were formerly provided by the EARC; however, in 1976 disbursements between the Partner States led to suspension of these services -- a development which has negatively affected the regions bordering Lake Victoria.

15 With its vast distances, difficult terrain and weather and limited road network, domestic air service is particularly important in Tanzania. Air transport has been another EAC function - the East African Airlines (EAA) provided regular service to 18 airports within Tanzania. However, with the grounding of EAA in early 1977 services have been limited. A national airline, Air Tanzania, has been formed and it began regularly scheduled services on the former EAA routes in Tanzania in mid Transport Policies and Priorities 26. Tanzania's transport priorities and policies have changed over the years in response to changing national needs and conditions. For many years the transport infrastructure was geared to serving Tanzania's external trade: the central and northern lines of the EARC connected the major interior cities with the port developments at Tanga and Dar es Salaam. Roads were developed primarily as feeders to the railway and ports. However, in the late sixties, an urgent push was placed upon providing an external outlet for Zambia. During this period the Tanzania-Zambia Highway and TAZARA were completed and Dar es Salaam port underwent a major expansion. With the completion of these Zambia-linked investments, there are indications that the Government is now beginning to focus on basic local transport problems, address the rehabilitation of the road network and place a high priority on rehabilitating or establishing services formerly under EAC control. Therefore, even with the overall Government emphasis on directly productive projects (para 7) Tanzania has recognized the critical need for investment in high priority transport needs. With respect to local transport, this will include developing a capacity for rural road development. For example, regional rural development projects and agricultural projects are expected to include relevant road components (in the Tabora Regional Development Project, Credit No. 703-TA, a substantial improvement program was included). Secondly, a major emphasis in the Third Five-Year Plan under preparation will be on maintenance and rehabilitation. This was the focus of the IDAfinanced Road Maintenance Project (Credit No. 507-TA), and it is expected that the Fifth Highway Project (presently under preparation) will continue this effort. With regard to the EAC, railways, harbours and airways can be expected to receive considerable attention by the government over the next few years as these services must now be addressed at the national level. Bank Group Experience in Transport 27. At the national level, to date, the only Bank Group involvement in transport in Tanzania has been in highways. In that sector,

16 -1 2- four projects have been approved totalling $56.2 million. Tne First Highway Project (credit No. 48-TA) in 1964 was supplemented by Credit No. 115-TA in These credits tinanced construction of a total of 860 km of roads. The Second Highway Project (Credit No. 142-TA and Loan No. 586-TA) assisted in the construction of the Tanzania- Zambia Highway and was successfully completed in A third project (Credit No. 265-TA) focuses on road construction in Southern Tanzania and a fourth project (Credit No. 507-TA) is aimed at improving road maintenance -- both are still in progress. In addition, a number of agriculture projects include road construction components. 28. Two major difficulties have arisen in these highways projects. The most critical has been cost overruns: the first project required a supplemental credit and in Highway III the African Development Bank agreed to parallel finance part of the original project in order to complete it in its entirety, The second, and certainly related, problem has been with the availability and effectiveness of the technical assistance provided for under the projects. The Project Audit Report of Highways I highlighted the delay in recruiting technical assistance as a cause of the problems in implementation and concluded that the component which focused on training was not effectively implemented. In addition, in the Third Highway Project a number of difticulties were experienced between the Government and its consultants on the technical performance of the consultants. Finally, delays in identifying adequate technical assistance under the fourth project significantly delayed its implementation. 29. Bank Group assistance to Tanzania for Ports and Railways has been provided within the framework ot the East Atrican Community. Loans amounting to US$166 million have been made to the East African Harbours Corporation and the East African Railway Corporation for projects benetiting all three Partner States. In Tanzania the projects have assisted the development of EARC's northern and central lines and have financed a large portion of the extensive development of Dar es Salaam's port. Trucking 30. Tanzania's trucking industry is a major source of the country's supply of transport services as almost 60% of Tanzania's domestic cargo traffic moves by truck. The size of the fleet has not changed markedly since 1972 and is estimated to total about 13,000 vehicles C 3,000 publicly owned and 1Q,00Q in private hands). Trucking services have deteriorated rapidly in recent years.

17 -13- resulting in a serious bottleneck to overall economic activity. This situation has come about mainly as a result of difficulties the Government has encountered in translating its social development philosophy into a workable transport policy - specifically from problems encountered in substituting public trucking operations for the private sector, and in regulating the import of vehicles and spare parts. These problems have been exacerbated by poor road conditions which are a significant cause of the rapid deterioration of the vehicle fleet. As noted above (para 26) the Government is now focusing considerable attention on road rehabilitation. supported by the IDA-financed Highway Maintenance Project (Credit No. 507-TA). 31. Public Se tor Trucking. Almost all road freight was carried by private companies (usually owner-operators) until At that time the Government adopted a policy of substituting a public transport system for the privately owned industry. Because of the aggressive Government expansion in public road transport which followed (reinf"orced by the movement tb state control in many other sectors) and a number of specific operating problems which accompanied the economic crisis Tanzania was facing (especially the non-availability of new trucks and spares), many operators in the private sector left the industry. The net effect of this was a decline in the private share of freight service to about two-thirds of total trucking services. Moreover, those private operators that remained shifted their services out Af dlifficult regions and into more lucrative long haul routes. 32. The Government entered the industry in a number of ways, including the creation of specialist transport companies and transport wings in manufacturing, trading and crop marketing parastatals. Since their establishment these entities have been characterized by inefficiency, low productivity and unreliable provision of services. Rapidly established, they have inexperienced management, and suffered from a lack of working capital while carrying high debt obligations. These entities are also sometimes required by Gavernment to carry freight on the most difficult routes, and have had to accept unprofitable rates for services that could command viable rates. In truck utilization and truck availability (two major measures of truck performance) private sector performance is constantly and significantly above that of the public sector. R'. Vehicles and Spare Parts. In 1974, the Government set up a surict licensing scheme for the import of vehicles and spare parts. At the same time it established the State Motor Corporation (SMC), made it the sole agency responsible for importing trucks for resale to both the public and private sectors and gave it major responsibilities in the area of spare parts importation. In importing and allocating trucks, SMC was inszructed to give priority to parastatals, then cooperatives (citizens in joint ventures) and last to private truckers (thus significantly limiting the availability of trucks to that segment of the sector). However, as SMtC lacks the trained staff needed to collect and analyze data on actual trucking

18 -14- industry requirements, truck imports are frequently unrelated to public and private industry requirements in number, type and size. 34. In respect to spare parts imports, the SMC receives foreign exchange applications(mainly from dealers, parastatals and major transport operators)and makes a request for licenses from the Bank of Tanzania. The Bank of Tanzania (which does not have the technical capacity to review the spare parts requests) determines the total amount of foreign exchange available for the import of spare parts and then the SMC has the responsibility of allocating this amount to the various users. The newly formed SMC has not been able to undertake efficiently the difficult job of allocating imports or deciding on and justifying an appropriate size allocation: incorrect allocations by SMC between major purchasers (dealers, parastatals and the Government) leave some users constantly short while others are unable to use their entire allocations; the wide range of spare parts results in mistakes or omissions leaving some parts unavailable at any price; the increase from one to six months in the interval between the times the Government will accept import license requests results in a magnification of any ordering errors (since the orders cover a much longer period, mistakes involve larger numbers and these in turn cannot be quickly corrected); the distribution of spare parts is restricted as the dealers are mostly Dar es Salaam-based and protect their available stock; and finally, the overall size of the spare parts allocation has been inadequate. Compounding these problems is the fact that the rapid build-up in the inventory of spare parts which took place in anticipation of the licensing has been largely depleted. In addition, the banning of private car imports in 1974 led to a significant aging of the private car fleet with a resulting increase in the demand for spares from that category of vehicles (reducing the amount of spares available to the truck fleet). Together all these developments have had significant negative effects on truck availability and utilization. Present and Future Government Policy 35. In view of its difficult experiences in public trucking, the Government has been reviewing its policies during recent months. In a major policy decision for public trucking, the Government (acting in concert with the Tanzania Rural Development Bank- TRDB) decided to liquidate the National Road Haulage Corporation (NRHC). This company was the largest public trucking fleet and was a central element in the Government's formerly expansionist policy in this sector. In addition, the recent Government decision to terminate regional cooperative unions was at least partially due to their inability to provide adequate transport services. In their place the Government has temporarily increased the role-of crop, manufacturing and trading parastatal fleets but over the long run it hopes to rely on the development of regional trucking companies. This decentralization will require smaller companies-of the type to be developed under the proposed project. Particular emphasis is being placed on developing "model regional companies" on which to

19 -15- base any subsequent growth of the public sector. The Government's strategy reflects both its desire to establish a strong public segment in the trucking industry and its pragmatic concern that the public sector should meet reasonable tests of operational efficiency. 36. The situation with regard to private trucking has stabilized in the recent past. Government acceptance of the need for the continuation of a substantial level of private services has reassured the private firms and a trend of increasing investment has been observed among these firms. Yet substantial bottlenecks still handicap this segment of the sector: in particular the non-availability of new trucks, shortages of spare parts and manpower shortages. While the project does not attempt to address directly the first of these, the training and spare parts components are expected to help in resolving some of the private sector's difficulties in the latter areas. 37. While the general outline of the Government's policy in the sector has emerged (a controlled expansion of regional companies with the retention of important private sector involvement), the Government has not developed a detailed program for the trucking industry. To some extent this reflects the urgent nature of the present situation. Yet it also is related to the lack of information and analysis done on the sector (para 56 below). Since the project will result in considerable additional experience in public sector trucking and will generate substantial information, it should assist the Government in defining a long term program. It was agreed during negotiations that an action plan for medium and long term development of the trucking industry would be formulated based on project experience. This plan would be prepared by December 31, (Section 3.07(c) of the draft Development Credit Agreement.) National Transport Corporation (NTC) 38. Major responsibility for public sector transport rests with the NTC, a parastatal organization under the Ministry of Communications and Transport (MTC). It controls the government-owned National Bus ServicE Dar es Salaam Motor Transport Company, and Tanzania Coastal Shipping Line; The National Road Haulage Company was also controlled by NTC for several years until it was dissolved in April 1977 (paragraph 35 above). Although NTC does not itself directly engage in transport operations, it exercises substantial influence over the policies and activities of its subsidiary operating organizations. In addition, the NTC recently assumed responsibility for the training of a wide range of skills in the transport field when it organized the National Institute of Transport. NTC fulfills its responsibilities adequately, particularly since an able and energetic Chairman and Managing Director was appointed in February 1977.

20 -16- The Tanzania Rural Development Bank (TRDB) 39. TRDB was established in 1971 to provide long and medium-term finance and technical assistance for the promotion of rural development. At its founding, it was stressed that TRDB was intended to be a sound financial institution and therefore would only extend credit to economically viable activities. TRDB is wholly Government owned with an authorized capital of TSh 300 million. Its management is vested in a Board of Directors, including a Chairman and Managing Director appointed by the President of the Republic, and eight other Directors appointed by the Minister of Finance from among persons with knowledge and experience of economic and financial matters, rural development, agriculture, smallscale industries, ujamaa villages or cooperatives. TRDB has its head office in Dar-es-Salaam and 20 regional offices. There are four Departments: Development, Finance, Administration and Operations. The regional offices represent the Bank at the regional level and provide technical assistance in project development and implementation. 40. The Association was consulted during the establishment of TRDB and has been extensively involved with its development. TRDB has played the role of financial intermediary in a considerable number of Bank Group agricultural and rural development projects and a separate line of credit for TRDB is being prepared for consideration for Bank Group financing. TRDB has also had extensive experience in lending for road transport in Tanzania and therefore is an appropriate channel for project financing. Since its founding, TRDB operations have been complicated by villagization, decentralization, the elimination of the regional cooperative unions (its largest group of borrowers), as well as the drought. All these developments have created special problems for TRDB, and weaknesses in its portfolio reflect these difficulties. Yet, throughout this period, TRDB has increased its level of operations and significantly upgraded its staff. Bank Group missions have noted TRDB's ability to deal with its problems and expansion and have been particularly impressed by its management. While Bank Group projects in the agriculture sector have faced many implementation difficulties and some of these have involved TRDB-related components, consistent overall improvements have been noted in TRDB's performance. National Institute of Transport 41. Until early 1976, there were no formal training programs specifically for the road transport industry, which had to compete with other sectors for trained people from existing training centers. To alleviate this problem, in 1976 NTC established the National Institure of Transport (NIT). NIT initially offered a 3-month course on transport management and is continuing such short-term courses

21 -17- while adequate buildings are being constructed with funds from Transport License Authority revenues. NIT now plans to begin full-time, three-year diploma courses in Management, Operations and Mechanics, which will start supplying the public and private industry with trained recruits by However, there will be a continuing need for shortterm courses for people already in the industry, and the proposed project provides for this (para 48). PART IV - THE PROJECT Introduction 42. The severe road transport bottleneck which Tanzania faces has become a growing concern of both the Government and the Association. Lacking any detailed analysis of the road transport industry, the Government requested approval to use technical assistance funds provided under the Highway Maintenance Project (Credit No. 507-TA, August 21, 1974) to undertake such work. This study was completed by TRIMAC (a Canadian consultant firm) in 1976 and has provided some information for this project. A Bank Group mission visited Tanzania in March 1976 to work on the preparation of the project and it was appraised in the field in October Negotiations for the proposed credit were held in Washington in July 1977 where the Tanzanian Delegation included representatives of MCT, NTC, TRDB, the Ministry of Finance and the Attorney General's Chambers. An Appraisal Report entitled "Appraisal of a Trucking Industry Rehabilitation and Improvement Project", is being circulated separately. A Credit and Project Summary is included at the beginning of this report. Project Objectives 43. The project focuses on three major problem areas in the road transport industry: (i) the efficiency of public sector transport companies; (ii) the provision of adequate training opportunities, and (iii) the availability and distribution of spare parts for the trucking industry. 44. The proposed project aims to support the Government's efforts at reversing the deteriorating trends in road transport, a mode upon which the rural agricultural economy depends heavily. Given the size of Tanzania's trucking sector, no individual project can be expected to play a major financing role. Therefore, the emphasis of the proposed project is rather to assist the Government in getting its rehabilitation program off the ground. With regard to the public companies the objective

22 -18- is to develop several efficient public companies which could provide models for the remainder of the public sector. With regard to training, the project component has been specifically designed to address the most urgent gaps in the present industry manpower program. Both these efforts will be complemented by the spare parts component which will assist in rehabilitating and improving public and private companies' operations by ensuring an adequate supply of spare parts. Moreover, by supporting recent Government policy initiatives in the area of import liberalization and distribution, the component should have a major effect on the long run availability of spare parts for the entire trucking industy. Project Details 45. As noted in para 35 above, the public trucking component represents a major element of the Government's long-term strategy for addressing road transport problems. The five regional companies to be supported under the proposed project (Dodoma, Mtwara, Mwanza, Ruvuma and Tabora) will focus on priority areas for improving present transport services. One of these companies is operating (Dodoma) and the remaining four will be established under the project. All five will be parastatals under autonomous operational and financial management and will be general carrier trucking entities with region-wide and inter-regional franchise (Sections 3.04 and 3.07(a) of the draft Development Credit Agreement). It is proposed that each company will be formed from a combination of trucks owned formerly by parastatals and cooperative unions (these trucks will be rehabilitated under the project or if unsalvageable, replaced by new ones). The five companies will also be provided with truck repair facilities. Total costs for this component before contingencies are estimated at $9.9 million, 69% of base project costs. 46. The central elements of this component have been designed to address some of the problems which led to the failure of previous public sector efforts. The new companies will begin with a more manageable size -- each company will primarily be focused on the needs of one region and the specific size of all initial fleets was agreed to at negotiations (Schedule 2 of the draft Development Credit Agreement). They will be provided with adequate management backing -- extensive technical assistance to these companies is provided under the proposed project, and the management arrangements will be reviewed by the Association. Their formation will be carefully phased in accordance with a schedule agreed to at negotiations (Section 3.04 of the draft Development Credit Agreement). Lessons learned in initial operations will be integrated into later efforts. The capital shortage problems, particularly the weak cash flows which were encountered by NRHC, will be remedied through the establishment of appropriate debt/equity

23 structures in the project companies. The financial structures of the individual companies must be reviewed and found satisfactory by the Association. Finally, the utilization of TRDB as the onlending intermediary will ensure the application of previous Tanzanian transport experience. TRDB has had extensive involvement with both the NRHC and more broadly with the regional cooperatives and is expected to focus on some of the most critical issues of the public transport companies (which Government entities own the companies, independence of management and financial viability). 47. In order to avoid uncoordinated growth of public sector road transport, the Government agreed that any substantial expansion in public transport in the project regions would be reviewed with the Association (Section 3.07(b) of the draft Development Credit Agreement). In addition, to avoid the problem previous public companies faced with regard to being forced to transport at rates which fail to cover costs (para 34 above), the Government agreed that the public companies would have the authority to negotiate transport tariffs which, assuming efficient operations, would be sufficient to cover operating expenses and debt service and to earn a reasonable rate of return on equity (Section 3.06 of the draft Development Credit Agreement). In order to avoid problems of licensing or import controls, the Government agreed that the companies would be issued the foreign exchange and transport licenses necessary for efficient operations in a timely manner (Section 3.08 of the draft Development Credit Agreement). Finally, the Government agreed that proposals and recommendations that would significantly affect the operations and organization of project companies and their effect on the trucking industry will be discussed with the Association when they are being considered (Section 3.07(a) of the draft Development Credit Agreement). 48. The second component will support the National Institute of Transport. Although NIT has recently been provided with excellent buildings and a skeletal staff, the Institute needs strengthening (particularly of its instructional staff, teaching aids and equipment) if it is to upgrade the capabilities of public and private transport personnel. Accordingly, the project provides for four technical assistance instructors: one for trucking management, another for accounting, a third to handle the training of mechanics and drivers and a fourth to train supply managers; also provided are teaching aids and workshop equipment for training of mechanics. The instructors will conduct both short courses tt the NIT facility in Dar es Salaam and field training sessions in various regional centers. Costs of this component are estimated at $0.6 million before contingencies, 4% of base project costs, 49. The third project component involves the procurement of spare parts based on the Government/Association discussions on improving both the availability and distribution of spare parts. During the economic crisis of the mid-seventies (paras 5-7) the urgent need to reduce its

24 -20- import bill led the Government to impose import controls over an increasing range of imports. In 1974, controls were imposed for the first time on vehicle spare parts (para 33). These controls have remained in effect and in fact tightened over time. During recent discussions with the Government on the Tanzanian economy, the Association has expressed its concern that this licensing, while necessary and appropriate at one time, should now be loosened. This reflects the view that such a relaxation would significantly improve capacity utilization and remove a number of operational bottlenecks Tanzania faces. In light of these discussions and in order to support the rehabilitation of the truck fleet, the proposed project would provide $3.3 million for spare parts purchases. The size of this component was determined by an analysis of the estimated demand for spare parts which will be generated by liberalization of imports and which would allow the restocking of spare parts to minimum acceptable levels. This component also includes some funds for technical assistance to help the Government review, monitor and improve its import policy for the trucking sector. 50. In order to ensure that these funds would be utilized as effectively as possible, it was agreed at negotiations that before disbursements on this component would commence, the Government would have to produce a plan for carrying out the component, and this plan would have to be endorsed by the Association (Section 3.09 and Schedii3e l1,4(h) of the draft Development Credit Agreement). It was understood that this plan would include both a liberalization of imports and appropriate improvement to import procedures. While it was agreed that such a plan would be formulated by March 31, 1978 it is expected to be introduced in the near future by the Government. In fact the Government has publically announced its intention to liberalize vehicle spare parts imports and the questions remaining relate primarily to how this policy can be effectively implemented. Project Costs and Financing 51. Total project costs, excluding taxes and duties are estimated at US$17.3 million (taxes and duties total approximately $0.9 million). Estimated foreign exchange costs are US$15.1 million, or 87% of total project costs. Details of the project costs are provided at the beginning of this report. 52. The $15.0 million IDA credit will finance about 87% of the total project costs, equivalent to about 100% of the total foreign exchange expenditures. The Government will finance the remaining $2.3 million net of taxes. Procurement and Disbursements 53. All procurement will be coordinated by NTC, with TRDB playing a major role in the trucking companies component. In the trucking component new trucks and associated spares (estimated to cost $6.1 million before contingencies) would be purchased under international competitive

25 bidding from suppliers who would be required to provide adequate service, repair and maintenance facilities in Tanzania. Equipment for the trucking companies' workshops and for the NIT component would also be procured through international competitive bidding (*500,000). Spare parts for rehabilitating the existing fleet of the trucking companies (costing about $500,000) and teaching aids for NIT (costing approximately $60,000) would be procured through international shopping. The imports financed under the spare parts component (totalling approximately US$3.3 million) would be procured through the various dealers and merchants purchasing through their commercial channels which are normally competitive. 54. Credit disbursements would be made on the basis of 100% of the foreign costs and 70% of local costs of technical assistance, new trucks and related spare parts, materials, equipment and teaching aids and 100% of foreign costs of spare parts under the spare parts component of the project. Because the technical assistance is vital to achieving project objectives, retroactive financing up to $75,000 is recommended for technical assistance to NTC, to enable the Government to provide prompt logistical support (housing or caravan accommodations, furniture, household articles and vehicles) and thus mobilize the technical assistance as early as possible. Project Management and Implementation 55. NTC will have overall responsibility for project execution. Within NTC the various project activities will be coordinated by a Project Coordinator and an Assistant who will be appointed by December 31, 1977 (Section 3.02(a) of the draft Development Credit Agreement). These two individuals will have major responsibilities in project implementation: assisting the Government in the recruitment of technical assistance, working on the preparation and reviews of procurement documents, advising the Government with regard to the setting-up or reorganizing of the regional trucking companies, helping the regional companies in establishing appropriate facilities and rehabilitating their fleets, and monitoring the performance of the individual companies. They will also assist the Government in setting-up a system of data collection (para 56 below). 56. During negotiations the Government agreed to provide timely information on the project implementat:ion schedule, on operational targets for the companies and on monitoring indices and progress reporting on the progress of all project components (Section 3.10(a) of the draft Development Credit Agreement). Given the severely limited data available on the trucking industry overall, the Government also agreed to establish and implement procedures for the collection and evaluation of various data: on the number, age, size, location and ownership of vehicles, on seasonal transport demand, on available truck capacity and on industry performance (Section 3.10(b) of the draft Development Credit Agreement). 57. The trucking company component has a number of additional organizational arrangements which are noteworthy. First of all, substantial technical assistance will be provided to the individual companies. Advisors

26 -22- will be appointed for the General Manager, Chief Accountant and Service Manager and an instructor for mechanics and drivers will be provided for each company. However, the advisors are not intended to have direct operational responsibility -- this will rest with the Tanzanian staff involved. This arraugement was designed to improve local managerial skills, as the Tanzanian staff will have full decision-making power and responsibility for running of the companies. In order to ensure adequate manpower development, the Government agreed that a suitable counterpart, whose qualifications will be reviewed by the Association, will be assigned to each technical assistant (Section 3.03 of the draft Development Credit Agreement). 58. Secondly, the Tanzanian Rural Development Bank will serve as the financial intermediary for this component. As noted above (para 46) TRDB's extensive experience in transport should make a significant input into the design and operations of the project companies. A Subsidiary Loan Agreement between the Government and TRDB on terms and conditions satisfactory to the Association will provide the framework for the onlending of project funds to TRDB (Section 3.05(a) of the draft Development Credit Agreement). The terms of this Loan will include repayment in 10 years (including two years of grace) at an interest rate of 4%. Working with NTC, TRDB will analyze in detail each project company's managerial, economic and financial viability. In this regard the ownership of each company and their financial, operational and managerial arrangements will be approved by the Association (Section 3.04(a) of the draft Development Credit Agreement). In addition, before any funds can be disbursed to an individual project company, loan agreements on terms and conditions acceptable to the Association will be reached between TRDB and each project company (Section 3.05(b) and Schedule I, 4(a) of the draft Development Credit Agreement). Onlending to the project company from TRDB will be for 5 years (including one year of grace) at an interest rate of 8.5% per annum. This rate is TRDB's standard rate for medium term transport investments and is consistent with the country's overall interest rate structure. TRDB's spread will cover its administrative expenses, provide for the risks involved in this operation and allow some increase in TRDB's reserves. It is in line with the spread employed in previous Bank experience in using TRDB as an intermediary (para 40). 59. Given the central role and importance of technical assistance in the proposed project, all technical assistance hired under the project will be employed in consultation with the Association and will be retained according to an agreed upon timetable under terms and conditions acceptable to the Association (Section 3.02 of the draft Development Credit Agreement). Project Benefits and Justification 60. The investment in trucking companies, by far the largest project component, has an estimated economic rate of return of 37%. This analysis is based on the significant reduction in truck transport costs which can be expected in the regional companies. However, potentially more important than the direct benefits will be the project's ability to create a viable and efficient model for public sector transport on a regional basis.

27 61. The efforts in respect to the regional companies will be supplemented by the spare parts component. The estimated rate of return on that component is 38%. The component will support the restocking of spare parts for the entire industry and should result in significant savings by improving existing fleet availability and utilization -- thereby making it possible to avoid the significant capital costs of new truck purchases and ensuring more reliable service from the existing fleet. However, to the extent the present system of import control is improved or eliminated as a result of Government/IDA discussions in this area, far wider benefits can be expected. The private segment of the industry in particular will benefit from this component - it has been especially hard hit by the import controls and the allocation system which were instituted during the economic crisis in the early seventies. 62. The NIT component can only be assessed in qualitative terms. To the extent this component will improve the manpower available to the road transport industry as a whole (both public and private), it can be anticipated that it will complement Government's efforts to improve significantly management and operations across the entire sector. Risks 63. In its major component (the trucking companies) this project has substantial risks. The previous failure of public trucking in Tanzania has been well documented. Moreover, many of the problems which underlie that failure remain even with the project (the lack of management and worker incentives, manpower shortages and the difficult nature of road transport in Tanzania). However, in reviewing the previous difficulties and in assessing the problems public trucking faces, the Association staff have made every effort to reduce pragmatically the risks. Careful phasing of project company development, insistence on significant technical assistance, and limiting of the scale of the project to a small segment of the industry all reflect this caution. In addition, the Government has reacted positively to Bank Group suggestions and proposals. It has already begun mobilization for the technical assistance; it has secured the involvement of TRDB; and, perhaps most important, it has aggressively dealt with the difficult problems by cutting off the failures of the past rather than attempting to subsidize or ignore them. Finally, the Government's willingness to face the critical spare parts issue supports the Association's conclusion that it intends to resolve some of the most pressing bottlenecks in the sector. In view of these efforts to minimize project risks, we believe the level of risk is well justified.

28 -24- PART V - LEGAL INSTRUMENTS AND AUTHORITY 64. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement, and the text of a resolution approving the proposed Credit are being distributed to the Executive Directors separately. 65. Special features of the legal documents are listed at the end of this report (Annex III). While there are no special conditions of credit effectiveness, certain actions must be taken before disbursements can commence on two project components (paras 50 and 58 above). 66. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 67. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments Washington, D. C. September 20, 1977

29 TANZANIA TABLE 3A - SOCIAL INDICATORS DATA SHEET ADNNDEX I Page 1 of 4 page LAND AREA (THOU KM2) TANZANIA REFERENCE COUNTRIES (1970) TOTAL MOST RECENT AGRIC ESTIMATE KENYA imma, fip. OF MALAYSIA** -. ~~~ GNP PER CAPITA (USs) 6o.0*a ioo.o*/a 180.0*/ab 140.0* 280.0* 440.0* POPULATIDN AND VITAL STATISTICS _ -_-_ _ -- _ - POPULATION (MID-YR, MILLION) 9.6L& 12.9La 15.1!A.b : POPULATION DENSITY PER SQUARE KM. 11./ t PER SQ. KM. AGRICULTURAL LAND ) VITAL STATISTICS CRUDE BIRTH RATE (/THOU. Av) CRUDE DEATH RATE (/thou.av) i70 l L 40. INFANT MORTALITY RATE (/THOU) ~~~137.0 A1.4 2 La LIFE EXPECTANCY AT BIRTH (YRS) S GROSS REPRODUCTION RATE i L POPULATION GROWTH RATE (%) TOTAL 2.31a 3.0^A URBAN a URBAN POPULATION (% OF TOTAL) s AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 42:14.5 & TO 64 YEARS 5s.SLEŽ 53.0g a 65 YEARS AND OVER * a AGE DEPENDENCY RATIO oa/ab 0.9,, g/a ECONOMIC DEPENDENCY RATIO l.-i24d /.a FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) USERS (% OF MARRIED WOMEN) til "LOYMENT TOTAL LABOR FORCE (THOuSAND) /A a Ld a LABOR FORCE IN AGRICULTURE (%) l UNEMPLOYED (% OF LABOR FORCE).i b INCOME DISTRIBUTION s OF PRIVATE INCOME RECOD BY- HIGHEST 5% OF HOUSEHOLDS HIGHEST 20% OF HOUSEHOLDS E LOWEST 20% OF HOUSEHOLDS LOWEST 40% OF HOUSEHOLDS l DISTRIBUTION OF LAND OWNERSHIP s OWNED BY TOP 10% OF OWNERS o x OWNED BY SMALLEST 10% OWNERS HEALTH AND NUTRITION POPULATION PER PHYSICIAN I A /b /d 218 o0/ POPULATION PER NURSING PERSON o0.o7g t70 07 POPULATION PER HOSPITAL BED o ^ PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) o t0.0 PROTEIN (GRAMS PER DAY) L OF WHICH ANIMAL AND PULSE 22.0/ DEATH RATE C/THOU) AGES EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL O/ SECONDARY SCHOOL /e o YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) /a VOCATIONAL ENROLLMENT (% OF SECONDARY) /0 2.0e / ADULT LITERACY RATE (X) HOUSING PERSONS PER ROOM (URBAN) l-s.* /a OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) * *06 ACCESS TO ELECTRICITY (X OF ALL DWELLINGS)..,.,,,, /a RURAL DWELLINGS CONNECTED TO ELECTRICITY (%)....,, Oa CONSLIMPTION RADIO RECEIVERS (PER THOU POP) PASSENGER CARS (PER THOU POP) ELECTRICITY (KWH/YR PER CAP) NEtSPRINT (KG/YR PER CAP) 0.1/g SEE NOTES AND DEFINITIONS ON REVERSE

30 AgeRM o I NOTES ~~2f ae Ullfteo otberwioe noted, data foe 1960 refer to easyear between 1959 and 1961, for 1970 between a968 end 1970 sad foe Mint Reeent Ostintat between 1973 anad * 01fF per rayite, dsto are based on Wor'lA BasS Atlas as ftlogyl ( basis). Maiy3ol loan Ibeen olctertd noas o bjective en-try because its POPul1,tion is no-apsable in size seed its enonmic development is several steps aired of Tan-taia. TANZANIA /ap Mainland Tanoania; Aq 1957, African population only; Ac Ratio of population under 15 and 65 and over to total labor force; Ad 39; /e 1962; If Registered, not all Practicing In tie country, AE ; (t1958, Z-nibar only /a lmainland T%oen-a; Ab 1967; A- 1965; Ad Ao Peroentago of urban, bouseholds. Y.0ST gw01c EN ETIMiTE: A& 1976; Ab Mainland Tanzan,ia; A , Ad 1972; Ae aeae /f Urban cannty 1970 A~ RatiJo of population under 15 andi 65 and over to labor force age yearn, A Labor force age yearn, '0Urban.; /A Registered, not all praoticing in tie country, /0 Total secondary inniuden t-tc-o t-ai-ng at the thlird level KLOREA lip. OF 190 A Gosermunet eatinate in 38.0; A An Percentage of erploynent, A, Registerod, rot all practicing on tie co-try. A22 L wator piped innide MA_IAY _,A owent, Mainysoa L, Registered applicanto foe wor k; /o l96i-66, Id Pfoyno onir -oxie cciy pae Rll. Aog-st 2OL, 19,77 REPINrITIoN OF 1OCt0 INDICATORS Ladaen(is1-52 Popolation penara tani. paerso- Popo1Laf-s diclded 00 toenn of praes;o le Totsi Tosa1 s-ria-e aeon t-ciny isn load -reanod Inland.stars. -.an sd final geodoate n--e, sro:etod' or 'certified' nor..e.,.sd sartis M-os rorien en-lo-o of narloultoeni sean oed teaspoesrily or paean- asoiliary pseanas1 with t-nisig or e,opar;ace aeon; for crepe, ps-t-en -norb & kitchena gordan or to lbs follow. PoasI.inai Per haseica.l bed - opslat-ion diclded by nuobar of hospisal beds aes ilable in poblin and prience ganses1 and epeoloisso. hnapltal sod gnp_net _nita (1771; - GIN? pore -p5n ostimser at osereo narket prloan, rehbiblitotina reters, e-aldeseorseg boot ned eaalsonafor snioniatod by anne tn--rio, r,ahbd an Wanaid Book Stlon ( bass; eatdia1 and pronetin- oars. l1u, 107 ne 975 da.pot cnpita snpnly of onlortes I ~of reueaot; eop.od Ren a..seby "qotoisa-t of net food eupplian -calloble ionun..tr-y por.apita per day, Psoalo t ital nedtiotlo ocalobla eusprs- Iopie donstit prodoatior, ioports loss -poets.ad Pooain(aid-,e.t Ailon s of JOlY ilent if not -nillable, aeregs ebhanan in stook. not aopplio seelode seinal feed, needs. Moa itsit-itond of tw sod- year esilmnos 0li 1q70 nod 1975 darn, in Rood proe-ning sod looses In dintrlbouio-, reejoirsonnts were -eimaed by FAO base.d oo pbyailogicgt1 needs foe norai actloy sad health -nasd- Posolndeosf P- e 500a k - 551d-y-s popolottin pse eqorn ktlo,ntnr ertag eolro-t.1ra t-ooprsesn. body negtabra, asoad... dt.isaetbtbo of (100 araa. leoctaron ( of rotol ro~~~polslonil, and s1ioaes 102 for -osta or houshold 1-ee;. Poaslattoc dean-ity -erabo of anri_ food - Coopoted an aboe for Pe ait upy of eola(rnpeda) --Potinf ontelt of Pe Ieap"I agerocltoasi load only net nopply of food per dynosupy oflod Isdefiand as sboo, req1irenea.te for nil countrries eatabliobed by U120 Ecoacaic Resear ch sen-oboe Ottol otasloaten ~~~~~~~~~~~~~~~~~~provide fra a ilel-ocos...na of 60 fran. of total protein per day, and Crudo birab inato I.or ut... snrnoe-ooata... lise births pre aboosad of 20 ecasa of nabeal and poise prorate, ef hbsh 10 fr- hbould is aeba aidyoe oylstloo, te-yarstonorit sesrsgan ending in 1960 nod 1970, prtin chese stndards or liwe r than h...n of 75 aren of tota protin no7d fice-yeer --rgo e-dina In 1975 for coot recen.t sotfste- and 23 grsas of selaol peoro.. an sesro--o toe the -srid, propose.d by FA0 rde doil -tot nor thos.nod. -orsgr - MAnual deaths per thousand of old-year In the Thied Wel1d Food Survey populstion;: te-year -Ihtedi tei neerage ndia in 1960 anod 197 and Ifins- Pee onnit. eroisiasuppl fcoo anlal tdpne- Protin -opply of food y aosgentding -- in 1975 for not eto "ntae deeied fros alna-le nod polaa itfnron ~pee day Infan soilit oe s hc - Ao..n I dearhe of iefanta noise one Ysea ofag Doscth rate f/rho 0 ; ana1 toldni ereon naeaop - peribunnd lice- births,. yearn, to ehtldrn in hibi K.e greop toffee-td an so tediensr of Li fe netheooc- at bir,th_(yes) - icoesgo neober of years of life raensting at 1-letrition. birr", usull RI e-yer acrngee eadie Ia 1960, 1970 and 1975 for develop- Cres r... orto ae Aoieonbro lice degtee0 11eol bea Adjoetrd earol.ioner rai _pee tasol-icllnr of lla,s s et It neocdsetlc Nornoerma perfo if sonaparsesnapreener fe-spoetfle neeog ofpisy obo-e pephaina lcwsde children aged bi er fettl It sates,iuoaly fee-eocaenofe e ingo 1960, 1970 sod 1975 hon adjosted for diffor-t 1legebs of pelnars edoc.oin. for --ottelea use for dn-e1oplng oto iote. Ontes-1asodusotion, onolenetna nmd 100% sioce ewe popln are below Pepol,otn_,oth_rate (7,3 - totol C-Copood -n.-i growth rates of aid-year or above the offioialhscin oge po Jtton lor , sod Adjustetd OnrOllan atosuodenbe - Copo~ted an aboc-, secodar Poooingrot, at_ 7. ro - Coopood like growth rate of total edutaton en juices at losi (in years of oppr-cd prianryletcti, pplto;differron definitions of zebsa sten osy affeec teocprability of prceides geerl,c tsiona1 or teseher trieing lotornnfee pupils data eatig eucesof 12 to 17 yeses of age; ecrnnsp oodnne-e ae..l0raily -ee enelded nbon, poesi-ro (Q, of total) - Ratio ofcorbin to totalfpopaslation; different Yerpf teltnoeidad ((11Les.odsmodLve, TotalIpace f dofiniti-n of nhan ecron ay offeet -opseb ilityo data a,ong eousantree. sobolis at eneodary 1e- eealo-l innstruction cay be portla11y enaplotnly eneluded. Annecuctor (rcc.-,3 -Children (3-li years), notkiog-gfe (15-hi years), Poreo nobet(,o oodml-cc tnltesstosteld sond r-t-rd (65 cros -Ad -,e) an s tageo aid-yea pepolatbon. tehia.-dora rohrporo whet operat fodepsod-rsio a deedoey rato - bris J Pop iorbo ederiisod 65 sad over to tbnse deparrosets of sneondor Inlttle ~e of agea II thresf, NA A~~~~~~~~~~~~~ lienyrt ~~~~~~~~~dult 1- Lesrtecr adults (obic- to toad and ole onpeino--ir deop-deov. roe -K-Rtio of popolaibon undrr 13 and 95 and over to etg fttlautppl.eeat 5oaendoo thn labor force Iase groo..p of years. (maim elonio - seneto. (P- ozlatee hsin) - Coniatto- nooor of areeptorn H.osoIna of birth -tooted I deic-e -tder -opisno of tnionol fonily planoiog progrn Pesnapr rea (uba) -keroge n-oohe of to per- pren- In ar-pled silat ioo P opro cne-tienai doel1iags In leaosese d-ell-, eoslode no-petcaeoec 5 teniy lono -.sr Ct7 of carried one)-peora-ngee of ntrited.aoo.e.of atest.rae and sestpied poets. nhild-b-arlo 010 (:5-.4 cones hba on blrth-eooorol d-d en nil earne.d Intoned dulig I scithoot pipd oue 7 -cotd Cocoet..Ioa deollinfs w t.te -o ear groop. in urban and rarat es wiuho_ feid e oc t55 dppe aser foelllies as.. penetags of all netopied dwellngs Rot ioo,ane.ofiall cllldigg( doceerseelsd mase to eeearriotol(7 - I doelllege n t d fortes and.ooeployed but... wiud-g h-osei-na, etodeeta, et ; dofinieioan re aes In-sio-i cosentito are eat enapo ale RIa ~dallirg cnnctd to t -fop,td Clorsa nabc teroo iaaefrtel aelolso j - AStile-trn1 Isbor fnres Cia fanning, forestry, delnsol bootleg sad fis(sne) as per-ntaf of total iobot fort Itenlnod 37 ofisle foe U) -Onployoi ore onus ily defined as pomeone h.o fannto see able and atlllog to tsbk. job, eel of a job so a eiian day, re.naiod ont fai eeee pato of-a ne f eelenfor -ad- bredoasta of a jb,sd noebiag ne.ek Ie apsceified aini-in period oat... od1eg.e. C. fenara1 poblee per th-ndsnoif popolosttn -eeladne -lio...rd rentei-ra week, "Iy on he "np,rable between eooorsce doe 'tofdiffe'ret definicone intnnce Ieorowereltar-hf.os.550 oe cefet of onnp inynd o. soeton o data, eg., enployesoe ffitestaite,a l datafo re en oto a.nr y net be onapor.hb loe a' Oa-t ce-e-le abel Inhed..orve.. cenpoleoy oaenployosnt inaseaneei... leing P...ne er(pttoen)- Po...nger tars toopelso aoortere sea..tinf Ioasdiatrlb_ottn - Peroentage of prle-te macn (both it ea.h and bind ee tha siibt porsona; -ooldee enbolanret hersee and ti1itar reco-eod by riebest iy., riobeac SIC. peroe. 20It, and p.oloea hot of base- nehiole.. boldt Ileatrirlay (ben/or nor tan) - annual k I enasnapeloo tt _pr of ledostelal "P", toesserolal~~n r' l istrlbstrio- of land_o orhie - fere...tagno of load otod by...altibet 107, boand an pndurtien data, withoutl a1b_nanth fo oae ri t ds utalow and ponrese 10%. of load oer.ing foe iparts and.op.r_. of jeleetelit Ir2f7L, &Ll,,os±) - Pee capita annuel ooesn.ptloa In kileg-o Resith sod Roticiton estimaled fren do,nesric producion plsaner Imports of ne-pelos Poen1atlee ear physc. s Ppolotino dielded by enther of pesactolig pbyeiniona joa1iftod fron a aedd1ea nese aoo esoeiieraity local

31 PINM0 8VIDPQ pdatai Page 3 of 4 pages (Amont. n ili,.o US dol-lars) Actual Pcetdj.0~ L8 T~~T ~~ ~~ BO NATIONAL ACCOU2ICD L6 Al: 9193 ~.e ~. _rez& -rg nnal Groswth Races As PcerLet (.f GDY 0 Irons Ilumestic rs,duct 1s Gainis JPron T,rms of Trae-i Gros, 1uet. r.comc 1E66.4 UT3 TOa TI c import. (ino. 113S, D EX I1t.4 arono-rt capacity) Resou.rce Gap E Consumsption F-cponditures Invts t ment (mncl. stocks) Ivnmestlc Savings National Savings MEPRCHAND1SE TRADE Annual Data at Current Prices As Percent of Total imports Capitlt Voods intermediate goods 67(.fuels) 180.? Fuels and,relaled materials of which: Petroleson (41.8) (74.8) (87.8) (15G.2) (8.6) (10.4) (12.0) Con2umption_.6oOds in 3.. I 3.2.L 2L1.. Totail March. Tirmports (rif) CTTT Export's Prmr rout> cl ul) Fujels and related materials o~' which: Petroleum (12.5) (18.3) (18.1) (36.0) (3.8) (4.8) :5.5) 1Manuafact,ured goo,ds &.. 1..i..l..ia Total Merch. Siscoorts (fob) n: Toucisn arc Bova- Traoe -, -.. McrcuhanCsss TrsJ- Jodiec Av,erage 1) Extort. Pric, ncoex ~6 Jmport Price index Terms of' trade index Exports Volume Index VALUE ADDED BY -'ECTI? Artnual tatm at iut eao and lx-cha.tge le vrg An. Got Patees A Percent oftota,! Agriculture B1 3:6.2 Industry and Mining Service _ ] I.4j To tal Prelim. Est. PUBLIC FINANCE FT 73 FY 74 FY 75 FY 76 _Au Percent _of GIIP (Centrl Gnoverunment) Current Receipts Curr'ent Exedtrs Dsudgetw.ny Savings ~ Other Public Sector Public Sector Investment CURkRENT EXPENDITUR1E DETAILS Actual Prelim. Est. As So Total Current Expend. FY197Z PT1974 FY1975 FY1976 Education 17.E D17T7 TiTU.17.1 Other Social 5ervices A.grccuIlture Other Economic D~ervioes Admunestraticn somd Defense Otner ~~~~~~~ ToTtal Current Excpenditures 100.0o o SELECTEt, INDICATORS (Calculated from 3-year averaged data) Average ICOR. T3-4T 4 Deport Elasticity Miiaginal Domnestic Savings Ra:e Marginal National Savangs Rate !ATeR FORCE AND Total Labor Force Value Added Per worker (Current Prices) OUTPIT PMR WORKER In Million oftoal InU IJ.D.lOolas PrenofA re 1971 ~~ Agriculture Industry Service TOtal not applicable not available - ill or negli-gi'ble - loss than hallf the smallest unit sbowneapa February 1977

32 Page 4 of 4 pages BAlANCE OF PAY19IENTS, EXTERN~Al, ASSISTANGCE AND MEIT ~7amumts inm-illiars of U.S. dollars a current pr1ces) Avg. Annual Actu~al Estimated Projected Growth Rate i S 7NMARY BALANCE OF PA-33AENTS Exports (incl. NF'S) Dstports(incl. NFS) Vio-gEe Balance X-M) :I TZT 7W -22lS ir Interest (net) i Direct Inveetment Income Workers' Remittance C,urra.t Transfers (ret) Balance on Current Accounts I Private Direct Investment Official Capital. Grants public bg,lt Loans Disbursaments G1' & ' g, Net aen nt 8i f7y '9'.0 T ~ Other WeLT Loans Disbursements -Repayments Net igurs. ~~~~~ ~ ~~~~~~~~~~~~~~~~~~~ lkstimtet Capital Transactions n.e.i / 20.42'/ -3.9 Ul- 1)7 3 UZ Change in Net Raseryes DEBT M1D DEPT' SERVICE Psic=cDebt Out. & Disbursed lan ADlOAN -iienmi nees neunc et S OfficiaL Gats T& Gant-lk ItaesonPbcDbt Redaym.ents on Public Debt Total TUblic Debt Service Public M4&LT Loans Olth,' Debt 5Service (not).. TMD ~ ~ ~ ~ ~ ~ ~ oa eb evc nt.. TDA o~!db evc nt Other Other Multilateral Burden on Excport Earnings() Governments Suppliers Public Debt Service Financial Institutions --- Tot-al D-ebt Service... Bods PDS'Direct Invest. InL Publ,ic loans n.e.i. - Total Pusblic l4tt mans~ Average Termsa of Public Debt Ac tia. Debt Outstan,ding on D-c z.1975 Iot, as % prior Yea M)3D EXTERNJAL ORB'? Disbursed Dnly Percent kmsort, as % Prior Year DX2&D World Bank 27 IDA INN!) Debt Out. & Disbursed Other?islts.latcrol " as % Public Debt DAD Governments Slsnnl,ers ~~~~~~~~~~~~~~ as % Public Debt Service,4/ Financial Institutio TOD ADebt Out, & Disbursed Bonds ~~~~~~~~~~ as A Public Debt O&Di Public DXebts n-c.i a s % Public Debt Service4/ Total Public MAlT Debt Other MALT Debts Short-twms Debt (dosb. only) not applicable e staff estiseate l/ Includes drawing en Arab Fund for Africa ($7.1 a not available -nil or negligible 2/ includes bilateral and multilateral program asaistsoce. not available separately -- less thac half the 3/ Icludes use of IMF resources but included in total smallest unit shown 4/ BlRD ankd IDA debt service as 7. of public debt service EA CPUA February 1977

33 ANNEX II Page 1 of 13 A. STATEMENT OF BANK LOANS AND IDA CREDITS TO TANZANIA As of August 31, 1977 (US$ million) Amount less cancellations No. Year Borrower Purpose Bank IDAL' Undisbursed Four loans and ten credits fully disbursed TA 1969 Tanzania Roads TA 1970 " Tobacco TA 1971 Education TA 1971 " Roads TA 1972 Smallholder Tea TA 1973 Education TA 1973 Livestock TA 1974 Cotton TA 1974 Tanzania Investment Bank TA 1974 Cashewnut TA 1974 Sites and Services TA 1974 Highway Maintenance TA 1974 Rural Development TA 1974 " Sugar TA 1975 Dairy EA 1975 Textile TA 1975 TIB Tanzania Investment Bank TA 1976 Tanzania Technical Assistance TA 1976 National Maize Program TA 1976 Education T TA 1976 Power TA 1976 Forestry TA 1976 Fisheries TA 1976 Tobacco Processing TA 1977 Urban Water Supply T-TA 1977 Morogoro Industrial Complex TA 1977 Morogoro Industrial Complex TAI' 1977 Rural Development (Tabora) TOTAL of which has been repaid Amount sold 0.1 of which has been repaid 0.1 Total now outstandingl/ Total undisbursed / Net of exchange adjustments 2/ Includes Norwegian participation of $6.2 million of which $1.4 is undisbursed. 3/ Not yet effective. Amount excludes Canadian participation of $4.8 million. Note: An IDA credit of $12.0 for a Second National Sites and Services Project was approved on July 7, 1977 but has not yet been signed.

34 ANNEX II Page 2 of 13 B. SUMMARY STATEMENT OF BANK LOANS FOR COMMON SERVICES GUARANTEED BY KENYA, TANZANIA AND UGANDA AS OF AUGUST (US$ million) Amount less cancelleation No. Year Borrower Purpose Bank Undisbursed Five loans fully disbursed 638-EA 1969 EAHC Harbours EA 1970 EARC Railways EA 1972 EAHC Harbours EA 1973 EAPTC Telecommunications EA 1976 EADB Development Finance Total of which has been repaid 39.6 Total now outstanding Amount sold 24.4 of which has been repaid Total now held by Bank il Total undisbursed / Net of exchange adjustments.

35 ANNEX II Page 3 of 13 C. PROJECTS IN EXECUTION (As of August 31, 1977) AGRICULTURAL SECTOR There are currently 27 projects under execution in Tanzania. Credit No. 217-TA - Tobacco Project: $9.0 million Credit of October 9, 1970; Date of Effectiveness - February l ; Closing Date - December 30, 1977 Project infrastructure investments are 95% complete, all 15 complexes and 114 villages are established and water development has improved. Only 314 km of roads have been established compared with appraisal estimates of 1,104 km, but the reduced road construction program is considered sufficient for present production. A total of 11,300 farmers, about 81% of appraisal estimates, have been recruited. However, only about 6,900 are growing tobacco. Area under tobacco is 2,170 ha, and with an estimated yield for 1976/77 of 774 kg/ha, production is expected to be 1.68 million kg (30% of appraisal estimates). TAT will intensify their efforts to encourage more farmers to grow tobacco in the project area, and to improve extension and cooperative services. There are still middle-management gaps in TAT, but steps have been taken to improve financial control and bring the accounts up to date. Credit No. 287-TA - Smallholder Tea Project: $10.8 million Credit of March 3, 1972; Date of Effectiveness - July 26, 1972; Closing Date - December 31, 1978 After initial serious management problems the Tanzania Tea Authority (TTA) has finally reached a satisfactory level of senior staffing and this has had a clear impact on the working of TTA and an improvement in the control over field activities. Because of poor extension and farm practices in the past, about 1,600 ha of the 9,671 ha planted since 1971 wvill have to be infilled or rehabilitated, and yields have been lower than anticipated. Bank recommendations regarding crop yields, husbandry techniques, field organization, TTA structure and extension activities are now being implemented. Furthermore, market trends in tea have taken a favorable turn. Progress on the project is expected to continue to improve.

36 ANNEX II Page 4 of 13 Credit No. 382-TA - Second Livestock Development Project: $18.5 million Credit of May 23, 1973; Date of Effectiveness - September 28, 1973; Closing Date - December 31, 1979 Project implementation has been extremely slow. This reflects the size and complexity of the project as well as delays encountered in recruiting staff, selecting Ujamaa ranch sites, and concluding contracts for the construction of abattoirs and supply of heavy earth moving machinery. Project implementation is gathering momentum now that 'some of these problems have been resolved. However, a number of post-appraisal developments such as marked reduction in the world market price of bully beef and meat products, escalation of project costs, the availability of adequate beef supplies, and the weak financial positionsof the implementing organizations have adversely affected viability of the project. Because of this, an in-depth review was undertaken by Bank staff and consultants; the recommendations of the review mission have been accepted in principle by the Government and a plan of action to improve project execution is being implemented. Credit No. 454-TA Geita Cotton Project: $17.5 million Credit of January 17, 1974; Date of Effectiveness - April 5, 1974; Closing Date - December 31, 1982 Project implementation continues to be frought with difficulties and the project now faces a staffing problem as only five out of eleven senior staff posts are currently filled. The Government is taking steps to fill these vacancies, but the hiatus is clearly creating problems. The credit recovery rate is 8% of total lending. Fertilizer is being used on approximately 20% of the cultivated hectarage, but yield responses to the input package still appear to be low. Few field trials or extension demonstrations have been implemented. The main project achievements are land consolidation and the building construction program. Analysis of research data by RMEA and the Bank-financed project preparation team in Mwanza raised questions about the technical package originally recommended for this project. This matter received a close examination by the Bank technical review mission which visited Tanzania in March, and the recommendations of that mission were endorsed by the Government. Actions based on those recommendations are being kept under close review. Loan No TA - Cashewnut Developmient Project: $21.0 million Loan of June 24, 1974; Date of Effectiveness - September 26, 1974; Closing Date - December 31, 1981 The project has been progressing satisfactorily, and the original completion target dates are likely to be achieved in spite of an initial delay of about two months. The Cashewnut Authority's (CATA) takeover of the industry and consolidation of its activities is proceeding slowly as its management capabilities are limited. While the Government's consultants have effectively supervised construction and the project includes provision of technical assistance for factory operation, development of CATA is important to future progress and is receiving close attention.

37 ANNEX II Page 5 of 13 Credit No. 508-TA - Kigoma Rural Development Project: $10.0 million Credit of August 21, 1974; Date of Effectiveness - November 20, 1974;,Cl.osing Date - December 31, 1980 Substantial progress has.been rnade on the construction of infrastructure during the past six months as a result of-the arrival of project-financed transport equipment, the overcoming of problems related to the procurement of construction materials, improved.organization at the district level, and impressive mobilization of village self-help resources. On the other hand, progress in the agriculture sector has been less than expected, particularly for cotton. During the past crop season, the usage of agricultural inputs in project villages was lower than anticipated, principally due to late procurement of inputs by the procurement and credit institution. The trials established were limited in number, but should give useful information regarding crop responses to technical recommendations. Standards of village bookkeeping and the level of credit repayment in project villages have improved. A total of 57 villages are to be included in the investment for this fiscal year, and disbursements are expected to improve. Credit No. 513-TA and Loan No TA *- Iilombero Sugar Development Project: $9.0 million Credit and $9.0 million Loan of September 27, 1974; Date.of Effectiveness - February 14, 1975; Closing Date - December 31, 1979 The sugar factory related-to this Project is now operating and estate and outgrower development continues satisfactorily. Due to lower cane yields an area of 13,890 acres will be established instead of the 11,900 acres envisaged at appraisal. Planting will be completed in the 1977/78 season. All buildings and roads are completed. Kilombero Sugar Co. suffers from cash flow problems because there are still delays in providing counterpart funds. A new Advisory Management Agreement has been concluided with the HVA of Amsterdam with effect from May 1. The policy of sugar growing has been clarified and the,ex-factory price of sugar has been raised from TSh 2,200 per ton to TSh 2,500, per ton,with effecl from July 1. The first stage of the National Sugar Survey has been completed and the redort is expected shortlv. Credit No TA - Fi-sheries.Development Project: $9.0 million Credit. of..julv 12, 1-976; Date of Effectiveness - October 12, 19.76;..Closing Date -.December 31, 1981 Declared effective.on October.12, 1976, progress achieved so far in implementation, of the v,illage fisheri.es.d,evelopment program on Lake Tanganyika, and of the market and pollution studies i's on schedule. However, there have been delays in establishing the commercial fishing centers both on the coast and on Lake Tanganyika. While temporary changes in Government arrangements for management are expected to eliminate further delays :'n the Lake Tanganyika center - timely construction of whlich is also important for the village program - Government is considering ways of strengthening the management of TAFICO to enable it to play its intended role in the commercial aspects of the project.

38 ANNEX II Page 6 of 13 Credit No. 606-TA - National Maize Project: $18.0 million Credit of January 29, 1976; Date of Effectiveness - May 28, 1976; Closing Date - June 30, 1980 Although the project has made some satisfactory progress with regard to village participation, delivery of inputs, and concentration on high potential maize regions, at its mid-term it is beset by a number of problems which must be overcome if the project is to achieve its primary objectives. The project's extension services and the Government's continued indecision on reorganization are constraints affecting project implementation. Motorcycles and landrovers delivered to the Regions have greatly increased mobility of supervisory staff; however, other essential equipment and aids will not be available before mid-1978 because of considerable procurement and administrative delays. Farmers' contributions to the financing of project inputs vary from Region to Region; in areas of high maize potential about 80% of the inputs have been distributed in the agreed manner, but in the remaining Regions contributions have ranged from 13% to 42%. A recent decrease in the subsidy element from 75% to 50% for all inputs has doubled the cost to the farmers. Many of the difficulties experienced result from limited cooperation between the central ministry responsible for the overall project and the Regional authorities in charge of local implementation. Proposals to improve project implementation by transferring authority for input financing to the Regional authorities, and by increasing their responsibility for assessing, ordering and distributing input requirements are under preparation. Another problem is the tendency for villages to place undue emphasis on mono-culture of maize production. A joint RMEA/Headquarters mission is scheduled to review the above difficulties and identify appropriate solutions. Credit No. 580-TA - Dairy Development Project: $10.0 million Credit of August 15, 1975; Date of Effectiveness - November 13, 1975; Closing Date - April 30, 1981 Progress on the development of large farms has been generally satisfactory although they are facing difficulties owing to a lack of adequate working capital. The Government and Project entities are currently exploring ways to deal with this problem. After a careful review of the justification for changing the appraisal stocking plan, approval has been given to import 2,000 dairy heifers over a two-year period to fully stock all the large dairy units. Subprojects for the Ujamaa component are presently being identified. The dairy processing component is practically completed.

39 ANNEX II Page 7 of 13 Loan No TA - Sao Hill Forestry Project: $7.0 million Loan of July 12, 1976'; Date of Ef'fectiveness - October 12,, 1976.;Closing Date - June 30, 1982 Progress on the project has been slow so far. About 1100 ha (63% of the appraisal target) were planted during the first year. The survival rate of these plantings is low,.but nursery and plantation techniques are being improved, and future results should be much better, particularly since the 1977 planting season was climatically erratic and atypical. There are some serious management problems, which are in the process of being solved. All key posts are-now filled,,except that of the Roads/Mechanical Engineer which is expected to be filled very shortly. The road construction program is on schedule, but the building program has barely begun, and is now expected to take 3-4 years to complete, instead of the appraisal estimate of 2 years; however, this delay will not materially affect the production aspects of the project. Disbursements and procurement have just started. Credit No. 658-TA.- Tobacco Processing Project: $8.0 million Credit of September 16, 1976; Date of Effectiveness - February 15, 1977; Closing Date - December 3L, 1981 Retroactive financing was authorized in January 1977 in order to commence work on the.:improvements-to the existing processing line and stores at Dar es Salaam, but because of delays in shipping and import formalities, installation of equipment for the processing line can now be completed only in time for the 1978 processing.season. Work on the Dar es Salaam store was also delayed due to sub-contractor problems, but these problems have now been resolved. Workshop equipment and machinery for the new processing line has been ordered. However, as the new'line will occupy twice the space envisaged at appraisal, the building program under the project will be more extensive than anticipated. Credit No. 703-TA/Credit No. 703-TA-5 - Tabora Rural Development Project: $12.0 million Credits of May 11, 1977; Closing Date - June 30, These-Credits 2 are- expected to bekde'claied effective shortly.

40 ANNEX II Page 8 of 13 EDUCATION SECTOR Credit No. 232-TA - Third Education Project: $3.3 million Credit of February 5, 1971; Date of Effectiveness - May 10, 1971; Closing Date - December 31, 1977 The Closing Date for this project has been extended to December 31, 1977 to provide ample time for its completion. Ineffective project unit management, failure to utilize the technical assistance component of the project, and shortages of construction materials all contributed to the delays in completion. All civil works, furniture and equipment contracts have now been awarded, and civil works are approaching completion. Procurement of remaining equipment, finalization of accounts, and disbursement of the remaining funds by the Closing Date will be closely monitored. Transfer of the nine rural training centers (now called Folk Development Colleges) from the administration of the Ministry of Agriculture to the Ministry of National Education appears to have significantly improved the management of the centers; training objectives and the target group intended for the original centers have been retained. Credit No. 371-TA - Fourth Education Project: $10.3 million Credit of April 13, 1973; Date of Effectiveness - July 2, 1973; Closing Date - June 30, 1978 The project is being implemented with assistance from DANIDA. Projected estimates of project cost overruns have been reduced within manageable limits as a result of curtailments of the project (deletion of three secondary schools) and more favorable than anticipated bids on civil works. Civil works contracts have been awarded on all project institutions and construction is proceeding on 12 of 15 sites. The experimental self-help construction project item (eight Community Education Centers) continues to require special attention to help overcome problems of supply, distribution and control of building materials and supervision of construction standards. Recruitment of technical assistance specialists included in the project has been slow but arrangements are now being made with WHO to recruit these specialists. Disbursements are now 40% of appraisal estimates, and implementation is, in general, proceeding satisfactorily. It is likely that the closing date will require a postponement of up to eighteen months. Credit No. 607-TA - Fifth Education Project: $11.0 million Credit of January 29, 1976; Date of Effectiveness - March 23, 1976; Closing Date - June 30, 1982 The project made a good start with respect to the Village Management Technicians (VMT) Training Program. Five Rural Training Centers have been rehabilitated, instructional staff have been trained, and courses have commenced. However, delays are now being experienced due to the limited availability of local resources and some problems have emerged with respect to the utilization of the VMTs. Expansion of the capacity of 15 secondary schools is slightly ahead of schedule.

41 ANNEX II Page 9 of 13 TRANSPORTATION SECTOR Credit No. 265-TA - Third Highway Project:ll $6.5 million Credit of August 6, 1971; Date of Effectiveness - October 12, 1971; Closing Date - December 31, 1978 _ - Project implementation has been slow and the Closing Date of the project has been postponed twice. The new construction on the Mikindani- Mingoyo section of the Mtwara-Mingoyo road was virtually completed in December A more detailed investigation of pavement, subgrade and material services is required before work can commence on repair, improvement and resealing of the road from Mtwara to Mikindani. The Mara Betterment and Maintenance Unit has completed its work and except for a small maintenance unit, the equipment and personnel have been sent to assist the Geita unit. We have received one of the two pre-investment studies financed under the project. Project completion is now estimated by the end of Credit No. 507-TA - Highway Maintenance Project: $10.2 million Credit of August 21, 1974; Date of Effectiveness - November 20, 1974; Closing Date - June 30, 1979 Orders have been placed and deliveries are well advanced for about US$4 million worth of equipment, and tenders for a further US$1.8 million worth have been approved. A contract for 634 man-months of technical assistance has been signed and 18 of the 21 experts have commenced their duties in the country. Construction of road camps, deployment of equipment and training of maintenance personnel is in hand. URBAN SECTOR Credit No. 495-TA - Sites and Services Project: $8.5 million Credit of July 12, 1974; Date of Effectiveness - October 3, 1974; Closing Date - December 31, 1978 Construction of all the site and service areas has been completed and the sites handed over, and upgrading works are nearing completion. Overall progress and standards of work have been satisfactory. The take-up rate of housing loans was initially poor, but the Government has now approved more flexible lending criteria that are within the reach of the target population and the situation is expected to improve. Lack of qualified personnel, and shortcomings in the organization structure of the implementing unit have led to difficulties in management of the project. Organizational changes agreed for the second urban project (approved on July 7, 1977 but not yet signed) are aimed at addressing these problems. 1/ The Second Highway Project included Loan 586-TA which was for US$7.0 million. In 1975, surplus funds of US$1.9 million were allocated to the Third Highway Project, and the Closing Date was extended to December 31, 1977.

42 ANNEX II Page 10 of 13 WATER SUPPLY SECTOR Loan No TA - Urban Water Supply Project: $15.0 million Loan of January 5, 1977; Date of Effectiveness - March 2, 1977; Closing Date - June 30, 1981 The project is expected to be commissioned in May 1980, compared to the original target date of October 1979, as a result of delays which occurred during detailed design and exploratory works for construction of the Mindu Dam. However, new arrangements proposed by the Bank relative to priority orders for construction of works would still allow the project to match the water demand of the new industrial estate (Ln T-TA and Ln TA). Delays occurred in recruiting the three senior advisers to be financed by the loan. Suitable candidates have now been identified, but two of them will take up duty more than three months behind schedule. Establishment of the urban water supply unit in Morogoro is also delayed because of these problems. Discussions are underway with the Government regarding the Bank's requirement that water tariffs be adjusted periodically to maintain charges in line with actual costs. POWER SECTOR Loan No T-TA - Kidatu Hydroelectric Project Phase II; $30 million Loan on Third Window Terms of August 12, 1976; Date of Effectiveness: March 1, 1977; Closing Date: December 31, 1981 Bids have been received for all major components and revised cost estimates are 45% above the appraisal estimate. Regular consultants and temporarily engaged consultants separately reviewed tenders received for the major contract (civil works in Mtera) where most of the overruns occurred. They concluded that the project cost was underestimated and that the lowest bid warranted negotiations with the bidder. Bank staff recommended that TANESCO obtain alternative offers for the main civil works, after modifying designs to reduce cost, revalue all the tenders on the basis of new offers and open negotiation with the final lowest bidder instead of rebidding. These negotiations have now been completed, and all major construction supply contracts have been awarded. The contract for the consulting engineer in relation to supervision is being negotiated. Although total foreign funds available could still cover the foreign exchange requirements, the total financing gap is about $40.6 million. The most important issue facing TANESCO is mobilizing adequate financial - resources. This is presently under discussion between the Government and TANESCO. INDUSTRIAL SECTOR Credit No. 460-TA - Tanzania Investment Bank Project: $6.0 million Credit of February 13, 1974; Date of Effectiveness - April 18, 1974; Closing Date - June 30, 1978 This Credit has been fully committed.

43 ANNEX II Page 11 of 13 Loan No TA - Tanzania Investment Bank: $15.0 million Loan of November 12, 1975; Date of Effectiveness - February 20, 1976; Closing Date - December 31, 1980 Commitments under this Loan are proceeding quickly. Subprojects totalling $13.9 million have been approved for disbursements. There are no problems with regard to the project, and TIB has developed into a wellorganized and well-managed development bank. Loan No TA - Mwanza Textile Project: $15.0 million Loan of June 19, 1975; Date of Effectiveness - October 6, 1975; Closing Date - July 1, 1979 The project, which is designed to have an annual fabric production capacity of 20 million linear meters, is experiencing some delay because of difficulties in equipment transportation. Efforts are being made to expedite rail transportation of equipment from the Dar es Salaam port to Mwanza. According to present indications, the project is likely to be commissioned June 1978, three months behind schedule. However, the revised project cost is within the appraisal estimate. There has been a deterioration in the operating performance of the existing Mwanza plant as well as some other textile mills. The National Textile Corporation (TEXCO), the holding company for state-owned textile mills, has agreed to institute immediately an action program to improve the operating performance of the existing mills. Credit No. 601-TA - Technical Assistance Project: $6.0 million Credit of January 9, 1976; Date of Effectiveness - September 14, 1976; Closing Date - June 30, 1980 After some delays, the Tanzania investment Bank (TIB) selected TATA Consulting Engineers to provide personrnel to implement the project. The contract was signed in October 1976 and the personnel arrived in late As a result of these unanticipated delays the identification of priority feasibility studies has been slower than expected. However, performance is expected to improve and the training program is proceeding satisfactorily. Loan No T-TA/Loan No TA - Morogoro Industrial Complex: $11.5 million Loan on Third Window Terms and $11.5 million Bank Loan, both of April 6, 1977; Date of Effectiveness - July 6, 1977; Closing Date - December 31, 1982 These loans became effective on July 6, Engineering design and procurement are proceeding on schedule and, at this time, there is no reason to anticipate any significant slippage in the projected dates for factory start-up (second half of 1979) and full capacity production by 1982.

44 ANNEX II Page 12 of 13 Credit No. 688-TA - Program Credit: $15.0 million Credit of March 24, 1977; Date of Effectiveness - May 3, 1977; Closing Date - May 31, 1978 This Credit has been fully disbursed as at August 9, EAST AFRICAN COMMUNITY There are currently five projects under execution in the EAC. Loan No. 638-EA - Second Harbours Project: $35.0 million Loan of August 25, 1969; Date of Effectiveness - December 16, 1969; Closing Date - December 31, 1977 Loan No. 865-EA - Third Harbours Project: $26.5 million Loan of December 18, 1972; Date of Effectiveness - April 16, 1973; Closing Date - June 30, 1978 Considerable delays have occurred in implementing the project financed partly by Loan 638-EA. However, construction is now more than 95% complete. The Closing Date has been postponed from December 31, 1976 to December 31, The major civil works financed partly by Loan 865-EA were completed in September 1975, six months behind schedule. All loan funds are now committed. Some smaller project elements intended to be financed under Loan 865-EA will have to be deleted. Cost overruns for cargo handling equipment, tugs and lighters financed by CIDA have occurred, and their credit has been increased accordingly from Can.$26.0 million to Can.$33.5 million. Port labor productivity has stagnated in Mombasa where general cargo throughput has declined considerably. General cargo throughput has increased above appraisal forecasts for Dar es Salaam, where the three berths financed under Loan 865-EA have been completed and are being used. Cargo handling productivity here has improved with increasing throughput. The Closing Date of Loan 865-EA has been extended from June 30, 1977 to June 30, Loan 674-EA - Third Railways Project: $42.4 million Loan of May 25, 1970; Date of Effectiveness - October 30, 1970; Closing Date - June 30, 1978 The physical execution of the original project has been seriously delayed due to political problems within the Community. In November 1974, the Executive Directors approved a reallocation of the uncommitted investments. Agreement was reached in July 1975 for the hiring of consultants to assist EARC with outstanding organizational and financial issues. Coopers and Lybrand (financial consultants hired by ODM) completed their asset studies in early 1976 and CANAC (technical consultants) have submitted a report on decentralization of the railways. The Closing Date has been extended to June 30, 1978.

45 ANNEX II Page 13 of 13 Loan No EA - East African Development Bank: $15.0 million Loan of March 1, 1976; Date of Effectiveness - June 7, 1976; Closing Date - March 31, 1980 This Loan was declared effective on June 7, Ten subprojects have so far been received from EADB. Of these, two have subsequently been withdrawn and seven have already been approved for a commitment of $8.6 million against this Loan; the remaining project is under review. Loan No. 914-EA - Third Telecommunications Project: $32.5 million Loan of June 22, 1973; Date of Effectiveness - September 19, 1973; Closing Date - December 31, 1979 All major works other than microwave or UHF/VHF system construction have now been completed despite initial delays caused by staffing and other problems associated with the relocation of the headquarters. Because of the long lead time required for the microwave equipment, the project is expected to be fully completed by mid The Closing Date has accordingly been postponed to December 31, 1979.