X CIRCULATING COPY

TO BE RETURNED TO REPORTS DESK

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

Not For Public Use

FE L E COPY Report No. P- 1134

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO THE

EAST AFRICAN HARBOURS CORPORATION

WITH THE

JOINT AND SEVERAL GUARANTEES OF

KENYA, TANZANIA AND UGANDA

November 6, 1972

This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not acceptiresponsibility for the accuracy or completeness of the report.

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CURRENCY EQUIVAIENTS

US$1 = EA Sh 7.14EA Sh 1 us$o.14

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECa4MENDLTION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LQAN

TO THE EAST AFRICAN HARBOURS CORPORATIONWITH THE JOINT AND SEVERAL GUARANTEES OF

KENTA, TANZANIA AND UGANDA

1. I submit the following report and recommendation on a proposedloan to the East African Harbours Corporation to be jointly and severallyguaranteed by Kenya, Tanzania and Uganda, for the equivalent of $26.5million to help finance a major part of the 1972-1976 Development Programof the East African Harbours Corporation. The loan would have a term of25 years including 5 years grace with intereat at 7¼ per annum.

I. THE EAST AFRICAN COMMUNITY AND BANK GROUP OPERATIONS

The East African Community

2. The Report and Recommnedation of the President on a proposed loanto the East African Development Bank (Report No. P-1097 dated June 7, 1972)provided a background to the evolution and salient features of the EastAfrican Community. Annex II expands upon relevant material from that report,covering the historical antecedents of the Community's formation, the Treatyfor East African Cooperation, Common Market arrangements and the CommonServices, together with updated assessments of the economies of the threePartner States.

3. Uganda's decision to oust non-citizen Asians and the armed conflicton the Tanzania-Uganda border, has not impaired the operations of CommunityCorporations. The resilience of the Community and its corporations in theface of this crisis between Partner States is encouraging and reinforcesthe evidence that none of the Partner States is anxious to weaken the bondsof regional association.

Bank Group Operations

4. The Bank has been a significant source of development finance tothe Community Corporations responsible for railways, ports and telecommuni-catios and to the East African Development Bank (BADB). The Bank has madeseven loans totalling over $170 million to these entities since 1955 and nowholds about 44% of the Community's total external debt. The developmentprograms of the Community Corporations and the lending program of the EADB,which have received Bank support help to meet vital regional and nationaldevelopmental needs. The Bank Group also participates in other economic

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sectors in the region through its lending to each of the three PartnerStates for projects in transportation, power, water supply, education,forestry and agriculture. Summary Statements of Bank loans and IDA creditsto the Community's common service organizations and to the three PartnerStates are provided in Annex I.

5. The IFC has three investments in Kenya; $12.9 million in the PanAfrican Paper Mills Ltd., $2.1 million in Kenya Hotel Property Co., $2.4million in Tourism Promotion Services (Kenya) Ltd., and one investment inUganda; $1.1 million in Tourism Promotion Services (Uganda) Ltd.

6. The performance of the three COmmunity Corporations under ourprojects, has been generally satisfactory. Detailed comments on loans stillbeing disbursed are provided in Annex 1.

7. A project covering the first three year phase (1973-75) of the1973-79 Development Program of tne Last African Posts and TelecommunicationsCorporation was appraised in June of this year and a proposed loan of over$28 million is expected to be negotiated shortly. In addition the EastAfrican Railways Corporation is preparing its next four year developmentprogram which is expected to be appraised inths first half of 1973 for pos-sible Bank assistance.

II. THE TRANSPORT SECTOR

Background

8. The three national economies of East Africa (Kenya, Tanzania andUganda)j and those of neighboring land-locked countries (Rwanda, Burundiand Zambia) are all highly dependent on foreign trade for their continueddevelopment. This equatorial region has large population concentrationsfar from the coastlines, in the fertile temperate highlands and along theshores of Lakes Victoria, Tanganyika and Nyasa, where a large. proportionof total production and consumption occurs. The main flow of long-haultraffic is between the main sea ports and their upcountry hinterlands.Traffic consists predominantly of relatively low value primary productsfor export, and capital goods (equipment and machinery), production inputs(fuels, fertilizers etc.), and consumer goods imports. Transport costsare often critical to maintaining current levels of output and consumption.The efficient management and maintenance of this transport system, includingrailway lines, roads, waterways and seaports, and the timely development ofrewired capacity are therefore of primary economic importance.

The Railway Network

9. The main 5,650 km. railway system, which is jointly owned andoperated as a common service for the three countries, by the East AfricanRailways Corporation (EARC), carries the bulk of the heavy long distancetraffic. EARC also operates shipping services on Lake Victoria and LakeTanganyika and scheduled road-services feeding various railheads in allthree countries. A new 1,860 km railway line connecting Zambia toDar es Salaam, is under construction with the financial and technical assis-tance of the People's Republic of China, and will provide yet another route

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for the movement of Zambian traffic. Its construction at a cost of about$400 million., is well ahead of schedule. It is now expected to be com-pleted by December 1974 and become fully operational a year later. Thisline which is of a slightly wider gauge (42 in.) than the EARC system,(meter gauge or 39.J inches) will be operated by a separate railwayauthority (the Tanzania-Zambia Railway Authority). The construction ofthe East African Railway System began in 1896. The Railway and itsassociated lake and road services have played a major role in pioneeringthe development of East Africa. In recent years the role played by therailway in penetrating the hinterlands has been increasingly taken overby the growing road network Which has enabled hitherto isolated villagecommunities to be brought into the market economy. However, the railwayremains the backbone of the transport system and the regional economyrelies to a large extent upon its services. The Bank has played asignificant part in assisting the improvement of rail services havingto date provided loans totalling about $99 million for this purpose.

The Highway System

10. The road systems ofeach of the three countries compare favorablywith those of other African countries and are being rapidly developed tomeet the increasing demand for inter-urban road transport and to supportand promote both agricultural marketing and tourism. As a consequence,the trucking industry now provides stiff competition to the railways inthe long-haul transport of high value commodities. Unlike other majortransport modes, the construction and maintenance of roads and the regula-tion of vehicular transport is the individual responsibility of the threenational governments.

lle The road network in East Africa, now comprises about 41,000 kmof trunk, primary and secondary roads. About 7,200 km have an asphaltsurface, while the others have gravel surfaces, engineered so as to enableupgrading at minimal extra cost. In addition, there are some 60,000 km oflower grade roads which include the tertiary feeder road network andspecial purpose roads for agricultural and tourism development. The averageannual growth rate in road traffic in the three East African countries isabout 5% and is somewhat higher in Kenya than in Tanzania or Uganda. Trunkroad improvements to keep pace with traffic growth are still relativelyeasy to identify and to justify for investment. However, in all threecountries, faced with slow growth in rural areas, rapid urbanization andhigh urban unemployment, the secondary and tertiary networks needed tosupport rural production are now receiving greater attention. The BankGroup has been the most prominent lender for highways development in EastAfrica, having to date made some fourteen loans and credits to the threePartner States,totalling over $128 millionsfor this purpose.

The Sea Ports

120 The East African Harbours Corporation operates the principal portsof Mombasa (Kenya) and Dar es Salaam (Tanzania), and the smaller ports of

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Tanga and Mtwara (Tanzania). Mtwara is served only by road, while the otherports are served by both road and rail. There are also a number of minorports handling a small volume of coastal traffic. Bank assistance in pre-vious projects (Ioans Nos. 638EA and 428EA totalling over $40 million) hasgone a long way in increasing capacity at Mombasa. However, Dar es Salaamhas recently had to cope with increasing Zambian traffic. Both Dar es Salaamand M1mbasa harbors have deep-water berths (eight at Dar es Salaam andfifteen at Mombasa, of which two are under construction) for general cargoand are equipped with special facilities for handling bulk cargo and futurecontainer traffic. Mtwara has two deep-water berths for general cargo, andTanga has a deep-water jetty for bulk cargo. All harbors have vessel ancho-rages, lighterage facilities and with the exception of Mtwara (which handlesneither a great volume nor variety of cargo), are equipped with modern cargohandling equiiment.

13. The massive diversion of Zambian t -ffic from Southern Africanports to Dar es Salaam, although of benefit to the Tanzanian economWshasstrained Dar es Salaam portts capacityto handle the increased cargo andhas resulted in costly congestion. The proposed project will increasecapacity and relieve this congestion.

Air Transport

14. Air transport has been expanding rapidly in East Africa; it playsa vital role in the movement of international passenger traffic, and iscompetitive with other modes of domestic passenger transport in the region.lhe three major international airports are at Nairobi in Kenya, Dar es Salaamin Tanzania and Entebbe in Uganda. A new airport has been built near Arusha(Kilimanjaro) to serve the tourist regimn in Northern Tanzania. Internationaltraffic for this airport has not yet been buiilt up. Nairobits airport atEmbakasi which is well served by several international airlines, is the focusof international passenger traffic in East Africa; inrecognition of this fact,the Bank recently made a loan of $29 million to assist its planned expansion.Air cargo operations, though still small are growing rapidly and may even-tually play a significant ro2e in the expansion of such export earning indus-tries as horticultural production. International traffic is carried by theEast African Airways Corporation which is the region's major commercialscheduled flight carrier, and by some 24 other foreign airlines. There isalso a prominent charter aircraft industry, catering mainly to tourists.

Pipelines

15. The only major oil pipeline in the region, carries fuels fromDar es Salaam to Zambia (1940 lkm). It was built to relieve road congestionresulting from the diversion of Zambian traffic through Tanzania followingRhodesia's unilateral declaration of independence. Signs of pressure onthe ?bmbasa-Nairobi road and rail links are now becoming evident and theconstruction of an oil pipeline to transport refined faels from jNbmbasato Nairobi may become necessary within the next five or six years.

Transport Coordination

16. The East Africa Transport Survey, which was financed by theUnited Nations Development Program and for which the Bank was ExecutingAgency, highlighted the fact that the potential for uneconomic competitionbetween road and rail transport in East Africa necessitated better co-ordination between these modes. In an effort to achieve this, the Trans-port Survey recommended that the protective tariff and road licensingpolicies of the three countries which shielded the railways from competition,be gradually relaxed and that the railways be given greater flexibility intariff setting to meet road competition. Implementation of this recommen-dation was accepted as a condition under Loan No. 674EA to the East AfricanRailways Corporation by the member governments and agreement was reached onmeasures to improve transport policy and operating practices in the region.The most important of these measures are aimed at evolving a commerciallyviable cost-based tariff and rate structure for EARC which would securethe competitive position of the railways and ensure that no uneconomictransfer of traffic from rail to road transport takes place. The tariffstructure is now under review and when the revision is completed the Govern-ments will cease to protect the railways from road competition.

III. THE PROJECT

17. A report entitled "Appraisal of the Third Harbors Project - East

African Harbours Corporation" (No. PTR 120a, dated October 17, 1972) isbeing circulated separately. A Loan and Project Summary is provided inAnnex V.

18. The Bank's involvement with port development in East Africa datesback to 1966 when a loan was made (Loan No. 428EA) to the East African Rail-ways and Harbours Corporation, which was subsequently separated in 1967 intotwo corporations - EARC and EAHC. Bank relations with EAHC were establishedwith the latter's inception as a separate entity and in 1969 the Bank extendeda loan (Loan No. 638EA)to the new corporation to assist in financing its FirstDevelopment Program covering the period 1969-1972. The works financed underthat program are now relieving major capacity constraints at Mbmbasa and tosome extent at Dar es Salaam.

19. Late in 1971 EAHC approached the Bank for another loan to helpfinance its Second Development Program for 1972-1976 and in January 1972a Bank mission visited East Africa to appraise the program.

20. The Bank originally considered making a loan of $52.5 million tomeet the foreign exchange costs of the project. In response to efforts bythe Bank to attract bilateral finance on soft terms to alleviate the in-creasing debt servicing burden on the Community's constituent PartnerStates, the Canadian International Development Agency (CIDA) expressed aninterest in participating in the financing of the Bank appraisal project.

Canada has now agreed to finance, in parallel, the entire equipmentcomponent included in the project, with a loan of Can.$26 million. Thisloan which is to be extended on soft terms (50 years, 10 years grace,no interest, no service charge) to the East African Community will beon-lent to the East African Harbours Corporation on terms similar to thoseof the Bank loan. Although the cost of equipment to be procured fromCanada by EAHC may be marginally higher than prices obtainable underinternational competitive bidding, the Canadian loan is neverthelessfavorable from the viewpoint of easing the debt burden of the threePartner States. The proposed Bank loan has therefore been reduced to$26.5 million.

21. Negotiations for the proposed Bank loan were held in Washingtonat the end of July 1972. The East African delegation was led by the HonorableW.W. Rwetsiba, the Community's Ninister for Communications, Research andSocial Services and included representatives from the Partner States and.the EAHC. CIDA representatives also attended. A list of the representatives,at negotiations is provided in Annex IV.

ProJect Composition. Cost and Financing

22. The proposed project includes most of the items in EAHC's1972-1976 Development Program, which was designed to enhance Dar esSalaam's capacity to handle increasing Zambian and Tanzanian trafficand to continue the phased modernization program for East African portsinitiated under Loan No. 428EA. The project will provide three additionaldeep-water general cargo berths, improvements to four existing berthsand a central services repair area for mobile equipment at Dar es Salaam;modernized transit sheds, back-of-port facilities, a tug-berth and re-placement of a cold store at Mombasa; improved lighterage facilities atDar es Salaam, Mombasa and Tanga; and training schools at Dar es Salaamand Mombasa. In addition, the project will provide cargo handlingequipment including cranes, forklift trucks and floating craft.

23. The estimated total cost of the proJect is $70.4 million equiv-alent, of vhich $52.5 million (75 per cent) is the estimated foreignexchange component. The proposed Bank loan of $26.5 million will financethe foreign exchange cost of all civil works and facilities. The Canadianloan of Can.$26 million will finance the entire equipment component, ona tied procurement basis. Local currency costs (other than a smallamount provided for by Canada) of about $17.9 million will be financedby EAHC from its internal resources.

Traffic Growth and Port Development

24. Although facilities at the major ports of Dar es Salaam and Mombasaare being rapidly expanded with the Bank's financial assistance, traffic growthhas more than kept pace. Traffic through the port of MDmbasa has been margin-ally above forecasts made at the time of appraisal of the previous loan in1969, while general cargo traffic through Dar es Salaam has been some 5%-10%higher. Within the next 10 years, traffic is expected to increase by 70% atDar es Salaam and by 50% at Mbmbasa and Tanga. The on-going construction ofnew berths at Mombasa will provide that port with adequate capacity to meet

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traffic increases. The sharp increase in traffic through Dar es Salaamwhich is expected when the Tanzania-Zambia railway becomes fully opera-tional makes further expansion of this port an urgent necessity. AtTanga,traffic is shortly expected to exceed the limited lighteragecapacity available, and additional facilities are necessary. Togetherwith the expansion of physical facilities, traffic pressures have neces-sitated further improvements in labor productivity and efficiency whichthe project will promote by providing modernized port facilities andbetter cargo handling equipment. This project together with the previoustwo,' should provide East African ports with enough capacity to meettraffic volume up to around 1980.

Rate of Return

25. In the first year, the project is expected to show a return of 27%;over the life of the project, the return would be around 42%. A sensitivityanalysis indicates that under varying assumptions of changes in costs andbenefits, even with an unlikely combination of unfavorable circumstances, thereturn for the project as a whole would still be very satisfactory.

The Borrower

26. Details on the organization, administration and staffing of EAHChave been provided in Annex III. EAHC has been and is expected to continueto be financially viable. It has complied with all financial convenantsunder the previous two loans.- The prescribed minimum 8% financial rate ofreturn has been exceeded; capital expenditure has been restricted to projectsagreed to by the Bank; a comprehensive cost control and management informatiosystem is now being installed; and fixed assets are being revalued. HoweverEAHC's current' rates and charges are largely unrelated to the cost of pro-viding services. Following the recommendations of their consultants, asatisfactory costing system which will provide the basis for a cost relatedtariff structure, is scheduled to be introduced by mid-1973. EAHC has under-taken 'to continue earning a minimum financial rate of return of 8% perannum. To enable it to do so, EAHC, together with the EAC and the Governmentof Kenya, Tanzania and Uganda, has agreed to take all necessary steps in-cluding any tariff revisions that may be required.

Procurement and Disbursement

27. All contracts for civil works to be financed from the Bank loan,other than the three berths to be constructed at Dar es Salaam (see para.2 8 )will be awarded in accordance with the Biks guidelines for internationalcompetitive bidding. Disbursements will be made against the actual foreignexchange costs or the estimated foreign exchange component of the goods andservices procured. The bidding for equipment to be financed by the Canadianloan will, in conformity with Canadian procurement rules, be restricted toCanadian suppliers (para. 20).

28. An increase in the number of berths at Dar es Salaam is an urgentnecessity if costly congestion and direct losses to the Tanzanian andZambian economies are to be avoided when the Tanzania-Zambia railway becomesfully operational at the end of 1975. The time factor is therefore of cri-tical importance. If the contracts for the three new berths were to beawarded after international competitive bidding it is extremely unlikelythat construction could be completed in time. EAHC has therefore requestedthe Bank to consider allowing a contract for the construction of these berthsto be negotiated between themselves and the present contractor, who wasselected after international competitive bidding for oonstructing the berthsunder the on-going project (Loan No. 638EA). It is expected that as thecontractor will not have to incur any mobilization costs a negotiated pricewill not be above prices obtainable through international competitive bidding.The foreign exchange cost of the works proposed for the negotiated contractis about $11 million. The award of a negotiated contract for these berthswould be subject to Bank approval of final terms. Furthermore EAHC hasincurred, since January 1972, foreign expenditures amounting to $1.3 miUionon consultants' services for engineering and design work for these three newberths, and has requested that the Bank finance these retroactively. Theproposed loan provides for such retroactive financing.

Fature Port Development

29. Port development in East Africa has, until now, taken place on theba8is of pei'iodic responses to built-up traffic pressures. As a first steptoward systematically planned port development, UNDP has agreed to financea master plan study of Dar es Salaam port, with the Bank as Executing Agency.This study will provide guidelines for determining the timing, nature andextent of future investment in expanding Dar es Salaamts capacity. It isexpected that field-work will begin in early 1973. EAHC has also draftedterms of reference for a complementary master plan study for Mbmbasa andother East African sea port requirements, which will shortly be submittedto UNDP for financing. It is intended that the two studies wiln be co-ordinated and that on their completion they will provide a basis for thefurther development of all East African ports.

IV. LEGAL INSTRUMENTS AND AUTHORITY

30. The draft Loan Agreement between the Bank and the East AfricanHarbours Corporation, th-e draft Guarantee Agreements between the Republicof Kenya, the United Republic of Tanzania, the Republic of Uganda, respec-tively, and the Bank, the draft Letter Agreement between the Bank and theEast African Community, the Report of the Comnittee provided for inArticle III, Section 4 (iii) of the Articles of Agreement of the Bank andthe text of a draft Resolution approving the proposed Loan are being dis-tributed to the Executive Directors separately.

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31. The legal structure of the Loan documents follovathe patternused for the Bank's loans to the corporations under the East AfricanCommunity. The draft Loan Agreement, Ouarantee Agreements and the LetterAgreement contain provisions normally used for Bank projects carried outby such corporations. In addition, the following matters are includedin the draft Loan Agreement:

(a) provisions are made for cross-default between this Loan and theprevious loans (Sections 8.02(e), 8.03(d), 9.01 and 9.02 of theLoan Agreement);

(b) the effectiveness of the Canadian Loan is made as an additionalconditian to the effectiveness of the loan Agreement (Section10.01(b) of the Loan Agreement); and

(c) provisions are made regarding suspension of disbursement andacceleration of the repayment of the Bank Loan in connectionwith the suspension of disbursement, and acceleration of therepayment of, the Canadian Loan (Sections 8.02(d)(g) and8 .03(a) of the Loan Agreement).

32. I am satisfied that the proposed loan will comply with theArticles of Agreement of the Bank.

V. RECOMMENDATION

33. I recormend that the Executive Directors approve the proposedloan.

Robert S* McNamaraPresident

by J. Burke KnappAttachments

Washington, D.C.November 6, 1972

ANNEX IPage 1 of 7

A. SUMMARY STATEMENT OF BANK LOANS FOR COMMON SERVICES GUARANTEEDBY KENYA, TANZANIA AND UGANDA AS AT SEPTEMBER 30, 1972

(U.S.$ million)Amount less cancellations

NO. YEAR BORROWER PURPOSE BANK UNDISBURSED

110 EA 1955 EARC Li Railways 24.0o428 EA 1966 EARC-2 Railways 32.4 _

1966 EAHC /2 Harbors 5.6483 EA 1967 EAPTC7T Telecomminicati ms 13.0 0.h638 EA 1969 EAHC Harbors 35.0 22.1674 EA 1970 EARC Railways 42.4 37.4675.EA 1970 EAPTC Telecommunications 10.4 8.0843 EA 1972 EADB Development Finance 8.o 8.0

Total 170.8 75.9-

of which has been repaid 21.0

Total now outstanding 149.8

Amount sold: 24.4of which has been repaid 20.0 4.4

Total now held by Bank

Total undisbursed 75.9==s=3

/1 Loan made originally to East African High Commission and guaranteedby the United Kingdom

/2 Loan made originally to East African Common Services Authority

ANNEX IPage 2 of 7

B. SUMMARY STATEMENT OF BANK LOANS AND IDA CREDITS TO KENYAAS AT SEPTEMBER 30, 1972

(U.S.$ million)Amount less cancellations

NO. YEAR BORROWER PURPOSE BANK IDA UNDISBURSED

256 KE 1960 Kenya Agriculture and Roads 5 8/ - -303 KE 1961 Kenya Land Settlement 3.,0/1 - -

64 KE 1964 Kenya Tea Development - 2.2 -70 KE 1964 Kenya Highways I - 4.5 -77 KIE 1965 Kenya Tea Roads - 3.0 -.93 KE 1966 Kenya Education - 7.0 -

104 KE 1967 Kenya Agricultural Roads - 5.3 -105 KE 1967 Kenya Agricultural Credit - 3.6 0.7119 KE 1968 Kenya Tea Development II - 2.1 2.0120 KE 1968 Kenya Highways II - 10.7 o.4129 KE 1968 Kerya Livestock Development - 3.6 2.0639 KIE 1969 Kenya Highways III 23.5 - 5.2641 KE 1969 Kenya Forest-Plantations 2.6 - 2.0185 IE 1970 Kenya Second Education - 6.1 5.5714 IE 1970 NCC Nairobi Water Supply 8.3 - 6.8224 KE 1970 Kenya Highway Maintenance - 12.6 lo.4745 KE 1971 TD-C Kamburu Hydroelectric Proj. 23.0 - 16.8276 KE 1972 Kenya Fourth Highway Project - 22.0 22.0826 KE 1972 Kenya Nairobi Airport 29.0 - 29.0

Total 82.7 102.8of which has been repaid

Total now outstanding 88.6

Amount sold: '4.8of which has been repaid 4.3 0.5

Total now held by Bank and IDA 88.1 82.7

Total undisbursed: Q2.8 =43.0 102.8

/1,Guaranteed by the United Kingdom

ANNEX IPage 3 of 7

C. STATEKENT OF BANK LOANS AND IDA CREDITS TO TANZANIAAS AT SEPTEMBER 30, 1972

(U.S.$ million)Amount less cancellations-

NO. YEAR BORROWER PURPOSE BANK IDA UNDISBURSED

4h TA 1963 Tanzania Education _ 4.6 _48 TA 1964 Tanzania Roads _ 14.0 _80 TA 1966 Tanzania Agricultural

Credit - 5.0 _518 TA 1967 TANESCO Power 5.2 _ _

115 TA 1968 Tanzania SupplementaryRoads - 3.0 0.9

132 TA 1968 Tgazania Ranch Development - 1.3 0.2142 TA 1969 Tanzania Roads - 15.5 -

586 TA 1969 Tanzania Roads 7.0 - 3.7149 TA 1969 Tanzania Education - 5.0 3.3217 TA 1970 Tanzania Tobacco - 9.0 8.6715 TA 1970 TANESCO Power 30.0 - 17.0232 TA 1971 Tanzania Education - 3.3 3.3265 TA 1972 Tanzania Roads _ 6.5 6.4287 TA 1972 Tanzania Smallholder Tea _ 10.8 10.8

Total 42.2 78.0 54.2of which has been repaid 0.3

Total now outstanding 41.9

Amount sold: 0.1of which has been repaid 0.1 -

Total now held by Bankand IDA 41.9 78.0

Total undisbursed 20,7

ANNEX IPage 4 of 7

D. SUMMARY STATEMENT OF BANK LOANS AND IDA CREDITS TO UGANDAAS AT SEPTEMBER 30, 1972

(U.S.$ million)Amount less cancellations

No. YEAR BORROWER PURPOSE BANK IDA UNDISBURSED.

279 u0 1961 Uganda/1 Power 8.4 - -

101 u1 1967 Uganda Education - 10.0 0.8108 UG 1967 Uganda Roads - 5.0 o.6109 u0 1967 Uganda Tea - 3..4 -130 UG1 1968 Uganda Ranch Development - 2.7 0.6164 UG 1969 Uganda Roads - 11.6 14.1212 UG 1970 Uganda Tobacco - 4.0. 3.6258 UG 1971 Uganda Education II 7.3

Total 8.4 44.Q 17.0

of which has been repaid 3.0

Total now outstanding 5.4

Amount sold: 8.3of which has been repaid 3.0 5.3

Total now held.by Bankand.IDA 001 44.0

Total undisbursed 17.0 17.0

ANNEX IPage 5 of 7

E. STATEMENTS OF IFC INVESTMENTS IN KENYA(AS AT SEPTEMBER 30. 1972)

Amount in US$ millionYEAR OBLIGOR TYPE OF BUSINESS LOAN EQUITY TOTAL

1968 Kenya Hotel Properties Hotels 2.5 0.5 3.0Pan African Paper Mills Pulp and Paper 10.6 4-1. 14.7Tourism Promotion Services Hotels. 2.4 - 2.

Total Gross Commitments 1i.5 4.6 20.1.

less cancellations, terminations,repayments and sales 6.o 0.8 6.8

Total commnitments now held by IFC 9.5 3.8 13.

Total Undisbursed 0.9 6.6

F. STATEMENTS OF IFC INVESTMENTS IN UGANDA(AS AT SEPTEMBER 30. 1972)

Amount in US$WmillionYEAR OBLIGOR TYPE OF BUSINESS -LOAN EQUITY TOTAL

1965 *Malco Textiles Ltd. Textiles 2.8 0.7 3.51972 Tourism Promotion Services Tourism 1.1 - 1.1

(Uganda) Ltd.

Total Gross Commitments 3.9 0.7 4e6

less cancellations, terminations,repayments and sales .3.2 0.7 U.

Total commitments now held by IFC 0.7 0.7

Total Undisbursed 0.7 _ 0.7

*This investment has been fally sold

G. There are no IFC Investments in Tanzania

ANNEX IPage 6 of 7

H. PROJECTS IN EXECUTION

There are currently five Comnunity projects under disbursement.

TRANSPORTATION SECTOR

Ports DeveloDment

Loan No. 638EA East African Harbours Corporation, Second HarborsProJect: US$35 million loan of August 25, 1969; In the initial stagesOf projeEt implementation, progress was hampered by difficulties withinthe East African Community, the sudden replacement of experienced seniorexpatriate staff with relatively less experienced African staff and bythe reorganization consequent to the division of East African Railways& Harbours Corporation into separate corporations viz. East African Rail-ways Corporation and East African Harbours Corporation. More recently,steps have been taken to recruit temporary expatriate personnel and toengage consultants to alleviate the problems confronting the Corporation.Progress on the major civil works contracts is now generally according toschedule although progress on some smaller contracts and the procurementof harbour craft is less satisfactory.

Railways Development

Loan No. 6lEA East African Railways Corporation. Third RailwaysProJectt _US$42.4 million loan of May 25, 1970: The execition of this pro-ject was initially held up because of political difficulties w-ithin theCommunity which prevented EARO's Board from approving capital expendituresuntil mid-1971. ProJect implementation has since improved markedly. Inthe early stages of project implementation some diesel locomotives failedto perform satisfactorily and EARC delayed acceptance until these problemswere satisfactorily resolved. More recently delays in awarding contractshave occurred because of incorrect bidding and bid evaluation procedures.Difficulties with currency interchange within the EAC also delayed con-struction on civil works. However, steps have been taken to remedy thesedifficulties and several additional contracts have recently been awarded.It is expected that project implementation will improve as a result.

TELECOMYUNICATIONS SECTOR

Loan No. 483EA East African Posts and Telecommunications CorporationFirst Telecommunications ProJect: US$13 million loan of February 17, 1967:Following delays in making the loan effective and further delays caused bythe headquarters move to Kampala coupled with certain organizational weak-nesses which impeded implementation, the project has made considerableheadway. The project was expanded considerably in 1968 and is about 60%

ANNEX IPage 7 of 7

complete. Current progress is satisfacotry. About $0.4 million remainsundisbursed. The loan is expected to be fully disbursed by mid-1973.

Loan No. 675-EA East African Posts and TelecoEmunications CorporationSecond Telecommunicatlons Project: US$l0.4 mllon loan of Ma 251970:Delays'affecting the previous project also impeded the execution of thisproject. This project is consequently about 18 months behind schedule butcivil works and the procurement of equipment are now well in hand. Equip-ment and lines being installed are expected to become fully operational bymid-1975.

INDUSTRIAL SECTOR

Loan No, 843E& - East African Development Bank, US$ 8 million loan ofJune 27, 1972s This loan became effective on September 2U, 1972.

ANNEX IIPage 1 of 9

THE EAST AFRICAN COMMNITY

Background:

1. Economic. association between Kenya, Tanzania and Uganda datesback over 50 years with the establishment of free trade, between what werethen the British administered territories of Kenya and Uganda, in 1917followed by the inclusion of Tanganyika into the customs union in 1923.Closer integration was brought about by a process of evolution under thecommon British colonial administration. At the peak of conmunal reations,the three countries were just short of political integration. They hadwhat amounted to a common market (i.e. comion external tariffs and exciseduties, along with the free movement of goods, labour and capital) as wellas a single currency and taxation system and conmon services in communicationsand transportation.

2* The evolutionary process by which closer integration took placewas accompanied at different stages by a variety of institutional frameworkswhich administered the common market and common services. In the earlyyears of association there was no overall institutional organization whichserved to provide an umbrella for the various common services. In 1948 theEast African High Commission, consisting of the Governors, of the threeTerritories, was established and was complemented by an executive and advisorystaff as well as a central legislative assembly. In 1961 with the era ofcolonial administration in the area about to end, the Community institutionswere modified to meet the needs of the future. The High Commission was re-placed by the East African Common Services Organization (EACSO). A OzmmonServices Authority, consisting of the Prime ILnisters of the three countries,was established as its supreme organ and was assisted by a number of minis-terial committees.

3. Both the Common Services and the Common Market helped to knit thethree East African countries more closely together. Until 19641, there wereno quantitative restrictions on trade among the three countries, althoughmarketing and price controls maintained by a few boards did inhibit freetrade in some agricultural products, principally maize. There was a commonexternal tariff which, with minor exceptions, applied uniform rates toimports from outside the Common Market. There was a similar unifonmity inexcise duties and, in practice, also in company tax rates. Within theCommon Market, the free movement of funds and goods was facilitated by thefact that, until mid-1966, there was a common East African currency issuedby the East African Currency Board.

4. Fbllowing independence, a more nationalistic viewpoint emerged inall three countries. Inevitably, each country began to look more criticallyat the common arrangements established in the colonial era and to review thebalance between the advantages and disadvantages of economic association withthe other two. Uganda and Tanzania were concerned with the economic predo-

ADNEX IIPage 2 of 9

minance of Kenya, and critical of the disproportionate advantages accruingto it from the common services arrangements then in force. As the mosteconomically developed of the three in terms of agricultir e and industryj,Kenya tended to have the greatest drawing power for any new industries thatwere attracted to the area. Similarly, Kenya was the leader in intrate-rritorial trade. Aside from a large and growing export surplus, Kenyatherefore also had considerable net earnings on service account with itsCommon Market partners. In addition, the headquarters of the Common Serviceswere all located in Nairobi lending further weight to Kenya's predominance.Hence the mid-sixties witnessed somereversal of the process of economic inte-gration, as each country established its national identity. The East AfricanCurrency Board was dispensed with and separate currencies and central bankswere created. This move, followed by Tanzania's unilateral imposition ofimport restrictions on a wide range of Kenyan and Ugandan goods, triggeredwider ranging reciprbcal trade restrictions. The development of divergentfiscal policies and the imposition of administrative barriers farthereroded the basis for the common market.

The Treaty for East African Cooperation

5. In 1965, concerned at this divisive trend and deterioration of theOommon Market and Common Services, the three Goverrments appointed a Commissionon East African Cooperation to review the existing arrangement and recommendimprovements. The Commission provided a forum in which the three East AfricanGovernments were able for the first time to consider systematically as inde-pendent sovereign states all the issues regarding the continuation of theCommon Market and Services. The recommendations of this Commission formedthe basis of the Treaty for East African Corporation (The Treaty), whichwas signed in June 1967.

6. The Treaty, under which the East African Community between Kenya,Tanzania and Uganda came into being, continued the essence of the CommonMarket and the Common Services, although with some modifications and in asomewhat altered forma. The changes made by the Treaty were for the mostpart designed to enable Tanzania and Uganda to share more largely in thebenefits of the operation of common services and to promote more balancedindustrial development between Kenya and the other two countries. The firstof these objectives was to be achieved by certain measures reorganizing,relocating and decentralizing the Common Services. The second was to beensured through limited facilities for the imposition of duties on inter-country trade (transfer taxes) and through the establishaent of a new EastAfrican Development Bank whose resources would be distributed so as to favorTanzania and Uganda vis-a-vis Kenya.

7. Under the Treaty, the restructuring of the common services resultedin the revenue- earning "commercial" services (principally in the transporta-tion and telecoirunication sectors) being strengthened and continuing to beoperated on a regional basis. The other services - the Customs and Excise

ANNEX IIPage 3 of 9

Department, the Income Tax Department, the Meteorological Department andthe Directorate of Civil Aviation - were decentralized as far as practi-cable as the national level. In the transport sector, the East AfricanAirways Corporation was left itact; the East African Railways and HarboursCorporation however was split into two, with a separate corporation beingresponsible for running the railways and another - the East AfricanHarbours Corporation - for operating the ports. In the Telecommmunicationssector, the East African Post and Telecommunications Corporation was alsoleft intact. The headquarters of these corporations were distributed bet-ween the three Partner States. All of these Corporations have been carryingout a continuing program of expansion and improvement of their facilitiesand services.

The Common Market

8. The transfer tax mechanism provided under the Treaty permits acountry whose balance of trade in manufactured goods with another PartnerState is in deficit to impose a temporary levy of up to 50 percent of thecommon external import duty on manufactures that are or will be locallyproduced in that country. Both Tanzania and Uganda have made extensive useof the transfer tax facility, but so far without much impact on theirindustrial development. Discouragement of private enterprise in Tanzaniaand political uncertainty in Uganda have partially counterbalanced incen-tives provided by transfer tax protection. Intra-community trade, however,has been rapidly increasing with the exception of trade between Tanzaniaand Uganda which almost came to a standstill following the military coupin Uganda (January 1971) and Tanzania.'s refusal,to recognize the new Govern-ment. Trade between the two countries had been resumed, but with the recentdeterioration in bilateral relations, it has once again been interrupted.Kenya is the dominant trading partner in the Community, accounting for about62 percent of total intra-community exports and more than 75 percent of thetrade in manufactured goods. This situation is unlikely to change signifi-cantly during the next few years.

9. While permitting transfer taxes, the Treaty prohibits quantitativerestrictions on intra-community trade except in certain special circumstancesThe Treaty further calls for a wide measure of freedom in the movement offunds within the Common Market both on current and capital accounts.

10. The Treaty for East African Cooperation recognizes that some co-ordination of economic policy and development planning is essential to thesuccess of the Common Market. Plans for the various common servicesoperated by the Community are the subject of consultations and approval ofPartner States through the Communications Council of the Community, whichconsists of the three Ministers of State for East African Afairs, and thethree Ministers to be nominated by each country.

ANNEX IIPage 4 of 9

11. National development plans and policies, however, continue to beformulated without much regard for broader Community interests. TheCommunity's principal instrument for coordinating national policies, theEconomic Consultative and Planning Council (comprising the three CommunityMinisters and three Ministers from the national Governments) has not beenvery effective so far. Several studies on the harmonization of agriculturaland fiscal policy, the establishments of multinational industries andtourism promotion however, have been or are being initiated under Communityauspices and might lead to better coordination in future.

12. Despite the numberous practical difficulties of internationaleconomic cooperation, the three Partner States have in periodic public pro-nouncements confirmed their commitment to the objectives of the Community.Although the Community's highest organ, the last African Authority, has notmet since January 1971, the three Heads of State (who oouprise the Authority)hae*_generally acted in concert on matters requiring their approval.

13. The recent conflagration on the Tanzania-Uganda border, whilstseverely straining bilateral relations between the two countries has nothad a seriously disruptive effect on the business of the Community and itscommon service organizations. This has provided encouraging evidence thatthe Community institutions are becoming more durable and resilient inaccomodating fluctuations in bilateral relations between Partner States.

The gconomy of Kenya

14. The report of a Bank economic mission which had visited Kenya inSeptember 1971 to review progress made under the current 1970-1974 DevelopmentPlan, entitled "Economic Progress and Prospects in Kenya" (Report No. AE-22of March 3, 1972), was distributed to the Executive Directors on March 17, 1972.The report revealed that, since the Bankts previous economic report was madein 1969, the Kenya economy had continued to expand rapidly, very much in linewith targets set by the 1970-1974 Plan. While imbalances had arisen in thepattern of growth and benefits of growth had been rather unevenly distributed,the report concluded that Kenya's economic performance had been generallyvery good. The rapid rate of expansion, and especially the high rate of in-vestment achieved since 1970, had resulted in a sharp deterioration in thebalance of payments, a much tighter budgetary position and some signs ofinflation in the domestic market. The report concluded that if the rapidrate of growth was to be sustained an increased flow of external capitalwould be necessary to cover Kenya's resource gap which was expected to widenconsiderably during the remainder of the Plan period.

ANNEX IIPage 5 of 9

15. These conclusions were put before the Consultative Group for EastAfrica which met in Paris on April 20 and 21, 1972 to discuss Kenya'seconomic prospects. The meeting concluded that the economic performanceand prospects of Kenya justified continued technical assistance and increasedfinancial aid from the members of the Group and that having regard to thegrowing requirements for external assistance, a substantial part of thefinancial-aid should be on concessionary terms.

The Econony of Tanzania

16. The report of a Bank economic mission which had visited Tanzaniain September 1971 to review progress made under the current 1969-1974Development Plan, entitled "The Economic Development and Prospects ofTanzania" (Report No. AE-26 of May 22, 1972), was distributed to the EKecutiveDirectors on June 6, 1972. The report concluded that the Government's pro-posed economic policies and investment priorities were generally sound, butthat in view of the emergence of increased financial pressures in Tanzaniaand the relatively limited prospects for the principal export crops, foreigndonors should be prepared to increase their share in the financing of totalinvestment, In practice, this means increased local expenditure financingof projects that were suitable for external financial assistance. If suchincreased external financing were forthcoming, Tanzania should be able tomaintain a reasonable investment rate and an average annual growth rate ofaround 5 percent. In order to make the government more responsive to theneeds of rural development greater decision-making power was recently givento Regional and District authorities. It is expected that this decentrali-zation will in due course increase the country's absorptive capacity andlead to a shift in emphasis in the investment pattern from infrastructureto more directly productive projects in agriculture and small rural industry.Rural development is receiving the highest priority in Tanzania'a currentdevelopment efforts.

The Econora of Uganda

17. The Ihird Five Year Plan for the period 1971-1976, preparation ofwhich was delayed because of policy changes following the military coup inJanuary 1971, was published in January 1972. The prospects for carrying outthe Plan are complicated by the increasingly serious financial situationfacing Uganda, In 1970-1971 there was a large budget deficit caused mainlyby expenditure on certain prestige projects started by the previous Govern-ment, by compensation payments arising from the nationalizations announcedin May 1970 and by increased military spending by the new Government.

18. Growing trade deficits, and private capital flight, resulted inpressure on the balance of payments and a sharp decline in the country'sexternal reserves. To alleviate the situation, Uganda concluded a standbyagreement with the IMF for $10 million in July 1971 and withdrew the wholeamount in October 1971. The agreement with the IMF was based on an under-

ANNEX IIPage 6 of 9

standing that the budget for 1971/1972 would restore the Government's'financial position. However, the expenditure estimates in the 1971A972budget were not followed. Military and other "non-development" spendingcontinued at a high level. The overall deficit for the financial year,which ended on June 30, 1972, was about SH 805 ($112.8 million),conside-rably higher than the Sh 615 million ($86 million) recorded in 1970/1A971.The pressure on the balance of payments has been particularly severe sincea large proportion of the increasing expenditure was for external procu-rement. The Bank of Uganda introduced measures to reduce the outflow offoreigg exchange at the end of 1971. The 1972/1973 budget, published inJune 1972, sharply reduced expenditure were also announced. In addition,the Minister of fnance indicated in his budget speech that the Governmentwould be implementing other necessary measures during the course of thefinancial year.

19. The situation has now been further complicated by the recent ex-pulsion of non-Ugandan Asians,a development which can be expected to haveimportant economic consequences, particularly for sectors such as cons-truction, which relied heavily on skilled Asian manpower. Clearly thesituation remains difficult and much will depend on how quickly the Govern-ment implements bath its announced stabilization policies and measuresdesigned to fill the vacuum left by the departure of expatriate Asians.The Bank has indicated its concern about Uganda's economic problems tothe Government and intends to keep in close touch with developments.

ANNEX IIPage 7 of 9

AP.s&, 52,75 km2

IICAPO A, 1.7 sillitn (1971) DUSITY 20 per tnt2

POPVUTJfDO CIlJSCNIWhSTIS.S HThLTH,Or=na birth rato s0 per 1,DO ([969) --Wpuation per medical persoannel of all Irades: 871 (1970)Crude death rMt. 17 per 1,000 11969) Population per hofspital bed, 715 (1970F1.ecttio,n of ife at birth.

ale. h7 YearsFr.aes 51 years

INP E pmCAPIm 821h (1970) EDCATMNtG C lOc0y rate about 30%Prinry ethool enrollm t shoot 65%

102 )IATICOIAt PNOGUCT (1970). AtW1NU a09d 1LTS.ints 023 DS lllfions J VOt-7G FS,ti ntant prioss)

ON? at maket pries V 15o2 1 tpGros lnvewtswt - 331 21 15.GGross National Savings 283 18Current Aoco"nt Balaces - B0 3EXporrs of Goods, sNF3 428 27 2.6lrport: of Goods.: NFS 476 30 5.0

O(F'UT' r FPOICE AUI3 ,ro n IN 1273Babe;P OLmdA :abor Fore s lu Lde pr llorker

$ iiillSone snIlcn i U r3o c~S fatS.onl aerage

igrioulture o6 3, 930 87 85 27Other S0ctors 962 o 13 1582 197

Totat'O-varag. 1,..L? s,600 100 318 10D

C5RAL GOVEGltIT FIaMXI (Fn 1972)Structure. " rfndn &Slr of GDP Usst thor5Lllrs

Financial Oblig Liens 66 5Etono-t an Cosmndty Services 158 9Sociall Services 151 7

To tal 27

285 >{Othar rec"rrSat reeoae d1 16.3Draeotic developsent loans 31 6.2Short-tser ftsanti.g 43 8.0

Total domesetic f4nancIng 3C89.0ftenorl finncing 54 11.0

PR5CFM AKd CRO3IT:5!u3 Prier I4 i HpaShIbi) Bank Credit to Public Sector Bank Credit to Private Sector

WAd of Year: M 1Li cU 7i6 40 Milione % change S RMTflonPchng1968 113 * 1.0 13 - 175. - 3.01969 113 - 14 7.7 186 -h6.1970 Ul * 1.0 19 39.0 2b2 .30.61971 121 (hog.) b b.l 61 321.1 316 .30.3

RALgiCS OF PA>ISI iMEC3ANDJSE ElPORTSt A -verage of 1968-7i).tti)liman or G35 $

1683 16 197 rallionFEpoorts ot Goodas OS ifo C oferre * tv..rworts or Goods, 91S9 392 396 475 Tea 31.7 17.6

teeeors.gCD -29 - 7 -47 Prole product. 20.1 11.3PiE!F p_ootee (net) -hO -29 -18 Neat pre6.cte 7.9 h.iTransfers (net) 25 23 21 pyrethrum 6.0 3.3salance en aWrrnt A4o t -39 - 9 -.0 Sisal 5.0 2.8

Other LIens 60.b. 1.5.Direct FPraign Invest^ot 25 35 32Long-term loas 20 27 50 tOtAl 179.8 130.0Other Capital (net) -11 -2 - 3Increase in Official Reserves (-) -32 -62 -53 EXTERNA DE97T ON DEE11BER 31, 1970

All other ltwer 37 11 ill Mediun ant Long-ten. Credits, PublicGuaranteed Private Credits 53.7

2S?2.3Sotionatl 1/3 share of EA Cosmunlty debt 57.1

Total 339.b

DEBT SEXVICI RATIO (1970)Kenya only b.3 S

incl. 1/3 or EIC debt 6.4 %

1490/24Il LEDDING, D1EC99ER 31, 1971tS clllioc

IBPD IDaOutstanding at Diebursed 11.9 34.fUndtCburrea 7ico 26.5

Total 59.7 61.3

Rate of FSch.oge: US $ 1.00 * 7.1b3 ShbilingslIt. i *uss2.8

Noveaber 1, 1972Country Programs Dept. IEastern Africa Region

ANNEX IIF.- N 81,02 WORLD BANK GRkOUP Page 8 of 9(5- 7 2)

10W1Th DAITA

rIPUNTFIT: TANZANIA

AREA, 937,062 km2 POPULTIO, 2 3.2 -Miiti Cl197) IsISIT', 15landEt tlo 2.7 9 (from 1966 to _U6) n ,per :: faabelr

*"OPULATW CIRA.RCTTEISTICBokTHCrude ird,h Rats (per IjUhi 1 (19657Pout-pephsca, 17) 21LT00Crude Death Rate (per 1.0000o) 20 (2967) PjnhlatAan per hophysicanba (1970) 21900Infant Mortalitty (per 1,000 live births) 165 (1967) Ppa.1? Ir?hoptl u m)

INCOME. DISTRIBUTION: DISTRIBlrITSN OF LAND 0iN0RSHIp% of rational lcI-c i..sat 401011 7. of land cond by top lOt ownrs

highean qInnt1I. .of lend coind by e,elso O swer.

ACCOISS COWPTABLE WATER CX of populetion) ACCESS TO ELEC7RICIn,i (7 of popakecice)

Rura I10 Rura

NUTRITION. GIP PER CAPFITA, $ 100 (1970) ECUATION.Caicri intake as 5 of requirmenlta dlsieayrtPer capita pruteln intaks (grammane) riArt lieacyo enroletC)3 (1

GROSS RATIONAL PROStE? (lnn(. &NNALJ RATE OF GETI{C antn pie)(lS $ mln.) MM96-6 195 (iTO

cup a market pricso I?'IA A5.U6. 5.9CronetInvesteoont 252 19.5 12.5 35.0OIrooa. National Savings 181. 11.0 3.1 -3.7Corront Account Balance - 70 - 5.).Fliports of Goods, tips 280 22.3Inynrie of Goode Al'S 362 28.0

F2?UT 97E NR ff CGOP at f.0.)Value kddud Labor?no Voice Added Per dorher

(iS 1 million) A 7(I'S --- ) S of ns4onal avera-geAgriculturo 16O1.0 5.0 91.0 92. 2l.Industry 112 9.7 0.1 1.0 1120.0 531a.4irrujies 578 50.3 0.1* 7.2 1115.o 689.1

Total 1i53 100.0 5.5 100.0 209.6 100.0

FUBLIC PINAllIRA IA (1970/71),llI Onvernoonto Grt,(/vira naerwet

AI c-i IV FavoaC BBSliion S of 1D?avreCurrant Ronnipta (aro~~~~~~~~~C unt) % nor IP 101 -r ov ye,rar u t A6 les1t Wage Yeare

Curr,nt Fopsaditurs (i.cI. transfers) 220 17.7 16.8Currant Surplus/Psfficit - 9 0.7 0.7Capitol Expenditurse 118 9.1 7.1

EnenlAesistance (net) 51 4.0 2.7PRICES AND CREDIT- Cost of living index middle

end of Y.sx, e~~~~~rade civil servgats O-arsc Salesa 1-k lre: oP,bL- Bo o ank CredIt to Private Sectord- (1963-100) % ~~~~h..&. ). -chof.I) %nh a- 1968 128 2. - 2.19 t-

1969 129 0.0 53.2 1 53.0 *21.51970 132 2.3 69.A 3L.2 180.7 n23.3June 197o 131- - io.6 - i40.2

lane 1972 134 2.3 76.9 r725.5 190.3 28.).

BALANCE OF PATMANTS iNI 1960, 1969. 1970. (mlin S:EUCHANII1t SX93113 (roe1968-70)

Exports of Goads, IFS 269 271 280 (5 --'Or rroito)133 58.6Inpurte of GocoAs, RN'S 295 281 362R..sour..e Gan (daficit - -)-25 -10 -7). oI terrrolto 91 11.1

Ioteret Paymente (net) 7 8 8Workers Remittanes 3 - 5 Other Factor Payment.s (net)Rot Tracears 11 01 iBalance on Currant Account -18 -2 -70 Total 227.... ka.oDcir-tr Foreign Investrant .o n.e n.a.Modlun an Lung-tern Loans (net) 17 33 51

Diaburemebst. 30 ) hI5 63 (EXT ALNA GET OX MERBERBI 31.1970 _onrtisation 13 )C 12) 12)(al)

Official Grants . n.. n. Xs.iu.- an,d L.nC-terv Cr-dits. Public 220.7Other Capitol. (net) Notional one-third h-0r af &AC debt (iec. 1967) 57.1Increaae in Official Roesross 16 3 19i

All Une~~~~~~~~~~~ it-& ~~~~~~~Total Outetandung and Dishb-sed27.

Oron Reo.-sro 22.7 75.A 57.5 lEST SERViCE R .ATIOJ i9la. 7.D%.ter Re-esro 71.9 75.0 56.3

IORI/IDA LENDING. SERtMEFII 31.iuirj ($ -in.)

Ouitatndine and Dinbornod 10.9 42.7Undiabura.d 31:2 24.5

Outstandineg tool. Uodlshureed 42.1 67.2

Rate of Echenge, 01 $1.21 Sh 7.11Sh 1.00 US $0.11

November 1,, 1972Country Programs Dep~t. IEastern Africa Region

ANNE IIPage 9 of 9

COUNTRY: Sgeda 222

iREnL 227,690 km 2 °C4fl 9 87 nminion (1970) DESDITY: 42 per km 2(land arve 186,780 km ) Rate of Gr3wth 3% 3I/ (51 per km of lend arew)

POFUIATIZJ CHARACTIESTICSCCrude birth rat per 1,000) 50 (1969) 2Crude d eth rate (pr 1,000) 18 (1969) 7.800 persons per phyelcia (1967)Ian-t mortalIty about 130 per 1,000 live births (1969) 990 persons per hompital bed (1966)l.ife eopectacy at birth 44 years (1959)

IMP PU CAPITA: 8125 (1970) EDAICKS0:Adult literacy rate about 20% (1965)Primary shool enrollment about 60% (1970)

CROSS EATOuIQI FRaoSUCT (1970), dRANUl PITI! OF ZRCWTR (i966 mriceeJb7e i_Ln UJ9 Kio 1967-69

liP at 0rket priot 129 100 0 5.0Cross investt t 180 13.9 7-0Groou domsotic s1vings 200 -Cu nt uocunt balance 20 -Eports of Goode NS 295 22.8 6.1iCpurte of Goode, IFS 250 19.3 2.3

00¶Wr, LOUt PFORCE AND191010CT1VTYY IN 1970,

Value Added labor Forc ./ Value Added oar WorkerUSJ millions f

igriolture 559 55 _Industry 133 13 110 000 1209ser,ics 320 32 150,000

Total L012 100

PUBLIC fnLkC CS IN 1970tl1Contr L CognetnOeninliss Million P>rODP *FaLarag

last three yearsoret receipts 188 19

Current ependitures 177 1iCurrant definit 11 ICapital expendituree 103 11

rternal aaslstane* 31 3

PRICES AND CREDITT

Iepala "est of living indioe (January 1961 - 100) Waih Income Middle Incoe L Id Credit to lorernent Rank Credit to Prints Sector

end of year: Idx 7idex den 018_±l.e 7i c USI lillion f. chRog

1968 134 129 119 25.4 1 102 01969 142 139 133 36.8 a149 124.2 21.81970 146 is6 146 754 104.9 127.L 2.61971 151 (Sept.) 160 (Sept ) 180 (Sept.) 122 3 62 2 130.7 2.5

ALCAME OF PALTYMTS (1968-1971)lillions of uSI rICHDMISS WORTS (l968-1970 Average)

1969 1970 f 5Loa71E.ports of goods, RF 255.3 297 1 273 1 Coffee 117 51rports of goode. HFS 237.9 253.4 318 2 Raw Cotton 42 18Resourt 4^D 17.4 43.7 - 45.1 Copper 21 9

Te 12 5Interet peyente (net) - 21.2 - 17.9 - 23.0 Cotton Fabrics 7 3Ret transfers - 10.4 - 12.4 - 12.5 All Other C soditdlias 31 204lexe o ourrent Aosount - 14 2 13.4 - 81 .4

Total 230 100Mediu and long-term loans (not) 14.1 15.5 41i1

Disbursomento (21 1) (23.6) (55.5) EXTERBL IEI= ON DECLTIER 11. 1971:Aortisetion (7.0) (8.1) 14L Ub u illio

OfficIal grant 8.0 7.0 83 Public Median And Long-tero Credito 152 3Other napital (net) 3 3 -36.9 -L8.1 Xoun-C uanited Prirete M0T r-Increa in Oftioial Reserves 1.8 4 1 -41 2 _

Notional 1/3 share of EA Community debt 57.1All other Itemn -9 4 5 1 8.9 (December 31. 1969)

Gross Reserven 52.4 56.3 27.0 Total 209.4Net Reserves .51.7 55.8 14.6

DEIB SERVICE RATIO (1971)

Ogeda only 3.5%~~~~~~~~~~~~~~ ~~~~~~~~~~~~incloding 1/3 cC EAC debt 6.5;S/ Eatiated (the 1959-69 inter-cenu,- period shows a r te

of population growth of 3.8% however there se a sub-*statial underoonnt in the 1959 oensue eand heavy net IBRD/2IA LEMINNGC DZCfElUI 1l 1971:imoigrtion during this period ). (S sdllion)

/ Based o- 1966-1970 figures ClP increased by about nUD DA10% between 1968/69 end sxports of guodeinreaed byby about 19% between 1969/70. 7/ utstanding and tisbursed 5.6 21.0

3/ 0D data for paid employnt ,ins vailbleOutstanding including Undiebureed 5.6 44.3M' hl inhIcome index applies to workers earning7 an

surl slary comparble to Js$3780 in 1963. Rats of E.change USI1.00 -GgSh 7.14

(b) The middle inoam index applies to skilled end g5b, l100 - GS20.16

emi-ksilled orter earnng an annual salarycomparable to US81540 in 1963.

() Th lo n looms index applies to unskilled workersearning a salary of US$ 21 per month in 1964.

g Prel mzy estimteei Does not include militar debt, and some contractor finance ndsuppliers credits. The Debt Service Ratio is therefore

F/oae AC.

November 1, 1972Country Programs Dept. IEastern Africa

ANNEX IIIPage 1 of 2

THE BORROWER: EAST AFRICAN HARBOURS CORPORATION

Administration

1. The administration df all East African ports is vested in EAHC,which was formed in June 1969 under the Treaty for East African Cooperation.The Treaty provides that EAHC be responsible at the political level to theCommunications Council of the:Community which consists of the threeMinisters of State for East African Affairs and the three Mlnisters respon-sible for transport, one from each state, together with two additionalministers to be nominated by each country. This Council (as well as otherCouncils Of the Community) is responsible to the East African Authoritycomprised of the three Heads of State.

2. EAHC, with headquarters in Dar es Salaam, is managed by a Boardof Directors consisting of a Chairman appointed by the Authority; threenembers nominated by the Governments to represent the interests of the

ember states; three members selected by the Authority with regard-to theirprofessionals technical or commercial experience; and the Director-General,EAHC's chief executive officer, also appointed by the Authority and chargedwith executing Board policy and managing day-to-day operations. Reportingdirectly to the Director. *eneral is a Depity Director-General, Mombasa,corporate Department Heads and the Port Managers, who are responsible foropewations at the four ports.

3. EAHC has a controlling interest (85%) in the East African CargoHandling Services Co. Ltd. (EACHSER), which provides labor, supervision andmost of the equipment for the movement of cargo on board and ashore at allports. EARC holds the remaining (15%) equity. EAHC charges port users forall port services according to its tariffs and pays EACHSER at agreed ratesfor the services EACHSBER provides. With consultants'. (c*Kinsey & Co. (UK))aasistance, EACHSER is revising its service cqntract rates based upon costsand embodying some form of productivity incentive.

4. Consultants (McKinsey) have completed studies and reports on im-proving the organizational structure of EAHC and EACHSER. They recommendthe retention of the two organizations as separate entities because thepresent flexibility in EACHSER's conditions of employment should be pre-served. hmtegration would inevitably lead to union demands for enhancedwages and service conditions based upon the best of both organizations,with resulting increase i# costs, while overall wage levels in both arealready relatively high: v,Since the present structures and relationshipbetween the two organizations are basically sound, they should not be un-necessarily tampered with. Both organizations are reasonably well managed.

Accounting System aud Audit

5. EAHC's general accounting system is designed on commercial linesand is satisfactory. However, separate accountability for each major portis incomplete and the organization lacks a costing and effective budgetarycontrol system. These management tools are now being established, fixedassets are being revalued on a replacement cost basis and tariffs are tobe reviewed, all with consu4tants'lassistance.

ANNEX IIIPage 2 of 2

6. The Auditor General, EAC, carries out EAHC's audit as prescribedby the Treaty for East African Cooperation. This is acceptable to the Bank.In addition, EAHC operates an internal audit service, presently beingextended, which supplements the work of the external auditor.

Staffing

7. There are two major policies which guide AAHC staffing, namely (a)to Africanize the staff; and (b) to ensure some measure of national balanceat all levels. These policies make the staffing problem extremely sensitive,affecting the entire question of appointment and promotion, particularly atsenior levels. The Director-General, Department Heads, and Port Managers atMombasa and Dar es Salaam, have, until now, been appointed after consultationwith the Bank, as required under the provisions of loan No. -i28EA. Furthermoreunder Loan kNo.63aF1 EHC urdertook to continue to appoint, retain or promotefrom within its present organization, sufficient qualified and experiencedstaff for the efficient conduct of its operations. EAHC's current African-ization program, which extends to 1979, is considered realistic.

8. The outlook for developing competent local staff is fairly good.Since 1970 the 1UNDP has provided financing for the operation of administra-tive and management training facilities for EAHC and EARC, at an estimatedcost of US$ 2.5 million. The project is expected to continue for at leastanother year, until the East African Staff Training Institute at Arusha isfully established and takes over the management training functions.

ANNEX IV

LIST OF DELEGATIONS AND MEMBERS PRESENT FORNEGOTIATIONS OF THE THIRD HARBORS PROJECT

1. East African Community

The Hon. W. Rwetsiba, Minister forCommunications, Research and Social Services

The Hon. P. Sebalu, Counsel to the East African CommunityMr. D. Mwiraria, Secreta±y

Communications, Research and Social Services Secretariat

2. East African Harbours Corporation

Mr. P. Kinyanjui, ChairmanMr. E. Bisamunyux, Director GeneralMr. J. Oliga, Financial Adviser and Chief AccountantMr. P. Bakilana, Corporation Secretary and Legal OfficerMr. Abura, Chief EngineerMr. D. Ndikumwamii, Planning and Development Officer

3. Kenya

Mr. Peter Echaria, Deputy Permanent Secretary,Ministry of Power and Communications

Miss Kimweli, Ministry of Finance and Planning

4. Tanzania

Mr. J. Sepeku, Principal Secretary,Ministry of Communications and Works

Mr. R. Korosso, Assistant Director of External Finance,Ministry of Finance

Mr. Leopold Kalunga, State Attorney

Uganda

Mr. C.S. Nakabale, Chief Finance Officer,Ministry of Finance and Planning

Mr. A. Sibo, Permanent Secretary, President's OfficeIn charge of East African Community

Mr. P. Hatega, Uganda Enbassy, Washington, D.C.

6. Canadian International Development Agency (CIDA)

Mr. K. Johansen, Chief Planning Officer,Commonwealth Africa Division

ANNEX VPage 1 of 2

FAST AFRICA

LOAN AND PROJECT SUMMARY

I. LOAN SUMMARY

Borrower: East African Harbours Corporation

Quarantors: Republic of Kenya, Unitedl blic of Tanzania, Republicof Uganda, jointly and sever%lly.

Amount: $26.5 million equivalent in various currencies

Terms andConditions: Payable in 25 years with a 5 year period of grace at 7¼ per cent

per annum.

ProJect: Construction of tffee new berths and of a central servicesrepair area for mobile equipment at Dar es Salaam; moderni-zation of back-of-port works and ancillary facilities atDar es Salaam and Mbmbasa; expansion and improvement oflighterage facilities at Tanga; the provision of trainingfacilities at Dar es Salaam and Mombasa; and the provisionOf finance for consulting engineering services for the abovecivil works. The project also includes the provision ofmodern cargo handling and floating equipment to meet ad-ditional and replacement needs and to help improve effi-ciency and labor productivity. This component will befinanced entirely by Canada.

Estimated (U.S.$ million)ProJect Cost: Component Local Foreign Total

Civil Works: at Dar es Salaam 9.77 14.35 24.12at Mombasa 2.68 4.35 7.03at Tanga 0.29 0.45 0.74

Consultants' Services 0.95 2.75 3.70Contingencies 8 4.60 8.47

Sub-Total 26.50 44.06Equipment 0.29 26.00 26.79

TOTAL 17.85 52.50 70.35US= mu3a =inmmi

ANNEX VPage 2 of 2

Financing: (US $ million)Local Foreign Total

IBRD loan - 26.50 26.50Canadian loan 0.50 26.00 26.50ELHC Contribution 17.35 - 17.35

TOTAL 17.85 52.50 70.35

Procurement: Subject to the Bank's approval, a negotiated contract wouldbe awarded to the contractors presently on-site to constructthe three berths at Dar es Salaam. All other Bank financedworks will be subject to international conmpetitive bidding.The procurement of equipment being financed by Canada willbe restricted to Canadian suppliers.

EstimatedDisbursements: 72/73 73/74 74/75 75/76 76/77

Amount 5.33 11.01 6.36 3.10 0.70(US$ iillion)

Consultants: Consultants would be employed for engineering and construc-tion design and the supervision of construction of the pro-ject.

Rate of Internal Economic Rate of Return estimated to be 42%.Return:

Appraisal Report No. PTR-120a dated October 17, 1972, TransportationReport: Projees,Department.

MAP I

PRINCIPAL TRANSPORT LINKS IN EAST & CENTRAL AFRICA

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