II~~~ PflD V ~~~Docment of DCUAIG -pFILE COPY ne World Bank ICULTNG yOP!-TO BCE RETURNED TO REPORTS DESK

FOR OMCIAL USE ONLY

Repor No. P-1759a-SU

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

AND

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN AND CREDIT

TO THE

DEMOCRATIC REPUBLIC OF THE SUDAN

FOR A DOMESTIC AVIATION

PROJECT

June 3, 1976

'Ti dwmI uarsrce ibbdnadmyb sdb eiinsol ntepronneo

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CURRENCY UNIT = SUDANESE POUND (LSd)

Official Exchange Rate

US$1 = ESd 0.348

ESd 1 = US$2.872

Piasters (Pt) 100 = ESd 1.00

Effective Exchange Rate

US$1 = ESd 0.398

ESd 1 = US$2.50

Fiscal Year (Government) July 1 - June 30

Weights and Measures

1 kilometer (km) = 0.62 miles (mi)

Glossory of Abbreviations

ILO = International Labor Organization

EEC = European Economic Community

SRC = Sudan Railways Corporation

RBPC = Roads and Bridges Public Corporation

ADAR = Associates for the Development of Arab Resources

RTC - River Transport Corporation

CAD = Civil Aviation DepartmentUNDP = United Nations Development Program

ICAO = International Civil Aviation Organization

PEWC = Public Electricity and Water Corporation

FMr OICIAL USE ONLY

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENTINTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THEEXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT FOR A

DOMESTIC AVIATION PROJECT

1. I submit the following report and recommendation on a proposed

loan for the equivalent of $20 million and a proposed credit of $9 million

to the Democratic Reriblic of the Sudan to help finance a domestic aviation

project. The loan would be on standard Third Window terms of 25 yearsincluding a seven year grace period, with interest at 4.85%.The credit would

be on standard IDA terms.

PART I - THE ECONOMY

2. Since the last economic reports on the Sudan were presented to the

Board (Report No. AE-27 in four volumes dated June 9, 1972 and Report No.

119a-SU dated June 1, 1973 on the Southern Region), the Bank has participated

in the ILO Comprehensive Employment Strategy Mission. The Bank staff played

a major role in both the conception and execution of the ILO mission's work.

Whilst the mission was an employment strategy mission, its focus, as with

previous ILO missions, was on the overall problem of income creation for low-

income earners in the context of a more rapidly growing economy. The mission's

report is comparable to a Bank basic economic report and its analysis and con-

clusions are the basis both for our developing dialogue on economic policy

issues with the Government and for the development of our program of opera-

tions. The report has been influential in stimulating discussion of devel-

opment policy issues in the country. A special government working group re-

viewed the report and prepared a substantive and lengthy evaluation of its

analysis and conclusions. It is also providing a major input into the prep-

aration of the Six Year Plan for 1977-83 currently being undertaken. Countrydata are attached as Annex I.

Economic Potential and Performance

3. Sudan, with an area of one million square miles, is the largestcountry in Africa, with a population of about 17 million. Much of the

country is unoccupied or very sparsely populated, and in contrast to many

developing countries, there is no population pressure on presently devel-

oped land. Although a large part of the country consists of desert or

semi-desert, the Sudan nevertheless has great untapped potential for agri-

cultural development. About one-third (87 million hectares) of the total

land area is suitable for crop or pastoral production, and only a small

fraction of this land is presently utilized. In addition, the White Nile

and the Blue Nile provide an abundance of water which has enabled the

country to develop the largest irrigation system in tropical Africa. The

Sudan has increased its use of the Nile water to over half of that allo-

cated to it under the Nile Waters Agreement with Egypt, but there remains

room for considerable further expansion in irrigation. The proximity of

Sudan to markets in the Middle East and Europe places it in an excellent

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.

position for agricultural exports, and oil-producing Arab countries haveincreasingly come to consider Sudan as a primary future source of agricul-tural products.

4. In spite of the large potential for development, the Sudan is apoor country. GNP per capita is estimated at US$130 (1974) and the countryis included among the UN's twenty-five Least Developed Countries. The eco-nomy is heavily dependent on exports of cotton, which is the major commodityproduced on irrigat-d land, and also exports of gum arabic, sesame and ground-nuts. Its considerable grazing resources have hardly been tapped. The manu-facturing sector is relatively small and, apart from the processing of someagricultural commodities, it is limited to the production of consumer goodsand building materials. There have been some exports of chrome ore and thefeasibility of developing other minerals is receiving attention. The publicsector embraces all modern irrigation facilities, the railways and virtuallyall power and water supply. With.the nationalization measures of 1970/71,a significant proportion of industry, commerce and finance was also trans-ferred to the public sector. Although some industrial enterprises havebeen returned to the private sector, about half of the GDP is still gen-erated within the public sector.

5. While the basic physical and human potential of Sudan is considerable,its economic performance has been disappointing. During the past decade, theeconomy has grown by little more than the rate of growth of the population.This is primarily due to the depressed level of investment, both public andprivate. While the Government was successful in achieving a high growth rateof revenue, the rise in recurrent expenditure absorbed most of it, and develop-ment expenditure decreased. The growth of current expenditure was caused byincreasing security expenditures, the policy of hiring all post secondaryschool graduates and converting casual labor on public projects into permanentgovernment employees, and the rapidly increasing transfers to local government.Further, savings generated by public corporations also declined because of in-efficiency and rigid pricing policies. Public sector deficits were increas-ingly financed through excessive credit expansion. Prices rose steadily, andthe external position was under pressure owing to the rapid growth of importsand a stagnation of export volume. In the last two years, however, there havebeen some positive ar2hievements, the most significant of which is a rapidlyincreasing investmer.t program, with much of it directed at the critical bot-tleneck problems in the economy, particularly in the transport sector (seepara. 21 below).

6. In attempting to reverse the relative stagnation of the past, atten-tion will have to be directed to the very difficult questions of long-termdevelopment which were the subject of the ILO report. These include a numberof important issues such as curbing the rise in recurrent expenditures andreforming the tax system to make it development-oriented; restructuring ofthe incentive svstem to encourage exports of agricultural products and dis-courage unviable industrial investment; the deployment of public expenditureto raise productivity in traditional agriculture; the development of modernsector agriculture as the productive lynchpin of the economy; large scale

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investment in infrastructure to facilitate agricultural and industrialdevelopment; and reforms in the education system to adapt it to changingneeds. These issues are summarily reviewed in the following paragraphs.However, the Government also faces a very difficult short-run balance ofpayments problem which is reviewed in paras. 17-20 below. The challenge tothe Government in Sudan is to develop policies and programs which lead tomore effective short-run management of the economy but at the same timeaddress the longer-term issues which will otherwise impede the full realiza-tion of the country'.; potential.

Long-Term Development Issues

7. Current objectives of the Government are summarized in the InterimAction Program adopted by the Sudan Socialist Union in late 1973. The centralprecepts of the Program are: a rapid increase in the growth of GDP; reductionof inter-regional and rural-urban income disparities; reduction of unemploy-ment; provision of basic services for all citizens; and self-sufficiency inbasic commodities. No quantitative targets are specified. The ILO reportconcludes that Sudanese objectives, thus defined, can be achieved by a highgrowth- strategy which devotes special attention to the employment and equitygoals. Such a strategy would require a dramatic increase in public and pri-vate savings as well as substantial capital inflows from abroad. Specifi-cally, the report projects that with savings rising from an average of 10%of GDP during the early 1970's to between 15% and 20% in 1985 and a triplingof gross capital inflows, rising from about $300 million in 1974 to aboutone billion (current) dollars by 1985, Sudan could aspire to double thegrowth rate of GDP in real terms from 3-4% p.a. during 1964-75 to about6-8% in 1985. The attainment of these targets and the objectives of theInterim Action Program depend upon the ability of the Government to dealwith major constraints on development in all sectors of the economy.

8. Agriculture: This sector dominates the Sudanese economy and islikely to continue to do so for several decades. Given the extraordinarysize of unsettled arable land with access to potential irrigation waters oradequate rain, Sudan's comparative advantage in the foreseeable future willcontinue to be in agriculture. To succeed, any development strategy for Sudanmust, therefore, give a central role to the agricultural sector. It is alsoessential that the objectives of the various types of agricultural productionbe clearly defined -while seeking to maintain a proper balance between them.For example, a rapid expansion in agricultural production can best be achievedby an expansion of modern mechanized dryland and irrigated agriculture. Thiswill be necessary to increase export earnings to pay for capital imports. Onthe other hand, the equity objectives of the government require that agricul-tural expansion should also take place in areas of traditional agriculture.To pave the way for more productive agricultural techniques, initial invest-ment in basic agricultural services and infrastructure will be needed. Thisinvestment will probably not increase output greatly in the short run, butis an essential prerequisite to modernization of agriculture in the poorerparts of the country. Moreover, given the incomplete knowledge of thetraditional sector (the resource base and what it would take in the formof policies and programs to make a significant impact on productivity and

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incomes) there is a need for a much expanded research, experiment and exten-sion program to precede and accompany agricultural investment.

9. Within the modern sector of Sudanese agriculture, the basicquestion is the emphasis to be given to mechanized dryland farming, whichrequires little Government investment and tends to mobilize private savings,as opposed to irrigated agriculture which is highly capital intensive, andrequires a very larc'e Government investment. Irrigated agriculture is bothmore productive and less dependent on weather than mechanized dryland farm-ing. However, much can be done to expand yields on existing irrigated lands,at a relatively small cost. While accepting the argument for further expan-sion of irrigation, the ILO report concluded that such expansion ought notto be at the expense of the other forms of agricultural expansion. In viewof the particularly large capital inputs required for expansion of irriga-tion, such expansion wLll be particularly dependent on capital imports.The ILO report encourages the Government to facilitate the entry of farm-ers with relatively small capital into dryland mechanized farming, throughjoint or cooperative ventures. The Government is faced with a dilemma inregard to mechanization in irrigated agriculture, which offers the possi-bility of high intensity cropping and higher incomes, but might reduceincome-earning opportunities for seasonal migrant workers. Such opportuni-ties constitute an important and efficient transfer mechanism from the richerto the poorer parts of the country.

10. Transportation. A large expansion in agricultural production willrequire a much improved transportation system to permit distribution of in-puts and access to markets. A large investment program is already under way,affecting railways, roads, inland water transport, an oil pipeline and domes-tic aviation. In view of the distances involved, investment in transportationfacilities in all modes will continue to demand a large proportion of the avail-able resources. The requirements have been analyzed in a study carried out bya consulting firm, the Associates for the Development of Arab Resources (ADAR).Port expansion will be essential, as will further investment in the railway andwater transportation network. A system of trunk roads and regional roads tofacilitate the economic integration of the Southern and Western provinces withthe Central and Eastern regions will also be required. Although the ADARtransportation study and the ILO mission assessed the needs slightly differ-ently, they were in broad agreement about the essentials.

11. Industry: The main thrust of the industrial strategy for the nextdecade, outlined in the ILO report, is selective and limited industrializationbased on agro-processing to develop export capability. The case for this restson comparative advantage, and the need to give greater priority to agriculturalgrowth. Among those sub-sectors where good prospects exist for agro-process-ing and exports are textiles, sugar refining, edible oils, leather and theproduction of yeast for bakery and pharmaceutical use. The ILO report arguesthat there is considerable scope for the expansion of these and other indus-tries to allow industrial output to rise by about 6 percent per annum duringthe period 1975-80 and by about 10 percent per annum thereafter. Expansionof this magnitude would add about $320 million to output in the next decade

and create over 100,000 jobs. In order to facilitate attainment of thesetargets a number of policy changes would be required in the system of in-centives (taxes and subsidies on trade and domestic activities, quantitativerestrictions on trade, licensing and pricing policies) which currently guidesresource allocation in Sudan. Additionally, for both social and economicreasons it would be right to encourage scattered development of industryin small, labor-intensive enterprises, when locational and technical re-quirements permit. Several such industries are identified in the ILOReport.

12. Incentives for Resource Allocation: Although Sudan's long-termcomparative advantage lies chiefly in agriculture and the most promisingmarket opportunities are in exports, the ILO report's analysis of the exist-ing policies on foreign trade and payments, taxation and pricing, and theirimplications for the structure of incentives guiding resource allocation,indicates that present policies favor industry and import substitution whilediscouraging agriculture and exports. In addition, present policies gener-ate excessively high profits in the commerce sector. Moreover, the existingpolicies are implemented through an elaborate and time-consuming system ofmonitoring and control which squanders scarce managerial talent and is verydifficult to coordinate effectively. The report made a series of proposalsfor re-aligning these policies to achieve more efficient utilization ofSudan's resource endowments. The proposals made are far-reaching and willrequire more detailed work for implementation. Some of these studies areunder way and both the Bank and IMF are assisting the Government in thiswork.

13. Education: Compared to most other African countries, the Sudan iswell provided with trained manpower. This is attributable in part to thefact that the educational system has evolved over a longer period. Neverthe-less, the ILO report concludes that, as in many countries, the education systemis geared to the needs of a relatively few who pass from one level of educa-tion to another, rather than to the needs of the majority at every level wholeave school to start work. It found also that the emphasis on secondary andhigher education is such that, for budgetary reasons, universal primary educa-tion is unlikely to be reached until after the year 2000. Furthermore, theinter-regional and urban-rural imbalances are striking, and unless remedied,would frustrate the equity objectives of the Government. It is thereforeencouraging to note that the government started in January 1976 a nationalstudy of the entire education system. IDA will be providing some assistancefor this review through the Second Education Project, approved by the Board inM-ay 1975.

14. Resource Mobilization: The attainment of the Government's objectivesof rapid growth in output, incomes, employment and equitable distribution ofincome will require a large increase in investment expenditure. It is expectedthat Sudan will receive large capital inflows from external sources, particu-larly from Arab countries. This is a unique opportunity. Whilst externalassistance on concessionary terms can reduce the burdern of raising domes-tic resources, however, the latter remains a critical requirement. Sudan

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must strive for a gradual increase in its rate of domestic savings. In

this regard, particular attention needs to be given to the role of Central

Government. Since the early 1960s its contribution to savings has deteri-

orated markedly despite a strong record on revenue raising which pushed

the revenue/GDP ratio from about 18 percent in the early 1960s to 28 per-

cent at present.

15. The Government is aware of the need for improvement in public sector

finances and has ir the past year made progress in the control of expenditures.

However, further changes will be required to reverse and bolster the trend in

public savings. For example, there is a critical need to scrutinize the

rapidly increasing transfers from Central to Provincial, and through them,

to Local Governments. In 1974/75 these transfers took up more than 15 per-

cent of the Central Government's current revenues. There is a clear needfor a more rational formula to determine the total of these transfers andguide its allocation between Local Governments. With regard to Central

Government revenue, the thrust of the ILO report's recommendations is

aimed less at raising the already high revenue/GDP ratio, and more towards

fiscal reforms which would encourage better resource allocation, increase

equity, and preserve the presently high revenue ratio from erosion due tochanges in the production structure. In summary, the Report recommendsless reliance on foreign trade taxes and argues in favor of developing

broad-based consumption taxes and extension of direct taxes, especiallyto capture the growth in incomes anticipated in the modern agricultural

sector. To the extent taxes on foreign trade would remain, the analysis

calls for considerable rationalization of the existing structure to mini-

mize its adverse effects on resource allocation in the economy. In some

cases, these fiscal reforms would require more detailed study for imple-

mentation. The IMF and the Bank can be of assistance in this connection.

16. Project Implementation Capacity: According to the analyses

contained in the ILO report the investment required to meet the Govern-

ment's objectives would be very large, exceeding US$9 billion in 1975

prices over the next ten years. Sudan's association with the Arab oil

exporting countries could be a critical factor in generating the capital

inflows required to sustain an investment program of such a magnitude. In

a recent move, the Governors of the Arab Fund authorized the creation of

an Inter-Arab Authority for Agricultural Development, with a capital exceed-

ing $500 million, whiich is expected to start its operations in Sudan.

However, for investment to expand on a scale commensurate with both the

needs and opportunities, Sudan needs to expand its capacity to identify

projects and to manage the preinvestment work, which is a prerequisiteto a commitment of investment funds. Some work of this kind is beingundertaken, but the Government considers that in order for a flow ofadequately prepared projects to become available on a sufficient scale,

Sudan will require further external assistance in project preparationand other pre-investment work. A recent IDA credit and funds allocatedfor this purpose by the Kuwait Fund, the EEC and bilateral agencies will help

to meet the need.

17. Government's Reception: Those who reviewed the report, includingministers, officials, university staff and representatives of the Sudan Social-ist Union, accepted the report's general thrust as sound and well balanced,reflecting to a large extent the Government's own objectives. In particularthe relative emphasis between agriculture and industry in the productivesectors was found appropriate. The discussion of education has proved to bea useful stimulus to a debate which had evidently already started and whichwill be continued in the course of the sector survey. The Government was infull agreement on the need to improve resource mobilization, but is, naturally,impressed with the difficulty of improving the marginal savings ratio sub-stantially. Such an increase would obviously be easier in the context ofmore rapid economic growth. The Government has yet, it seems, to developits views on the analysis of the incentive system. In general we feel thatthe period of development of the next Plan will be the critical test of thecontribution of the report to the Government's thinking. The Sudan's Councilof Ministers has recently cleared the report for publication.

Short-Run Development Issues

18. While the ILO Report focuses on the long-term issues facing theeconomy, Sudan has to grapple with serious immediate problems which threatenthe prospects of achieving the really striking advances which are possibleover the next ten years. The short-run issues relate to the level and pat-tern of investmen't:s, budgetary operations and cost-price relationships,which have resulted in pressures on the budget and the balance of payments.The balance of payments pressure has been exacerbated by recent worldrecession and the sharply increased world prices of essential commodities.Recession in the world textile industry resulted in a slow movement of cot-ton exports at relatively low prices. In 1974, Sudan's cotton exports wereless than half the previous year's volume and a third lower in value. In1975 export shipments increased over 1974, but were significantly belowannual export quan'tities in previous years and the value of cotton exports($195 million) compares unfavorably with previous annual levels rangingbetween $220 million (1970) and $240 million (1973). The IMF made compen-satory financing payments to Sudan of SDR 18 million in March 1975, andfurther payment of SDR 27 million in May 1976 for export shortfalls sufferedduring this period.- Prices of essential imports have increased sharply sothat the va-lue of-'food and petroleum imports jumped from $106 million in1973 to $265, million in 1975. At the same time, increased public investmentcoinciding with higher prices of capital goods increased substantially thevalue of capital goods imports. Inflation also spilled over to higher demandfor consumer goods imports. All this resulted in sharp increases in thecurrent account d-ficit from $22 million in 1973 to $260 million in 1974and $400 million in- 1975.

19. In: order t'o improve the balance of payments situation in themedium run,- the Gove-rnment has taken measures to reduce substantially theacreage undert long staple cotton and to plant instead groundnuts and themedium staple:v-arieties of cotton, world demand for which is more favora-ble. It has also taken steps to increase wheat and sugar production andto completely replace their imports in 3-4 years. The increase in thecapacity of Sudan railways and the opening of the Suez Canal are expectedto reduce the transport costs of exports.

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20. In the last two years, Sudan's external indebtedness has increasedconsiderably and, as of December, 1975, stood at about $980 million. A disturb-ing feature of Sudan's external debt position has been the-rising proportionof commercial short- and medium-term debt. While a rapid increase in pri-vate and public capital inflows is essential to finance the developmentprogram, it is equally important that the terms of public capital inflowsbe as concessionary as possible. The Government informed the IMF of itsintention to avoid as much as possible adding to the already heavy debtservicing burden by limiting further reliance on short- and medium-termcredit. The debt service ration reached 26% in 1974 dropped to 20% in 1975and is expected to decline further this year as a result of the recovery inthe cotton export market. However, the balance of payments will undergofurther strain in 1977 as a result of pest infestation which is affectingthis year's crops of cotton and wheat.

21. With regard to budgetary operations, public sector deficits con-tinue to be the primary cause of excess aggregate demand and the resultinginflationary pressures, but the Government is taking steps to improve itsfinancial position and maintain a policy of restraint in the expansion ofdomestic credit. In particular, security expenditure has declined signi-ficantly as a proportion of the budget. Steps are also being taken tostrengthen expenditure controls in the public sector and, while these meas-ures may need time to be fully effective, the Government's aim is to allowno more than a marginal increase in current expenditures in 1975/76. Theapproved budget for 1975/76 did not introduce any new taxes, but somemeasures have been taken, including the elimination of most subsidies(notably that on sugar) and increases in utility rates. The latter areexpected to lead to a combined financial surplus of about US$18 millionfor the Sudan Railways and the Public Electricity and Water Corporation,compared to a deficit of the same order in 1974/75. Additionally, theBank of Sudan has reasserted control over the banking sector, and hasraised interest rates by two percentage points. Continued progress ofthis kind would be needed to foster a stronger economy with a capacityto support an expanded development program. In this connection, the IMFis having discussions with the Government on fiscal, credit and balance ofpayments issues.

22. As a result of negative public sector savings the Government hasrelied heavily on the much increased inflow of capital to give a major boostto public investment, which had remained stationary during the period 1967-73.From about $75 million in 1972/73 and $100 million in 1973/74, investment in1974/75 is estimated to have jumped to $250 million, As important, the in-vestment has been directed largely into the priority areas. Much is goinginto eliminating the inadequacy of the transportation system, which isundoubtedly the most serious immediate bottleneck to the development ofthe economy. On-going projects in the transportation sector include the

construction of a road and an oil pipeline in the key Khartoum-Port Sudancorridor and acquisition of railway rolling stock in order to increase thecapacity of Sudan Railways. Other priority investments are in sugar schemeswhich are intended to eliminate imports and lead to exports in the late 1970's;public support for irrigated agriculture through the Rahad project, whlich isjointly financed by the Bank, the Government and other bilateral and multi-lateral agencies; kenaf plantations, textile mills and expansion of wheatproduction to achie-e self sufficiency. It is worth emphasizing that thefruits of this investment in terms of higher output and higher exports willnot be forthcoming in the short run, but should begin to be apparent in thelate 1970's. The major infrastructure investments required for the developmentof a country as large as Sudan dictate the need for a flow of concessionaryfunds to Sudan. The current balance of payments problem and the emphasisbeing given to the development of Sudan's considerable productive potential,particularly in the agricultural sector, are additional reasons for continuedsupport from IDA and other sources of concessionary funds.

23. Sudan is considered eligible for Bank lending on Third Window termson the basis of the following criteria:

(1) Per Capita Income in 1972 - $120

(2) Performance - A rapidly rising public investment programand recent improvements in fiscal and economic managementare important steps toward improved development performance.

(3) Ability to Repay - Sudan's strong resource base and goodmedium term development prospects make it creditworthyfor a limited amount of Bank lending on intermediateterms as proposed herein.

(4) Access to Alternative Sources of Capital - Although Sudanis expected to have access to substantial amounts of develop-ment capital from the Arab countries, its ability to draw on suchfunds will to an important extent depend on the availabilityof well conceived investment proposals. The Bank Group'sprogram of operations is designed to play an important catalyticrole in assisting Sudan to prepare and obtain finance for highpriority projects.

24. In summary, after a number of years of low and fluctuating ratesof savings and investments, some momentum has been injected into Sudan'seconomic development by a considerable expansion in domestic investmentduring the last two years. However, Sudan faces balance of payments anddomestic resource mobilization problems in the short run. Whilst this is

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a familiar problem in several developing countries, the medium-term prospectsfor Sudan look particularly bright. These opportunities derive not only fromthe ability to tap the surplus funds to the OAPEC countries and to servetheir expanded markets, but also from the basic agronomic and human potentialof the country. However, basic policy decisions, some of which have beenoutlined in the preceding pages, will have to be made if these prospectsare to be realized. The Government indicated its willingness to addressitself to these crn' ial issues at the review of the ILO report in October1975. During preparation of the Six-Year Plan for 1977-83, a major oppor-tunity exists to make substantial progress in the direction indicated bythe recent studies. For the immediate future, the Bank can assist theSudan to achieve a higher momentum of development by helping channelresources into the priority sectors in our project work, by extendingtechnical assistance to improve project identification, preparation andimplementation capacity, and by continuing the dialogue on policy issues.

PART II - BANK GROUP OPERATIONS IN THE SUDAN

25. Since the Sudan's Independence in 1956, the Bank Group has helpedto finance various development projects with commitments totalling $311million and has been the country's largest single source of foreign aid.A major portion of our past lending was to help finance irrigation and rail-way projects. In addition we have lent for two power projects, two educationprojects, a highways project, and three agriculture projects, and have madetwo credits to a development finance company and a technical assistance credit.Annex II contains a summary statement of Bank loans, IDA credits and IFC in-vestments as of April 30, 1976 and notes on the execution of ongoing projects.The Bank/IDA share of debt service is 13% (1974).

26. Progress on Bank Group operations in the Sudan varies. The high-ways and mechanized farming projects are going quite well, but difficultiesin obtaining materials and weaknesses in management continue to slow downimplementation of most other projects. Three projects in particular haveencountered problems in implementation -- the First Education Project,which was very slow in starting off, but,is now proceeding somewhat moresatisfactorily; the Third Railways Project, where progress towards improvedoperational efficiency is very slow; and;the Rahad Irrigation Project whichhas faced management problems and serious cost overruns. This project wasdiscussed by the Board last June when the supplementary credit for theproject was considered, and current progress on the progress is encouraging.Disbursements on IDA credits to Sudan have picked up in the last six monthsand are running at a rate of about $35 million per annum. This rate shouldincrease further (see Annex II).

c

27. In view of the improved availability of funds for investment inSudan, the Bank Group feels it can _render a useful service by assisting withthe identification and preparation of a relatively large number of projects,and by actively associating bilateral and other multilateral sources with

the financing of these projects. The technical assistance credit approved bythe Board in February is designed to assist in this way. The ConsultativeGroup last met in 1973, and most of the member countries have developedprograms in Sudan, subsequently. A further meeting of the ConsultativeGroup is planned later this year.

28. In the light of our better understanding of the economic prospectsand problems facing Sudan, the Bank Group's lending strategy will continueto emphasize agriculture and infrastructure investments. Within agriculturewe will continue with a two-pronged strategy of investments to realize ex-isting production potential in the modern sector, while laying the founda-tions for future production increases in traditional agriculture. Thus,we have made a credit for a major irrigation project and are assistingthe Government in preparing projects in irrigation, mechanized farming andlivestock. In traditional farming we have lent for an Agricultural Rehabilita-tion Project in the South and are working on a Savannah Development Project.Last April the Board approved a Second Education Project, which emphsizestraining in the rural areas. We expect to develop future education projectson the basis of the sector survey now in progress. Lack of transport faci-lities continues to hamper movement of goods within the country and to theoutside world. The Third Railway Project is helping to improve rail transportand design further necessary improvements in related transport facilities.A Second Highway Project is under preparation, and included in the agricul-tural rehabilitation program is about 350 miles of agricultural feeder roadsin the Southern Region. Further transportation projects in railways andports are under consideration with the Government, and expansion of domesticaviation is the subject of this report. With the two credits to the Indus-trial Bank of Sudan, the Bank Group is supporting private investment inthe growing industrial sector. The first power project, which developedsome of the hydro-electric potential of the Roseires Dam, was completed in1972. A credit for the second power project, which will develop theseresources further and assist expansion of the electricity system, was approvedby the Board in 1975. This project is also laying the groundwork for futureexpansion in electricity supplies. Other projects under considerationinclude fisheries, telecommunications and water supply.

PART III - THE TRANSPORTATION SECTOR

29. The last Eank review of the transportation sector was carriedout by a mission which visited Sudan in late 1971 and reported its findingsin June 1972 (Volume IV of Report No. AE-27). In summary, the reportconcluded that cohesive development in the Sudan is hindered by theconsiderable distances between potential areas of production and con-sumption, which for the most part are not bridged by adequate and reliabletransport facilities. This summary remains valid, and for the most partthe transportation situation is very little changed now from that in 1971.What has changed is that in the last two years the Government has undertakena very large investment program in the transportation sector as the spear-head of its development program. This will have a progressively larger

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impact on the economy from 1976 onwards. The following table illustratesthe scale of the increase in investment for fiscal year 1974/75 alone:

Public Sector Transportation Investment(SUDE millions)

Annual / AnnualAverage Planned--a- Average Actual1966-70 1971-75 1970-74 1974-75

Railways 3.2 14.1 1.6 1.7/Ports 0.3 0.1 - 0.6River Transport 0.1 0.8 0.2 3.7Roads 0.4 23.3 1.8 18.1Oil Pipelines - - - 0.7

Airports 0.1 1.3 0.2 1.5Sudan Airways 0.3 5.0 1.3 5.0

Total. 4.4 44.6 5.1 31.3

/a As of 1971.

lb This figure understates the level of investment taking placeon the railways. Payments in 1975/76 are estimated to riseto between SUD E 8 and 12 million.

The estimated higher level of expenditure in 1974/75 is expected to be main-tained in subsequent years. Despite the higher capital cost of projects inthe last two years, undoubtedly a real increase in investment has taken place.

30. The background to the much larger scale of investment has beendescribed in general terms in Part I of this report. While the investmentdecisions taken so far have been in response to a general conviction thatlittle significant expansion in the economy and particularly in agricul-tural production could take place unless the necessarv transportation wasprovided first, transport investment in the future is likely to be guidedmore by explicit plans, sUch1 as the national plan for 1977-83 now underpreparation (se para. 38 below). Detailed analysis of several individualinvestment possibilities is under way, and some details of these are pro-vided in the following paragraphs.

31. The Sudan Railways Corporation (SRC) continues to be the backboneof Sudan's transportation system, carrying about 70% of all freight andpassenger movements in Sudan. However, it continues to operate at a levelof efficiency below that attained in the mid-1960s. As a consequence ofthis and of a low level of investment in past years, SRC has not been ableto carry all the traffic offered and has been providing an unsatisfactorylevel of service. In short, the capacity of the railway has become a real

- 13 -

barrier to economic growth. The Government's response has been three-fold:first, to authorize investment in the railway to eliminate equipment defi-ciencies and shortages; second, to commission a detailed analysis of SRC'stechnical operations to determine the causes of low efficiency and to planfor improved training facilities; and third, to authorize investment inother transportation facilities (an oil pipeline and a major road) toreduce the economy's dependence on the railway system.

32. The analysis of SRC's technical operations carried out by theAustralian Railw.ys has identified a variety of operational deficienciescontributing to the low level of efficiency. Additional training andrecruitment of some additional technical skills is planned to help over-come these deficiencies. SRC's recent teorganization is also intended toimprove management control of day-to-day operations. Current investmenton the railways includes a 50% increase in mainline diesel locomotives,additional shunting engines, wagons, equipment upgrading and telecommuni-cations. SRC is hopeful that, with this investment, it can improve oper-ating efficiency. Systematic planning of further investment reqpuirementsis also under way. While the immediate needs are probably for additionalrolling stock and workshop facilities, studies are also about to commenceof the need for track improvements. For, whatever the attractions of motortransport, the latter is unlikely for many years to be able to compete withthe railway on price in the long distance haulage of relatively low valuebulk agricultural produce, which will be the major surplus produce inSudan requiring transport.

33. At the present time, Sudan is extraordinarily dependent on therailway line to/from Port Sudan for movement of both its exports andimports. The decision to authorize transport investment which will pro-vide competition for SRC is one which could probably be challenged on thebasis of least-cost analysis, but in terms of Sudan's need for comprehensivedevelopment of its infrastructure, it is probably the right solution. Thetwo major investments are an oil pipeline from Port Sudan to Khartoum, whichwill both release railway capacity for general freight and release oil wagonsfor up-country oil distribution, and the Port Sudan--Wad Medani road, whichwill provide the first all weather road between the most productive regionsof Sudan and the port.

34. The Roads and Bridges Public Corporation (RBPC) is responsiblefor the national highway network. At present, this is a very ill-devel-oped system, with only some 400 kilometres of bitumenized road. The in-vestment currently under way will increase the length of modern roads byabout 300% within three years. Apart from the Port Sudan-Wad Medani road,which is expected to cost in excess of $250 million, other road projectsunder implementation include roads to serve major agricultural areas inthe Gezira region, and the upgrading of regional access roads in the Nubamountain region, in Darfur and to the Uganda frontier in the Southern Sudan.Partly as a result of the lack of railway capacity and partly due to the cur-rent investment boom, there has been a major increase in long distance motor

- 14 -

vehicle use. Despite the rough road conditions, the numbers of road vehicles

entering and leaving Port Sudan on long distance journeys has increased from

about 1,300 vehicles a month in 1971 to about 8,000 vehicles in 1975, an

increase of over 500%. Current feasibility and engineering studies for

additional components of the trunk road network are underway and are ex-

pected to lead to further major investments within the next two years.

More attention will be given to the need for rural access roads as the

agriculture investw-vnt program is implemented. Clearly, the maintenance

capacity of RBPC and the provincial highway authorities will require up-

grading. This was a principal focus of IDA's first highway project and

will be emphasized in the proposed second project.

35. Port Sudan, the only port in the country, is managed by the Sudan

Ports Corporation. While the port can handle the current level of traffic,

the investment under way and planned elsewhere in the economy will dictate

a need for additional port capacity. IDA financed studies currently in

progress will provide the basis for investment planning both at Port Sudan

and, when its expansion has reached the limits of the site, at Suakin, 40

kilometers further south.

36. Southern Sudan is served by two methods of moving lower-value

freight--the railway branch to Wau and river transport to Malakal and

Juba. Railway capacity should benefit from the investment program de-

tailed above. A major investment program, in barges and tugs, is also

underway on the river. A recently-completed study of the River Transport

Corporation has provided the basis for planning future investment and has

identified technical assistance requirements.

37. In view of the size of the country, over 2,000 kilometers long

and 1,800 kilometers broad, aviation is likely to play an increasing role

in meeting the domestic transportation needs. Whether looked at from the

standpoint of either the cost of creating alternative surface transport

or of travel time, aviation offers major advantages. Against this back-

ground, the Government has had to decide how to upgrade the services pro-

vided between Khartoum and the twelve principal regional airports, which

can be grouped into three or four sub groups. Upgrading of any one sub

group would benefit services to all the sub groups, by facilitating use

of faster, more efficient aircraft for more hours per day. The Govern-

ment's choice was .o work first on three southern airports and on Port

Sudan airport, the busiest of the regional airports. It has also acquired

two new aircraft for domestic services, which will expand the domestic ca-

pacity of the airline, Sudan Airways. Part IV of this report provides a

more detailed analysis of this sub sector.

38. Until now, transportation planning has consisted chiefly of con-

sidering different technical options to meet a specific need, which could,

by and large, be assessed on the basis of common sense. Transportation

planning in the future, however, will become more complex. The major ex-

pansion in planned agricultural and industrial production will increase

the need for a capacity to assess the type and timing of transportation

- 1 5 -

investment. Questions of intermodal choice are beginning to emerge andpricing questions need to be faced. Important analyses of the investment

needs of the sector over the next 10-15 years have been carried out recently

by the Associates for the Development of Arab Resources (ADAR) who prepared

a transportation master plan for the Sudan with Kuwait Fund financing, and

by the ILO mission. The ADAR studv contributed to the analysis of the

transportation needs of agriculture contained in the Arab Fund report on

the agricultural prospects of Sudan. Some steps have been taken to create

an improved planning capability in the sector, and EDI has conductedl two

transportation project analysis courses in Sudan during 1975. I)iscussions

have also been in'_iated with a view to the creation of a planninP, unit in

the Plinistrv of Transportation, which would be able to continue the work-

initiated by the ADAR studv. Meanwhile the Planning Section of the Ministry

of Finance is undertaking some transport-planning studies in connection with

the preparation of the Six-Year Development Plan (1977-83).

39. Apart from road transport, all the modes of transport are oxned

by public corporations. They are revenue earning enterprises, and should

be able to contribute usefully to the financing of transportation invest-

ment. Since one of the weaknesses of the Government's financial manage-

ment has been the low level of public savings, the next four paragraphs

examine the financial position of the public sector transportation corpo-

rations.

40. By far the largest is the Sudan Railwavs Corporation (SRC). For

the last four years net income of the railwavs has been negative, despite

several tariff increases. Broadly speaking, the causes have been declining

traffic carried, sharp cost increases, notably in oil products, and tariff

levels which were still too low, a reflection of government endeavors to

minimize price increases affecting the cost of living. Since July 1975,

SRC's financial results have been better, and with the increase in tonnage

carried in the last six months, prospects for profitable operation are

encouraging. It is worth noting that the lines extending to the west and south

of the country are likely to require cross-subsidization by the rest of the

net work until the traffic reaches higher levels.

41. Port Sudan has been consistently profitable for several years,

and the Seaports Corporation should be able to generate surpluses at a

level adequate to finance future expansion. The River Transport Corpo-

ration (RTC) has operated for the last ten years at a loss varying between

20% and 60% of op,rating costs. In the regions in which it operates, the

Corporation has a virtual monopoly. However, the regions served are among

the poorest and most remote in the country and it mav well be considered

justifiable at the present stage of development for the Government to sub-

sidize transport services in these regions. The Roads and Bridges Public

Corporation (RBPC) has no significant revenue and operates virtually as a

Government department.

42. A detailed analysis of the Civil Aviation Department's (CAD) reve-

nues and expenses, shows that the Department generates a small surplus

after depreciation. The position projected after the higher level of invest-

ment contemplated is analyzed in detail in the apDraisal report for the

- 16 -

proposed project (Report No. 1029a-SU), and in Part IV of this report. Insummary, CAD is projected to earn a profit after depreciation and interestpayments from about 1985. Sudan Airways, after several years of unprofitableoperations, turned the corner in 1975 and is now projected to generate surplusesadequate to cover its depreciation and interest payments and pay a dividend

to the government.

43. Thus the financial performance of the transport corporationsvaries widely and, ! 1 the aggregate, is just adequate. They are not far from

being able to contribute adequately to financing needed for future investment.

44. Experience with past transportation projects in Sudan has beensatisfactory, except for the persistent-problem of the decreasing opera-

tional efficiency of the railways, which has responded only slowly to measures

taken to improve the situation. As indicated at paragraph 40, however, some

improvement is taking place and SRC is more hopeful that the measure outlinedat paragraph 32 above will prove effective. Given the critical importanceof transportation to development, there needs to be constant attention to the

operational and financial strength of the transport corporations.

PART IV - THE PROJECT

45. A report entitled "Appraisal of a Domestic Aviation Project"(No. 1029a-SU dated May 28, 1976) is being distributed to the ExecutiveDirectors separately. The detailed design work was carried out by the

Civil Aviation Department and their consultants, Brian Colquhoun andPartners. The project was appraised in May 1975, and negotiated in Washing-

ton in February 1976. The Sudanese delegation was led by the Under Secre-tary for Planning, Ministry of Finance, Planning and National Economy and

included the Director of Civil Aviation.

Project Selection

46. In considering the development of domestic aviation the SudanGovernment had to make two important and related investment decisions--with what aircraft should it replace and supplement its aging Fokker air-craft; and what airnort development should take place. Sudan Airways even-

tually concluded that the Boeing-737 aircraft would best meet the require-ments of its domestic and short range international services-a conclusionwhich had implications for airport design and development. This new and very

efficient aircraft has much greater capacity than the existing aircraft and

yields much lower unit operating costs. Its introduction will release exist-

ing aircraft for use on other routes. Purchase of additional aircraft of

the same type as those currently used would not have met the needs, partly

- 1 7 -

due to the restrictions imposed by the long distances. So far as airportdevelopment is concerned, the best way to maximize the benefits of thenew aircraft is by developing the three or four groups of regional airports,rather than individual airports. Consideration was given to the westerngroup of airports, which is also important, but following the end of thecivil war, and in view of the distances from Khartoum, climatic and soilconsiderations and traffic levels, the Government opted for the southerngroup (Juba, Wau and Malakal), together with the busiest regional airportat Port Sudan, whici is the only port, the second city and a rapidly growingcommercial and industrial center. These airports, which account for 46%of the domestic passenger flow, lie between 665 and 1,250 kilometers fromKhartoum. For purposes of comparison, the distances from Bombay to Delhiand Madras are 1133 and 1030 kilometers respectively, and that from Washingtonto St. Louis is 1145 kilometers. Port Sudan is a meteorological alternativeto Khartoum, which is subject to closure in dust-storms.

47. The growth in passenger traffic has been rapid in recent years,doubling from 1968/69 to 1973/74, despite capacity limitations. Passen-ger traffic is projected to grow at 14-18% per annum until 1980 and 10%per annum thereafter. Air freight traffic has been severely curtailedby the same capacity limitations, which makes projections very difficult.All experience elsewhere supports the projection of rapidly rising trafficas the larger, low cost aircraft are introduced.

Description and Purpose

48. The project would consist of the construction of two new airportsat Port Sudan and Wau, complete with runway, taxiway, terminal buildings andall essential facilities; reconstruction of the runway and terminal buildingand provision of adequate ancilliary facilities at Malakal; constructionof a new terminal building and related ancilliary works at Juba; supervisionof these works; purchase and installation of communications, navigationaland maintenance equipment at the four project airports; and technicalassistance and training for the Civil Aviation Authority. The Buildingof new airports at Port Sudan and Wau was selected as preferable to recon-struction of the existing ones, due to the proximity of the neighboringtowns and other physical limitations of the sites. The facilities tobe financed would be modest in scope but would be adequate for trafficvolumes expected over the next fifteen years. Port Sudan airport wouldbe adequate to accept traffic diverted from Khartoum and would have specialfacilities for pilgrimage traffic. The facilities to be provided would meetthe objective of developing an airport system capable of receiving larger,more productive aircraft than at present, thus reducing the constraints totraffic growth, and permitting Sudan Airways to become a more efficientdomestic airline. On-going investment in services for the airports willlimit the need for complementary investment, although water supply forPort Sudan airport will be essential.

- 18 -

CoEstimate and Financing

49. The total project cost, including contingencies amounting to 39%of the total, would be $86 million, excluding taxes and duties. The for-eign exchange component is $65.0 million, 76% of the total cost. Of thetotal cost excluding contingencies, 56% would be accounted for by runwayand other pavements, and 22% by building and road-works. Costs vary con-siderably from airport to airport, depending upon subsoil conditions andthe nature of the facilities to be provided, but the remote location ofthree of the four airports makes the project relatively expensive. Physicalcontingencies allowed are not particularly high since the sites are smalland well studied. Price contingency provisions are relatively high, however,and since there is very little experience with civil works construction onthis scale in Southern Sudan to provide a guide to likely costs, a specialrisk contingency of 10% on the costs of the southern airports has beenincluded in the cost estimates. The cost estimates were built up on thebasis of recent construction contracts awarded in other parts of Sudan andneighboring countries.

50. The Government would meet the local costs of the project. Theproposed loan of $20 million on 'Third Windowt terms and credit of $9million would finance most of the foreign exchange costs of Wau and Malakalairports, plus the foreign exchange costs of maintenance equipment, designengineering, accountancy consultants and technical assistance and trainingfor CAD. The Saudi Fund is expected to finance the cost of Port SudanAirport and the Government has undertaken to finance the Juba airportcomponent as part of the Six-Year Plan for the period commencing July 1,1977. The Saudi contribution is expected to be provided on concessional termsas part of a package of financial assistance, for which negotions are welladvanced. Completion of the arrangements for Saudi Fund participation is acondition of effectiveness of the loan and the credit (Section 6.01 of theLoan Agreement).

Construction Supervision

51. The project would be executed by the Civil Aviation Departmentwith the assistance of its consultants. The latter are currently workingon architectural and engineering final designs and specifications withfinancing provided under IDA Credit 457-SU.

Staff and Training

52. The Civil Aviation Department is part of the Ministry of Defenseand is manned partly by military personnel. However, CAD functions as acivilian government department and most CAD officials are transferred tocivilian status while with the department. CAD is developing an airportengineering design and construction unit capable of executing small proj-ects and maintenance work. For large contracts, consultants and contrac-tors are to be engaged, but their work would be supervised by the newunit. IJNDP and ICAO are financing a program of technical assistance and

- 19 -

training of CAD staff. Additional technical assistance and training ofCAD staff would be financed under the project, especially in constructionand maintenance supervision, in economic and commercial fields and inaccountancy.

Procurement and Disbursement

53. Contracts financed by the Bank Group for civil works and forprovision and instal.ation of equipment would be awarded through interna-tional competitive bidding in accordance with the Bank Group's "Guidelinesfor Procurement." Interested contractors would be subject to prequalification.During the construction phase between 1000 and 1500 laborers of varied skillswould be employed. CAD would handle all electronic equipment procurementand either install it themselves or employ contractors. Qualified domesticcontractors would receive 7-1/2% preference. It is possible that Sudanesefirms, in joint venture with foreign firms, might be in a position to bidfor contracts. The IDA credit will be disbursed before the loan. (SeeSchedule 1, paragraph 4 of the draft Development Credit Agreement). Dis-bursements will be made against 100% of the foreign exchange cost of itemsto be financed, except for the civil works component. For this categorydisbursement will be against 90% of the foreign exchange cost.

Financial Aspects

54. The Civil Aviation Department currently operates under a bud-getary control system, like other Government Departments, all revenueaccruing to the Sudan Government. Capital expenditure is met by the Govern-ment. The accounting system is inadequate and should be replaced withone designed to supply information by airport and by classificationsnecessary to formulate and review user charges. It is proposed thatthe project finance consultants to assist CAD in making the necessarychanges. (See Section 4.02 and the Annex to Schedule 2 to the draftDevelopment Credit Agreement, paragraph 2). The accounts are subject toannual audit by the Auditor General.

55. The Government intends that CAD's earned revenues should be suf-ficient to enable it to recover capital costs and contribute funds towardsthe future development of civil aviation. Any excess of revenues over ex-penses is currently -etained by the Government and can be considered asa contribution towards the acquisition of capital assets. CAD revisedits tariff schedule on July 1, 1975 and the current rates are assumedto continue until project completion. During negotiations, agreement wasreached on future financial objectives for CAD. For this purpose, CAD wastreated as though it was an independent public corporation rather than aGovernment department. These objectives include maintenance on average ofa 50:50 debt/equity ratio; straight line depreciation on periodically re-valued assets; and revenues from 1983 sufficient to cover operating expensesand either debt service attributed to it or depreciation, whichever isgreater. On the basis of these objectives tariff assumptions were agreedand these have been used in making proforma projections of CAD's financialposition. These assumptions provide for tariff increases in 1981 for

- 20 -

overflight and navigation charges and for landing fees for different typesof aircraft. The fees levied by Sudan would then be high, but not ex-cessive, by international standards.

56. In preparation of the proforma projections, the funds required forthis project were treated as if $35 million equivalent was a loan at8-1/2% interest, $38 million was in the form of Government equity and$7.2 million would be internally generated. If required, the risk contingencywould be made available as additional equity. Throughout the projection periodCAD's revenues would cover expenses, including depreciation, except for theperiod 1981-82, immediately after the new airports are completed. Ex-cept for the initial construction period, CAD's operating income wouldnot cover interest on long term debt until 1986, but it would be coveredin total during the period of the forecast. Of the four individual air-ports, only Malakal and Port Sudan would cover operating expenses, butnot until 1989 and 1990 respectively. Thus the aviation system as awhole would be subsidizing travel to the four airports. The reason forthis is the higher operating costs of the four airports after improvementby comparison with such costs at other regional airports before improve-ment, and with the lower unit operating costs at Khartoum airport. Thishigher recurrent cost is acceptable, as the project and non-project air-ports using the B-737 are likely to cover their operating cost in total.The project airports are essential segments of the B-737 system. Itis also acceptable as a contribution to the economic integration ofthe country. Considering CAD and Sudan Airways together, and excludingtransfer payments between them, operating income after depreciation, butbefore interest payments, would be positive throughout the projectionperiod. Incremental profits earned by the project up to 1990 would beabout SUDE 17 million after depreciation. The overall financial internalrate of return would be about 10%. CAD would have positive cash balancesfrom 1982 onward.

57. Since the project would permit Sudan Airways to earn consider-able cash surpluses through the expanded usage of its new, more efficientaircraft, a more favorable financial result could have been assumed, ifa larger share of the benefits had gone to CAD. However, since both enti-ties are fully owned by the Government, the distribution of the financialbenefits of the project between CAD and Sudan Airways has no effect on theGovernment's fina-ices. The increased charges proposed in the previousparagraph would leave substantial cash surpluses with Sudan Airways,which it will need to meet its own investment requirements.

Justification

58. The general case for air transport in Sudan rests on the extremelylow density of the road network, the physical constraints on rail and rivertransport and the very large size of the country. For many years to come,air transport can offer not only speed and the lowest costs on many routesfor passengers and selected freight commodities, but in many cases the onlypractical means of travel. The cost of creating alternative ground systems

- 21 -

of transportation would be prohibitive in the short term. On account ofthe country's size, Sudan is likely to have a relatively large domesticaviation sub-sector. Air travel can be an important aid to the cohesivedevelopment of the economy.

59. The major sources of quantifiable benefits of the project wouldbe the much lower operating cost of more efficient, jet aircraft whichthe project would permit, compared with the existing propeller-drivenaircraft; the higher utilization of aircraft which would be facilitatedby the installation of night landing aids, and the increased revenueswhich will accrue when Sudan can offer adequate services to overflyingaircraft. Passenger time savings could be counted, but these are marginalto the project's economic justification, Unquantified benefits would in-clude elimination of the current excessive waiting time, due to theinadequate capacity of the existing aircraft; and improved marketabilityof high value commodities produced in the Southern Region resulting fromdecreased transport costs and the extra capacity which would be created.The economic costs of the project exclude about $3.8 million of invest-ment which are necessary merely to permit the current services to continuein reasonable safety.

60. Excluding passenger time savings, the estimated economic returnfor the total project would be 18%. For the three southern airports thereturn would be 15% and for Port Sudan 22%. For airport lighting andnavigational aids the return would be 16%. The effect of shadow pricingof foreign exchange is negligible, since it affects the cost and benefitstreams almost equally.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

61. The draft Loan Agreement and the draft Development Credit Agree-ment between the Democratic Republic of the Sudan and, respectively, theBank and the Association and the Report and Recommendation of the Committeeprovided for in Article III, Section 4 (iii), of the Articles of Agreementof the Bank and in Article V, Section 1 (d) of the Articles of Agreementof the Association, respectively, and the texts of draft resolutions approv-ing the proposed loan and the proposed development credit are being distributedto the Executive Di.ectors separately.

62. The features of the draft agreements of special interest aredescribed in paragraphs 53, 54 and 55 of this report.

63. An additional condition of effectiveness will be the conclusionby the Borrower of co-financing arrangements with the Saudi Fund for theproposed new airport at Port Sudan.

- 22 -

64. I am satisfied that the proposed loan and development credit would

comply with the Articles of Agreement of the Bank and the Association and

with established criteria for Third Window loans.

PART VI - RECOMMENDATION

65. I recommend that the Executive Directors approve the proposed

loan and credit.

Robert S. McNamaraPresident

AttachmentsWashington, D.C.June 3, 1976

ANNIX IPage 1 of . pages

TABLE IASUDAN - SOCIAL IMOICATORtS DATA SHEET

LAND AREA (THOU KANS---------- -- --------------

--------------- ~~~~~~SUOAN REFERENCE COUNTRIES (1970)

TOTAL 2505.8 MOST RECENT

ARABLE .. 1960 1970 ESTIMATE KENYA EGTPT MOROCCO

GNP PER CAPITA (USS) 100.0 1 10. 0 1 30. 0 140.0 21 0. 0 27 0.0

POPULATION AND VITAL STATISTICS

POPULATION (MID-YR. MILLION) 11.9 15.7 17.1 11.2 33.3 04.8

POPULATION DENSITTPER SQUARE KM. 5.0 6.0 7.0 19.0 33.0 33.0

PER SQUARE KM. ARAALE LAND. 18.9 ... 9 37.0

VITAL STATISTICSCRUDE MIRTH RAkTE PER THOUSAND 52.0 /a 4 9. 0 4A8.I 48 .0 35.0 5 0.0

CRUDE DEAkTH RATE PER THOUSAND 19.0a/ 0 18. 0 11.0 18. 5.0 17.0

INFANT MORTALITY RATE (IT!:OU) 94.0O a .. 55.0 11 6.

LIVE EXPECTANCY AT MIRTH TARS) . 4 8. 0 51.0 48.0O 90.0 51.0O

DROSS REPRODUCTION RATE .. 3. 4 3.4 3 .4 3. 0 3.4

POPULATION GROWTH RATE (2)TOTAL 2. 9 2. 9 2.8 3. 1 2. 5 2.5

URBAN 4.0 5.0 5.0 /a 7.0 4.0 4.4

URBAN POPULATION (I OF TOTAL) 8.0 12.0 13.0 10.0 42.0 35.0

AGE STRUCTURE (PERCENT)0 TO 1 4 TE ARS 4~~TŽ 4.0 .b. 5 048a.0 4 4.0 446.0

15 TO 44 TEARS 51.0 b 2. 0 .. 49.0 52.0 5 1.3

A5 TEARS AND OVER 2.0 /b 3. 0 .4 .0 4.0 3.0a

AGE DEPENDENCY RATIO 1.0 /b 0.9 . . . .

ECONOMIC DEPENDENCY RATIO 1. 6 1.5 /a . 11 I 1 /a,b :

FARMILY PLANNING-ACCEPTORS (CUMULATIVE. THOU)...... 2 00. 0 67.0

USERS (2 OF MARRIED WOMEN)...... 9.0 3.0

EMPLOYMRENT

TOTAL LABOR FORCE (THOUSAND) 41800.0/ 51 00. 0 74 00.0 /b 5100.01b 8 300. 0 /

LABOR FORCE IN AGRICULTURE Il) 6 8401 80.0 . 90.0 IL so 3.o I

UNEMIPLOYED (2 OF LABOR FORCE) ..... .0

INCOME DISTRIRUTION

2 OF PRIVATE INCOME REC'D BY-HICHES T 50 OF POPULATION 20.9 /d ... 20 .2 Is.HIGHEST 20% OF POPULATION 50. 1 ... 52.44

LOASET 200 OF POPULATION 5.0 0 ... 3.15

LOWEST 402 OF POPULATION 13.-9 PI I.I..

DISTRIBUTION OF LAND OWNERSHIP

% OWNED AT TOP 102 OF OWNERS . ..

0 OWNED AT SMALLEST lox DINERS......

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 3 0000. 01 15940.0 1366044. 0 7830.010Ž 1910.0/d 11327 0. 0

POPULATION PER NURSING PERSON 472O:04O! 1 950. 0 0 94 0.0a 04 70. 1440.0/d

POPULAtION PER HOSPITAL BED 1 010 .0 10340. 01 -b 770.0 4460.0 490.01Ž

PEW CAPITA SUPPLY OF-CALORIES (l OF REQUIREMENTS) 81.0 91 .0 9 2. 0 1 0 1.0 9 4.0 9 9 .0

PROTEIN (GRAMS PER OAT) 55.0 63.0 43.0 71.0 64.0 44.0

-OF WHICH ANIMAL AND PULSE .. 24.01Ž 29.3 14.0 14.01Ž

DEATH RATE I/THOU) AGES 1D4......

EDUCAT ION

ADJUSTED ENROLLMENT RATIOPRIMARY SCHOOL 17 .0 2 5.0 .6 7 .0 70.0 55.0

SECONDART SCHOOL 5.0 9.0 a 9 .01e 3 3.0 1 2.0

YEARS OF SCMOOLING PROVIDED(FIRST AND SECOND LEVEL) 12 .0 0 2.0 1 2.0 1 3. 0 1 2 .0 02 .0

V0CRATIONAL ENROLLMENT(2 OF SECONDARY) 0. 0 1.1 2. 0 2.0 1 9. 0 2.0

ADULT LITERACY RATE (2) L. 9.0 .3 0 .0 40.0

HOUSING

PERSONS PER ROOM (AVERAGE) .. 2.51 ..

OCCUPIED DWELLINGS WITHOUTPIPED WATER (1) . 34. 0 /c.d ...

ACCESS TO ELECTRICITY(2 OF ALL DWELLINGS) .. 264 /.G/d ..

RURAL DWELLINGS CONNECTEDTO ELECTRICITY (2)......

CONSUMPTION

RADIO RECEIVERS (PER THOU POP) 1. 0 . 8 0.0o 48.0 0)32. 0 40.0

PASSENGER CARS (PER THOU POP) t5.0 2. 0 2. 0 9 .0 4. 0 1 5. 0

ELECTRICITY (KWH/YR PER CAP) 8.0 25.10 18.0 48 .0 228. 0 0 28.0

NEWSPRINT (KG/YR PER CAP) 0. 1 0. 2 0.1 - 0. 5 1. 0 0.?.-- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - -- - - - - - - - - - - - - - - - - - -

SEE NOTES AND DEFINITIONS ON REVERSE

tiLesotltcs~'ia tiree.Iiti foe 19111 refer co 19li-at, far 1970 ,c 1968-70). -ai. C-- rIs [ore csort 1971-73,

Bores) "Ic laor clurft on art -. 1 nljuuu i- e"nnlciv tnetten ne-alit a c ,imil an' hen (ole cf itator ac o f potn,ilaci on Precoe inpcr.e

91-5 IL0,/N 1 9 51; lb 1 977; t- 'I l: d 1963. ineila(ia,-er--tiorh-) It-o , Inld ing s i ]s?icro md ir lIo I Ite

07 /a Ibteiti of poel te ttte 15 anY It and eve to tonal SAler fac; o cncta Y.e...l ero-ic--ett 'ity~

ic ]91-'t-h ; 7 Urban ely

U-c'i t-r'; kIoAli H di-B, 1 Eunitnjltally scedoccine-oteoa

191 Ii l'ia of jip -a ttt -dr 19 65U niad -oo to talc r- 1iui goI-Id Ymca in ta oter in,, no-ug ,-e --

LI -ri '.I ! _ a- 1 9At /b a tin oIf geia de ode 11 and 65 -ud n-ru 1:'Sb-r free ag -f or, t I tot term 0 1 ,45 cit's

Total Ttaco orto arsa cotrirpiing land area and inland wacern. -ing "-i3e an-i anal rodriaco ni-scr- itac ni e niiul tron,,,

recent5 umntineace no leaod area~ etned tamernarliy r~ cernnriitolyol'a reto, i-o c Win'h -ra,~en cr

for -'ali-t Oatk r_- -,las o_t Ii fl o_ red pilne-c aor nInd sDcnalz-eb'l iopi l

011k 1 7" ~~~~~per capics, eattimaes oh market pricer. aanend re"a.blel 'ineC coo c-as nxciadea nirre'iore h .e n cnd -h3 isnmrtca

-. cahed as W~orld Bank Ail.r (17-i ac) oo'c todir' and Drv-tsocre

- -- -' i~ ' - As of July firsat; if nov. -aviehble, average -pnie, ecr day -%aitlrae sttppl.-l comnprisetnCie prod.ic?.tori,

'prit 0

I e- x Oman" e-on esatng- itc eto-kin notoupi era exeloido

-' I ''r -o pea' cqstantr kilo- r<o~~,mloo feed, seends qucolilies an-0

ia flood proccaritig~ and 1ornes

- i ' H~~~~~~~~id-year popnlatiain per dlvlcitktatcnn; rqrp -crnn were -ctocraced hIn CAP hi-ed on ptznt.

'-- a.. elgiral nerr _Os~ nar'i_] i i',! er,"o"-

Fnn,ntiialetn-";cil'' per k-can e of' uartle la,nd - Comaputed ar above far rita cseo" .~t0

e-vt~e-c -d a- I 0' c rn' t1 Ppenn

aliab- Laid) onoaciae it Id ri 111" -or ',ntne, ' 1- tattird or-en

75 'ci rtfuisi-ai I '-- '

4- U' an

:otado hunkh rain Der thctnnaii~ - Oouaal live births per tic-viarel of told- atiolcq'i-no-ner- 'Or'- n- eco"n' LccInheu loy ulS1t i'rc"'ioc

year ueeueir. alcly five-year averagesenodinig in i9f;2, 1977. and Reeror-h Seen,i-s p'e-"ide fr , tenant ltrr cf i grar o1,u- att il

19275 Stir' t,leoipingp nvittr,ie. prtetorn, c erA 0. go' it orecoa ,d p'-- e p-ct ic, tickjo 1.

* ' ' - , ' ' Anninriol ileatlins pe.' ch-seod fS old-year a'-coi-l i "tatoaoi,tt"'at hi Utan. "-la t,e-n

- i - -- ~~~averages onri:rg in, lo6o, 1,970 and 1975 of 75 oro -- a 3 orcra" aidA t> a!rena ut ecrtl omitt - .-; no as 02-

f~ oe ne oiPPing .ou0 ntr-ea age far th01 -ar1d, -,opopeaei'n'cA pinI t ""let1

5t0n'B aced i-cn'sv;.

1- -H ~~(otCn. - A non)i deaths of infantr tirader orne year Pr__ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ - lotlaam onycly of fenod

- - 1 or~~~~~~~~l'rage annrinnr ofY-ta of lile cetan I"n. -P t'- a ' ca 4c g group 1-).

ve-a nalrol-g in, 19511, 19711 and isi75 - tvgonsoo - n c i'tdzlntcr n- val-

ir-on rmrw~o' c o r-tAo - A-er,eg neither ef lire daughters a crooan trill

eoar hc' r-n1

rpvle" er-iod if at.e :eo'<erleenee prerent age- Edcr-tioz-

aproctiv tcci cc a -alan' -icily five-year arerag,en ending to 1965, A 'errllrteni of all ogen an

ye 7- nod 0079; for -l--llcaonirlo a edo -- iureiot aged

Pontli -- rpeuad annual Fgroin-.h roles of old- n6-it yacro no edit,E r-d for ' ff 00cclo t i ef nii-noar~ education,

ye , -~~~~~~~~~~~ ~arod 1960 no moo- revert yroar, for- i rion- -o'"rna odir'- n c i,inoi n lon i ,-

Pit- - Cotnpivtosl 1dm ~~~~~~~~g-r,,h rate of local a ire scee rpt o1 a- 'l" orTO ar--c thn iirela o n

7v ef trIal rate. may affect coerpero- 1 f"',t-p ki on aiO-; seeitnac-

nnlIr t of dant an"rot c..roea'... cf aer-ved primar'y ittotruc-

-- - ' -' ' In ef i~~~rbn teri total Ppuplathion; thoc; pra'rc,io general . vcLinoal or teacher -ircitirg rtviuotto ta-r

S - ' I ' ' n roari areao nay affect cerepao'oblity of date pupils of 12 to 17 fact o 00K a ol eo-opoicden ---'eo ar gcrao

acting cotaititlec. nridd

it- - &--- - - So,lds re (0-14la eors), working ago (15-64 yo..ros, 'fears of rchoolteg cravided (,firet and second levelo) - Tacal yearn of

- ~~~~~and ov,er) no percentages of mid-year populationl. sehooli-tgt ot aec,,eda- level, v-rlininicru-ti- cry fe portie1ly

enD of peo-zlati,o, onder 15 and 65 mvd aver tO or cneItiletly noccluded, ' NciciiaaiotocBiid

______________________ Pncon if papr•.aiion tinder ii aId 65 and over ' Lt . a - L - -'which oporsto indcpender.t7.y

-g- group of15-66 peac,san on dep,artments ofoeo--ory inoiie-uti-o.

-i u-' -fcanlati,ve tnuzer of I titraf ae( - it,erate odulta3 (able, In road -nrc8

waite) as

- - -- 'ro - '-t~-cocoonof national family -eieia0TTF iPo ltc Pac,Itiiou aged 15 ye-arn nd near

rlnonrogprogram no-to i--eptiona.I - n)-Percen etiof married Holseing.

- F""T""""". -."7"'wba use hirti-ovotrol decicen Pomona per roan (average) - Averageerngeunhebeofopop onso per rare .cIoccupied

en il ta,ivred cvirt to same age groor. cot,,enliognl dizoililge in cob-t ar-e-a-; d-waeliiogo e-oldo ooc"peroesoe

titraot.;roa and uioccupIed parts.acc~id daellrpo Withouat pined water ( - plscird ononentia...l dwell-

force (s 'ocarl) Mocaicelly actve pereone includinglnego in lran, ard srorl areas Wit-nut innide or outeide piped waler

arneod~ fvvoe arid unmcpln"rd trlti itcluding honiase'ioea0, ottidene, ate.; faiiiasa percentage of all occupied 6-dineige.

neneOc" no rt"ona onruotcies are cat comip-aabie. Acocens to electrnietV ( of oil dwlolitnen) - ganvotntiorial dwelli,,gs wIth

___________ Agricutsural lab,or force (Sac farniung, electricity nlvn ures0 occto ca wllg nnra

.. spercentage of ntotl labor foree. eaSd rirai artear.

v, I '1 ' t lnenplnojd are usually defined as personso Raral drallnie onaeted to electricity ( C)m-t,erptie or above for rural

I alake a job, out c-f a lob onr a giano day, se'ngoly

,e';isaed nto joban ~d reeking weorI for a specifiedi minSooco

peritid no- coeln,n weal: ray net he cnnrorahlo Potaeen contr.riesP. 2pppi~ on

dite te different dfnittiion ef uinemployed and sain-ce of dote, e.g., Pi&i'6"r71aers (Der thn ep -Al typan of o-ecelea fec radio l-in -

enopioy-teo efine. satltOo otle 5t50"veysn caliplsoBry uoeroploymenoc carts i.e genorel pnholc pethounand of popelatiot; ex-ciodes en-

Insurance. licenoed receivers do countries and ir years When cegirat-tie of

radi- noe- -can An effect; data for recent poears nay rot he cnopjarrale

Tncane, Adenrlcib on - Pernontoge of private intone (benD in cash and ainer moot neentrieo abolished lice-nIng.

kiod) roe-v-d by 5llol.0, riOeseo 20%n poorest 20%, and poorent Pasoeneer oars (per thou nap) - Peanmiger earn eopreiae onion' cars reat-

LOA of nalotint - lug~~~~~~~~~~~~~~~~~~ l_ean tha elgIt. parrerm; excladoaedalace hoenscoe d

Di strjl,~~~.- Flmio entegn. ofln .e y~tEliecriciety (Iw/pe r cap) - Annual consoup,ilon of inid-itrial, eaoner-

-7._~~~~ 7 `-1-d cune'n. ~~~~~~~~clol, p"olcIS and private electricity in, kilowatt hears per capitalgeoearlly' based ono nrodiction done, withouat allowanoe for lasses in

ealt,h cad I1tnjiritiot grids lot allowing for imports anid exports of electricity.

Pa-.-I'' -- 1 opalation divided ire number of practticiong llewBpnrint (khe/vr par capl - Per capita annuital oorsraoption lot keilogroos

- C 'i: - - - ti ~~~endina1 school at arlvamsity- level. eatiboetd from donestic orodueeion pluis neel tepor-tn of newsrprint.

ANNEX IPage 3 of 4 pages

ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN FY1972 ANNUAL RATE OF GROWTH (%, constant prices)

US$ Mln. , 1960 -65 1965 -70 1972

GNP at Market Prices 2,143.4 100.0Gross Domestic Investment 218.6 10.2Gross National Saving 179.5 8.4Current Account Balance -39.1 -1.8Exports of Goods, NFS 361.3 16.9Imports of Goods, NFS 385.4 18.0

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1972

Value Addedl/ Labor Force V. A. Per WorkerUS$ Mln. % _Mn us $

Agriculture 693.3 38.2Industry 273.4 15.0Services 849.4 46.8Una4located

I Total/Average 1,816.1 100.0 .. 100 .. 100

GOVERNMENT FINANCEGeneral Government Central Government

Mln. %ofG of GDP ( Mln.) % of GDP2/197 197 196 -7 1974 1972 1970- 72

Current Receipts *- *- *- 210.3 21.8 23.3Current Expenditure *- *_ 190.5 21.5 22.4Current Surplus *- *- *- 19.8 0.3 0.9Capital Expenditures3/ 50.7 4.0 403External Assistance (net) 26.6 1.4 1.1

MONEY, CREDIT and PRICES Fyl969 FY1970 Fy1971 FY1972 FY1973 FY1974(Million LSioutstanding end period)

Money and Quasi Money 110.2 123.1 130.6 158.3 196.6 258.7Bank credit to Public Sector 62.6 90.1 112.2 139.6 152.6 196.5Bank Credit to Private Sector 74.0 79.0 83.9 98.9 113.9 141.9

(Percentages or Index Numbers)

Money and Quasi Money as % of .DP 17.2 21.1 20.8 18.7General Price Index (1963 = 100) .. ..

Annual percentage changes insGeneral Price Index .. .. ..

Bank credit to Public Sector 53.1 43.9 24.5 24.4 9.3 28.8Bank credit to Private Sector 4.6 6.8 6.2 17.9 15.2 24.6

NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the periodcovered, which was unchanged throughout at LS1=US$2.872

1/ At factor cost2/ At market prices3! Expenditures from Development Budget (includes come capital expenditures by other public entities).

not availablenot applicable

ANNEX I

Page L of h pages

TRADE PAYMENTS AND CAPITAL FLOWS

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1972-74)

1972 1973 1974 US $ Mln %

(Millions US $)

Exports of Goods, NFS 289.7 393.2 351.8 Cotton 191.8 53.2

Imports of Goods, NFS 325.2 344.7 560.8 Gum Arabic 29.5 8.2

Resource Gap (deficit = -) -355 48.5 -209.O Groundnuts 34.0 9.5

Sesame 30.3 8.4

Interest Payments (net) -14.5 -12.5 -20.8

Workers' Remittances - - -

Other Factor Payments (net) -1.2 -16.0 -29.0

Net Transfers 6.2 1.9 0.4 All other commodities 75.1 20.8

Balance on Current Account -45.0 _79T -257.8 Total 360.7 10Q.0

Direct Foreign Investment 0.3 - 3.8 EXTERNAL DEBT, DECEMBER 31, 1975

Net MLT Borrowing

Disbursements 47.7 62.9 314.2 US $ Mln

Amortization 34.9 47.3 72.2

Subtotal 12.8 15.6 242.0 Public Debt, incl. guaranteed 980.0

Capital Grants - - - Non-Guaranteed Private Debt

Other Capital (net) 31.4 -17.1 16.1 Total outstanding & Disbursed

OthWr items n.e.i 14.8 -39.9 7.7 1/

Increase in Reserves (+) -14.3 +19.5 -10.8 DEBT SERVICE RATIO for 1974-

Gross Reserves (end year) 30,9 52,8 106.6

Net Reserves (end year) -111.5 -92.0 -102.8 Public Debt. incl. guaranteed 26.4

Non-Guaranteed Private Debt

Fuel and Related Materials Total outstanding & Disbursed

Imports 18.0 26.3 87.3

of which: Petroleum 17.9 22.7 78.6

Exports 2.6 3.1 n.a.

of which: Petroleum 2.6 3.1 n.a. IBRD/IDA LENDING, (latest month) (Million US $):2/

IBRD IDA

RATE OF EXCHANGE -_-

Outstanding & Disbursed 72.7 44.9

Throuph - 1974 Undisbursed - 141.5

US $ 1.00 = LS 0.348 Outstanding incl. Undisbursed 72.7 186.4

1.00 = US $2.872

Since March 1972 Effective Rate of Exchange Ls. 1.00 - US$2.50 for all transactions except for the proceeds from

cotton and gum exports which are converted at the official rate.

1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services

5/ On April 30, 1976.

not available

not applicable

June 1, 1976

ANNEX IIPage 1

A. STATEMENT OF BANK LOANS AND IDA CREDITS - SUDAN (as of April 30, 1976)

Amount (US$ Million)Undis-

Credit No.. Year Borrower Purpose Bank IDA bursed

Six Loans and one Credit fully disbursed: 127.2 14.9

Credit 122 1968 Sudan Education I 8.5 5.1Credit 311 1972 Sudan Mechanized Farming II 11.3 7.7Credit 331 1972 Sudan Highways I 7.0 2.2Credit 364 1973 Sudan Rahad Irrigation 42.0 33.4Credit 364-2 1975 Sudan Rahad (Supplement) 20.0 20.0Credit 447 1973 Sudan Industriai Bank of Sudan I 4.0 0.6Credit 457 1974 Sudan Railways III 24.0 19.7Credit 476 1974 Sudan Agricultural Rehabilitation

Project 1O.P- 9.3Credit 547 1975 Sudan Education II 10.0 10.0Credit 564 1975 Sudan Power II 23.0 22.5Credit 589 1975 Sudan Industrial Bank of Sudan II 7.0 7.0Credit 614 1976 Sudan Technical Assistance 4.0 4.0

186.4 141.5

Total -

Of which has been repaid 54.5 1.6Total now outstanding 72.7 184.8

Amount sold 5.8Of which has been repaid 5.8

Total now held by Bank and IDA /b 72.7 184.8

Total Undisbursed - 141.5 141.5

B. STATEMENT OF IFC INVESTMENTS (as of April 30, 1976)

Type of (Amount in US$ Million)Year Obligor Business Loan Equity Total

1964 and Khartoum Spinning & Weaving Co. Textiles 1.87 0.34 2.211972

1976 Cotton Textile Mills 8.71 1.26 9.97

Total gross commitments 10.58 1.60 12.18

Less cancellations, terminations,repayments and sales 1.67 0.07 1.74

Total commitments now held by IFC 8.91 1.53 10.44Total Undisbursed 4.71 1.03 5.74

/a Includes grant participation of $5.35 million, of which $4.4 million isundisbursed.

lb Prior to exchange adjustments.

ANNEX IIPage 2

C. PROJECTS IN EXECUTION -/

The Bank and IDA have so far made six loans and thirteen credits tothe Sudan. Disbursements are either in progress or expected to commence for

the following projects.

Credit No. 122 First Education Project; US$8.5 million Credit of June 24,1968; Effective Da_e: January 4, 1969; Closing Date: December 31, 1976.

Major elements of the project are about 36 months behind schedule.Delays have been caused by belated appointment of consultant architects,difficulties in establishing project implementation procedures, weaknessesin management, excessively high quotations received for construction itemsnecessitating re-tendering of certain project components, difficulties inobtaining deliveries of materials, and late arrival of technical assistancepersonnel. Work is now proceeding more satisfactorily although supply short-ages continue to interrupt construction. Disbursements have picked up andare now going more smoothly. Sliglht cost overruns will be met by the Gov-ernment. Extension of the Closing Date is likely. We are continuing tomonitor the project closely.

Credit No. 311 Second Mechanized Farming Project; US$11.25 Million Credit ofJune 12, 1972; Effective Date: April 24, 1973; Closing Date: December 31, 1978.

The first mechanized farming project (Loan 556-SU) to establishabout 140 farms of 1,000 feddans each (1 feddan - 1.038 acres) was completedin July 1971, one year ahead of schedule and with substantial savings.Encouraged by this success, the area of the original project was extendedby 75,000 feddans and a second mechanized farming project covering a further420,000 feddans was approved for which Credit 311-SU was signed on June 12,1972. Implementation is going well, after some initial delays. Land clear-

ing and area under production are ahead of schedule and cooperation of otheragencies involved in the project, especially agricultural research, roadconstruction and water supplies has greatly improved, although progress onroad improvements and construction of a training centre are still behindschedule. Feasibility studies for further expansion of mechanized farminghave identified a large area for possible development in the southwest ofthe country. Disb rsements are picking up and should grow quite rapidlynow.

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

ANNEX IIPage 3

Credit No. 331 Highway Project; US$7.0 Million Credit of September 29, 1972;Effective Date: December 29, 1972; Closing Date: December 31, 1976.

The project comprises assistance to the Roads and Bridges Corpora-tion in improving its organization, in preparing a highway betterment andmaintenance program and purchases of related equipment, spares and materials.Also included are feasibility studies of about 500 km of roads followed bydetailed engineering of about 350 km and technical assistance to the Minisir-,of Transport in trar,Mort planning and training of RBPC staff, The project 13progressing satisfactorily on the whole. Although the consultants reportswere delayed, implementation of some of the recommendations is under way andfollowing the award of contracts for equipment and spare parts, disbursementsshould be rapid now. The consultants have completed work on the feasibilitystudies of 600 km of roads and detailed engineering of 480 km of roads hasbeen commissioned. These studies are likely to form the basis for a secondhighway project in the future.

Credit No. 364 and 364a Rahad Irrigation Project; US$62 Million Credit ofMarch 30, 1973 and June 30, 1975; Effective Dates: August 29, 1973 andNovember 17, 1975; Closing Date: June 30, 1980.

The project will irrigate an area of about 300,000 acres which arenow sparsely populated semi-desert on the East Bank of the Rahad River. Itwill use water pumped from the Blue Nile and will include the constructionof irrigation supply, distribution and drainage works, the provision of agri-cultural processing equipment, storage facilities, and the settlement of about14,000 tenant families (about 70,000 people) with all the necessary infra-structure and supporting services. The Kuwait Fund and USAID participatedin the initial financing of this project by providing a loan of US$11 millioneach. Although work got off to a slow start in 1974, there has been goodprogress in earth-moving, design work and procurement of equipment in 1975.The new management structure for the project is a distinct improvement.Significant cost increases, stemming from various causes occurred and anincrease in the IDA credit of $20 million to $62 million was approved bythe Executive Directors on June 26, 1975. The remaining increase of $81.5in the foreign exchange cost will be financed by the Kuwait Fund ($39 mil-lion), the Saudi Fund for Development ($28 million) and the Arab Fund ($14.5million). The Government will meet the increased local cost of the project,totalling $80 million. Progress during the current construction season hasbeen satisfactory ±n most respects, but the schedule is demanding and delayscould occur.

Credit No. 447 First Industrial Bank of Sudan Project; US$4 Miillion Creditof December 14, 1973; Effective Date: March 15, 1974; Closing Date:December 31, 1977.

The project was designed to help the Industrial Bank of Sudanto function more effectively in financing industrial development in theprivate and public sectors in the Sudan. The Credit was expected to meet

ANNEX IIPage 4

IBS' requirements of foreign exchange for the two-year period through 1975,

but business expanded rapidly and the Association had already approved sub-

projects exceeding US$3.8 million by early 1975. Disbursements are expected

to be completed in 1976.

Credit No. 457 Third Railways Project; US$24 Million Credit of January 31, 1974;

Effective Date: July 29, 1974; Closing Date: June 30, 1977.

The project is intended to help improve the Railways' operational

standards and proviue the capacity needed to meet expanding demand on the

trunk routes. It also recognizes the need to develop complementary trans-

port modes and includes components to assist river transport, port development

and civil aviation. Contracts for supply of much of the equipment under the

credit have been awarded and disbursements are now expected to be rapid.

Useful discussions have recently been held with Sudan Railways about means to

upgrade the standard of operations, which is an important element of this

project, and a fourth Railway project is under consideration.

Credit No. 476 Southern Region Agricultural Rehabilitation Project; US$10.7

Million Credit of June 5, 1974; Effective Date: September 6, 1974; Closing

Date: December 31, 1979.

The project, which forms part of a larger rehabilitation program,

aims at intensifying food production by (i) providing improved seed to farmers,

(ii) expanding extension services (iii) establishing a center for nutrition

research, and (iv) improving animal health and livestock production through a

program of vaccination, marketing and research. The project also aims at

rehabilitating the cotton and coffee growing industry, and establishing the

nucleus of a small-farmer dairy industry. Research, credit and technical

assistance, including staff for a Project Development Unit in the M-linistry of

Agriculture to implement the project, are also included. Some key staff mem-

bers have been appointed and work on recruiting further staff and providing

housing for them is well advanced. Seed trials and seed multiplication are

under way. Coffee planting is ahead of schedule. The associated cattle

vaccination campaign, financed largely by Germany, is under way. A slow

start to this project was expected. Good progress has been made in over-

coming the difficulties faced in recruiting and housing staff for the

project, and the project is going ahead much better now. The Government

of Norway has recently taken a participation in this credit amounting to

US$5.35 million.

Credit No. 547 Second Education Project; US$10.0 Million Credit of May 1975

Effective Date: September 30, 1975; Closing Date: June 30, 1982.

The project will help meet priority education needs, principally

in Southern Sudan. It provides among other things for development of a new

type of school, the Integrated Rural Education Centre, for curriculum develop-

ment for schooling in the rural context and will support an education sector

ANNEX IIPage 5

survey. Good progress has been made on the design work and in site selection

and the education sector survey has got off to a good start.

Credit No. 546 Second Power Project; US$23.0 Million Credit of June 25, 1975

Effective Date: October 29, 1975; Closing Date: December 31, 1979.

The project consists of the fourth unit at the Roseires hydro-

electric station, 20 MW of diesel generator capacity, transmission and dis-

tribution lines and a variety of managerial and technical studies and ser-

vices. Implementaiton of the generation and transmission features of the

project is proceeding generally on schedule. Bids have been received for

most of the main components and these indicate that there may be a 25% cost

overrun. PEWC is currently revising cost estimates arid considering alterna-

tives to meet the situation. Management of PEWC is suffering pending reor-

ganization, which has just commenced with Council of Ministers approval of

a new structure in November 1975 and appointment of new department heads.

Given improvement in collection (accounts receivable stood at the equivalent

of 9 months sales in June 1975), the recent increase of 45% in electricity

tariffs and 60% in water tariffs should improve PEWC's financial performance.

Credit No. 589 Second Industrial Bank of Sudan Project; US$7.0 Million Credit

of November 11, 1975; Effective Date: April 14, 1976; Closing Date:

December 31, 1979.

The project will continue IDA's support for this development fi-

nance company, and will provide foreign exchange for small and medium sized

industries. Together with foreign exchange made available by the Kuwait

Fund and the Government of Germany, the credit is expected to meet the

foreign exchange needs of the Indu-trial Bank up to mid-1977.

Credit No. 614 Technical Assistance Project; US$4.0 Million Credit of

April 7, 1976; Not Yet Effective; Closing Date: December 31, 1979.

The credit will finance preparation studies of high priority

projects, to facilitate Sudan's public investment. The credit is not yet

effective.

ANNEX IIIPage 1

SUDAN - Domestic Aviation ProjectLoan, Credit and Project Summary

Borrower: The Democratic Republic of the Sudan.

Beneficiary: Civil Aviation Department.

Amount: A loan of US$20.0 million equivalent in variouscurrencies. A credit of US$9.0 million equivalent.

Terms: The loan would be for 25 years, with 7 years grace at4.85 percent interest. The credit would be on standardIDA terms.

ProjectDescription: Construction of two new airports, improvement of two

airports, purchase and installation of communications,navigational and maintenance equipment, and technicalassistance and training for the Civil Aviation Department.

Cost andFinancing: The project cost would be $86.2 million, excluding

taxes and duties. The foreign exchange cost would be$65.0 million, 75 percent of project cost. Contin-gencies amount to 39 percent of the total cost.

The cost breakdown by airport is as follows:

US$ MillionLocal Foreign Total

Juba 2.5 8.2 10.7Wau 2.8 9.2 12.0Malakal 4.5 9.3 13.8Port Sudan 2.3 11.4 13.7

12.1 38.1 50.2Physical Contingencies 1.2 3.8 5.0Price Contingencies 5.5 17.0 22.5Risk Contingency 1.5 4.1 5.6

20.3 63.0 83.3

Other items 0.9 2.0 2.9

TOTAL 21.2 65.0 86.2

The proposed loan and credit would finance most of the foreign exchangecost of Wau and Malakal airports and the cost of other items (maintenanceequipment and design, supervision and accountancy consultants).

ANNEX IIIPage 2

EstimatedDisbursements: (US$ million)

Year ending June 30 Sept. 301977 1978 1979 1980 1981 1981

0.7 3.0 12.0 25.5 26.5 29.0

ProcurementArrangements: Contracts financed under the loan and credit for

civil works and for provision and installation ofequipment would be awarded through internationalcompetitive bidding in accordance with the BankGroup's "Guidelines for Procurement." Interestedcontractors would be subject to pre-qualification.Qualified domestic contractors would receive 7-1/2percent preference.

TechnicalAssistance: The project would finance technical assistance and

training of CAD staff, especially in constructionand maintenance supervision, in economic and commercialfields, and in accountancy.

Rate of Return: Excluding passenger time savings, the estimated economicreturn for the total project would be 18%. For thethree southern airports the return would be 15%; forPort Sudan 22%; for airport lighting and navigationalaids 16%.

Appraisal Report: Report No.: 1029a-SU, dated June 3, 1976.