world bank document · attached, for information, is a copy of a report entitled "project...

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The World Bank

FOR OFFICIAL USE ONLY

Retb No. 9056

PROJECT COMPLETION REPORT

ZAIRE

FIRST AND SECOND COTTON REHABILITATION PROJECTS(CREDITS 660-ZR/1264-ZR)

OCTOBER 12, 1990

Agriculture Operations DivisionSouth-Central and Indian Ocean DepartmentAfrica Regional Office

This document has a restricted distribution and may be used by recipients only le the performance oftheir official duties. Its contents may not otherwise be disclosed without World Baek authoriation.

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ABBREVIATIONS

AGCD Agence Gouvernementale pour la Coop6ration et le Ddvelopment(Governmental agency for cooperation and development)

CCCE Caisse Centrale de Coop6ration Economique

CFDT Compagnie Fran,aise pour le D6veloppement des FibresTextiles(French agency for development of textile fibers)

COTONNIERE Soci6t6 Cotonnihre et Agricole du Kasai et Manidma(French agency for cotton and agriculture)

COTON ZAIRE La Cotonni&re du Zaire(Zaire Cotton Campany)

CODENORD Compagnie de Developpement Rural du Nord(agency for rural development of the North)

CSCo Caisse de Stabilization Cotonniere(funds for cotton stability)

EDF European Development Fund

ESTAGRICO Societe Cotonniere et Agricole de l'Est(cotton and agriculture company for the East)

FCD Fonds de Convention pour le Developpement(funds for development)

INERA Institut National pour l'Etude et la Recherche Agronomique(national institute for study and agronomical research)

OGEDEP Office pour la Sestion de la Dette Publique(management office for national debt)

ONAFITEX Office National des Fibres Textiles(national office for textile fibers)

ONATRA Office National des Transports(national office for transportation)

OR Office des Routes(highways office)

SOFIDE Societe Financiere pour le Development(financial company for development)

SOTEXCO Societe Textile et Cottonniere(cotton and textile company)

WEIGHTS AND MEASURES

Metric System

FISCAL YEAR

January 1 - December 31

KM OFmCIAL u= OLYTHE WORLD BANK

WasIgton. D.C. 20433U.S.A.

O1k. of OIe.ctGvGmw

October 12, 1990

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report: ZAIRE - First *nd SecondCotton Rehabilitation Projects (Credits 660-ZR/1264-ZR)

Attached, for information, is a copy of a report entitled"Project Completion Report - Zaire First and Second Crtton RehabilitationProjects (Credit 660-ZR/1264-ZR)", prepared by the Africa Regional Office.No audit of these projects has been made by the Operations EvaluationDepartment at this time.

Attachment

This documnt hm a su ditbuto and ay be tuad by rcipiesm tol In th pwan eof their offcial dute Its hcontw may ot oewwin be diclko without Woi Bank autheuadon.

FOR OFFICIL4 USE ONLY


ZAIREFIRST AND SECOND COTTON IWABILITATION PROJXCTS

(CREDITS 660-ZR/1264-ZR)

TABLE OF CONTENTS

Pate No.

Preface ........ o..... o.o............ .... to..................... iBasic Data Sheet (Credit 660-ZR) .... .................... iiiBasic Data Sheet (Credit 1264-ZR) vEvaluation Summary .... ..... .... . .... *.*... *................. * ........ vii


I. SUMMARY ................................................ 1II. INTRODUCTION ................. ...*.*...** ***** *** 3

III. THE COTTON SUBSECTOR ........ . ......................... . 3IV. CREDIT 660-ZR ...................... to .. o 5V1. CREDIT 1264-ZR ........................................... .. 11VI. RATES OF RETURN ....... ........................ 19VII. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT ...... 21VIII. BANK PERFORMANCE .. ............................. 23

IX. CONCLUSIONS ........ ............................ 24

ATTACHMENTS

1. Comments: Caisse de Stabilization Cottonniere... 272. Comments: Directorate of Productive Sectors .... 31

MAPS

1. IBRD Map No. 11863R12. IBRD Map No. 11732R3. IBRD Ma? No. 15029R4. IBRD Map No. 1503OR5. IBERD Map No. 15031R1

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.


ZAIREFIRST AND SECOND COTTON RZHAIULITATION PROJECTS

(CREDITS 669-ZZR/1264-ZR)

PREFACE

This is the Project Completion Report (PCR) for the First andSecond Cotton Rehabilitation Projects in Zaire, for which Credit660-ZR in the rmount of US$8.8 million was approved on September 21,1976. The credit was closed on December 31, 1983, and an undisbursedamount of US$440,000 was cancelled. The last disbursement was made onOctober 15, 1984. Credit 1264-ZR in the amount of US$11.3 wasapproved on June 15, 1982. The credit was closed on June 30, 1987with US$$6.2 million being cancelled. Final disbursement took placeon January 20, 1988.

The PCR was prepared by the Agricultural Operations Divisionof the South-Central and Indian Ocean Department in the Africa Region.It is based, inter alia, on the Staff Appraisal and President'sReports, supervision reports, correspondence between the Bank and theBowwower, and internal Bank memoranda.

The PCR was read by the Operations Evaluation Department(OED) and sent to the Borrower for comments on March 6, 1990.Comments received from the Borrower are reproduced as Attachments 1and 2.

- iii -

BASIC DATA SE2EE¶

ZA&IRE -COTTON REH T3ITTATTON PROJECT (CREDTT f660-ZR)

KEY PROJECT DATA---------------------------------------------------------------- __--------

Appraisal Actual Actual as X Appraisal------------------------------ _--__-----------------------_------__-------

project costs (USS Mn) 14.6 14.0 96%Credit amount (US$ Mn) 8.0 8.0 100%

Disbursed 7.4 93%Cancelled 0.6 7%

Date Physical ComponentsCompleted Dec 84Board Appraisal 09/21/76Agreement Date 12/28/76Effective Date 05/30/77Closing Date 06/30/84ERR (%) 23% negativeFinancial performance similarInstitutional performance similar--------------------------------------------------------- __----------------

CUMULATIVE DISBURSEMENTS------------------------------------------------------------- __------------

FY78 FY79 FY80 FY81 FY82 FY83 FY84 FY85------------------------------------------------------------------- __------

-'raisal (US$M) 1.8 3.5 5.9 8.0. ual (US$M) 0 0.9 2.0 2.8 5.5 7.4Actual/APR (%) ... 26% 34% 35% 69% 93%Date of finaldisbursement 06/84Amount cancelled $621,000

---------------------------------------------------------- __---------------

STAFF INPUTS

FY70 FY74 FY75 FY76 FY77 FY78 FY79 FY80 FY81 FY82 FY83 FY84---------------------------------- __----------------------_-___________----

Preappraisal 6 12Appraisal 20NegotiationsSupervision 1 10 4 21 8 20 6 16Other-------------------------------------------------------------------- __----

- iv -

MISSION DATA---------------------------------------------------------------- __-------

asion $ k NQl Specn iLSaff Reloort LIA= TypesgazA mer*ons Xnprea weeks dat of Pro

ented blems

PreappraisalAppraisal 5/75 28 5 Aa AgEc 20 09/76

FA EnaBoard Approv-al thro'Effe-ctiveneasSupervision 1 10/76 (AF3AG - please check SPN blackbooksSupervision 2 12/77 for this data. RMZ files do not goSupervision 3 5/78 back far enough...)Supervision 4 10/78Supervision 5 2/79 9 1 Ec 2 3/79 3 OMFSupervision 6 7/79 14 5 Ec/FA 15 9/79 3 OMF

Ag/OpA/DChSupervision 7 12/79 7 9 Ec FA 1 1/80 3 OMFSupervision 8 3/80 12 2 Ec/L 2 4/80 3 OFSupervision 9 10/80 11 2 Ec/Ag 4 11/80 2 TFSupervsion 10 4/81 6 2 Ec/FA 2 4/81 2 TSupervsion 11 10/81 19 2 Ec/Ag 8 11/81 2 TSupervsion 12 3/82 19 3 Ec/2Ag 12 4/82 2 TFqupervsion 13 8/82 18 2 Ec/Ag 6 9/82 2 T'pervsion 14 6/83 2 Ec/Ag 8 7/83 2 TF)ervsion 15 2/84 2 Ec/Ag 8 3/84 2 TF

COUNTRY EXCHANGE RATES

Appraisal year average US$ 1.00 = Zaire 0.5Intervening years average US$ 1.00 = Zaire 3.7Completion year average USS 1.00 = Zaire 36.1

-v I

BASIC DATA SU=T

ZAIRE - SECOND COTTON REHABILITATION PROJECT (CREDIT 1264-ZR&

KEY PROJECT DATA

Appraisal Actual Actual as % Appraisal…__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -_ _ _ _ _ _

Project costs (USS Mn) 39.3 33.1 s'XCredit amount (USS Mn) 11.3 11.3 100%

Disbursed 5.1 45%Cancelled 6.2 55%

Date Physical ComponentsCompleted Doe 87Board Appraisal 06/15/82Agreement Date 08/06/82Effective Date 03/31/83Closing Date 06/30/86 06/30/87ERR (%) 62% negativeFinancial performance worseInstitutional performance similar

…__ _ _ _.._ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _- _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _- _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _CUMULATIVE DISBURSEMENTS

…-----------------------------______---------____---__---------------------FY83 FY84 FY85 FY86 FY87 FY88

=________________________________________________________________________-

Appraisal (US$M) 2.0 7.0 9.0 11.0Actual (US$M) 0 0.3 0.8 1.5 3.9 5.1Actual/APR (%) ... 26% 34% 35% 69% 93%Date of finaldisbursement 06/84Amount cancelled $621,000

…---------------------------------------------------------__---------------STAFF INPUTS

…---------------------------------------------------------------__---------FY80 FY81 FY82 FY83 FY84 FY85 FY86 FY87 FY88

…-----------------------------------------------------------______-__------Preappraisal 16Appraisal 15NegotiationsSupervision 12 6 10 4 6Other

…--------------------------------------------------------------------__---

- vi -

MISSION DATA____-----------------------------------------------------------__----___ission DAI& NQ No_ ftegn Staff Re£Xort Status Typea

DaXa 2X1sos reAres- weeks data of Proented blems

Preappraisal 03/80 16Appraisal 11/80 21 5 2Ag/AgE 15 05/82

FA EngBoard Approv-al thro'Effe-ctivenessSupervision 1 08/82 18 2 Ec/Ag 6 09/82 2 MTFSupervision 2 06/83 21 2 Ec/Ag 6 08/83 2 MTFSupervision 3 01/84 22 2 Ec/Ag 6 03/84 2 MTFSupervision 4 12/84 10 2 Ec/Ag 4 01/85 3 MTFSupervision 5 03/85 13 2 Ec/Fa 6 04/85 3 MTFSupervision 6 07/85 7 1 Ec 1 7/85 2 MTFSupervision 7 10/86 1 Ec 1/87 3 MTF

…__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

COUNTRY EXCHANGE RATES

Appraisal year average US$ 1.00 = Zaire 5.7Intervening years average US$ 1.00 = Zaire 39.6C-ompletion year average USS 1.00 = Zaire 112.4

- vii -

ZAIB

FIRST AND SECOND COTTON REHAILITATTON PROJECTS(CREDITS 660-ZR AND 1264-ZRI


EVALUATION SUMAY

1=oduct;on and ObAectives

1. These two projects were respectively the first and the seventh IDA-supported agricultural projects in Zaire. The projects were intended torehabilitate a sector which had flourished during the pro-Independenceperiod, but which had fallen sharply into decline since the early 1960s.Both projects were intended to lead to longer term regional developmentinitiatives which woul.i spearhe&d new development of the rural interior ofZaire. using cotton as .e motor for development. The projects financedequipment and vehicles for cotton extension, cotton marketing and cottonginning as well as for road maintenance in the case of the first project.

Tmbiementation exDerience

2. Both projects failed to achieve a durable increase in cottonproduction. Poor performance on the first project was due to a combinationof factors linked to unclear management responsibility by a heavy (14-strong) technical assistance team, with ill-defined responsibilities in theearly years. In later years the proJect started to meet original targets,only for the management team to be replaced at the end of the projectperiod by one with minimum field experience. The second project stpzted upduring a difficult period after major currency devaluation and thebeneficiary companies were reluctant to accept tho steep on-lendingconditions and associated foreign risk for a product with only a localmarket. Disbursements progressed very slowly, until Government convertedits loan to one major company into equity. This could not unfortunately bereplicated for the other two companies, in which the Government had eithera very small or no equity share.

3. Accompanying problems facing cotton companies during the projectperiod include the limited or untimely credit available for financing thecotton harvests from the commercial banks. Level of management in a post-africanization environment in Zaire was poor and it was (and still is)difficult to attract high quality management staff (whether national orexpatriate) to work in the difficult conditions in the interior of Zaire.Lack of research has meant that there have been no now or improved cottonvarieties in Zaire for more than a decade. Yields have been severelyaffected by poor and irregular application of insecticides, sporadicallysupplied under foreign aid grants, but not accepted as a fundamentalfinancial responsibility of the cotton companies during the projectperiods. Lack of support by the Government in funding rural roadmaintenance and cotton extension led also to these important areas beingneglected and thus providing a major obstacle to cotton companies.

- viii -

Details

4. Production performance on tho firat project improved as thetechnical assistance team assiened to the stat. cotton company settled in.Actual level of production was less thai half that of original projectionsby the sixth year of the proJect. The intention was to have brought thecompany up to an attractive performance level from where it could beprivatized. In reality, the only party interested in the company was aKinshasa-based textile group, which accepted a management contract, beforetaking a decision on fuller involvement.

5. Under the se-ond project. production performance was scarcelyaffected by the credit and production in all companios which were to havebeen beneficiaries continued to fall year by year. laptct on cottonproducers was marginal %nd the rate of return on investments were negative.

Sustainabilitv

6. The first cotton project depended upon a heavy techmical assistanceteam from the begiuning and little effort was made to hand over tonationals during the project period. It was expected that at least some ofthat team would be absorbed during privatization, but thiz was not thecase. SUstainability vas to have been found in the transfer to privatemanagement of the cotton company, but poor physical performance and anuncertain investment environment in Zaio put this objective out of reach.

7. The second cotton project should aormally have provided beneficiarycotton companies with now plant and equipment to operate more efficientlyand to generate inbernal reserves to function normally after a severeperiod of financial stress following zairesnization and nationalization.Tk. need for medium and long term credit by the cotton companies stillexists, but the macroeconomic environment is such that borrowing at doublef igure monthly rates of interest make any rational investment decisionsextremely difficult.

FindiAng and lesson ere

S. The effects of a poor macroeconomic onvironment and the aftermath oImajor political decisions which diminished investment confidence in Zairewere all elements responsible for poor performance of the two projects.However even if macroeconomic improvoment occurs, it will require otheraccompanying measures to ensure the improvement of performance of thecotton sector. Among these, public investment in rural roads andagricultural research are primordial. There is also a clear need toemphasize the role of improved general agricultural extension services topertrade farmers of the relevance of cotton in the agricultural productioncycle - particularly in an environment where the traditional role of theextensiozr services has been to impose cotton production on farmers for pastdecades. The cotton sector must also start to develop on the basis ofprice formulae which reflect the levels of alternative imported cottonfiber prices. A positive move in this direction is the proposed adoption ofa professional charter for all actors within the sector, which defines aformula for applying a domestic cotton price linked to slidinginternational averages.


ZAIRE

FIRST AND SECOND COTTON REHABILITATION PROJECTS(CR. 660-ZR AND 1264-ZR)

1. SUMMARY

1.01 Cotton has been produced :n Zaire since 1921. Production increasedto a peak of 180,000 tons in 1059 and then *lumped back to barely 101 of thatfigure during the years following Indopendence. As a crop which has beenexclusively produced by peasant farmers, both the Government and the Bank Grouphave devoted considerable attention to revitalizing the sector. During the tenyears between 1977 and 1987, IDA-funded two cotton rehabilitation projects (Cr.660-ZR and Cr. 1264-ZR). The present Completion Report covers the experience ofthese two projects.

1.02 The first Cotton Rehabilitation project was designed to support therehabilitation of cotton marketing and ginning activities by a parastatal cottoncompany (later to become COTONZAIRE) ope-ating over an extensive part of theEquateur Region of north west Zaire. The second project, which followed majorinstitutional changes in the subsector in the late 1970s, was designed as anemergency program to provide foreign axchange to the three other major cottoncompanies (SOTEXCO, la COTONNIERE and ESTAGRICO), operating respectively in HautZaire, Kasai Oriental and North Shaba regions. Both projects were designedoriginally as short first phases of a program, which was intended to be followedby broader-based projects aimed at more general development, using cotton as themotor for rural development.

1.03 Both projects failed to achieve a durable increase in cottonproduction. In the first project (Cr. 660-ZR), the parastatal cotton company,COTONZAIRE, only achieved increases in cotton production from 2,500 tons in1978/79 to 5,400 tons in 1983/84, barely 402 of the appraisal target, and in1987 cotton production sank to a little more than 2,000 tons, its lowest lebelfor years.

1.04 The second cotton project (Cr. 1264-ZR) coincided with a majordevaluation of the local currenc'- at the start of its execution (1983). In thewake of the devaluation and in the context of a fragile stabilization program,financing terms, including the foreign exchange risk and a 152 interest rate,proved unattractive to the cotton companies, which sold most of their output onthe domestic market. As a result, disbursements progressed very slowly.However, the Government's decision, towards the end of the project period. touse part of the credit funds as equity for a capital increase of one of thecompanies (La COTONNIERE) raised the disbursement rate from 141 to 452 in thelast project year; !55 of the credit was cancelled at end 1987, one year afterthe expected closing date.

- 2 -

In 1986, the Government, with IDA approval, used credit funds to com$ission amajor study with CFDT, to examine the entire cotton subsector including bothprivate and Government structure, pricing formulas and extension/processingtechniques and come up with recommendations for reorganization and investment.These studies have now been completed and have resulted in a board framework forsector rehabilitation. Also, on the strength of their conclusions, CFDT havethemselves created a new company in the Haut Zaire region in the north east andare actively bringing to bear their extensive African experience to attempt torehabilitate this important smallholder cash crop.

1.05 The lessons from these two projects, which were carried out over acombined nine-year period, can be summarized as followss

(a) project performance was strongly affected by changes inmacroeconomic policy in Zaire, notably nationalization andsubsequent privatization of enterprises, devaluating andsubsequent inflation, as well as scarcity of credit and poorpublic funding. Without macroeconomic stability, theeffectiveness of new investments in the cotton subsector willremain limited;

(b) even if macroeconomic conditions are beginning to be met, theexpansion of cotton production will require a concerted efforton several fronts. Major among these are (i) improvement inthe rural roads network whose deterioration has been a mainreason for contraction of the cultivated area; (ii) improvedyield performance without which the return per man day for thecotton farmer remains poor and uncompetitive with other cropsalso produced in cotton-growing areas; (iii) a linkage ofproducer prices--and of cotton lint prices arranged with thetextile companies--with international prices so as tocompensate for local inflation, and to provide much neededincentives for the farmers to redevelop cotton cultivation.

(c) a durable formula has to be found for the funding of roadinfrastructure and the credit needs of the cotton industry, aswell as the extension services involved in cotton. Experiencehas shown that complete dependability on the public sectorbudget remains unworkable, and earmarked funds such as fromlevies on cotton sales, will again have to be introduced atleast for an initial period until GoverNment's budget fundingand management improves; and

(d) continued weak management of extension and cotton collectionservices, combined with the unsustainability of expatriatessistance in the long term, points to the urgent need for

replacement of expatriates by competent nationals, and thesetup and execution of a comprehensive training program toaccelerate such replacements.

II. INTRODUCTION

2.01 In 1959, Zaire produced a record crop of cotton of almost 180,000tons. Six years later, as a result cf the civil disturbances, productionbarely reached 102 of this level and the country had to import 11,000 tonsof cotton fiber to meet the needs of the textile industry. With the returnof political stability in the late 1960s, production picked up againmodestly until the Zairianization measures hit most productive enterprisesin 1973/74; since, production has rarely exceeded 25,000 tons. During thisperiod, the Bank financed two cotton projects, the first (Cr. 660-ZR)limited to a parastatal cotton company in the Equateur region in thenorthwest, and the second (Cr. 1264-ZR), aimed at re-equipping andrehabilitating cotton production by three mixed cotton companies in KasaiOriental, North Shaba and Haut Zaire Regions. implemented consecutivelyduring the ten years between 1977 and 1987. This Completion Report coversthe two projects. Based on the experience with these two projects and inthe light of the changing economic conditions in Zaire, the report aims atidentifying grounds for a new initiative in support of cotton production.

2.02 Information in this PCR has been drawn from project files in theWorld Bank offices both in Kinshasa and in Washington, from CSCo, from Banksupervision reports, a completion report prepared by the manager ofCOTONZAIRE in 1983 and from field contacts the author of this report hadwith the cotton companies during the past four years.

III. THE COTTON SUBSECTOR

3.01 Cotton was introduced in Zaire in 1921 and was the engine ofdevelopment in a large part of the rural interior of the country.Traditionally, cotton has been produced by smallscale peasant farmers,usually in rotation with foodcrops. Though for many farmers, cottonrepresented the first contact with the cash economy and a reliable sourceof revenue, the colonial administration introduced legislation making itcompulsory for reluctant farmers living in cotton-producing areas tocultivate a minimum hectarage. The legislation was enforced rigorouslyduring colonial times and gave cotton a bad reputation in the ruralpopulation. However, the legislation was not rescinded after independenceand is still being used sporadically by local administrations, mainly tocollect taxes.

3.02 Cotton is produced in two different climatic zones with quitedifferent crop calendars. In the north of Zaire, cotton is planted inJune/July and harvested from December onwards, while in the south it isplanted in January/February and harvested from July onwards. The importantcotton-growing areas are the sub-regions of Ubangu and Hongala in Equateurregion, the sub-regions of Haut-Uele and Bas-Uele in Haut-Zaire, theregions of Haniema and Sud-Kivu, the sub-regions of Tanganika, Lualaba andHaut-Lomami in Shaba and the region of Kasai Oriental. Cotton-growingareas include climates with one or two rainy seasons and both savanna andforest regions. Annual rainfall ranges from 1,000 to 1,900 mm with 110-170days of rain. Soils are extremely diverse from lateritic types to

colluvial bottomlands and alluvial river deposits. In part of Kabinda (KasaiOriental), Tanganika (Shaba), Maniema, Bas-Uele (Haut-Zaire) and around Uvira,the po..ential for cotton production is excellent.

3.03 Four main cotton companies operate in different areas of thecountry. They own the ginneries and are responsible for extension, input supplyand the collection of cotton from farmers. Until 1973, the cotton companieswere privately-owned by Belgian interests and either exported their cotton orsold it to the local textile industry.

3.04 At the peak of cotton production in 1959 (180,000 tons), more than800,000 farmers were producing cotton. Cotton represented 14X of agriculturalexports and 5.52 of total exports. After the period of civil unrest in theearly 19609, production picked up again to reach a post-independence record of67,000 tons in 1973. Since, production again declined and stabilized in 1978 atlevels ranging from 17,000 to 18,000 tons of seed cotton. Today, only about150,000 to 200,000 planters grow cotton on an average area of between 27-30 areswith very poor yields, averaging little more than 300 kg/ha.

3.05 The decline in cotton cultivation resulted first, from the civildisturbances of the 1960s and, second, from the zairianization measures of 1973.In the cotton subsector, the zairianization involved the creation of the "OfficeNational des Fibres Textiles' (ONAFITEX), a poorly prepared national cottonparastatal which took over all the assets of the private cotton companies andresulted in confusion and widespread management breakdown.

3.06 In 1978, the zairianization policy was reversed; the Governmentreduced its ownership to a minority participation in three of the four majorcotton companies, while the majority shares were partly returned to their formerowners and partly sold to the local textile industries. Despite attempts toprivatize, the fourth cotton company remained the property of the Government,which contracted the management to SOTEXCO, one of the main textile companies.

3.07 The reversal of the zairianization measures did not achieve thedesired cotton expansion, for several reasonst first, strong inflation over thefast decade, coupled with periodic scarcity of foreign exchange and of credit,impeded desperately-needed investments in inputs, transport equipment and roads.Second, given the alternative, the textile companies preferred importing cheapcotton to supporting local production. Finally, the critical situation ofgovernment finances contributed to a continuous deterioration of itsresponsibilities in funding extension services, renewed planting material (untilrecently) and roads. All this has kept yields down to a level at which,combined with low producer prices, the crop ceased to be competitive with othercrops (i.e., coffee, maize) in many rural areas.

IV. CREDIT 660-ZR

4.01 Government's Request. Rehabilitation of the cotton industry wason the Government's list of project priorities, when a project was preparedin the late 1960s. However, that project was never appraised because ofthe instability in the cotton subsectors in 1970, the Government sent thearmy to occupy certain cotton ginneries and in 1973 it took over theginneries. For about 18 months, the expatriate personnel was not allowedto leave and was obliged to carry out operations as usual. Mostexpatriates left the cotton subsector thereafter.

4.02 In early 1973, a French-funded C}DT team was sent to the Ubanguisub-region of Equateur, with the objective of exploring the Government'srequest for a project. It was the presence of this team which attractedthe Bank's attention to the area. where the technical potential fordoubling cotton in 5 years was identified as a feasible goal. The actualtechniques of cotton growing did not presene any special problems. Theemphasis had to be on organization and management. An identificationmission from RMWA in Abidjan was followed by a preparation mission from theFAO/CP in 1974, which decided on the design of a project to follow on fromthe French program started in Equateur.

4.03 Project Processing. Fairly major differences existed between theGovernment's request, as prepared by the FAO/CP, and the project which theBank finally appraised in April 1975. The geographical scope of therequest was limited to an entity within the ONAFITEX Regional Directoratefor Equateur, whereas the project was extended to include the whole regionat appraisal. On the other hand, the Government requested technicalassistance to erect seven new ginneries. which the Bank felt would lead toconsiderable overcapacity as well as providing certain technicaldifficulties. The consequent modifications at appraisal resulted in aproject estimated to cost US$30 million against an original request ofUS$13.3 million. The project contained a heavy technical assistancecomponent both for ONAFITEX in Kinshasa and Equateur and for strengtheningthe cotton and food crops extension services. Funds were included fortransport and road maintenance to improve the efficiency of theorganization of the cotton marketing campaign.

4.04 Poor organization and management of ONAFITEX was one of the issuesfacing the appraisal mission and the related problem which this presentedfor the independent operation of a project in one of the ONAFITEX keygeographical areas. The appraisal mission felt that it was not vithin thescope of the project to reorganize ONAFITEX. The resident mission inKinshasa insisted that the project should be a discrete operation asindependent as possible from ONKPITEX. Debate on this issue vas lively butthere was general acceptance that any solution short of qualifiedprofessionals in executive management positions would run the risk offailure. This meant expatriate management. The appraisal mission obtainedverbal agreement from the Minister of Agriculture on a large degree ofmanagement autonomy and on the appointment of expatriates to executivepositions.

4.05 Long discussions followed the circulation of the DecisionMemorandum after the return of the appraisal mission, particularly since itbecame apparent that there vould be a financing gap and there were somedoubts about the sincerity of Zairian interest in the project. Severalalternatives were considered to reduce the scope. One vas to suggestfunding of the road maintenance component separately under the Banks ThirdHighway project. Finally, because of the financing gap, the high projectrisks and the long disbursement period, the project period was reduced fromsix to four years and some of the agricultural services and most on-farminvestments were postponed to a second phase. The project vas to focus oncotton marketing to ensure more timely purchase of the cotton crop,improving transport roads, rehabilitating the ginneries and providing someassistance to ONAFITEX in improving its organization and operations. Therevised project cost was reduced to US$14.5 million of which about US$3million was expected to be financed by FAC for technical assistance.

4.06 As project preparation continued through Yellow Cover, it wasexpected that the French aid and cooperation- program would continue to fundthe CFDT team which had started the project preparation work. However, theFAC decided in 1975 that they preferred to diversify their assistance tothe country rather than concentrate their limited resources in one region(Equateur). This was a major blow for the project preparation team, whofelt that the presence of the CFDT team was critical to the success of theproject. The French Caisse Centrale briefly considered participating inthe project, but then withdrew. By May 1976, the CFDT team had beenwithdrawn from the project area--leaving a hiatus and no team to set up thenew project. Finally, the Belgian Administration for Cooperation andDevelopment (AGCD) stepped in and agreed to fund 601 manmonths of technicalassistance in support of the project. As a result of the delays involvedin agreeing on the details of Belgian participation, it was not untilSeptember 1976 that negotiations of this project could be held. IDAinsisted that the project manager nominated by AGCD be present atnegotiations. The incumbent had been a director of one of the former majorBelgian cotton companies in Zaire. Some reservations were expressed by IDAas to whether this might not represent a handicap under the newcircumstances.

4.07 The resident mission in Kinshasa insisted that the project shouldbe a discrete operation financially as independent as possible fromONAFITEX, which had a poor record of financial management. Financialoperational autonomy was an essential element of discussions duringnegotiations. It was also agreed that all agricultural extension staffwould be absorbed by ONAFITEX in the project area to avoid separateextension services for cotton and foodcrop production. The Office desRoutes was selected as the executing agency for the feeder road component.Understanding on the above points was critical to the project's success.Less than full respect of these undertakings later created problems forsuccessful implementation.

4.08 Proiect Content. The project, as defined following negotiations,was intended to stimulate the development of cotton production over fouryears in the Ubangui and Mongala sub-regions of Equateur by improvingcotton buying, transporting and marketing, the road network, the extensionservice, and the ginneries. Specifically the project includeds

(a) the services of a consulting firm to allow ONAFITEX toorganize the cotton buying campaign and the provision of therequired trucks and equipment to transport the cotton;

(b) equipment and working capital for a road improvement programto support agricultural development in the project areas;

(c) improved agricultural extension services, involving trainingand demonstration materials, transport, applied research,insecticides and dusters for cotton growers; insecticideswere for the third and fourth years of the project, vwen thelevel of the extension services would have been improved;

(d) the development and improvement of the organization,financial control and accounting systems of ONAFITEX ReadOffice and Equatorial Regional Office, with the assistance ofa consultant team;

(e) spare parts and equipment to rehabilitate the ginneries.

4.09 Overall responsibility for the management of the project was to bewith the ONAFITEX Regional Director. He would maintain separate accountsand would report to the Director General of ONAFITEX. The project includ dfunding for 14 internationally-recruited staff, who would withdraw to anadvisory capacity for the last year of their contract, with the intentionof handing over thereafter to their Zairois counterparts. Furthermore,tThe chief accountant from the technical assistance team was to bestationed in Kinshasa to assist ONAFITEX in setting up improved accountingprocedures.

4.10 For the road component, an agreement was to be drawn up betweenOffice des Routes and ONAFITEX, giving responsibility for maintenance ofthe project equipment to Office des Routes once an equipment support basehad been established in the project area.

4.11 The project was to increase yields from 200 kg/ha (lower than thenational average) to 350 kg/ha by year 4. Total area devoted to cottonproduction was expected to increase from 22,500 ha to 36,000 ha by thefourth year of the project. Production was expected to increase from 4,500tons to 12,600 tons of seed cotton.

4.12 The financing of project costs amounting to US$14.6 million was tobe shared as follows: IDA - US$8.0 million; Government of Zaire - US$3.5million; and Belgian AGCD - US$3.1 million. Government agreed to on-lendthe credit amount--except for that part (US$4 million) devoted to roadimprovement--to ONAFITEX (later COTONZAIRE) at 6Z for 15 years, in linewith comm rcial bank interest rates for agriculture at the time, with fouryears grace period. The exchange risk was to be borne by the cottoncompany. These terms were considerably softer than those which werenegotiated for the follow-up cotton project described below.

4.13 Project Startup. After effectiveness in May 1977, some fivemonths after the credit had been signed, the project got off to a slow andprecarious start. Firstly, problems between the Technical Assistance (TA)team and the Zairian counterpart staff hampered early projectimplementation. Many of the TA personnel had worked earlier for theBelgian cotton companies in Zaire and had been used to a differentenvironment to that which they encountered on their return. There wereproblems of interpersonal tension between the Project Manager and thenational Deputy project manager, who was appointed by Presidential decree.Secondly, the Belgian AGCD did not consider that the candidates for the TAposts needed to be cleared by the Zaire authorities. There was little orno consultation either with IDA or the Government when the FinancialManager was removed and a replacement was sent early in the project. As aconsequence, very little was done to ensure that counterpart arrangements,such as the provision of suitable housing, were ready by the time the teammoved up to Equateur. Support from OA.WITEX in Kinshasa was limited, andthis had repercussions on funding of the cotton campaign and payment oflocal salaries. The 1977/78 cotton campaign had to be interrupted in early1978, when ONAFITEX failed to ensure the transfer of credit funds topurchase cotton and liaison between ONAFITEX and the Project wasprecarious.

4.14 Physical performance. In terms of physical results, the 1977/78cotton crop was disappointing, down to 2,979 tons from 4,030 tons theprevious year. The project team maintained that much of this was due toproblems which had been inherited from the previous year, including poorseed distribution, poor seed quality. lack of vehicles, lack of staffhousing, no tools in the maintenance garages and a low cotton price. Itwas, however, the last year the project was subjected to ONAFITEXmanagement interference. Production of seed cotton subsequently increasedbut not by as much as appraisal estimatess

78/79 79/80 80/81 81/82 82/83 83/84Production ofcotton (tons) A 2552 2582 3114 4364 5882 5371

F 4500 6250 9000 12600 12600 12600Area planted A 26947 20853 23031 19849 14922 22894

F 22500 25000 30000 36000 36000 36000Yields kg/ha A 95 124 135 220 394 284

F 200 250 300 350 350 350

A - ActualF - Forecast in Appraisal report

4.15 Performance improved as the company management settled in and asthe equipment and vehicles for the marketing and ginning activities beganto arrive. Agricultural extension services were intensified from 1981onwards with the intention of reducing the farme?/extension worker ratiofrom 500s1 in 1980 to a longer term objective of 150s1. However, by thetime the project ended, there were still only 202 extension staff for some73,000 cotton planters, a ratio of 360l. a major reason for the poorresponse to the efforts and resources mobllz.cd by the project. Another

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factor influencing performance was the price paid for cotton, and the timing ofits announcement. Invariably, announcements of new prices only came afterfields had been planted. Despite the more liberal price policy adopted in 1984,and despite CFDT'S policy to pay a minimum proportion of a world reference priceto the farmer, COTONZAIRE has so far taken little interest under UTEXCOmanagement in improving farmer benefits. On balance, the appraisal estimate of12,500 tons of seed cotton for the area is probably a maximum in the foreseeablefuture. It is very unlikely that production can ever reach its pr--Independencepeak of about 19,000 tons of seed cotton for the Equateur region.

4.16 Few attempts were made to diversify farmers out of cotton productionor to provide extension on food crops. The operations of COTONZAIREconcentrated in 1983, individual traders and commercial agents held effectivemonopolies on certain areas for the production of food crops, such as rice andmaize, and such traders did, in their own way, provide some basic services, suchas road maintenance and social services. These services have deteriorated sincethe liberalization decisions removed local monopolies.

4 17 Road Component. The road component was the weakest component of theproject. At the outset, Office des Routes (OR) was supposed to maintain about1,200 km of roads mechanically and about 1,350 km with manual labor. Problemswith startup of the component were related to the slow delivery of equipment forthe mechanized road brigade. There were also problems of poor coordinationbetween ONAFITEX and OR and later between the project entity and OR, and therewas an unclear distribution of responsibilities. When in 1981, COTONZAIREassumed full responsibility for the road unit, road maintenance activitiesimproved slightly. However, operational funding plagued the road maintenanceprogram until the end of the project. Nevertheless, two major bridges wereconstructed and a number of smaller bridges completed, facilitating cottontransport.

4.18 Prolect Orianization and Manatement. Early supervision missionsfrom the Bank succeeded in reducing the intervention of ONAFITEX in the detailedmanagement of the project by a system of work programming, whereby the ProjectManager was left free to implement the annual prograt, once it had been agreedwith ONAFITEX. A system of regular reporting to the Director of ONAFITEX keptthe latter briefed on progress.

4.19 In 1977, the shortcomings of parastatals, ONAFITEX in particular,became more apparent. Cotton production activities throughout Zaire wereincreasingly affected by the huge debt of ONAFITEX and the Bank's growingreluctance to finance further cotton campaigns. In May 1978, without consultingIDA (despite the Credit agreement), the Government dissolved ONAFITEX. Confusionresulted from the fact that the Government had not decided to suspenddisbursements, but to dispatch a mission to review the situation and Governmentproposals for future project management arrangements.

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4.20 Following the mission, the Government proposed that the CottonProject be implemented by a regional company in Equateur established forthat purpose. The company would form part of a nev subsector institutionalstructure, set up to replace ONAFITEX, and based on reduced governmentownership of the cotton companies and on a new cotton regulatory agency,the Caisse de Stabilisation Cotonniere (CSCo) created in August 1978,designed to coordinate the subsector under the oversight of the Departmentof Agriculture. The regional company in Equateur was to work under acontract with CSCo, which would finance purchases of seed cotton andreimburse the company for its expenses incurred in production, marketingand processing. The company would differ from the other regional companiesonly in its ownership. It would be a wholly-owned Government company,rather than a mixed-capital company. At the time, the reason for thisexception was that the Belgian Government was unable (or unwilling) toprovide technical assistance to a company financed by private capital. In1979, a supervision mission suggested a mixed company formula forCOTONZAIRE, but the suggestion was rejected on the grounds that too muchtime would be lost in trying to attract private partners.

4.21 Technical Assistance Performance. When the Project Managerresigned at the end of the first year, IDA had reservations about thepromotion of the Deputy Project Manager to the post of Manager. However,after an AGCD field mission returned from Equateur with a positiveevaluation of changes initiated by the new Project Manager, IDA withdrewits reservations, subject to regular review of performance, and the newProject Manager remained in post till the end of the project. With thecreation of COTONZAIRE, the technical assistance team was better integratedinto the new company and responsibilities were more clearly defined.However, overall performance of the TA team by the end of their stay wasmixed, as indicated by supervision missions which concluded thats (i) theperformance of the team was compromised by an insufficient coordinationwith Zairian authorities; (ii) inadequate attention was given to trainingof local staff; and (iii) more follow-up and supervision on the part of theDepartment of Agriculture would have helped to improve coordination.

4.22 Nevertheless, in late 1982, an IDA supervision mission stated thatthe company was well managed under prevailing conditions in Zaire.Purchases, marketing operations and seed distribution had normalized overthe past three years, production had increased and the company was breakingeven financially. Furthermore, technical assistance had been reduced fromthirteen to seven people in mid-1981. The technical assistance wasterminated in 1983 when the Government contracted the management ofCOTONZAIRE to the textile company UTEXCO. A year later, as staff werereplaced and liquidity problems developed in UITEXCO, the prospects ofcontinued improvement started to decline.

4.23 Procurement. Given that this was one of the Bank Group's firstprojects, there were initial delays and problems caused by unfamiliaritywith Bank procurement procedures. This, coupled with long delays byONAFITEX in the signature of disbursement requests, added to the sense offrustration of the project team up in the interior. In addition, theproject experienced problems in the first two years of execution due to

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excessive delays caused by the Bank of Zaire granting-import licenses for goodspurchased with credit funds, and to the poor relationships between ONAFITEX andthe project. However, once the initial problems were overcome, and even afterONAFITEX was wound up, the project did not present any major procurementproblems.

4.24 Financial Performance. COTONZAIRE had a relatively sound financialsituation by the end of 1981, and could do without government budget support.Excess cash, resulting from the fact that the company was not paying for itstechnical assistance, was used for a premature repayment of IDA Credit.Unfortunately, the timing of the management contract coincided with aparticularly difficult period for UTEXCO's own internal finances and liquidity.This affected both the independence of the new managers appointed to COTONZAIREand the timely payment of cotton fiber delivered to UTEXCO. COTONZAIRE was duealmost Z 50 million in unpaid cotton deliveries by 1987.

4.25 Reporting. Reporting performance under the project wassatisfactory, once a regular reporting system had been adopted after the firstyear of the project. Quarterly reports were submitted regularly to the CSCo andto the Bank. The first audit of the company's financial accounts took place in1979. No attempt was made to reestablish the accounts for 1977178. Some delayswere registered in 1983 in preparing financial accounts for the preceding year,but these were finally produced for the hand-over of management responsibilityfrom the Belgian TA team to UTEXCO.

4.26 Monitoring and Evaluation. It was acknowledged from the outset thatmonitoring and evaluation should be included as an integral part of projectactivities. However, it was also clear that ONAFITEX was unlikely to be able tohandle this activity. Attempts were made to associate the Department ofAgricultural Economics at Yangambi which had expressed an interest inparticipating. However, when the Professor of Agricultural Economics left toreturn to Belgium, no replacement was available to undertake the work that hadbeen tentatively agreed. The Department of Agriculture confided the task to itsown Service d'Etudes, but failed to nominate anyone specifically responsible forthe task--and thus internal project monitoring and evaluation was virtually non-existent. The only project monitoring and evaluation was virtually non-existent. The only agency which maintained as regular control on weeklyproduction and field results was CSCo. These data form the basis of existingcotton sector statistics for both Cr. 660-ZR and Cr. 1264-ZR project activities.

V. CREDIT 1264-ZR

5.01 Government's Request. Encouraging progress during 1978-80 prompteda review of the cotton subsector, which an IDA mission carried out in March1980. The mission concluded that cotton production in Zaire could besubstantially increased by improving marketing operations, rehabilitatingexisting processing facilities and strengthening extension services. In April1980, CSCo elaborated a four-year emergency rehabilitation project for thecotton companies not covered by the ongoing Cr. 660-ZR (La COTONNIERE, SOTEXCO,and ESTAGRICO) and had the new project submitted to the Bank Group.

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5.02 Protect Processing. Internal review within the Bank of the cottonsubsector report and of the Government's request concluded that the twodocuments provided a sound basis for a possible future project. It wasconsidered that the proposed cotton rehabilitation program, relying on thereturn of good management for the existing companies, would yield quickreturns. In addition to direct benefits, it was considered that theproject would help the cotton sector to become once again the main motorfor development of Zaire's rural areas. The project was initially expectedto cost about US$15 million, most of it in foreign exchange which wasextremely scarce at the time in Zaire. It was expected that urgentlyneeded capital goods would be imported exclusively for the cottoncompanies. The European Development Fund (EDF) and the French CaisseCentrale pour la Cooperation Economique (CCCE) were to meet about US$9.2million for basic needs and operating costs of the cotton companies and IDAexpected to finance the remainder. Prior to appraisal, four issues wereraised: (i) the credibility of government policy (there were doubtswhether the reorientation towards the private sector would hold): (ii) theneed to find an adequate formula for farm gate and cotton company prices;(iii) the perpetration of imposed cultivation legislation for cottonproducers; and (iv) the need to implement a cost recovery mechanism forfarm inputs which had traditionally been distributed free.

5.03 Appraisal of the project took place in November and December 1981.The appraisal mission concluded that a limited emergency import programwould represent a sensible investment in support of the Government's cottonrehabilitation program. In addition to providing urgently needed foreignexchange for the cotton subsector, the project would also support policyreforms and adjustments on the key issues of subsector management andcotton pricing. The project would fit into the Bank strategy foragriculture lending to Zaire by removing short-term bottlenecks andinvolving the private sector. The project would support Government'spolicy of entrusting productive activities and extension services to non-government institutions. The project was expected to contribute toincreasing national cotton production by about 30,000 tons by 1984/85.

5.04 Negotiations for the project were delayed until February 1982,while preconditions concerning the legal statutes of the cotton companiesand clearance from Belgium with regard to pending litigation forzairianized cotton companies were clarified. However, the negotiations hadto be interrupted midway when it transpired that the financial situation oftwo of the three companies had deteriorated seriously over recent monthsfollowing delayed payments by the textile companies for cotton deliveries.These delays were purportedly due to the wave of increased importation ofsecond-hand clothing and low-quality textiles. In addition, the companieswere reluctant to accept a 152 rate of interest combined with the foreignexchange risk on the subsidiary loan. The Government had originallysuggested that the cotton companies should bear 7.52 interest inacknowledgment that they undertook several basic development services inthe rural areas on behalf of the State and direct compensation for theseservices was not always forthcoming. This argument was not taken intoaccount when negotiations resumed at the end of March. The cottoncompanies reluctantly accepted the rate of interest and exchange riskconditions and the Government agreed temporarily to the exportation ofcotton to resolve the short-term cash-flow problems created by the non-payment for cotton deliveries by the textile companies.

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5.05 Proiect content. The project as defined during negotiations wasintended as a four-year phase of a long-term cotton rehabilitation programInitiated by the Goverrment in 1978. It was designed as a complement to theCOTONZAIRE project to support an emergency rehabilitation program of the threemajor cotton comparies under private management. The main project objective wasto increase cotton production in the areas of the three cotton companies from23,000 to 55,000 tons of seed cotton within five years an' to substitute forimports of cotton lint or textiles. Additional objectives were to *timulato theproduction of foodcrops grown in rotation with cotton and to Improve livingconditions in cotton-growing areas through lmproved communication and healthservices. The components to be Implemented over the four-year period were asfollowss

(a) rehabilitation and lmprovezent of ginneries by providing spareparts and equipment for power engines and workshops;

(b) lmprovement of cotton marketing by renewal and expansion ofthe cotton companies' vehicle fleet;

(c) rehabilitation of the road infrastructure by undertaking roadmaintenance and bridge repair activities;

(d) strengthening of extension services by substantiallyincreasing the number of extension agents and supervisors,training them and providing them with vehicles;

(e) provision of agricultural tools and inputs for pest control;

(f) studies to define medium and long-term measures forrestructuring the cotton subsector and audits of CSCo andcotton company accounts.

5.06 The three cotton companies were to be responsible for projectImplementation. CSCO was tos

- supervise project activities and oversee the subsectoroperations;

- coordinate the procurement of goods acquired under the Credit,attempting to achieve economies of scale by grouping ordersfor the three companies; and

- assure coordination of policy and Government involvement Inthe cotton subsector.

5.07 Cotton production in the zones of the three cotton companies wasexpected to increase as a result of the expansion of the area planted to cottonand of increased yields. Cotton plantings were expected to increase from about78,000 ha to about 112,000 ha over the project period. Total production wasexpected to increase from about 26,000 tons to 55,000 tons of seed cotton. Ofthe increase of 29,000 tons, about 24,000 tons was expected from increses incotton plantings (area) and the remainder from the application of insecticides.

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5.08 Total project costs were estimated at US$39.3 million, withfinancing to be shared as followss IDA - US$11.3 millions EDF -US$6.8millions CCCZ - US$2.2 million; SOnID! - US$1.1 millions Government ofZaire - US$7.0 million: Cotton Companies - US$10.9 million. The IDA creditwas to be on-lent by Government to the cotton companies for an eight-yearterm with a two-year grace period at 152 interest rate. The companieswould bear the foreign exchange risk. Given the foreign exchange riskfactor, these rates remained positive in real terms.

5.09 Proiect Startup. Effectiveness of IDA Cr. 1264-ZR was delayed bynon-signature of the subsidiary loan agreements between the Government andthe cotton companies. These agreoemnts not only laid down the on-lendingterms from the Government to the cotton companies but also linked thetransfer of ownership of the ginneries and buildings to compensation of theoriginal cotton company owners. Resolution of this issue was difficult andtime consuming and resulted in two postponements of the effectivenessdeadline. In the compromise solution adopted, the sale of the ginneriesand buildings was finally unlinked from the compensation issue. Thenegotiated price was considered tavorable to the cotton companies.

5.10 In the meantime, orders were placed by the cotton companies forequipment against the SOFIDZ, CCCZ and EDF financing. The CCCE-financedtrucks for SOTEXKI (to be leased to SOTEXCO for cotton transport in HautZaire) and the SOFIDE financed trucks for La COTONNIERE, which arrivedduring the second half of 1981. Insecticides, vehicles and equipment forextension services and road works financed by EDP arrived during the firsthalf of 1982. Disbursements from cofinanciers had been completed by theend of 1983, before the first disbursements against the IDA Credit hadbegun. In spite of these deliveries, there was a general consensus thatthe vehicle fleets, the equipment and the standard of the ginneries of thethree companies remained poor and badly needed renovating. Since thereturn of the cotton companies to private management in 1978, very few newinvestments have been made.

5.11 Physical Performance. Cotton production was disappointing duringthe project period and continues to be so. Statistics in the Table belowshow a general stagnation and no marked impact during the siz years of theproject:

Cotton Production Under CR. 1264-ZR1978-1987

('000* tons of seed cotton)La SOTEXCO Sub- COTON-

'fear COTONNIERZ ESTAGRICO CODENORD Total ZAIRE TOTAL

77178(0RAFIIIE) 6.0 2.8 5.0 13.8 2.9 16.778179(G94PITEX) 7.8 3.5 5.0 16.3 2.6 18.979/80 13.9 5.3 7.5 26.7 2.6 29.380181 PY 0 9.4 5.2 5.9 20.5 3.1 23.681182 PY I 10.1 4.6 4.2 18.7 4.4 23.682/83 PY 2 9.2 5.1 6.4 20.7 5.9 26.883184 PY 3 6.5 4.5 3.4 14.4 5.4 20.584/85 PY 4 7.2 4.8 6.0 18.0 3.9 22.485/86 6.9 4.1 4.6 15.6 3.3 19.286187 4.8 3.8 4.0 12.6 4.4 17.5

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5.12 The stagnation does not have one specific cause, but is the resultof a combination of factors afflicting each of the cotton companies separatelyand together. They include: (a) pcor management by the cotton companiesresulting in financial problems for funding current operations and cotton buyingactivities; (b) inadequate transport fleets and consequent poor organization ofcotton markets; (c) late purchase of cotton crop and late distribution of seedsfor the following planting season; (d) deterioration of cotton varieties *ndpoor germination; (a) poorly equippoJ and poorly motivated extension servicesl(f) absence of effective pest control. leading to major building of parasites;(g) inadequate price incentives *specially in areas where coffee and maizeproduction offer attractive alternatives due in part to unfavorable cottonprices on the world market; (h) increasingly poor state of the rural roads, asless and less public funding availability to reimburse the cotton companies forwork undertaken to keep the roads open.

5.13 One encouraging point in the cotton sector's performance over recentyears are the increasing yields which have resulted from a concentration ofextension efforts and production support activities on fewer planters locatednear the individual ginneries. Figures in the following Table reflect thisencouraging trend in cotton production for the whole of Zaire:

ZAIRECotton Production data since 1979

Campaisn Planters Area (ha) Cotton Yield Areaproduction ki/ha per(tons) planter

1958-1959 877,698 369.382 179,462 486 0.42 ha

1979-1980 308,945 98,328 29,266 298 0.32 ha1980-1981 306,578 83,726 21,150 253 0.27 ha1981-1982 309,249 85,943 23,597 275 0.28 ha1982-1983 283,616 76,014 26,786 352 0.27 ha1983-1984 256,091 84,811 20,552 242 0.33 ha1984-1985 224,218 68,565 22,391 327 0.31 ha1985-1986 198,869 61,673 19,206 311 0.31 ha1986-1987 138,422 44,720 16,765 375 0.32 ha

Source: CSCO and Etude du Secteur Cotonnier au Zaire - CFDT - July '86

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5.14 An illustration of how far the Zaire cotton sector has slippedbehind that of West African countries, is given in a 1986 IDA-funded studyon the sector. The main production and income parameters are as follows:

Comparison of Cotton Production Parametersin Zaire and French West African Countries

(1986 data)

ZAIRE FRENCH WESTAFRICA

Cotton yields (kg/ha) 325 1074Ginning outturn (2) 362 39.72Cotton fiber production (kgiha) 117 426Losses at textile mills 102 2ZUsable fiber (kg/ha) 105 418Purchase price (Z/kg) 1986 12 16Gross income (ZIha) 3900 17184Cost of inputs (Zlha) 0 4800Net income (Z/ha) 3900 12384Average area per planter (ha) 0.30 0.78Average production/planter (kg) 98 834Net revenue/planter (Z) 1170 9622Fiber produced per planter (kg) 35 331Number of workdays/ha 100 135Financial return per manday (Z) 39 92

Source: CFDT, July 1986

5.15 Problems created by imports. During the early yeaxs of the secondproject, the textile companies were facing major problems with competitionfrom the importation of second-hand clothing ('friperie'), vh.>ch, togetherwith reduced domestic purchasing power, placed a major const:a.lut on localsales. The cotton companies suffered indirectly from this vten the textilecompanies slowed their payments for cotton deliveries, which resulted incash flow problems and delays in repayment (and thus renewal) of commercialcredit for cotton purchases. A consequent decision to limit Laports ofsuch clothing and to increase taxes, together with the devaluation of theZaire currency, has reduced the acuteness of this problem. However, asecond problem, created by imports of subsidized US PL 480 cotton broughtdomestic cotton purchases to a near halt in 1985/86. The textilecompanies, who jumped on the opportunity of b7.ying quantities of importedAmerican cotton on favorable exchange and credit terms, subsequently foundthemselves short of funds to purchase cotton from the local companies, thuscreating further liquidity problems. The situation became so critical forESTAGRICO, that this company applied for and obtained agreement from theMinistry cf the Economy and Industry to export cotton to neighboring Rwandaand Burundi. Under the new proposals for the organization of thesubsector, this problem has been addressed directly with USAID, who will infuture apply commercially competitive financing terms for imports of PL 480cotton.

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5.16 Disbursements. Already during the first supeivision mission inAugust 1982, there were indications that SOTEXCO might not participate in thefirst round of tenders which were being centralized by CSCo and neither of theother two companies had submitted lists of their requirements. Later ESTAGRICOand la COTONNIERE made it clear that as long as the exchange risk was tied tointerest rates of 15%, there was little likelihood of their borrowing againstthe credit. Also, the financial problems of each of these companies put themalready in a precarious position without investment at such stiff terms.Successive supervision missions discussed this problem with Government and CSCoin an attempt to find ways of softening the terms. The Department of Financeand OGEDEP were included in discussions but none of these discussions led to aformal request to modify the term and conditions of the Credit Agreement. Opendiscussion of exchange risk sharing only really started with a search for waysand means of encouraging small- and medium-scale enterprises to play anincreasingly more important role in economic activities in 1986/87, as thecredit was drawing to a close. A decision to increase, the capital of LaCOTONNIERE in 1985 was taken under circumstances which found the cotton companyalmost bankrupt. Tenders were launched for a major re-equipping of LaCOTONNIERE's transport fleet and ginneries, drawing on Cr. 1264-ZR, madeavailable as Government's share in the capital increase. The equipment andvehicles were delivered in 1987, allowing La COTONNIERE to significantly improvein 1988 its performance in collecting the farmer's cotton. The final sums drawnagainst the Credit by each of the three companies for rehabilitation investmentswas as follows at closing date:

Com2anY Amount x of total original(SDR) allocation

ESTAGRICO 92,025 4.6ZSOTEXCO 319,022 17.6Zla COTONNIERE 3,473,221 115.4%

5.17 To all intent and purposes, Cr. 1264-ZR did very little to benefitESTAGRICO or SOTEXCO. It may be argued that part of the co-financing under theproject, especially for the purchase of SOTEXKI's new transport fleet with CCCEfunds and the equipping of the road brigades by EDF grant money brought acertain assistance to meet critical problems in the early 1980s, but since then,each company has had to rely on self generated funds or such funding as itsshareholders have been prepared to mobilize exceptionally. The cotton subsectoris still strongly under-capitalized and except for La COTONNIERE, Cr. 1264-ZRdid little to resolve this problem. The effect of the exchange risk was thesingular most dissuasive factor in low credit disbursement. ESTAGRICOreimbursed prematurely to OGEDEP as soon as liquidity permitted. CSCo has beennegotiating on behalf of La COTONNIERE with OGEDEP to obtain softer on-lendingterms. So far without success.

5.18 Other uses of Credit fundina. The Credit served to support certaininitiatives of CSCo as follows:

(i) the purchase, equipping and training of staff for a newcotton quality laboratory in Kinshasa. CSCo receivedregular samples of cotton fiber from the cottoncompanies for quality testing, partly to monitorvarietal performance and partly as intermediary betweenthe cotton companies and the textile companies who oftencomplain about inferior qualities of Zaire cotton;

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(ii) the recruitment of consultant services in support of theTraining and Visit system for agricultural extension, beingpromulgated by Belgian technical assistance agronomistswith each of the cotton companies;

(iii) the execution of a cotton subsector study by the CompagnieFran$aise pour le Ddveloppement des Fibres Textiles (CYDT)in 1986. This study provided a detailed insight into theweaknesses of each company and the measures needed toimprove cotton production nationally, and drew up a seriesof individual investment plans for each company. 1Aaddition, proposals were made for an institutional reformof the sector, with specific recommendations for newlegislation defining the role of the public and privatesector in the development of cotton production.

5.19 Counterpart Funding. The counterpart funding for the projectprovided from public sources was intended to finxance the road maintenanceand agricultural extension costs in the cotton producing areas. Until1986, these funds were collected through the payment of the Fonds deConvention pour le Developpement (FCD) levied on sales by the textilecompanies and were returned directly to the cotton companies. In 1986,under the Government's structural adjustment program, the FCD tax was fusedwith the turnover tax (CCA) and the two paid to the national Treasury.Unfortunately, budget allocation was non-existent in 1987 and inadequate in1988. CSCo is now proposing to take a more active role in ensuring thatannual budgets are prepared in advance for the cotton companies and thatrelease of funds follows on a timely basis. The limited success ofattempts to improve the budget release process makes it doubtful thatmajor new budget allocations for cotton extenston and feeder roads can beobtained. It is clear however that unless there is improvement in themobilization of funds to meet the costs of roads and agricultural extensionservices, the future of the cotton sector will continue to be compromised.

5.20 Project Organization and Management. The project was originallyconceived as a four-year emergency program to meet the foreign exchangeneeds of three major cotton companies. Thc CSCo was identified as thechief interlocutor between the donors and the cotton companies. Until thecotton companies each took responsibility for the transport of cotton totheir own clients, CSCo arbitrated in fiber distribution to the textilecompanies and operated a transport cost-sharing scheme, so as to reduce thedisadvantage of producers in remoter areas of the country. CSCo also tookthe lead in organizing and recovering annual cotton campaign credits fromthe consortium of commercial banks. The role of CSCo in these areas wasimportant in the early days of the project. Since these arrangements havebeen abolished, however, the CSCo has been largely defunct, limited to arole of information gathering.

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5.21 Procurement. There were no special problems with procurement, whichwas handled centrally by SCSo. Following a change in management of LaCOTONNIERE, which took place just after major new orders for goods and supplieshad been placed against IDA financing, there was a period when follow-up onorders and contracts fell behind and it took the new managers of La COTONNIEREthe best part of a year to make contact with all suppliers to ensure thatdeliveries would be completed before project closing date. This was finallyachieved. Government has noted that no physical inventory was carried out aspart of the project completion exercise. External financial auditcrs made nocomment on deployment of stocks procured under the project. The comment may havebeen prompted by the continued presence of two heavy articulated cotton trucks inKinshasa. La COTONNIERE management argue, not without reason, that thedeplorable state of the roads and bridges in the project area make it dangerousto use those big trucks there.

5.22. Reporting. Project reports at the outset came through regularly, butwith IDA approval were later substituted by the CSCO annual report on theperformance of the sector since the two were intrinsically related. No draftproject completion report was prepared by CSCo following a decision to prepare acommon report for the First and Second Cotton Rehabilitation projects. Nospecific monitoring and Evaluation arrangements were envisaged in the originalproject design. Given the limited awareness by the Department of Agriculture ofthe problems facing the project until very late in the day, it would have beenuseful to have designated the Service d'Etude of the Department of Agriculture tofollow progress of the sector's development and intervene more forcefully toresolve some of the problems which arose between CSCo and the cotton companies.

5.23 Closing Date. The original project closing date was June 30, 1986.As this date approached and disbursements remained extremely low (only 142 as of6/30/86), Government sought an extension of the closing date. A decision was putoff pending the Government's reaction and proposals in the wake of the CFDTreport. IDA also sought clarification on the Government's decision to increaseits contribution to the capital of La COTONNIERE by using part of the IDA creditas equity rather than as loan funds. It was however decided that, given therelatively modest balance which remained, compared with the investments needsidentified by CFDT, it would be better to prepare a completely new project,incorporating a broader set of proposals. The Credit closing date was extendedto December 31, 1987 to allow time for the payment of outstanding contracts and abalance of SDR 5.4 million (552 of the total credit) was finally cancelledundisbursed.

VI. RATES OF RETURN

Cr. 660-ZR

6.01 A detailed calculation of the rate of return of the first cottonproject is difficult in the absence of recurrent investment cost data in theproject area. The only data available are actual disbursements of IDA and otherexternal financing credits and grants. The staff appraisal report estimated aneconomic rate of return of 232 using standard incremental benefits derived fromtwo scenarios, 'with" and *without' the project. The actual volumes ofproduction from the project are such that the appraisal reports 'without project"production data are higher in 6 out of the past 9 years than actual production -and in some cases by a considerable margin, as the following figuresdemonstrate:

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1979 1980 1981 1982 1983 1984 1985 1986 1987(tons)

W/o projectestimate 4500 4400 4300 4200 4200 4200 4200 4200 4200Actual prod-uction 2552 2582 3114 4364 5882 5371 3942 3277 2000

Incrementalproduction (1948) (1818) (1186) 164 1682 1171 (258) (923)(2200)

The investments funded were more or less in line with appraisal estimates,although expenditure on roads and bridges from local sources and onextension was below that estimated at appraisal. Ginning costs, farm laborcosts and contingencies estimated in the rate of return calculationsremained constant as a proportion of overall production. Experience in thethree postproject years has however demonstrated that without significantnew investments and, above all, satisfactory-management, pricing and creditmechanisms, it is doubtful whether activities started under the project canbe sustained or that cotton production can be raised to levels approachingthose estimated at project appraisal. These conclusions suggest that theproject had a negative rate of return.

Cr. 1264-ZR

6.02 Whereas the economic rate of return for the first cotton projectwas based on export parity prices, since it was estimated in 1976 thatZaire could resume its position as net exporter of cotton, the rate ofreturn for the second cotton project was based on import parity prices, andwas estimated at a high 622, reflecting the fact that the project was arehabilitation investment relying on considerable sunk costs. In reality,few of the major investmenta could be made and, in the few companies wherethey were made (e.g., La jvTONNIERE), they have not translated into higherproduction, due to the other problems encountered. Hence, a negative rateof return must again be attributed to this project.

6.03 It should be mentioned that in the appraisal report the country'seconomic situation and weakness of the administration were quoted as beingmajor risks. It was suggested that these two factors would lead toinappropriate price policy and insufficient supply of foreign exchange.The staff appraisal report evaluated as small the risk of unsatisfactorymanagement performance by the cotton companies. However, problems of weakmanagement have been pervasive. Only CODENORD tackled the problem face onin 1987, by associating with the CFDT in the creation of a new company, andESTAGRICO has benefitted from reasonably stable management for the pastfour years. The risk of insufficient deliveries of insecticides wasunderestimated as experience of pest infestation demonstrated over severalseasons.

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VIZ. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT

Cr. 660-ZR

7.01 The political and institutional circumstances which existed whenthe first project started changed radically over the intervening years.The first eighteen months of project operations were clearly disturbed bypoor relations between the project management unit and ONAJITEX and a poorworking atmosphere between Belgian technical assistance team and theirsenior national counterparts. With the dissolution of ONAFITEX, and aftera short interim period of uncertainty, the responsibilities of CSCo weredefined and the situation gave way to one of greater autonomy forCOTONZAIRE and improved financial health, due mainly to timely availabilityof cotton campaign purchasing credit and enabling the generation offinancial reserves.

7.02 The definition of responsibilities for the road maintenanceoperations created problems throughout the project life. At first, thedelays in the delivery of road maintenance equipment created problems, butonce this was available, Office des Routes encountered budgetary problemsand had to turn over responsibility for the road maintenance brigades toCOTONZAIRE. with COTONZAIRE taking responsibility for the management ofthe roads teams and Office des Routes providing the technical supervision.the roads component was implemented more effectively. Since the end of theproject, Office des Routes has recovered the material from COTONZAIRE andis using it for maintenance of roads both within and outside the projectarea.

7.03 Agricultural extension systems were simple and based on visits ofextension staff to farmer fields and the establishment of demonstrationplots, particularly in group fields, where insecticides were applied. Asthe project advanced, greater attention was given to intensifying extensionand to concentrating on cultivation techniques requiring few externalinputs, such as recommendations concerning planting density, timing ofplanting, thinning and weeding. As the project period came to an end, aBelgian extension specialist was assigned to COTONZAIRE, to introduce theTraining and Visit system which had been adopted elsewhere under the SecondCottou Rehabilitation project.

7.04 The key institutional challenge facing the project in its lateryears was the preparation for privatization. When the question ofprivatization was raised, it was clear that there were few candidates readyto take over COTONZAIRE, particularly at a time when the country was goingthrough major political changes. UTEXCO finally agreed to acceptmanagement of the company in 1983, under a four year contract, followingwhich it had the option on outright purchase of the company. UTEXCOdecided to bring a new team of managers and technical experts, since itcould not afford to pay the salaries which the Belgian technical assistancehad been receiving. The first two managers remained scarcely a year inpost, due both to poor remuneration conditions and to frustration createdas UTEXCO took over more and more decisionmaking at its head office in

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Kinshasa. The centralization of the company's accounts in Kinshasa alsomeant that the company manager rarely knew what the real financialsituation of the company was from one year to the next. As the managementcontract drew to a close in 1987, Government announced to UTEXCO that itwould not renew the contract. COTONZAIRE is currently managed by aZairiean director, who has been with the project since the early days ofthe first cotton project. Government has repeated its intentions toprivatize the company and there are currently (mid-1988) signs that anothermajor textile company in Zaire might be interested in direct purchase.

Cr. 1264-ZR

7.05 The institutional arrangements for the second cotton project wererelatively straightforward. The Government's interests in the project weresafeguarded by the CSCo and the private companies were left with thetechnical responsibility for implementation. Road maintenance andagricultural extensicn were both initially covered by public funds, forwhich CSCo provided supervision on behalf of the Fonds de Convention pourle Developpement. However, delayed payments-for these services, as theproject advanced, created growing friction between the CSCo and the cottoncompanies, who constantly threatened to lay off their extension staff whenpayment delays persisted.

7.06 When the project started in the early 19809, there existed acertain solidarity among the cotton companies, enforced by the adoption ofa common policy for the sharing of cotton transport costs to the textilecompanies and recourse to consortial credit from the commercial banks,negotiated bi-annually in close association with CSCo. Unfortunately, thissolidarity was weakened by the individual problems experienced first by LaCOTONNIERE and second by increasing reticence against any form of publicsector intervention--even such as offered by CSCo. Proposals made in theCFDT report to define the new role of the CSCo (or a similar organizationto succeed it) make a clear presentation of those areas of responsibility,which should be assumed by an institution representing the interests of theState and interested in promoting initiatives from the private sector. Inbrief, on behalf of the State, the institution shoulds

(a) ensure the application of cotton policy and cottonlegislation;

(b) manage public finances available to the subsector;

(c) be the State's representative for the subsector; and

(d) supervise the management of public operations carried outunder contract in the subsector.

For the cotton companies, the institution should:

(a) act as arbitrator for questions concerning the domesticcotton market;

(b) provide technical production support to the companies (onbehalf of the State);

- 23 -

(c) help in resolving logistic problems on behalf of thecompanies, particularly for such matters as the supply ofinputs; and

(d) assure the secretariat of the Professional Charter, which hasbeen proposed to define the relations and responsibilities ofthe different parties intervening in the subsector (cottoncompanies, planters, textile companies, banks andGovernment).

VIII. BANK PERFORMANCE

8.01 Project preparation of both the first and second cotton projectswas carried out in a detailed and methodical mainner. The time taken forpreparation of the first project (over five years) indicates the level ofreflexion before adoption of the final version. The second project wasbased on a subsector review and a detailed project proposal prepared by thenew Director General of the CSCo. At the time, hopes were strong that thisnew project would provide the necessary impetus to raise the depressedactivities of the cotton companies. However, it is clear that the twoprojects were based on different concepts; the first was conceived as aclassical rural development project anchored on cotton, whereas the secondproject was a sector-wide undertaking inspired by the belief that with thereturn to private ownership, management and funding as well as generalviability of the cotton companies would drastically improve.

8.02 The first project has fallen prey to the limitations of many ruraldevelopment projects, namely sustainability in terms of funding andmanagement after project completion, and changing conditions for the cotton.sector as a whole; these have since been well recognized in the Bank.Furthermore, the Bank underestimated the distrust that existed and stillexists between Zairians and expatriates, especially from the formercolonial regime. Finally, insistence by the Bank on the elimination oflegislation on compulsory cultivation would have helped clarify the issueof the price the cotton companies were expected to pay farmers. In thesecond project, the Bank was slow to recognize the reluctance of thetextile companies to invest in cotton production locally, or to give cottonproducers a fair deal in terms of pricing. Saddling the cotton companieswith the foreign exchange risk, for instance, required linking the domesticprices of cotton to international prices; there is no evidence that thiswas ever contemplated.

8.03 Bank supervision of the first cotton project was intense at thestartup and regular thereafter. Supervision reports are strong on physicalimplementation detail and provide a clear picture of project implementationas it advanced. Supervision of the second project was equally intense atstartup, with regular half-yearly missions until 1986, when responsibilityfor the supervision of the project transferred to Kinshasa, with theappointment of an Agricultural Country Officer (author of the presentreport) in the Bank Resident Mission.

- 24 -

IX. CONCLUSIONS

9.01 The experience with the Bank's two cotton projects in Zaireprovides rather grim reading. Domestic demand for cotton as confirmed bythe new investments and modernization of the textile industry and theadvantages which cotton offers as a source of revenue to smallscale farmersw$il, however, mean that cotton, in spite of the numerous setbacks, willremain a priority in Government's agricultural development strategy.. Theexperience of the Government and IDA in the execution of these projectsprovides lessons on how to address the problems of the subsector in thefuture.

9.02 On the optimistic end of the scale, privatization of cottonmarketing and transformation has introduced commercial criteria for thedevelopment of the subsector. Signs of improvement in cotton companymanagement are beginning to show with ESTAGRICOXand CODENORD. Furthermore,with the strong devaluation of the Zairian currency, domestic cotton hasagain become internationally competitive and a sound basis of expansionexists provided that supply, pricing and transport problems can beovercome. On the less optimistic end of the scale, important problemsfacing the cotton companies remain similar today as to when the projectswere conceived. The shortage of foreign exchange for the replacement ofequipment and rolling stock and the purchase of spare parts for theantiquarian ginneries represents a permanent problem for management. Thedeterioration of the road network and the diminishing volume of publicresources available to fund cotton roads and extension add furthercomplications to promoting increased production. The lack of emphasisgiven to the design and implementation of dynamic cotton extension systemsis also a factor restraining production. Above all, the application of anadequate producer price policy by the cotton companies and the concomitantmobilization of timely cotton purchasing credit are priority measures tostimulate regular planting by smallholder cotton producers. Their solutiondepends on the mobilization of resources by the Government, the ability ofthe textile companies to stand by price agreements fixed on a firm basisand the willingness of the banking sector to continue to devote asignificant proportion of scarce credit to the production of a single crop.

9.03 Any new project in support of the subsector needs to take theseaspects into consideration and be prepared to back up the financialresponsibility of the State in infrastructure maintenance and in thefinancing of agricultural extension services, as well as in the applicationof remunerative price formulae for cotton planters and for the cottoncompanies. Such lines of credit as may be mobilized for the cottoncompanies must take into account investors experience in Zaire over thepast decade and the consequent reluctance to accept terms and conditions offundLng which will exacerbate the risk involved with any new investment.Successful future projects in support of the subsector will also be keenlydependent on a high level of competent management within each of the cottoncompanies. Good management involves a high initial investment cost. Aformula will need to be developed whereby grant-funded technical assistancecan be provLded to the companies for the next phase of a new investmentprogram. CODENORD has already succeeded in mounting such an arrangement inconjunction with the French Fund for Aid and Cooperation. Similar

- 25 -

arrangements should bo encouragod for the other companies, particularlyCOTONZAZS, for whom the departure of the project technical asstance teamhas had severe implications for production and profitability. And finallythe intensifLcation of efforts to introduce improved extension managoentsystems, such as the Training and Visit system introduced uader Cr.1264-ZR, should continue.

- 27 -

-' ATTACHMENT 1Page 1 of 3

Republic of ZaireCaisse de Stabilisation Cotonni4re

Kinshasa, May 8, 1990Our ref.: CSCo/03/A.2.1/29498

Mr. Graham DonaldsonChief, Agriculture, Infrastructureand Human Resources Division

Operations Evaluation Department

c/o UB Resident Mission, Kinshasa

Sublect: Zaire: First and Second Cotton Rehabilitation Projects(Credits 660-ZR/1264-ZR)Preliminary-Proiect Completion ReRort

Dear Sir:

We acknowledge receipt of your letter of March 6, 1990 on theabove-referenced subject, for which we thank you.

Please find attached our comments on the preliminary ProjectCompletion Report.

Sincerely,

/I/ Ir. PELO YI BAMBA /s/ Ir. KIBANGUIA ASOYOActing Technical Director Acting General Manager

ATTACHMENT 1Page 2 of 3

- 28 -

Comments on the Proiect ComDleticn Re2ortfor the First and Second Cotton Rehabittation Proiects

These comments fall into two parts. The first part points outerrors or mistakes--these are identified with (.) and the corrections with (*)--and the second part contains comments of a general nature.

1. Errors or mistakes

Para. 1.01. line 4:(.) ...which has been almost exclusively produced...(*) .. .which has been exclusively produced...

Para. 1.05 (b). subheading (iv): There is no reason to include this item, asthe compulsory cotton cultivation laws ceased to exist when agriculturalproduct prices were liberalized in 1987.

Para. 1.01. line 2: ...a peak of 180,000 tons... (French text: 188,000tonnes).

Para, 2.01. line 1: .. .a record crop.. .of 180,000 tons...These figures should be made the same: either 188,000 or 180,000.(T.N.: The mistake being pointed out here is in fact due to an error in theFrench version of the PCR.)

Para. 3.04. lines 6-7:(.) ... ranging from 17,000 to 18,000 tons of seed cotton. (French text:

coton-fibre.)(*) .. ranging from 17,000 to 18,000 tons of seed cotton.(T.N.: Here again, the mistake being pointed out is due to an error in theFrench version of the PCR, where "seed cotton" was translated as coton-fibreinstead of coton-graine.)

Para. 3.06. line 6:(.) SUTEXCO(*) SOTEXCO

Para. 4.15. lines 15 and 17:...12,500 tons of cotton... seed cotton or cotton fiber?...19,000 tons of seed cotton. (French text: coton-fibre.) This latterfigure is clearly incorrect, for a ginning out-turn of 36X would result in64,800 tons of cotton fiber from the record crop of 180,000 tons, not 19,000tons as indicated. (T.N.: Same source of error as described under para.3.04.)

Para. 4.26. line 5:(.) Department of Agricultural Economics at Kisangani...(*) Department of Agricultural Economics in the IFA (UNAZA) at Yangambi...

ATTACHMENT 1

- 29 - Page 3 of 3

Para. 5.05. ling 7:...from 23,000 to 55,000 tons... (indicate whether seed cotton or cotton fiberis intended here).

Para. 5.Q7. lines 5-6:...from about 26,000 tons to 55,000 tons of seed cotton. (French text: coton-fibre.) (LL&: Same source of error as described under para. 3.04.)

Para. 5.19. line 8:(.) ...turnover tax (CCA)... (French text: CLA.)(*) ... turnover tax (CCA)...(L.L.: Here again, the mistake being pointed out is in the French version ofthe PCR.)

General comments

Generally speaking, the report covers all of the factors involvedin the fAilure of the two projects. There are, however, a number ofAdditional factors that we should like to see mentioned. These are asfollows:

* Both projects were essentially financial in nature, i.e., they weredesigned to provide the cotton companies with the foreign exchange thatwas simply not available at the time. However, the way in which thecredit was structured gave the projects a suicidal aspect (exchange riskborne by the beneficiaries).

* In an attempt to counteract the credit's suicidal aspect, CSCoapproached OGEDEP on a number of occasions with a request for immediate'etmbursement in convertible zaires at the rate for the day.

Unfortunately, all of these requests were turned down.

* Although CSCo was to represent the Government's interests in thiscredit, it was unable to play the role described in para. 5.06 (page13), as the credit beneficiaries entered into agreements directly withthe World Bank's representatives. CSCo thus had to limit itself to theadministrative side of the credit, and was unable to effectively expressits opinion on the nature of certain outlays.

* No concerted policy line was followed for procurement of various itemsof equipment. Purchases were effected on a case-by-case basis with proforma invoices And World Bank approval.

* The report mentions massive FL 480 imports that put a stop to purchasesof local cotton just at the time the two projects were taking shape. Itis thus perfectly understandable that these imports undermined theeffect of the projects and, in more general terms, all of the effortsundertaken within the subsector.

* The report makes no mention of any physical audits designed to verifythat equipment ordered actually reached its destination.

- 31 _


MOUVEMENT POPULAIRE DE LA REVOLUTION

Republic of ZaireDepartment of PlanningDirectorate for the Productive Sectors

Kinshasa, April 26, 1990No. 082/DP/DSP/TMM/mk/90.-

Subject: Acknowledgement of Recei2t

To: Mr. Graham DonaldsonChief, Agriculture, Infrastructureand Human Resources Division

Operations Evaluation Department

1818 H Street, N.W.Washington, DC 20433

Dear Mr. Donaldson:

This is to acknowledge receipt of your letter of March 16transmitting the draft project completion report for the First and SecondCotton Rehabilitation Projects (Credits 660-ZR/1264-ZR), for which I thankyou.

I attach a number of observations arising from examination of thisdocument.

We trust that these comments will reach you safely.

Very truly yours,

/s/ Tansia Molende MonkoyDirector


-32 -

Comments on the drgft completion reRort

for the First and Second Cotton Rehabilitation Proiects

Examination of the document gives rise to the following observations:

The report shows that, despite the efforts of the Zairian Government,the World Bank and the Belgian cooperation agency, the two cottonprojects failed to achieve an increase in cotton production in Zaire.Cotton production declined by almost 50 percent (cf. the table onpage 15).

The report analyzes the various domestic problems, but does notemphasize international market factors, which were unfavorablethroughout the period of execution of these two projects.

No overall feasibility study was conducted for procurement.

CSCo did not play the full role expected of it as detailed in paragraph5.06 on page 13. Whereas CSCo was intended to represent theGovernment's interest in the credit, the beneficiaries entered intoagreements directly with the World Bank's representatives. Thus CSCoserved as a letter box rather than as a consulting firm.

Paragraph 1.05 (b), item (iv): There is no reason to include this itemas the compulsory cotton cultivation laws ceased to exist whenagricultural product prices were liberalized in 1983.

(T.N.: An apparent discrepancy between "peak crop of 188,000 tons" onpage 1, paragraph 1.01, line 2, and "180,000 tons" on page 3, paragraph2.01, line 1, is due to a transcription error in the French version ofthe PCR.)

Page 4, paragraph 3.06, penultimate line: SUTEXCO should be correctedto SOTEXCO.

Done in Kinshasa, April 26, 1990

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