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Document of

The World Bank FILE COPYFOR OFFICIAL USE ONLY

Report No. 1266-SE

STAFF PROJECT REPORT

PETITE COTE TOURISM PROJECT

SENEGAL

April 12, 1977

Tourism Projects Department

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

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SE 'EGAL


FISCAL YEAR

Republic of Senegal: July 1 - June 30SAPCO: January 1 - December 31

CURRENCY EQUIVALENTS

Currency Unit: FrancUS$1.00 = CFAF 245

CFAF 1.00 = US$.004

WEIGHTS A1iD MEASURES EQUIVALENTS

1 meter (m) = 3.28 feet (ft)1 square meter (m2) = 10.76 square feet (sq ft)1 cubic meter (m3) 35.29 c.ubic feet (cu ft)1 millimeter (mm) = 0.04 inches (in)1 hectare (ha) = 2.47 acres (ac)1 kilometer (km) = 0.62 miles (mi)

ABBREVJIATIONS AND ACRONYMS

DGT Délégation Géné.rale au TourismeDUH Direction de l'Urbanisme et de l'HabitatMDRH Minist-re du Deéveloppement Rural et de

l'HydrauliqueMTPUT Ministère des Travaux Publics, de l'Urbanisme

et des TransportsOPT Office des Postes et TélécommunicationsSAPCO Socie'të d'Amenagement de la Petite CoteSENELEC Société; Se'négalaise de Distribution d'Energie

ElectriqueSOFISEDIT Société Financiere Sénégalaise pour le

Developpement de l'Industrie et du TourismeSONEES Sociéteé Nationale d'Exploitation des Eaux du

Sénegal

FOR OFFICIAL USE ONLY

STAFF PROJECT REPORT


SENEGAL

Table of Contents

Page No.

INTRODUCTION AND SUMMARY ..................................... i-xvi

I. THE TOURISM SECTOR ........................................... 1

II. THE PROJECT .................................................. 5

A. Project Background ................................... 5B. Project Description ................................... 8

III. IMPLEMENTATION ............................................... 13

A. Sali Portudal Development ............................ 13B. M'Bour Telephone Exchange ............................ 16C. Gorée Renovation ..................................... 16D. Technical Assistance and Studies ..................... 18

IV. COST ESTIMATES AND FINANCING ................................. 18

A. Project Costs ........................................ 18B. Financing and Lending Arrangements ................... 23C. Procurement ..........................................- 23D. Disbursements ......... ............................... 25

V. ACCOMMODATION AND MARKET PROSPECTS ............................ 26

A. Accommodation Development ............................ 26B. Market Prospects ..................................... 28

VI. FINANCIAL ASPECTS ......................-. 31

A. Income Statement of the Pilot Hotel .................. 32B. Financial Analysis of SAPCO .......................... 36C. Income Statement for the Water and Sewerage 42

5CCmLl,,nrents ................................... 42

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

TABLE OF CONTENTS (Continued)Page No.

VII. ECONOMIC JUSTIFICATION ........................................ 44

A. Benefits of Tourist Activities ........................ 44B. Distribution of Project Benefits ....................... 50C. Balanice of Payments .................................... 51D. Employment Effects .......................-.--. 52

VIII. SOCIAL IMPACT .................................................. 53

IX- AGREEMENTS REACHED AND RECOMMENDATION ........................ 54

APPENDIX - Related Documents and Data Available in the Project Files

MAPS

IBRD 12033IBRD 12034

This report is based on the f indings of an appraisal mission consisting ofMessrs. Bauer, Brizzi, BenbraLhim and Coe and Kuskowski (consultants).

SENEGAL


INTRODUCTION AND SUMMARY

THE TOURISM SECTOR

'. Senegal's tourism assets include a pleasant climate for most ofthe year, particularly during the European winter; attractive beaches on theAtlantic Ocean south of the Cap Vert peninsula; well preserved monumentsfrom its colonial past at the town of St. Louis, as well as on the island ofGoree in Dakar harbor which from the 17th century was a center of slavetrade from West Africa to the Americas; an interesting cultural life in thecapital city of Dakar; colorful national parks; and a rich folklore. Withits excellent international airport at Dakar (recently modernized under aBank-financed project), and strategic location on the Europe-North Africa-Anerica air routes, the country has begun to realize the possibilities forgrowth in the sector. Nevertheless, the multi-faceted tourism potentialreinains largely untapped.

2. Prior to 1973, hotel capacity was concentrated in the Dakar area andother urban centers, and accommodation (totalling about 1,400 beds) consistedchiefly of small establishments catering almost exclusively to businesstraffic. Since then, however, in response to vigorous Government policies todevelop facilities for vacation tourism, hotel capacity tripled over 1973-75;two-thirds of the additional capacity was in large hotels in Dakar, with theremainder in vacation villages on the Petite Cote and Casamance beach areas tothe south. Most of the hotels are of high standard, and luxury establishmentsaccount for over half of total capacity.

3. About one-half of the new hotel capacity added since 1973 hasbeen f inanced by the Government, and the remainder about equally by localand foreign private investors. Privately-owned hotels have been financedby short- and medium-term Ioans which were readily available from localcommercial banks, and long-term credit from abroad. The supply of long- andmedium-term hotel credit is improving following the establishment in late1974 of the Societe Financiere Senegalaise pour le Developpement de l'Indus-trie et du Tourisme (SOFISEDIT) with Bank Group support (Loan 987-SE, US$3million). Larger hotel construction projects can also obtain long-term fundslocally from the newly established alfiliate of Citibank (US) and from theBanque Senegalo-Koweitienne, though on terms slightly less attractive thanthose o'L- SOFISEDIT. Additionally, following changes in the regulations ofthe West African Central Bank in January 1976, medium-term funds for projectsin priority sectors (including tourism) are now available from local commer-cial banks using the Central Bank's rediscounting facilities.

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4. Concurrent with the expansion and diversification of hotel capa-city, visitor arrivals more than doubled and registered bed-nights almosttripled over the period 1972-75. Almost three-quarters of total arrivals(about 129,000 iri 1975) come from Western European countries, and a Largeproportion belong to higher-income segments of the population. While anincreasing number of visitors are attracted by the country's climate, culture,and wildlife, business stiLl remains a major motivation for travel to Senegal.Because of the continuing importance of business travel, traffic shows littleseasonal fluctuat:ion.

5. It is significant that tourist arrivals in Senegal increased14% in 1975 compared with a 3% decrease worldwide. Arrivals are projected tocontinue increasing by 6% annually, a forecast which is considered reasonablein relation to past growth trends for world tourism (7% per year from 1965-75),for tourism in all of Africa (11% per year from 1966-75), and in Wesit Africa(16% per year from 1972-75). Like most French-speaking countries in WestAfrica, however, Senegal is a relatively high-priced destination which dependslargely on the French market (almost 40% of total arrivals); but at presentonly charter flights from ',witzerland and Germany are allowed on a regularbasis. In an attempt to diversify the tourist market and enhance pricecompetitiveness, the Government has agreed to follow as liberal a policy aspossible within the limitat-ions of its existing international agreements onair transport, so as to permit before June 30, 1980, air charter traiEfic toDakar to the extent needed by f ull-scale operations at the site of the proposedproject at Sali Portudal.

6. The rapid growth in visitor arrivals during 1972-75 is reflectedin increased gross foreign exchange receipts from tourism which more thantripled over the period, reaching in 1975 CFAF 6 billion (US$26 milliLon),equivalent to about 6% of the country's foreign exchange earnings fromcommodity exports in that year; present forecasts indicate that by 1980 thisproportion would increase to almost 10%. Tourism is now Senegal's thirdsource of foreign exchange, after groundnuts and phosphates. Net foreignexchange revenues from tourism are estimated at about 60-65% of grossreceipts. About 2,800 Senegalese are employed directly in the hotel industry;a further 5,500 jobs indirectly attributable to the tourism sector irnvolvethe production and sale of handicrafts, as well as services in agriculture,construction, and transport.

7. Tourism is one of the few modern sectors in which a country likeSenegai with relatively few natural resources can hope to expand in thefuture. The Government has however only recently started to give consider-ation to the potential 'benelFits of tourism, and the 1973-77 Five-Year Plan;o -½ ;:.eirst ti.me accorded aigh priority to Qeve'lopment of the sector.i'ian f Iestations of ,hi s new priority included: (i) active Government parti-.pation in hinancing hotel construction; (ii) the creation in 1971 of aspeciai agency, tne Delegation Generale au Tourisme (DGT) reporting directlyto che Prime Minister, to be responsible for planning, promotion, and train-ing in the sector; and (iii) restructuring of the Investment Code in 1972to provide a number of incentives which may be granted to investors in all

sectors (e.g. exemptions from customs duties and taxes), and special incen-tives available to hotel investors in certain circumstances (e.g. exemptionsfrom income taxes up to eight years and from sales taxes up to five years;use of Goverament land at no cost; power and water at preferential rates; andGovernment participation in infrastructure financing). In practice, however,incentives have been granted sparingly. While investors usually obtainmost forms of fiscal relief, no other incentive specific to private tourisminvestment has ever been granted.

8. Although primarily as a result of the above measures tourismdevelopment has been rapid, the growth has been somewhat haphazard, and theGovernment is now committed to strengthening management of the sector.Under the proposed project, an Economic Analysis and Planning Unit will beestablished within DGT to carry out in-depth analyses of projects for whichincentives are sought, and the Government will then limit its incentives tothose projects which have been recommended by the Unit as being economically,financially, and technically viable. The Governnent also plans to increaseDGT's budget allocation for overseas promotion, and the proposed projectprovides for preparation and implementation, in consultation with the Bank, ofa marketing program designed to consolidate Senegal's existing tourist marketsand to develop new ones.

9. Organization and supervision of hotel training is the responsibilityof DGT. Middle-level courses are provided at the Ecole Nationale de FormationHoteliere in Dakar which graduates about 100 students annually. This level ofoutput is inadequate to meet the staffing needs of newly constructed andplanned hotels, but improvement is expected following construction of thehotel training center under the Bank's Second Education Project which wouldprovide additional middle-level training, as well as refresher courses andseminars for management personnel. The proposed project includes provisionfor the technical assistance required to design and develop appropriatetraining programs.

10. As regards public investment in the sector, separate corporationshad been established for each of the four existing hotels and four hotelprojects in which the Government has an interest. As tourism developmentcontinues, however, the number of autonomous hotel companies has dilutedGovernment control of its investments and permitted indiscriminate investmentwhenever foreign funds are available. The Government is now committed tocoordinate its existing tourism holdings in the framework of a proposedgenerai reorganization of public sector investments, and is planning toestablish a single hotel holding company which would allow effective controland rational allocation of resources. The precise steps to be taken toimprove Government control of its existing tourism portfolio will be definedduring preparation and appraisal of a proposed technical assistance projectfor restructuring and strengthening of the para-public sector.

11. As far as the physical alternatives for tourism development inSenega'l are concerned, investors' interest is strongest in beach areas onthe Petite Cote and in Casamance, where lack of infrastructure has so far

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limited activity. The Government now proposes to develop integrated touristresorts so as to reduce the costs of providing infrastructure, as well as toavoid the environmental deterioration which would be inevitable if developmentwere haphazard. The Petite Cote is being given first priority primarilybecause of its proximity to existing infrastructure, particularly the DakarAirport, and its natural attractiveness. A master plan for the Petite Cotecompleted in 1974 identified five areas suitable for international tourismdevelopment, and proposed a land-use plan on the basis of which the presentproject has been prepared, and which can also serve as a master plan forfurther development.

THE PROJECT

Background

12. In 1973, the Senegalese Government requested Bank assistance to helpfinance infrastructure for the development of tourism on the Petite Cote;in December 1974, the Sali Portudal area was selected as the site for afirst project. The related feasibility study was carried out by consultantsLouis Berger International with financing from the United Nations Develop-ment Programme (UNDP) and with the Bank as executing agency. In August 1975,the Government established the Societe Nationale d'Amenagement de la PetiteCote (SAPCO), a mixed company (owned 90% by the Government and 10% bySOFISEDIT) for the purpose of preparing and implementing tourism projectson the Petite Cote.

13. The Pet.ite Cote is a beach area dotted with picturesque fis'hingvillages stretching over 100 km south of Dakar. The major town is M'Bour, atrading and fishirig center of about 30,000 inhabitants, located about 80 kmfrom Dakar. The area enjoys a mild semi-tropical climate, with warm days andcool nights during most of the year. The surf is mild, and swimming ,conditionsare generally excellent, although the water is relatively cool in the latewinter months. The coastal waters provide good opportunities for deep-seafishing.

14. Two vacation villages already established in the Petite Cotesarea have been successful and achieved high occupancy rates. The consultants'study recommended that tourism development continue with a site along thebeach near the village of Sali Portudal, about 4 km north of M'Bour. Thephysical characteristics of the site and its proximity to M'Bour and toexisting infrastructure make it a logical first phase for the long-termdevelopment program of the Petite Cote. The development plan for the resortproposes two hotel zones, of about 2,500 beds each, on either side of thevillage of Sali Portudal. The hoteis are centered in a landscaped areawhere administration, commercial, recreational and sports facilities wouldaiso be located. An area would be reserved for extension of the villagewnere some hotel employees would live. The proposed project will provideinfrastructure for development of the first hotel zone and for the village

extension. The decision to develop the second zone will be taken only afterdevelopment of the first zone has proved the market, and additional financinghas been obtained. Development of *he entire Sali Portudal area will be basedon a land-use plan (plan d'amenagement) now being considered by the Senegaleseauthorities; enactment of this plan is a ccndition of effectiveness of theproposed Loan.

15. The Sali land will be made available to the Government by SAPCO, andthen leased - except for the village site - to SAPCO under a "conventiongenerale", the terms and conditions of which have been discussed and agreed inprinciple with the Bank. The promulgation of a decree initiating proceduresfor registration of the Sali Portudal land, and signing of the "conventiongenerale" with provisions satisfactory to the Bank, are conditions of effec-tiveness of the proposed Loan. Once the land is registered, it will be leasedto SAPCO under a long-term lease; in the meantime, SAPCO will have the use ofthe land for project construction and for making it available to developers oftourism investments.

16. An important tourist attraction for which improvements are providedunder the proposed project is the small island of Goree in Dakar Bay which,since the 15th century, has been occupied successively by the Portuguese,Dutch, English, and French, and was a center for slave trade to the Americas.Goree has retained the atmosphere of an 18th century colonial town, boasts anumber of architecturally interesting buildings (including slave houses), andhas become both an invaluable historic landmark and a cultural symbol. How-ever, many of the buildings are deteriorating rapidly. A study for therenovation of Goree, sponsored by Unesco in 1975, identified a program ofworks to preserve the buildings and enhance the island's unique atmosphere.The proposed project component will contribute to the Government's ongoingprogram for preservation of Goree Island and its development as a touristsite.

Project Description

17. The proposed project consists of three major components: (i) in-frastructure and common facilities for development of the first hotel zoneat Sali Portudal, including construction of a 250 bed pilot hotel, and a newtelephone exchange at M'Bour; (ii) renovation on Goree Island; and (iii) fundsfor project administration, technical assistance, and studies.

18. The Sali Portudal component includes:

- an access road linking the project site to the Dakar-M'Bour highway, plus secondary roads and streets inthe project area, parking facilities, and publicstreet lighting;

- a sewerage system to serve the resort and the villageextension, consisting of a collection system, pumpingstation and stabilization ponds, as well as a stormwaterdrainage system;

a water supply network to pump water from two bore-holes to the resort and four villages nearby;

a power system linked to M'Bour to supply the resort andthe village of SaLi Portudal. A standby power systemwill provide emergency service;

a telecommunications system in the resort linked to thetelephone exchange in M'Bour;

extensive landscaping and reforestation;

a sanitary landfill for collecting and treating solid waste;

provision of common facilities including commercial, sports,and recreational facilities, and buildings for maintenance,administration (including post office, police, and first aidservices), and for the use of SAPCO staff and equipment;

construction of a 250-bed, three-star category pilot hotel,intendedl to demonstrate to the private sector the potentialfor hotel developmnent, and to set architectural and designstandards for other hotels in the Petite Cote development.

an irrigated area of 20 ha which will use theeffluent of the stabilization ponds to grow fruit andvegetables for the resort, and will provide employmentfor about 40 fami]Lies;

- a new 500-line te]Lephone exchange at M'Bour.

The Goree component includes:

- upgrading the street system and public areas;

- rehabilitation of the harbor to accommodate 10-15pleasure boats filtted for deep-sea fishing;

- extension and renovation of the Goverrment-ownedHotel Relais de l"Espadon.

The proposed Loans also provide funds for:

- project administration, to cover the foreign exchangecost of personnel, equipment, and materials required forSAPCO's operations during project implementation; andto help SAPCO finance a campaign for promotion of hotelinvestments;

- technica!l assistance to support DGT in establishmentof the proposed Economic Analysis and Planning Unit,includin,g funds for four fellowships to allow overseas

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training of counterpart staff; to help prepare andimplement a marketing program for the entire country,including proposals for promnoting the Hotel Relais del'Espadon; and to design and develop appropriate trainirgprograms for the Hotel/Tourism Trainîng Center at Dakar,including nine fellowships for overseas training ofcounterpart staff.

- consulting services to monitor the socio-economic impactof tourism development on the Petite Cote, and to preparea second tourism project.

Project Cost Estimates and Financing

19. The total estimated cost of the project (net of taxes and dutiesand including contingencies) is US$17.3 million equivalent; foreign exchangecosts are estimated at US$12.3 million (about 71%). Cost estimates are summar-ized below:

… -- US$ Million ----- % of TotalLocal Foreign Total Expenditure

Sali PortudalInfrastructure 1,213.2 3,611.3 4,824.5 27.8

Common Facilities 420.0 845.9 1,265.9 7.2

Pilot Hotel 893.3 1,902.9 2,796.2 16.2

Irrigated Area 40.0 110.8 150.8 0.9

M'Bour Telephone Exchange 101.8 238.0 339.8 2.1

Goree Renovation 586.8 933.0 1,519.8 8.7

Project Administration 206.9 297.5 504.4 2.9

Technical Assistance & Studies 163.3 1,160.0 1,323.3 7.6

Base Line Cost 3,625.3 9,099.4 12,724.7 72.3

ContingenciesPhysïcal 314.2 692.6 1,005.8 5.8Prices 1,088.2 2,536.5 3,624.7 20.9

1,401.4 3,229.1 4,630.5 26.7

TOTAL PROJECT COST 5,026.7 12,328.5 17,355.2 100.0

20. Tne above costs are derived from consultants' estimates (adjustedto account for price changes since June 1975) and revised by the appraisalmission. Physical contingencies averaging 10% have been allowed for civil

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works and equipment in Sali Portudal, since most of the cost estimates arebased on advanced engineering; physical contingencies for the Goree workshave been assumed at 15% sirLce it is more difficult to give precise es;timatesfor renovation. Price contingencies have been applied at an average of12-13% annually for civil works, and 8-9% annually for equipment. Costsfor consulting and technical assistance services totalling about 50 man-yearshave been estimated at an average of approximately US$5,500 per man-month.

21. The proposed Loans will finance the foreign exchange cost of theproject (US$12.3 million) as well as estimated interest during construction(US$1.3 million); provision for the latter has been included because SAPCOmill not begin earning substantial revenues' until about three years aftercompletion of the infrastruc:ture works. The Loans also include US$300,000 inretroactive financing to coNrer foreign costs of SAPCO's expatriate staff afterFebruary 1, 1976, as well as of detailed planning and engineering studies andsome preliminary infrastructure (e.g. a borehole and landscaping) expected tobe undertaken before signing. The estimated foreign exchange costs requiredto continue the above works and services until the expected date of Loaneffectiveness (October 1977) will be financed by an advance from the ProjectPreparation Facility of up to $300,000. The Governmnent will finance all localcosts.

22. The Loans will be made to the Senegalese Government. Funds ear-marked for the Sali Portudal infrastructure, (except for the water ancdsewerage component, para 35), common facilities, pilot hotel, and projectadministration (US$8.2 milliLon) will be re-lent to SAPCO on the same t:erms asthe conventional Bank Loan tnder a subsidiary Loan Agreement between SAPCOand the Government satisfactory to the Bank; the Government will bear theforeign exchange risk. Signing of this agreement, the provisions of whichhave been discussed and agreed with the Bank, will be a condition of Loaneffectiveness. The remainder of SAPCO's financing will be provided b, anequity contribution of CFAF 350 million and a complementary subordinatedGovernment loan of CFAF 600 million. A condition of Loan effectiveness is theincrease of SAPCO's subscribed equity by CFAF 350 million, and the paying inof the first installment of CFAF 87.5 million. Further installments will bepaid in successive years according to an agreed time-table.

23. Since the investment in replacement of the M'Bour telephone exchangewill upgrade the n,ational netowrk and benefit the M'Bour region in general,the financial responsibility for this component of the project rests with theOffice des Postes et Telecoramunications (OPT). Funds needed for the proposedworks (US$0.3 million) will be re-lent to OPT on the same terms as the con-ventional Bank LoaLn, under a subsidiary Loan Agreement between the Governmentand OPT satisfactory to the Bank; conclusion of the agreement, the provisionsof which have beern discussed and agreed with the Bank, will be a condition ofdisbursement of funrds for this project component. OPT will finance tlhe relatedlocal costs.

Procurement and Disbursement

24. Major civil works and equipment contracts will be awarded follow-ing international competitive bidding procedures in accordance with Bank

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guidelines. In order to encourage such competitive bidding, project itemswill be grouped to the extent possible. In order to permit smaller localcontractors to tender for work of a size within their capacity and at thesame time to attract foreign bidders, civil works contracts will be tenderedeither individually or combîned into bidding grcups at the bidder's option.In evaluating international bids for purchasing equipment and some buildingmaterials, Senegalese manufacturers will be allowed a preferential margin of15% of the c.i.f. price of competing imports, or the prevailing level ofcustoms duties, whichever is lower. Civil works contracts up to US$200,000equivalent, and equipment and materials contracts up to US$50,000 equivalent,will be advertised locally and awarded in accordance with procedures forcompetitive bidding acceptable to the Bank, provided, however, that theaggregate amount of such contracts does not exceed the equivalent of US$1million. All consultants and technical assistance experts will be employed inagreement with, and under terms and conditions acceptable to the Bank.

25. The proposed Loans will be disbursed pari passu in a 6:4 ratio,and will meet the following costs: (i) 65% of total expenditures (net oftaxes) for civil works; (ii) 100% of the foreign cost of imported goods or ofthe ex-factory cost of locally produced goods procured through internationalcompetitive bidding, and 75% of the cost of other locally procured items;(iii) 100% of foreign costs of consulting and technical assistance services;and (iv) 100% of interest during construction payable on each Loan.

Project Implementation

Sali Portudal

26. SAPCO will have primary responsibility for implementing the SaliPortudal works. SAPCO is a corporation subject to commercial law, and itenjoys the flexibility needed for timely completion of the project. Allinfrastructure and building works will be carried out by contractors. SAPCOwill conduct the detailed planning studies, supervise final engineering,and coordinate the implementation of all construction work in Sali Portudal.In particular, SAPCO will implement the water component on behalf of theMinistere du Developpement Rural et de l'Hydraulique (MDRH), and the seweragecomponent on behalf of the Ministere des Travaux Publics, de l'Urbanisme,et des Transports; the conditions under which SAPCO will implement the water/sewerage component on behalf of the Governinent will be spelled out in theconvention generale. SAPCO will employ engineering consultants and architectsacceptable to the Bank and on terms and conditions satisfactory to the Bank,to prepare the final design and supervise the work at Sali Portudal. SAPCOhas agreed to prepare a critical path network of all project works by April 1,1978, and to review this network every six months in consultation and agreementwith the Bank.

27. For design and construction of the water and sewerage systems, SAPCOwill be assisted by the Societe Nationale d'Exploitation des Eaux du Senegal(SONEES); for electric power by the Societe Senegalaise d'Electricite (SENELEC);

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for telecommunications systems by OPT; and for irrigation by MDRH. Drafts ofagreements between SAPCO and each of the above agencies defining the latter'srespective financial and technical responsibilities have been discussed andagreed in principle with the Bank. A condition of Loan effectiveness will bethe signing of these agreements with provisions satisfactory to the Bîank. Oncethe above facilities are implemented, the ownership and responsibility foroperation and mairLtenance of the electricity and telecommunications componentswill be transferred at no ciDst to SENELEC and OPT respectively; SONEES willrun the water and sewerage systems which will be the property of the Government(para. 35). These agencies are all adequately organized and managed to carryout their tasks. SAPCO's management of the irrigated area will be supervisedby MDRH.

28. On completion of the Sali Portudal development, the land and commonfacilities will be leased by SAPCO to private investors at market prices(see para. 35). Leases will be subject to regulations (cahier des charges)reflecting provisions of the development plan regarding architectural andlandscaping norms, and spelling out investors' obligations on service andmaintenance standards. Approval by SAPCO of regulations incorporating theseprovisions is a condition of Loan effectiveness. The question of managementof the pilot hotel has been discussed with the Government, and several alterna-tives are possible. A condition of effectiveness of the proposed Loans is theselection of suitable management on terms and conditions satisfactory to theBank.

29. SAPCO's responsibilities will evolve over the period of projectimplementation. During the initial years, its functions will be primarilythose of a builder; on completion of the infrastructure, its commercialfunctions will become predominant, and its staffing pattern will be modifiedto reflect this shift in emphasis. SAPCO's Technical Department, will beresponsible for implementation of project works, and for the operation andmaintenance of common facilities and of components which will not be turnedover to the utility companies. The Technical Department is headed by anexperienced engineer assisted by an architect advisor, both of whom have beenappointed in consultation and agreement with the Bank. SAPCO's CommercialDepartment would gradually assume wider responsibilities in promoting andadministering the leasing of hotel sites and common faciilities. The Directorof the Commercial Department is the former team leader of the UNDP-financedfeasibility study who was sielected for this post in agreement with the Bank.All the senior staff of SAPCO are considered to have the qualifications andexperience necessary to assure efficient implementation of the proposedproject. The Government and SAPCO have agreed to consult with the Bank onany proposals to replace SAPCO's President, to change its organization, or tofill its top-level positions should they become vacant.

Other Project Components

30. Implemenitation of project items outside Sali Portudal will be theresponsibility of separate agencies as follows: (i) construction, operation,

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and maintenance of the M'Bour telephone exchange will be undertaken by OPT.(ii) the Goree works will be executed by the Direction de l'Urbanisme et del'Habitat (DUH) within the Ministere des Travaux Publics, de l'Urbanisme, etdes Transports. DUH will establish a special unit to supervise the finalstudies, issue tender documents, evaluate bids, and supervise implementationof the works. A condition of disbursing Loan funds earmarked for the Goreerenovation is the appointment to this special unit of an architect acceptableto the Bank. A condition of disbursement of funds for work on the HotelRelais de l'Espadon is Bank approval of a marketing program for the hotelwhich will be prepared by DGT under the present project as part of a largerprogram for the entire country. (iii) Technical assistance and studiesfinanced under the project (except for the investment promotion study to becarried out by SAPCO) will be the responsibility of the Delegation Generale auTourisme which will employ the necessary expert staff acceptable to and inconsultation with the Bank.

31. The entire project will take about three years to implement. Finaldesign for the infrastructure, common facilities, and the pilot hotel will becompleted by December 1977. Construction is planned to start by March 1978and be completed by June 1980.

Market Prospects for Sali Portudal Development

32. Under the planned construction schedule, the first hotel bedswill come into operation in 1978/79, and it is hoped that the full complementof 2,500 beds will be available by 1983. There is strong investor interest inthe area, and SAPCO has already received requests from both local and foreignhotel promoters. The project is expected to be attractive to investors whowill be provided with long-term leases at reasonable terms, and who can countan efficient utilities and on the availability of common facilities. In orderto help ensure an adequate supply of long-term loan funds, the Government hasagreed to make available the necessary complementary debt financing shouldfunds for hotel credit from SOFISEDIT and other national and foreign institu-tions fall short of requirements. The "convention generale" will spell outthe incentives guaranteed to investors in Sali Portudal. In order to ensurethat the development remains attractive vis-a-vis other tourism areas in thecountry, the Government has agreed (a) to suspend authorizations of new hotelinvestments on the Petite Cote outside of Sali Portudal until the plannedaccommodation build-up under the proposed project is completed; (b) not togrant hotel investors elsewhere in Senegal more favorable incentives thanthose included in the "convention generale"; and (c) to set lease rents forhotel sites elsewhere in the country at levels comparable to those in SaliPortudal.

33. To guarantee completion of the Sali Portudal development afterthe infrastructure investment has been made, the Government has provided

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ass:uranc`es: that it will take appropriate measures to ensure that sufficienthotel beds wil,i be in operation by 1985 to attain an acceptable.rate ofreturn on infrastriucture outlays, unless.the,Bank and the Government agreeotherwise because of inadequacy o,f the potential market.

Environmenta1 Impact --

34. . Development of the ,resort 'has been,designed to avoid environmentaldeterioration. -:The-naturalfeatures of the site would,.be.protected by condi-tions in,the development plan which -impose limits on the deigsity and height ofbuildings.- The proposed. reforestation of wide areas around th.esite vouldenhance:the existing landscape,and protect the-hotel sites from.prevaiiingwinds. The.resort area would be suppiied with ail infrastructure (e.g.; sewagecollection. and treatment systemi soiid wvaste collection and disposal) requiredto avoid detrimential effects of large numbers of people on the environnent.

Financial Justification

35. As-.the.developér of-the proposed tourist facilities at Sali Portudal,SAPCO will be financially responsible for the investments there.except forwater supply and sewerage systems which will be the responsibility of theGovernment. The water and sewerage component will yield,a financial rate ofreturn of at least 9% starting in FY 84; the return reflects the fact that thehotels subsidize use by the viliajgers who account for about 35% of total con-sumption. The Government has agre:ed thai::the operating agency SocieteNationale d'Exploitation:des Eaux-du,Senegal (SONEES) will set water aLndsewerage charges at levels wrhich will allow it to earn a return of 8% on netwater and sewerage proj.ect:assets in:operation starting in FY86.. The exten-sions to the power supply.and telecommunications systems will be transfered atno cost to the respective utility companies for operation, and SAPC0 willrecoup investment costs of these:components by incorporating such costs in thecharges for leasing land. SAPCO will prepare and discuss with the Bank byDecember 31, 1978 the methodology for calculating leases and service charges.For analytical purposes, iand leases are assumed at CFAF 40,000 or US$163 perbed per year, and the service charge at CFAF 250 or US$1.0 per bednight; theserates are comparable to those prevail.ing in competing destinations.

36. SAPCO's financia1.objectives will be to r.ecover its investméent costsin infrastructure.and' common ,facilities, to earn a satisfactory rate of returnon its investments, And to:maintain adequate debt service coverage. The Gov-ernment has -agreed ,that, from FY 86,,SAPCO will earn a rate of return onproperly'valued net .asse.ts i.n operation of not,less than 8% in order to havesufficient debt service and interest coverages. In fact, income projectionsshow that these objectives would be achieved by 1983 when the project"wou1d befully operationaI,;:a:t which.time the retu-rn,on-net assets,would be about 11%.Projected: balance sheets show a satisfactory.position in 1985 when it vill bepossible to start reimbursing the complementary Government loan (para. 40).

The GovernmenE has agreed that SAPCO will not pay dividends if such paymentwould reduce its working capital to less than 1.5 times its debt due thefollowing year. SAPCO has provided assurances that, in order to preserve agood financial position, it will not incur further debt without Bank approvalunless its current revenues are sufficient to cover future debt service atleast 1.5 times.

37. A detailed financial analysis was carried out for the pilot hotelwhose operations are expected to be representative of superstructure operationsat Sali Portudal. Income projections show that the pilot hotel will reach asteady gross operating profit of 23% of gross revenues after the second yearof operation. The financial rate of return on the investment in the pilothotel will be 9%. The return on equity will vary between 7.6% and 14.8%depending on whether management of the hotel is entrusted to an individual orto a company. These figures are indicative of the returns which can beexpected by investors, whose return on equity will also depend on the terms onwhich they get long-term financing. A sensitivity analysis shows that financialreturns in constant terms both on the overall investment and on equity areparticularly sensitive to changes in hotel occupancy rates and tariffs. Thusa significant decrease in either of these determinants of hotel revenues couldlead to returns unattractive to investors, a situation which might occur ifdemand did not keep pace with the proposed development of accommodationcapacity. In order to reduce the risk that this situation occurs, the Govern-ment has agreed not to grant incentives to any competing new hotel developmentwhich might jeopardize the financial viability of the proposed development inSali Portudal. As its initial task, the Economic Analysis and Planning Unitwill, in consultation with the Bank, establish the criteria that will be usedto determine whether competing projects jeopardize the viability of the Salidevelopment.

Economic Justification

38. The proposed project has been designed to provide basic infrastruc-ture and other facilities required to support a major tourism development.The investment program analyzed includes items to be financed under theproject (infrastructure, common facilities, pilot hotel, irrigation, andrenovation on Goree island), as weîl as related superstructure facilities(e.g. hotels, shops) which are expected to be developed by the privatesector to serve visitors to Sali Portudal. The total cost of the investmentpackage -s estimated at US$48.2 million in 1976 prices.

39. The gross benefits to the economy resulting from the projectwould be the expenditures of tourists attracted to the Sali Portudal resort.The project is expected to attract new beach-motivated traffic withoutdiverting cuscomers from existing hotel capacity. Consequently, the grossbenefits would be incremental to Senegal as a whole. Benefits expected tabe generated by the investment in Goree have been taken into account only tothe extent that they appear in the projected expenditures of Sali Portudalvisitors; even using this conservative approach, the proposed investment

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would yield a sati'sfactory rate of return. Nonetheless, the major justi-fication for the investment in Goree is the preservation of an area ofcultural and historical importance which plays a signiificant role in en-hancing Senegal's attractiveness as a tourist destination. Benefits asso-ciated with the irrigation component and the provision of utilities toneighboring villages are minor and have not been quantified. Given tlheextent of unemployment and underemployment existing on the Petite Cotes, theshadow wage rate of labor has been assumed at 50% of wages received by theunskilled labor force in the project hotels.

40. On the basis of an estimated 30-year life for the project, theeconomic return is expected to be almost 16%. This return is sensitive tochanges in investment costs, gross operating profits, the timing of hoteldevelopment, the level of hotel receipts, and shadow pricing of foreignexchange. A sensitivity anailysis shows that under assumptions where invest-ment costs increased by 20% or hotel development takes 15 years rather thanthe 5 years forecaLst, the economic return on the project declines to about13% which remains satisfactory.

41. The principal beneficiaries of the project are expected to be:(i) the Government, which would receive direct earnings through SAPCO, salestaxes on tourist expenditures, as well as income taxes from firms and indivi-duals engaged directly in the sector; (ii) the workers employed in tourismactivities who would benefit primarily from the higher wage levels offered inthe tourist sector; (iii) the residents of nearby villages, including peoplenot directly involved in tourism activities, who would benefit from iraprovedpublic utilities to be prov:ided as well as from the irrigation componrent; and(iv) private investors in hotels and related tourism facilities (e.g. shops,and restaurants). Distribution of the benefits directly generated by theSali Portudal development are estimated to be approximately as follows:Government (either directly or through SAPCO), 43%; hotels, 37%; other private(including common facilities in the resort area, plus other facilitiesoutside such as shops, taxis, etc), 20%.

.42. Direct employment generated by project hotels and commercia]Ltourist activities is expected to total over 1,200 by 1986 when all plannedaccommodation would be fully operational. Indirect employment in construc-tion works, handicrafts, agriculture, and other services is likely toaccount for an additional 2,000 jobs. Net incremental foreign exchangeearnings genaratad by the project are estimated at about US$15 million peryear in 1986.

43. Additionally, the project is expected tp provide major benefitsin institution-building which, although extremely important, cannot btaquantified. These benefits include: (i) a more rational development of thetourism sector through establishment of the Economic Analysis and Planning

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Unit (EAPU); (iî) improved organization and operation of existing tourisminvestments through management advice to be provided by EAPU; and (iii) theassurance of orderly development of tourism on the Petite Cote (especiallywith regard to design, layout, and environmental standards) which will be theresponsibility of SAPCO following completion of the project infrastructureworks.

Social Impact

44. The proposed project includes a number of works which are specifi-cally directed to improving living conditions of the population in the SaliPortudal area; these include free water supply for neighboring villages,sites and services for expansion of Sali Portudal, and irrigation of 20 ha ofland for cultivation of fruit and vegetables which would provide employmentopportunities for about 40 farm families.

45. The project is not expected to have any significant psychologicalor social cost. Experience derived from the operation of existing touristvillages suggests that the influx of foreign visitors would be welcomedby the Senegalese who have a reputation for hospitality and friendliness.Local workers would live in M'Bour, a spontaneously growing city, ratherthan being restricted to a 'company town'. Since M'Bour is within easyreach of the resort area (about 4 km), it is expected to provide a popularexcursion for visitors who would have an opportunity to participate in someaspects of Senegalese life. Tourism development in Sali Portudal, far fromdisrupting traditional activities in the area, is expected to improve livingopportunities for the village population by providing an expanding marketfor food and fish production. SAPCO would promote food cultivation near theproject site, and would assist local farmers and fishermen in marketingtheir products.

46. Since it is considered important that the Government be alertto any possible social problems which could arise around the resort area,the proposed project provides for the services of a sociologist who wouldmonitor the project's impact on the social fabric of the M'Bour area, andadvise DGT and SAPCO on measures required to ensure that, to the extentpossible, contacts between the local population and the tourists would bebased on understanding and mutual respect.

Project Risks

47. The project is economically justified under a wide range of assump-tions regarding the rate of accommodation buildup and tourist expenditures.However, although the proposed works have been designed to make the projectarea attractive to hotel investors, and although SAPCO will under-take stronginvestment promotion efforts, there is still a risk that investors might notbe forthcoming in the numbers expected unless they have expectations of reason-able financial returns on the Petite Cote as compared with investments else-where. Thls risk will be reduced by proposed Government measures directedtoward: (a) stimulating tourist demand; and (b) preventing hotel over-capacityin Senegal generally and on the Petite Cote in particular.

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48. As regards the former, the marketing program proposed underthe project would be aimed at consolidating existing tourist markets anddeveloping new ones; also, the Government has agreed to use its best effortsto permit the development of air charter traffic to Dakar, and this isexpected to reduce the cost of packages to Senegal and make them attractiveto larger segments of the tourist market.

49. The Government :is prepared to take appropriate measures to protectits investment in the proposed project by refusing incentives to any competingnew hotel development which might jeopardize the financial viability of theinvestment in Sali Portud;al; by not granting to hotel investors elsewhere inSenegal incentives which are any more favorable than those offered for SaliPortudal; by not: authorizing new hotel investment on the Petite Cote outsideof Sali Portudal until the planned accommodation build-up under the proposedproject is completed; and by setting lease rents for hotel sites elsewhere inthe country at levels comjparable to those in Sali Portudal.

I. THE TOURISM SECTOR

1.01 Within five-seven hours' flight range from Europe and NorthAmerica, Senegal's tourism assets include a pleasant climate mosi- of theyear, particularly during winter; attractive beaches on the Atlantic southof the Cap Vert peninsula; well-preserved monuments from its colonial pastin Gorée and St. Louis; Dakar, a fascinating capital with an active cul-tural life; colorful national parks and the warmth and friendliness of theSenegalese people. This multifaceted tourism potential remains largely un-tapped.

1.02 At the end of 1972, Senegal's accommodation capacity consistedof 1,400 beds primarily in small establishments concentrated in Dakar andother urban centers and catering almost exclusively to business traffic.In response to vigorous Government policies to develop facilities forvacation tourism, hotel capacity tripled between 1973 and 1975 with the com-pletion of 2,800 beds. Two-thirds of this additional capacity was in largehotels in Dakar while the remainder was located in vacation villages on thePetite Côte and Casamance beach areas. Thus, 68% of Senegal's currentcapacity is in Dakar, 19% on the Petite Côte and 11% in Casamance. Mosthotels are of high standard with luxury establishments accounting for over50% of the capacity. Only a few smaller hotels are managed by Senegalese.

103 The Government participated in the financing of about one-half ofthe capacity added since 1973, the remainder being financed equally bylocal and foreign private investors. Government hotel finance from thenational budget was complemented by French and Danish bilateral loans.Privately-owned hotels have been financed mainly by short- and medium-termloans readily available from local commercial banks. The supply of long-and medium-term hotel credit was recently improved: in late 1974 the Bank-sponsored Sociêtê Financière Sénégalaise pour le Développement de l'Industrieet du Tourisme (SOFISEDIT) was established to provide financing for up to18 years at 12%. 1/ Since SOFISEDIT's maximum exposure is 20% of its sharecapital, its financing is limited at present to CFAF 130 million (aboutUS$530,000) per project, an amount adequate to cover no more than the long-term loan capital requirement of a small hotel (about 100 beds). Largerprojects can also obtain long-term funds locally from the newly establishedarfîliate of Citibank and from the Banque Senegalo-Koweitienne, though atterms slightly less attractive than SOFISEDIT's. Following changes inCentral Bank regulations in January 1976, medium-term funds (maturitiesof up to ten years at interest rates of 11%-13%) for projects in prioritysectors (including tourism) are available from commercial banks using therediscounting facilities of the Central Bank.

1.04 While room occupancy rates in Dakar average 75% annually, bedoccupancy rates average only 55% because the average room density is1.5 persons per room as is to be expected when busîness travel predominates.

1/ Loan 987-SE and Loan 1332-SE.

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Higher bed occupancy rates are attained at the Petite Cote and Casamancevacation villages. The Aldiana vacation village on the Petite Cote ownedby the German tour operator Neckarmann achieved an average bed occupancyrate of 65% in 1973 and 62% in 1974.

1.05 Concurrent with the expansion and diversification of capacity,visitor arrivals more than doubled and registered bednights almost tripledbetween 1972 and 1975. In 1975, arrivals amounted to 129,000 with 'WesternEurope accounting for almost three-fourths of total arrivals; France (37%),Germany (12%), Italy (7%) and Switzerland (6%) were the leading markets.A large proportion belonged to higher-income groups. Over 95% of visitorsarrived by plane, mostly o,n scheduled flights; only German and Swiss touroperators were permitted to run charter flights on a regular basis.

1.06 While business remains a major motivation, an increasing numberof visitors are attracted lby Senegal's climate, culture and wildlife.Because of the continued importance of business tourism, all traffic showslittle seasonal fluctuation except for some peaking in December and Marchduring the Christ-mas and Easter holidays. In 1975, arrivals in Senegalduring the June-September :low season amounted to 32% of the yearly total.This compares to 28% in the Ivory Coast and less than 5% in The Gambia, twomajor winter destinations in West Africa competing with Senegal.

1.07 In 1975, average daily tourist expenditures were estimated atabout CFAF 10,000; 70% wenit to accommodations and meals, 13% to entertain-ment, 4% to local transporitation and 13% to purchases of sundries. Grossforeign exchange receipts fErom tourists more than tripled from 1972 to1975, reaching CEAF 6.0 bi:Llion or 6% of the country's foreign exchange carningsfrom commodity exports that: year. Tourism is the countrv's third source offoreign exchange after groundnuts and phosphates. Net foreign exchangerevenues from tourism are estimated at 60%-65% of gross receipts. About2,800 people are employed directly in the tourism industry; 1,600 of thesework in four-five-star hotels. Jobs indirectly attributable to the tourismsector are estimated at 5,500 in the production and sale of handicrafts,agriculture, construction, transport and other services.

1.08 The Government of- Senegal, which had traditionally paid littleattention to tourism, has recently recognized the potential benefits ofthe sector and accorded it high priority in the 1973-77 Five-Year Plan.This was reflected in ambitious targets set in the Plan, calling for aninvestment of CFAF 13 billiLon (US$53 million) for the construction of10,000 additional beds. 1/ With a view toward achieving this target,special provisions for hotel investors were introduced in the InvestmentCode, the Government began participating actively in the construction ofhotels and a Délégation Générale au Tourisme (DGT), reporting directly tothe Prime Minister, was created to be responsible fot promotion, trainingand sector planning.

1/ The Plan's physical targets have since been revised downwards to 8,100additional beds at an iiivestment cost of CFAF 2 3 billion (US$92 million).

1.09 The lnvestment Code (Law No. 72-43) provides a number of incentiveswhich may be granted to investors in all sectors:

(a) exemption from customs duties, excise and value-added taxeson materials, equipment and services required for construc-tion of the project; minor forms of fiscal relief;

(b) if the investment is greater than CFAF 500 million, stabil-ization of taxation rates for a period of up to 20 years atlevels existing at the time incentives are granted.

In addition to these incentives available to all investors, hotel investorsmay also benefit from:

(c) exemption from income taxes up to eight years and frompatent and license fees;

(d) if investment exceeds CFAF 500 million and is locatedoutside the Dakar area, exemption from sales taxes forthe first five years of operation;

(e) Government land at no cost;

(f) power and water at preferential prices; and

(g) Government participation in infrastructure financing.

An interministerial Incentives Committee, chaired by the Minister of Financeand Economic Affairs and grouping representatives of relevant ministries andother agencies, determines the incentives to be granted to each project onthe basis of a review focusing chiefly on technical and financial aspects.In practice, the committee has granted incentives sparingly. While investorsusually obtain most forms of fiscal relief, and when they qualify, stabil-ization of taxation, no incentive specific to tourism (free land, subsidizedutilities and free infrastructure) has ever been granted. By 1977, about3,400 beds or 34% of the original Plan target will have been completed atan investment cost of CFAF 12 billion (US$9 million). This new capacitywill be concentrated in Dakar, since lack of infrastructure is constraininghotel construction on the Petite Cote and in Casamance, the other two priorityareas for tourism development.

1.10 During the 1972-75 period, Government-sponsored investment in thesector amounted to CFAF 5.65 billion (US$23 million). These investmentswere channeled through separate corporations established for each projectby the Government and the private foreign sponsors who arranged foreignlong-term financing and obtained management contracts. Five other companieshave been established on the same pattern to sponsor further projects forthree large hotels in Dakar (1,800 beds), a vacation village in St. Louis

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dI Jli ht-j i .j i hi-i-tr (o- C'te. / .i policy which, at the early stages,'1>>1,i » Iy ' )ri'r r! i uts.J to hbotel tdelilinpment ln Senegal, should be recon-

sidered now that Senegal's tourism sector is past its infancy. The prolifer-ation of autonomous Government hotel companies has diluted Government con-trol of its investments and permitted indiscriminate investment wheneverforeign funds are available. The Government has committed itself tocoordinate its ex:isting tourism holdings in the framework of the generalreorganization of public sector investments. In particular, the Govern-ment proposes entrusting control of its tourism portfolio to a holdingcompanv.

1.11 DGT was established within the Prime Minister's Office in October1971 and reorganized in April 1973. It is responsible for general promo-tion, tourism training and sector planning. DGT's 1976 promotional budgetof about CFAF 50 million is divided between two headings: "InternaiAnimation" and "Generic Promotion." While the funds earmarked for sponsor-ing internal sociaLl activities (e.g., Dakar's cultural week) have tripledsince 1973, funds for promotion abroad have decreased. As a result,Senegal is poorly promoted even in its major markets. The following tablesummarizes the evolution of the DGT's budget since 1972:

Budget of the Déldgation Générale au Tourisme(CFAF '000)

(1972/73 - 1975/76)

Promotional BudgetOperating Internal Generic Total

Fiscal Year Budget Animation Promotion Promotion Total

1973 34,501 10,000 20,800 30,800 65>3011974 34,501 15,000 20,800 35,800 70,3011975 40,810 22,000 18,300 38,300 79,1101976 75,810 30,000 18,300 48,300 124,:L10

1.12 DGT's Professional Training Department is in charge of organizingand supervising hotel training. Middle-level training is given at theEcole Nationale de Formation Hote1ière in Dakar which offers one-year courses(including training in a 39-room practice hotel) and graduates 105 stuidentsannually. The present output of trained hotel personnel is înadequate tomeet the needs expected from newly constructed and planned hotels. Thissituation should improve, however, with the implementation of the hotelltraining component of the Sec-ond Education Project (Credit 530-SE), which,in addition to training midd:Le-level personnel annually, would provide

1/ The Government is usually represented on the companies' boards by fiveMinistries: Prime Minister's Office, Plan and Cooperation, Finance andEconomic Affairs, Public Works and DGT. The Ministries' representationvaries largely: 20 people represent the Government on five boards.

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refresher courses for those already employed in the industry as .ell asseminars for management-level personnel. Construction of the ho eltraining center, long delayed because of difficulties in securing the landand appointing architecs, is expected to start in late 1977.

1.13 DGT's Department for Planning and Studies is in charge ofcollecting statistics, shaping sectoral policies and preparing reportsfor the Incentives Committee. At present, this department is inadequatelystaffed to carry out its complex tasks. Accordingly, rapid deve:Lopment,spurred by Government investment (para. 1.10) and latterly by SOFISEDIT'sactivity, has taken place without adequate physical planning and analysisof the economic viability of hotel projects. By early 1976, SOFISEDIT hadfinanced four hotel projects (with a total capacity of 300 beds) and hadbecome the Government's junior partner in the Sociéte d'Aménagement dela Petite Cote (SAPCO) which would be in charge of implementing theSali Portudal project. SOFISEDIT plans to finance other small hotels inDakar, St. Louis and Casamance. A further expansion of the sector on asound economic basis calls for strict coordination between DGT and SOFISEDIT.The Government agreed that:

(a) an Economic Analysis and Planning Unit (EAPU) would beestablished within DGT before April 1, 1978 to be stafFedadequately and funded on a continuing basis; and

(b) benefits under Law 72-43 would be refused for projectsevaluated negatively by EAPU.

DGT has established a working party, including representatives from DGT,SOFISEDIT, SAPCO and the Bank as an observer to supervise the work of theEAPU and discuss tourism policies.

Il. THE PROJECT

A. Project Background

Sali Portudal Development

2.01 The Petite C0te is a beach area dotted with picturesque fishingvillages stretching over 100 km south of Dakar. M'Bour, a trading andfishing center about 80 km from Dakar, is the major population center with30,000 inhabitants. The area enjoys a mild semitropical climate with warmdays and cool nights for most of the year. The prevailing breezes reducethe effect of high temperatures and humidity during the summer and provideperfect conditions for sailing activities. The beaches are safer than mostin West Africa. The surf is mild and swimming conditions are generallyexcellent, although the water is relatively cool in the late winter months.The coastal waters provide good opportunities for deep-sea fishing.

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2.02 Dakar International Airport, a major stopover point on theEurope-South America and North America-Africa routes is served by 21.

international airlines. Its runway, which was modernized under a Bank-

financed project (Loan 867-SE), can accommodate all long-range aircraft.The airport is about an hour's drive from M'Bour by highway RN 1. M'Bouris linked by a 1.50-line exchange to the national telecommunications net-work operated by the Office des Postes et Télécommunications (OPT) andby a 30-kV line parallel to RN 1 to the national electric power networkrun by the Société Sénégalaise de Distribution d'Energie Electrique

(SENELEC). The telephone exchange which is near saturation will have tobe replaced to accommodate the growing demand for telephone service inthe M'Bour region and to service the tourism area (para. 2.24). Theexisting power line is near its load capacity and SENELEC is planning todouble it by a 30-kV line along the coast to be financed by the Canadian

International Development Agency. This new line would supply the coastalfishing villages and the tourism area and satisfy the increasing powerneeds of the M'Bour region.

2.03 The Government's choice of the Petite Côte for priority tourismdevelopment at the time of the preparation of the 1973-77 Plan was motivatedby the natural attractiveness of the area and its proximity to existinginfrastructure. A master plan completed in 1974 identified five zonessuitable for international tourism development and proposed a land-use plan

for the whole area. Tourism development has started on the Petite Côte

with the recent opening of two vacation villages (with a total capacity of740 beds) near Nianing, f ive km south of M'Bour, which registered. a totalof 139,000 foreign bednights in 1974.

2.04 The consultants retained under the UNDP-financed feasibility study 1/recommended that developmient begin with a site along the beach on each sideof the village of Sali Portudal about four km north of M'Bour. The beach,of fine golden sand, declines gradually and is embellished by occasionallava rock outcroppings and by a winding coastline. The sea water is notalways clear, but beach conditions are otherwise ideal. The land is flatexcept for some coastal dunes and is dominated by clusters of baobab trees.A number of vacation cottages were built recently along the beach mainlyby expatriates living in Dakar with the understanding that they would beremoved at their ownerse expense at the Government's request. The Govern-ment will initiate steps for their removal as soon as Sali Portudal's de-velopment plan has been enacted (para. 2.05). The physical characte:risticsof the site and its proximity to M'Bour and the existing infrastructure makeSali Portudal a logical first phase for the long-term development programof the Petite Côte.

2.05 The consultants' basic planning scheme consists of two hotel

zones located around commercial, recreational and sports facilities for theuse of hotel guests as well as day visitors from Dakar. The two zones,

which will eventually accommodate about 2,500 hotel beds each, will be

1/ The consultants were the U.S. firm, Louis Berger, International, Inc. ofEast Orange, N.J.

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linked by a landscaped pedestrian and vehicular mall. An area is reservedfor the extension of the existing village of Sali Portudal where many hotel

employees would live. The entire area would be subject to a developmentplan (plan d'aménagement) which was proposed by the consultants and refinedby SAPCO. A condition of loan effectiveness is the enactment of the pland'aménagement.

2.06 The Sali Portudal land belongs in the national domain and assuch cannot be developed by a private or public organization. Except forthe village sites, development of this land by SAPCO would require that theland first be registered in the Government's name and then leased to SAPCO.SAPCO in turn would assign the leases to investors. The Government agreed tocomplete registration of the land before November 1, 1977 and to lease it toSAPCO before January 1, 1978. The Government would give SAPCO the use of theland needed for project implementation until December 31, 1977. Terms andconditions for the land lease and lease assignment would be described in aconvention générale which would regulate the relations between the Govern-ment and SAPCO. A draft of this convention was discussed during negotiations.Signing of a convention générale satisfactory to the Bank and promulgation ofa decree initiating procedures for the registration of Sali Portudal landalso satisfactory to the Bank are conditions of loan effectiveness.

2.07 The resort's development has been so conceived as to avoidenvironmental deterioration. The site's natural features would be protectedby the schéma d'amé'nagement which imposes limits on building densities andheights. The proposed reforestation of wide areas around the site wouldenhance the existing landscape and protect the hotel sites from prevailingwinds. The resort would be equipped with all infrastructure (e.g., sewagecollection and treatment system, solid waste collection and disposal) re-quired to avoid any possible detrimental impact of large numbers of visitorson the environment.

Goree Renovation

2.08 Gorée is a small island (20 ha) in Dakar harbor which, sincethe 15th century, was occupied in succession by the Portuguese, Dutch,English and French. From the 17th century on it was the hub of the slavetrade from West Africa to the West Indies and the Americas. In the l9thcentury it became the staging point for French colonization of Senegal.Gorée, which has retained the aspects of an 18th century colonial town,boasts a number of architecturally interesting buildings and has becomeboth an invaluable historic landmark and a cultural symbol. An increasingnumber of tourists visit Goréee's famous slave houses and maritime museum.

2.09 Recently Gorée has seen much of its permanent population move toDakar or leave the country. Numerous houses have been abandoned to fall

into ruin. The deterioration of the streets has contributed to the decayof properties. A private effort to renovate Gorée has saved a number ofbuildings and lately the Government passed legislation giving fiscal andfinancial incentives to landlords renovating their houses. A study forthe renovation of Goreée, sponsored by UNESCO, identifies a program ofworks to preserve the buildings and enhance the island's unique atmosphere.

B. Project Description

2.10 The project would consist: of three major components, namely:

(a) the infrastructure and common facilities needed for thedevelopment of Sali Portudal's first hotel zone togetherwith a 250-bed hotel and a new telephone exchange in M'Bour;

(b) renovation of Gorée Island; and

(c) funds for project administration, technical assistance andstudies.

Sali Portudal Development

a. Infrastructure

2.11 This would include the primary infrastructure required by SaliPortudal at full development (5,000 beds) as well as secondary infrastruc-ture and public utilities distribution networks for developing the firsthotel zone of the resort with an ultimate capacity of some 2,500 beds. Thesecond hotel zonet, to the north, would be implemented as soon as develop-ment of the first: zone had demonstrated the market potential and additionalfinancing had been obtained. The infrastructure design will permit thisexpansion at minimum cost.

- Roads and parking areas

2.12 The roaLd system would include:

(a) a 3.3-km access road linking the project site to theDakar-M' Bour highway;

(b) 2.4 km of asphalt'ed secondary roads to the hotel plotsand the main cominon facilities; and

(c) 6 km of unpaved roads providing access to the boreholesand stabilization ponds as well as circulation withinthe extension of Sali Portudal village.

Three parking areas near the commercial, rgcreational and sports facilitieswould accommodate a total of 120 cars. Pedestrian paths would provideaccess from the hotels, beaches and common facilities. All roads wouldhave a 9-m wide platform and a 6-m wide carriageway. The paved roads wouldhave a double surface dressing which is expected to last 10-12 years beforemajor repairs are needed.

- Streetlighting

2.13 Lighting would be provided by underground cables originating,rom two MV-LV substations. Six-m poles at 25-m intervals would illuminate

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the streets; floodlights mounted on 10-m poles would be employed for thepublic areas and ground lights for the pedestrian paths.

- Sewerage

2.14 A separate system would provide for sewage collection and stormwater drainage. Sewage from the hotels and the village of Sali rortudalwould be channeled by gravity through effluent pipes into a concrete mainrunning 2.6 km along the coast to a low point in the center of the area.From this point the sewage would be raised by a pumping station and througha 2-km PVC main to stabilization ponds with an initial capacity c:orres-ponding to the needs of 2,500 beds (expandable to 5,000). The treatedwater effluent would be used in the irrigated area which is included inthe project (para. 2.23). Storm water would be drained by the road systemand conveyed into the sea and absorption wells. This project componentincludes funds for environmental sanitation.

- Water supply

2.15 TaTater would be produced by two boreholes each with a 150-m3/hrcapacity ar.d would be pumped and stored in a 1,000-m3 elevated tank. A 300-rmPVC pipe 1.9 km long would connect the storage system with the resort centerand subsequently the distribution system of the first hotel zone consistingof 8.5 km of PVC pipes (100 to 200 mm in diameter). The water supply systemwould also include fireplugs, a garden watering system and provision forwater to four villages near the resort (population 1,200).

- Power supply

2.16 Electric power would be supplied from the neighboring towr; ofM'Bour by a 5.6-km, 30-kV line. This would constitute the last segment ofa new coastal line (para. 2.02). At the edge of the resort area, the30-kV line would be connected to a 3-km underground distribution system.Four substations would relay the power to the hotel sites and transform anddistribute power to the common facilities and the public lighting system ofSali Portudal and its extension. The project would also provide an emer-gency power system consisting of a 200-kVA diesel generator for the seweragepumping stations, the boreholes and some public lighting (pedestrian paths).

- Telecommunications

2.17 The Sali Portudal telecommunications local network would consistof a 5.5-km underground cable from the M'Bour telephone exchange to a dis-tribution box at the edge of the resort. Underground PVC ducts with branchpoints connecting superstructure and facilities would also be provided.Cables for telephone distribution would be laid at the expense of individualusers.

- 10 -

- Landscaping

2.18 LandsecWit i6:Ld e c igbf tiaT14d

planting selected species of tropical trees. Large areas around the resortwould be reforested to provide wind protection and soilJ i`flUeat-ion. Inorder to facilitate the landscaping effort, the project would provide funds

ofr7f- i&Sat4ngæ oéeig s n'erulw«cSi:e3tS upybàts

Lwould ôperaté ('W aà: ird1ià&l I Ls f6r- Erfi itta`téi- buneér&'okwa-héiwinvesto-rs ; -- ' J

s. p18i dé as te>isi3osr12 g) « , ,. r r'"'--``.i-' `>t~~~~~~~~~~~~~~- - : .g_< #-J'Mit; s..9ti.,.--

2.19 A sanit_ary~ andfi`I-«d14 be c+èafd in- -- locati-oiiàtt , e Seletedduring final &esign. Thü3prlje&t ec41d-zfince civl1 works anhdeut'ipmentfor cQllectThg and ~treatifigr-thre>o1Id iO~e~ -kl A,W ffiSO -''i

b. Common Facilities

2.20 The project would provide commercial, sports, recreational, admin-istraei»ve and maintenance fci:aities ta ake the toûrlsm dev-elopment -attrac-tive to visitors, and theréfortao iinvestors. The tommercial gad.iities'would consist of shopsÉ,,u`42af-tbore, arts a'nd craftsi;vork'sho;s, car-andbicycle rentai agencied4t, EQ bk, (tatj§nts and enitéertait -t ific±Ii,tiées.Professional equipment' wne4d be tàÏ-l-ed in the restauran`ts and-'enter-tainment"q5gziiiti§.::-het spotrsand-' recreational"facilities would includefour tennis courts, sporét fîË1L4s, aln opena-aer theater, an aquarium, children'splaygrounds, a riding stable and a boat dock. Service buildings and a club-house would complete these installations. The administrative and maintenancefacilities would be used by SAPCO's staff and equipment. They would alsoinclude buildings for post office, police and first.aid services..

c. Pilot Hotel

2.21 The-pilot hote1-widld'be-situated on a 4ha lot 'ovërlôoking thesea. The'hopel is intendmd-it ë%-ts1Vt-îsEta?-itectu-ta- aiiin"-vir5en ta'lstandards. for thes Sali- Nianiâ&t2-ho%él de4bIopment and demonerait'thefeasibility of constructI1-g -SaIt PÔrotudar`hich Îpe' et-itiveXin terms orÉ ,both c operations. 'Mor eT,-: ésàrf'con-struction of a hotel in the resort would provide a psychological incentiveto further development. A condition of loan effecti4etées4s i'41{e selectionof suitable management foi the pilot hotel on terms and conditions sqtis-f actoryI îowrJthao»gfîk-. Z r30', - - g - ____ ,')5 < g Y

2.22 -- Ih -hofee 1el dy-Ybà 250Yub, 9 itaf à ftatP'oû -tits econazi^-tet wrtia~~~~~~~fl ShtBIX4 iiMEf-h3ibe ifL à i s zeiniiph3

sXl~~~jab-irF2-t 4ibm^-ee-and,'Cilâ1rtgë -£dof doera ë-È-hâi; 0ic X m a>raSs.In view of the h:igh summer temperatures the hotel would be air-cond3itib'ln?d.The project would include civil works, furniture and professional equipment,as well as funds for the preopening expenses and working capital.

- jl1 -

d. Irrigated Area

2.23 Upon full development of the first hotel zone, sewage wouldaverage 1,000 m3 per day. An area of some 20 ha would be irrigared bythe treated effluent of the stabilization ponds; this area would be asource of fruit and vegetables for the tourist complex and would createadditional employment opportunities for some 40 families in the projectareas. The project would include land preparation, a watering svstem,fencing and storage facilities. Before completion of the hotel develop-ment, the area would be irrigated with water fronm the boreholes (whichwould not yet be used for hotel consumption).

e. M'Bour Telephone Exchange

2.24 The existing M'Bour telephone exchange with its capacity of 150lines is near saturation. To assure an efficient telecommunicationsservice from the tourism area to Dakar and abroad, it needs replacement bya 500-line automatic exchange. This facility would meet the demand for

telephone connections of the M'Bour region for the next ten years. The

project would include the construction of the telephone exchange buildingand the related telephone equipment.

Gore'e Renovation

2.25 The project works would contribute to the ongoing Governmentprogram for preserving the island and developing tourism there. It isexpected that upgrading the streets and public spaces would stimulateprivate interest in renovating the existing houses. Harbor imprcvementand extension and restoration of the Government-owned, privately-managedRelais de l'Espadon, would broaden Gorée's appeal as a center for deep-seafishing.

- Street and public space upgrading

2.26 The entire street system, approximately 9,000 m 2, would becovered to an average de?th of 20 cm with sand and gravel to fill in depressionsand holiows created by wina erosion and wear. The cobblestone path leadingfrom the harbor to the for-ress wouLd be restored. The principal publicspaces, totaling some 3 ha, would be regraded, paved or replanted. Under-ground cabies for the streetlighting system would be laid and new lampsinstalled.

- Harbor improvement

2.27 The use of the harbor by pleasure craft is presently limited bythe presence of severai large boulders and the remains of some previousharbor cons:ruction. These would Le removed and a small dock capable ofnandlang zen Lo fifteen boats would be built.

-- 12 -

- Relais de l'Espadon extens:ion and restoration

2.28 The Re'Lais de l'Espadon building would be renovated and an adjacentbuilding would be restored creating 15 additional rooms. The garden betweenthe central building and t'he annex would be landscaped and a swimming poolconstructed in the principal hotel garden. The hotel renovation and ex-pansion would include civil works as well as furniture and equipment. Acondition for disbursing the funds for the renovation of the Relais del'Espadon would be Bank approval of a marketing program for the hotel.This marketing program would include a timetable of steps for improving

the management of the Espadon.

Project Administration, Technical Assistance and Studies

2.29 The project would also provide funds for administration, pro-fessional services, technical assistance and two studies. Funds earmarkedfor project administration would cover the foreign exchange costs (personnel,operational equipment and -Materials) of SAPCO's operations during the im-plementation period as well as the cost of consultants to assist SAPCO insetting up its accounts and carrying out an investment promotion campaign(para. 3.05).

2.30 The technical assistance funds would provide support to DGT in

establishing the EAPU, in improving promotion and in the initial operationsof the Dakar Hotel Training Center. The EAPU would be staffed for twoyears by three experts to be financed under the project: a tourism economist,a financial analyst and an architect planner (on a part-time basis) to beappointed before June 30, 1978. T'he Government agreed to obtain the Bank'sconcurrence before filling any of these positions and to provide the expertswith qualified counterparts. The project provides funds for four fellowshipsfor the training abroad of the counterparts. Assistance to DGT in tourismpromotion would include preparation and implementation of a marketinlg programfor the country which wouid also include proposals for marketing the Relaisde l'Espadon (para. 2.28). The Government agreed to discuss with the Bank,the recommendations of the study before January 31, 1979 and to implement theagreed-upon program on a continuing basis. The Dakar Hotel Training Centerfinanced under the Second Education Project (para. 1.12) is scheduled to beginoperation in early 1979. At the time of approval of the Second Education Project,UXDP had agreed to finance the required assistance, but is now no longer in aposition to do so. Tne Gcvernment was unable to find another donor and hasagreed to include in the proposed Droject funds for 120 manmonths of trainingex-e--s -n t'ne major departments (kitchen, restaurant/bar, housekeeping/front

ftce and tourism) as well as nine fellowships for the training abroad ofthïe couziterparts.

2. 31 hne study funds included in the project would be earmarked for two.rp-;-3: f-rst, to provide consuitant services to DGT to monitor the socio-

~cŽ0n(aS-'c impact of tour-'s c5 eve:pent on the Petite Côte (this consultant'sservLccs would be provided intermi-ttently); second, to prepare a second:--urtsm project which could include secondary infrastructure for the second

otei zone in Sali Portudal and further work on Gorée.

'2032 Ail consultants engaged to provide technical assistance or to carryout tne studies would be agreeable to the Bank, selected and employed underuerms and conditions satisfacLory co the Bank. The Government agreed on thefollowi4ng scheduLes for the employ-I+ent of consultants:

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Submission ofTerms of Ref- Employmentence for Bank of Start of CompletionApproval Consultants Work of Work

Marketing study Dec 77 Mar 78 May 78; Dec 78

Monitoring ofsocioeconomic Dec 77 Mar 78 May 78 Jan 81

impact

Technical assistanceto hotel training Dec 77 Mar 78 Oct 78 Jun 80

InvestmentPromotion Nov 77 Dec 77 Jan 78 Jun 80

Accounting Dec 77 Jun 78 Jun 78 Jun 81

Second tourismproject Jun 79 Oct 79 Nov 79 May 80

III. IMPLEMENTATION

A. Sali Portudal Development

3.01 The Société' d'Amenagement de la Petite Côte (SAPCO) would haveprimary responsibility for implementing the Sali Portudal works. SAPCOwas founded on August 20, 1975, with an initial equity of CFAF 150 million,

or the purpose of developing land for tourism, attracting local and foreigninvestors, leasing developed sites, building and owning commercial facil-ities and enforcing building and zoning regulations. The Senegalese stateowns 90% of SAPCO; SOFISEDIT is the minority shareholder. SAPCO's Board ofDirectors includes the President of SOFISEDIT and representatives of in-

terested Government offices: the President's Office, the Prime Minister'sOffice, the DGT, the Ministry of Planning and Cooperation, the Ministry ofFinance and Economic Affairs, the Ministry of Industrial Development andEnvironment, the Ministry of Public Works, Urban Development and Transport(MTPUT),the Ministry of Rural Development and Hydraulics (MDRH) and the Governorof the Thies region (where Sali Portudal is located). The representativeof the Prime Minister's Office is Chairman of the Board and DirectorGeneral.

3.02 SAPCO is a corporation subject to commercial law. As such, itenjoys the flexibility needed for timely completion of the project. Since

its establishment, SAPCO has set up a Technical Department and a CommercialDepartment. In order to minimize its operating costs, SAPCO strives tomaintain a lean staffing pattern by limiting the tasks it would carry outand relying on outside consultants whenever special expertise (e.g., legalor technical advice) is required. SAPCO's internal organization and

- 14 -

staffing would be determined initially in light of the requirements of theconstruction phase, and would be appropriately modified when the resortreaches the operational phasie, as described below.

Construction Phase

3.03 SAPCO would conduct the detailed planning studies, supervise finalengineering work and coordinate the implementation of all construction workin Sali Portudal. In particular, SAPCO would implement the water- componenton behalf of MDRH cnd the sewerage component on behalf of MTPUT. It woeuldadvertise requests for tenders, evaluate bids, enter into contracts andsupervise all work. SAPCO would be assisted by the Société Nationale d'Ex-ploitation des Eaux du Sénégal (SONEES), SENELEC, OPT and MDRH for the desien andconstruction of the water and sewerage, electric power, telecommunicationsand irrigation components respectively. Agreements between SAPCO and eachof these agencies will define the latter's respective financial and technicalresponsibilities. Drafts of these agreements were discussed during negotiations.A condition of loan effectiveness is the signing of agreements, with provisionssatisfactory to the Bank, between SAPCO and all agencies concerned. Theconditions under which SAPCO would iraplement the water/sewerage component onbehalf of the Government will be spelled out in the convention generale.

3.04 The chart below summarizes the organization of SAPCO during theconstruction phase. The Technical Department, headed by an experiencedengineer, would include an architect advisor on a part-time basis, an infra-structure engineer, a procurement officer and a surveyor. SAPCO would employbefore January 1, 1L978 engineering consultants and architects agreeable tothe Bank on terms and conditions satisfactory to the Bank, to carry out thefinal design, award contracts and supervise the project works. SAPCO hassigned a contract iLor the final design, contract award and supervision of theinfrastructure W th Louis Berger, International. SAPCO agreed to prepare acritical path network of all project works before April 1, 1978 and to reviewsuch network every six months in consultation with the Bank.

3.05 The Commesrcial Department, headed by the former team leader of theUNDP feasibility study, would be in charge of accounting and commercialmanagement. During construction, its main task would be to establish and main-tain SAPCO's accounts and carry out a campaign to promote investiments in SaliPortudal with the assistance of consultants (para. 2.29). It would alsoassist investors in their negotiations with the MTPUT to obtain buildingpermits and with the Committee on Incentives to obtain the benefits of theincentives law. Tle appointments to the positions of technical director,commercial director and architect advisor were made in consultat;on with theBank. They have the qualifications and experience to carry out their tasksefficiently.

3.06 The ownership and responsibility for operating and maiiitainingthe electricity and telecommunciations components once they are completedwould be transferred at no cost to SENELEC and OPT respectively. SONEESwould run the water and sewerage systems which would be the property cf theGovernment. SENELEC, OPT and SONEES are adequately equipped to operate and

CharL 1

l 5-

SENEGAL

Petite Càte Tourism Project

Organization Chart of SAPCO during Construction

GENERAL DIRECTION

- General Director

- Secretary

ADMINISTRATIVE SERVICES

- Personnel (1 accountant)

- Transportation (3 drivers)

- Messenger (1 messenger)- Maintenance (2 attendants)

TECH-NICAL DIRECTION COMMERCIAL DIRECTION

- Technical Director - Commercial Director

- Architect Adviser - Economist/Financial Analyst

- Infrastructure Engineer - Chief Accountant

- Procurement Officer - Assistant Accountant

- 1 Surveyor - 2 Secretaries/typists- 2 secretariesftypists

- Engineering Consultants I I - Legal Consultants

- Architects I I - Promotion Consultants

X I I - Accounting Consultants sL _ _ _ _ _ _ _ _ _ _ _ _ _ J _ _ _ _ _ _ _ _ _ _ _ _ _ W~~~~

- 16 -

:iclI Fac Il i ti. S3AP'CO' s managemernt of tlhe irrig;ated area would besLipe rv t McIby M4lRII. TlIic finalancial responsibilities for the differentcomponents are outLined in paras. 6.01 and 6.02.

Operation

3.07 Chart 2 summarizes SAPCO's organization during the operational

phase. The Technical Department would be in charge of operating and main-

taining those infrastructure components (e.g., roads, solid waste disposal,

landscaping) w'nich would not be turned over to the utility companies, and

of maintaining SAPCO's common facilities. The Commercial Department would:

(a) apply policies for the lease of hotel sites and common

facilities;

(b) continue the investment promotion campaign;'

(c) operate common facilities until they are leased;

(d) operate tlhe irrigated area; and

(e) co-sponsor with hotel operators and local authoritiesa Resort Committee which would be in charge of running

certain of the common facilities and stimulating social

activities (animation) in Sali Portudal.

3.08 SAPCO's personnel structure would be modified as required to

ensure a smooth transition f'rom the construction to the operational phase.

The Government agreed to inf'orm the Bank on any proposal to replace the

President of SAPCO and SAPCO agreed to consult with the Bank on proposals

to change its organization and to fill the positions of technical diresctor,

commercial director and architect advisor should these become vacant.

B. M['Bour Telephone Exchange

3.09 OPT would be responsible for the construction, operation and

maintenance of the M'Bour telephone exchange.

C. Gorée Renovation

3.10 The Direction de l'Urbanisme et de l'Habitat (DUE) within MTPUT

would be in charge of the Gorée works. It would establish a special unit

S£NEGAL

Petite Cote Tourism Project

Organization Chart of SAPCO during Operation

General Direction

-General Director-Secretary

Administrative Services.

-Personnel (2 accountants)-Transportation (3 drivers) - -_ New Projects-Messenger (1 messenger)-Maintenance (2 attendants)

Technical Direction Commercial Direction

-Technical Director -Commercial Director-1 Secretary/typist -Economist/Financial Analyst

-1 Secretary/typist

Road Maintenance Garden Building and Irrigated Accounting Invest. Prom. Resortand Garbage Maintenance Sports Facilities Area -2 Accountants -Promotion Adv. AnimationCollection Maintenance -2 Secretaries -Architect Adv.

-Land Surveyor

1/ The organization of this unit would be similar to the organization shown on Chart 1.

rt

- 18

to supervise the final studies, issue tender documents, evaluate bids andsupervise implementation. A condition for disbursing the project fundsearmarked for the Gorée renovation is the appointment of an architectto tnis special unit agreeable to the Bank.

D. Technical Assistance and Studies

3.11 DGT would be in charge of the technical assistance and studiesfinanced by the project except for investment promotion which would be theresponsibility of SAPCO.

3.12 Tha table on page 19 lists the various agencies involved in thefinancing, construction, ownership, maintenance and operation of theproject componentsO

IV. COST ESTIMATES AND FINANCING

A. Proje.t Costs

4.01 Total project cost, net of taxes, amounts to Us$17.3 million includingUS$4.6 million contingencles arnd excludîng USt$1.3 million in interestduring construction. The base line cost is estimated at US$12.7 million.This cost is derived from the consultants' estimates (adjusted to January 1,1976 to account for price changes since June 1975) as revised by the mission.Uni.t prices were checked with those in the latest tenders by the various agencies.Civil works amount to US$7.7 million and represent 57% of the base line cost.Equipment costs (i.e., the costs of goods purchased finished and installedwithout substantial alteration) amount to US$2.2 million and represent 17%of the base line cost. Professional services, including final design andsupervision of the various project components as well as the services for projectadministration, technical assistance and studies are estimated at US$3.0million and represent 24% of the base line cost. The working capital andpreopening expenses for the pilot hotel represent 2% of the base line cost,equivalent to US$0.3 million.

4.02 A1n average increase of 10% has been allowed to cover physicalcontingencies for civil works and equipment in Sali Portudal. A relativelymodest contingency is reasonable since most of the cost estimates arebased on advanced engineering. Physical contingencies for the Goréerenovation are assumed at 15% as it is more difficult to give preciseestimates for renovation. To account for the recent evolution of pricesin Senegal and the likely impact of worldwide inflation on internationalmaterials, labor and equipment costs, provision has been made for a13%-12% price increase per year for civil works and 9%-8% for equipment,resulting in a price contingency of 28% of the base line cost. 1/ The over-all contingency provision amounts to 36% of the base line cost.

1/ Price contingencies are based on the following annual interest:Year Civil Works Equipment1976 13% 9%1977 12 81978 12 8

1979 12 8

- i9-

Construction Maintenance,Project Component Financing or Inmplementation Operation Ownership

1. Sali Portudai

Roads, parking,streetlighting,landscaping,pilot hotel,common facilities,solid waste disposal SAPCO SAPCO SAPCO SAPCO

Water supply MDRH SAPCO/SONEES SONEES MDRH

Sewerage MTPUT SAPCO/SONEES SONEES MTPUT

Power SAPCO SAPCO/SENELEC SENELEC Electricité a/du Sénégal

Telecommunications SAI`CO SAPCO/OPT OPT OPT

Irrigated area SM'Co SAPCO/MDRH SAPCO/MDRH SAPCO

2. M'Bour TelephoneExclange OPT OPT OPT OPT

3. Goree

Ilarbor MTPU;T MTPUT MTPUT

Streets and publicplaces MTIUT MTPUT MTPUT

IHotel de l'Espp(on MTI'TT MTPUTT MTPUT

. TIecbnical Assistanceand Studies

Economiî Amalysis Unit. DGT DGT

Markethi-g program DGT DGT

Second tourismproject DGT DGT

Monitor socioeconomicimpact DGT DGT

a/ Senegalis power system is owned by Electricité du Sénégal, which leases.t to SENELEC.

z! laxasLaLud ing cusrom.-s àcties and vaiue-aetded taxes, are estLimatedat US$2.8 mî-ilion or 16%' of the total projeet, net of taxes.

Pro_ject Cost by Component and Category of Expenditure

(CFAF'000) (US$'000) 7. of TotalCode Project Component Local Foreign Total Local Foreign Total Expenditure

(1) (2) (3) (4) (5) (6)

1. Sali Portudal Infrastructure 297,251 884,768 1,182,019 1,213.2 3,611,3 4,824.5 27.8a. Civil works 242,043 573,569 815,612 987.9 2,341.1 3,329.0 19.2b. Equipment 30,869 205,187 236,056 126.0 837.5 963.5 5.5c. Professional services 24,339 106,012 130,351 99.3 432.7 532.0 3.1

2. Common Facilities 102,894 207,245 310,139 420.0 845.9 1,266.9 7.2a. Civil works 91,984 150,307 242,291 375.4 613.5 988.9 5.7b. Equipment 4,107 27,317 31,424 16.8 111.5 128.3 0.7c. Professional services 6,803 29,621 36,424 27.8 120.9 148.7 0.8

3. Pilot Hotel 218,864 466 210 685J074 893.3 1,902.9 2,796.2 16.2a. Civil works 145,635 226,551 372,186 594.4 924.7 1,519.1 8.8b. Equipment 24,750 143,742 168,492 101.0 586.7 687.7 4.0c. Professional services 13,209 57,526 70,735 53.9 234.8 288.7 1.7d. Working capital and

preopening expenses 35,270 38,391 73,661 144.0 156.7 300.7 1.7

4. Irrigated Area 9,781 27,146 36,927 40.0 110.8 150.8 0.9a. Civil works 8,712 19,061 27,773 35.6 77.8 113.4 0.7b. Equipment 263 4,582 4,845 1.1 18.7 19.8 0.1c. Professional services 806 3,503 4,309 3.3 14.3 17.6 0.1

5. M'Bour Telephone Exchange 24,940 58,310 83,250 101.8 238.0 339.8 2.0a. Civil works 14,000 15,239 29,239 57.1 62.2 119.3 0.7b. Equipment 8,400 36,603 45,003 34.3 149.4 183.7 1.1c. Professional services 2,540 6,468 9,008 10.4 26.4 36.8 0.2

6. Gorée Renovation 143,756 228,585 372,341 586.8 933.0 1,519.8 8.7a. Civil works 122,800 160,279 283,079 501.2 654.2 1,155.4 6.6b. Equipment 8,300 36,162 44,462 33.9 147.6 181.5 1.0c. Professional services 12,656 32,144 44,800 51.7 131.2 182.9 1.1

7. Project Administration 50,679 72,887 123,566 206.9 297.5 504.4 2.9

Technical Assistance andStudies 40,000 284,200 324,200 163.3 1,160.0 1,323.3 7.6

BASE LINE COST 888,165 2,229,351 3,117,516 3,625.3 9,099.4 12,25.7 73.3

Contingencies 343,348 791,129 1,134,477 1,401.4 3,229.1 4,630.5 26.7

Physical increase 76,747 169,687 246,434 313.2 692.6 1,005.8 5.8Price increase 266,601 621,442 888,043 1,088.2 2,536.5 3,624.7 20.9

TOTAL PROJECT COST 1,231,513 3,020,480 4,251,993 5,026.7 12,328.5 17,355.2 100.0

(in round figures) (1,200,000) (3,000,000) (4,2EO,000) (5,000.0) (12,300.0) (17,300.0)

ProJect Cost by Implementing Agency

(CFAF'OOO) (US$'000) % of Foreign

AsgencyT Local F'or g Total Local Foreign Total Exchange

SAiC(O 9322278 2,251,966 3,184,244 3,805.2 9,191.7 12,996.9 70.7 Pfi >o

Civil works 488,375 969,490 1,457,865 1,993.3 3,957.1 5,950.4 66 5 oEquipmrcut 59,989 380,803 440,792 244.8 1,554.3 1,799.1 84.2 el >

Professional services 95,835 269,574 365,409 391.2 1,100.3 1,491.5 70.1

Contingencies 252,809 593,708 846,517 1,031.9 2,423.3 3,455.2 64.7

Other a/ 35,270 38,391 73,661 144.0 156.7 300.7 52.1 't

DUH 217;O24 338,296 555,320 885.8 1,380.8 2,266.6 60.9_r

Civil works 122,800 160,279 283,079 501.2 654.2 1,155.4 56.6

Equipment 8,300 36,162 44,462 33.9 147.6 181.5 81.3 o

Professional services 12,656 32,144 44,800 51.7 131.2 182.9 71,7

Contingencies 73,268 109,711 182,979 299.0 447.8 746.8 60,0 ort

DGT 49,971 355,004 404,975 204.0 1,449.0 1,653.0 87.6

Professional services 40,000 284,200 324,200 163.3 1,160.0 1,323.3 87.6

Contingencies 9,971 70,804 80,776 40.7 289.0 329.7 87.6

OPT 32,240 75,214 107,454 131.7 307.0 438.7 70.0 8

Civil works 14,000 15,239 29,239 57.1 62.2 119.3 52.1

Equipment 8,400 36,603 45,003 34.3 149.4 183.7 81.3 H

Professional services 2,540 6,468 9,008 10.4 26.4 36.8 71.7

Contingencies 7e300 16,904 24,205 29.9 69.0 98.9 69.8

TOTAL PROJECT COST 1,231,513 3,020,480 4,251,993 5,026.7 12,328.5 17,355.2 71.0

(in rounded fieures) (l1200;000) (3,000,000>(4,200,000) (5,000.0)(12,300.0) (17,300.0) O

a! Working capital and preopening expenses for the pilot hotel

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B. Financing and Lending Arrangements

4.05 The foreign exchange compo,ûent of the project (FS$12.3 million) andinterest during construction (US$1.3 million) would be covered by a US$5.6 millionBank loan and a US$8 million Third Window loan. Interest during constructionaas been included because SAPCO would not begin to earn substantial revenuesuntil three years after completion of the infrastructure works. The loans wouldinclude US$300,000 of retroactive f-nancing to cover SAPCO's expenditures afterFebruary 1, 1976, -for expatriate staff, detailed planning and engineeringstudies and some infrastructure (e.g., a borehole and landscaping) to be under-taken before loan signing.

4.06 The proposed loans would be made to the Senegalese Government. Theportion of the funds needed for the Sali Portudal infrastructure (except forthe water and sewerage components), common facilities, pilot hotel and project

administration (US$8.3 million) would be onlent to SAPCO on the sare termsas the Bank loan. The Government would take the foreign exchange risk.The remainder of SAPCO's financing would be provided by an equity contributionof CFAF 350 million and a complementary subordinated Government loan ofCFAF 600 million. A condition of effectiveness of the loan is the increaseof SAPCO's-subscribed equity by CFAF 350 million and the paying in of CFAF 87.5million. The provisions of the subsidiary loan agreement between the Govern-ment and SAPCO were discussed during negotiations. A condition of loaneffectiveness is the signing of a subsidiary loan agreement, satisfactoryto the Bank, between the Government and SAPCO.

4.07 The funds needed for the replacement of the M'Bour telephoneexchange (US$0.3 million) would be onlent to OPT on the same terms as theBank loan. A condition of disbursement of these funds is the conclusionof a subsidiary loan agreement between the Government and OPT satisfactoryto the Bank. The funds to cover the local costs would be provided by OPT.

4.08 The project financing plan is shown on page 24.

C. Procurement

4.09 Major civil works and equipment contracts would be awarded afterinternational competitive bidding in accordance with Bank guidelines. Inorder to encourage such competitive bidding, project items would be groupedto the extent possible. To permit smaller local contractors to tender forworks of a size within their capability and at the same time to attractforeign bidders, contracts for civil works would be tendered either individ-ually or combined into bidding groups at the bidder's option. In evaluatinginternational bids for purchasing equipment and some building materials,Senegalese manufacturers would be allowed a preferential margin of 15% of thec.i.f. price of competing imports or the prevailing level of customs duties,whichever would be lower. Civil works contracts not éxceeding the equivalent

- 24 -a/

SAPCO Government Government OPT Proceeds of Total (netEquity Funds Loan Funds IBRD Loans of taxes)

(US$ million)Sali Portudal infra-structure andpilot hotel 1.1 0.7 2.0 - 9.2 13.0

Gorée renovationand studies - 1.1 - - 2.8 3.9

M'Bour telephoneexchange - - - 0.1 0.3 0.4

Interest duringconstruction - - - - ].3 1.3

TOTAL PROJECTCOST 1.1 1.8 2.0 0.1 13.6 18.6

SAPCO working capital 0.3 - 0.4 - - 0.7

GRAND TOTAL 1.4 1.8 2.4 0.1 13.6 19.3

(CFAF million)

Sali Portudal infra-structure andpilot hotel 279 153 500 - 2,252 3,184

Gorée renovationand studies - 267 - - 693 960

M'Bour telephoneexchange - - 32 75 107

Interest duringconstruction _ - - - 318 318

TOTAL PROJECT COST 279 420 500 32 3,338 4,569

SAPCO working capital 71 - 100 - - 171

GRAND TOTAL 350 420 600 32 3,338 4,740

a/ The Government confirmed during negotiations that the project would be exempted fromtaxes.

-- 25 -

oL US$200,000 and equipment and materiais contracts not exceeding theequivalent of US$50,000 would be advertised locally and awarded lnaccordance with procedures for competitive bidding to be acceptable tothe Bank provided, however, that the aggregate amount of such contractsdoes not exceed the equivalent of US$1 million.

D. Disbursements

4.10 The proposed loans of US$13.6 million would be disbursed to meet:

(a) 65% of total expenditures, net of taxes, for civil works;

(b) 100% of the foreign cost of imported goods or of the ex-factory cost of locally-prôduced goods procured throughinternational competitive bidding and 75% of otherlocally-procured items;

(c) 80% of the total expenditures for professional services; and

(d) 100% of interest during construction.

The tentative schedule of disbursement of the Bank loans is as follows:

Forecast of Loan Disbursement(US$ '000)

UndisbursedDisburserient Ralance

Quarterly % Cumulative % Quarterly %

Year list Quarter - - - - 13,600 100.02nd Ouarter 584 4.3 584 4.3 13,016 95.73rd Ouarter 353 2.6 937 6.9 12,663 98.14th Cbuarter 562 4.1 1,499 11.0 12,101 89.0

Year 2lst Quarter 758 5.6 2,257 16.6 11,343 83.42nd Quarter 1,522 11.2 3,779 27.8 9,821 72.23rd Quarter 1,919 14.1 5,698 41.9 7,902 58.14th Quarter 1,281 9.4 6,978 51.3 6,621 48.7

Year 3ist Quarter 1,127 8.3 8,106 59.6 5,494 40.42ns Quîrter 1 056 7.8 9,162 67,4 4,438 32.6Jrd ^ua-rter 1,367 10.0 10,529 77.4 3,071 22.64th Q'uârter 1,509 .1 12,038 88.5 1,562 11.5

I Qear 41st Quarter 1,562 il.5 13,600 100.0- -

- 26 -

V. ACCOMODATION AND MARKET PROSPECTS

A. Accommodation Development

5.01 The hotel construction schedule would be as follows:

Year Beds Beginning Operation Total Beds AAvailable

1978/79 400 4001979/80 500 9001980/81 500 1,4001981/82 600 2,0001982/83 500 2,500

Most of this accommodation would be in 3=star vacation villages.

5.02 Investors' interest in Sali Portudal is strong. Local andforeign investors have already asked SAPCO's approval for the constructionof about 2,000 beds. Additional investor interest is expected afterapproval of the project and launching of the promotion campaign. Theproject should be attractive to investors since they would enjoy the ad-vantages inherent in a resort area developed within a carefully plannedphysical framework; they would be provided with long-term ground leiasesat reasonable terms; they would be able to count on efficient utilities;they would benefit from the presence of shopping and recreational facili-ties. In addition, the investors would benefit from Government pro,gramsaimed at providing adequaitely trained personnel (para. 1.12), long-term

financing (paras. 1.03 and 5.03) and attractive incentives. In order to ensurctimely development of the Sali Portudal area and thus maximum returns frompublic funds invested in the project, the Government agreed (a) to suspendauthorizations of hotel investments in areas of the Petite Cote other thanSali Portudal until completion of the accommodation build-up referred to inpara. 5.01; (b) not to grant hotel investors elsewhere in Senegal more favorableincentives than those granted in Sal- Portudal; and (c) to set lease rents forhotel sites elsewhere in Senegal at levels comparable to those in Sali Portudal.

5.03 At a cost of CFAF 3.4 million (US$13,800) per bed in 1976prices and assuming average annual price increases of 8%, the investmentin 2,250 beds (i.e., excluding the pilot hotel) would total about CFAF 9,000million (US$37 million) during the period 1977-82. Assuming that the equityfunds and the medium-term financing from commercial banks would cover 60%of the investment (or about CFAF 5,500 million (US$22 million)), lorig-termdebt financing would be needed in the amount of about CFAF 4,000 million(US$16 million), or an average of CFAF 670 million (US$2.7 million) per year.SOFISEDI'T's projected disbursements for tourism projects total CFAF 1,500million (US$6.1 million) for the 1977-82 period or CFAF 250 million (US$1.0million) per year and could meet about one-third of these long-term debt /capital requirements. The remainder could be filled with funds from otherSenegalese institutions (e.g., Banque Sénégalo-Koweitienne) or from foreign

27 -

oli.cerai or rnuÏtiia,eral institutions (e.g., Caisse Centrale de Coopera-.ior. I~cononiue, European Investmcnt Bank, SIFIDA). The Government agreedt() niake avallable the cornplemencary long-term hotel financing should funds fromother channels fall short of requirements.

5.04 The lease of Sali Portucdal land would be regulated by a cahierdes charges (conditions of lease) which would reflect the provisions of thedevelopment plan and of the convention generale. The cahier des chargeswould aiso spell out the investors' obligations. Provisions would be in-cluded setting standards of service and maintenance as well as architecturaland landscaping norms which would help blend the buildings into the surround-ing scenery and create a harmonious ambiance for tourist activities. Theprovisions of the cahier des charges were discussed during negotiationsand the approval of a cahier des charges acceptable to the Bank would be acondition of loan effectiveness. Since the main purpose of the cahier descharges is to ensure that the environment in which promoters invest will notbe downgraded, it is expected that investors would readily accept its pro-visions.

5.05 Despite Sali Portudal's attractiveness and the Government's andSAPCO's promotional efforts, the risk remains that private hotel investmentmight not be forthcoming in sufficient quantity. To ensure adequate ex-ploitation of the project after the infrastructure has been built, the Sene-galese Government would undertake to supplement private investments if nec-essary, so that sufficient hotel rooms would be constructed to attainacceptable rates of return on infrastructure outlays. Construction of1,500 beds by 1985 (60% of the total proposed under this project) wouldassure an economic rate of return of about 12%, which is considered accept-able in Senegal. During negotiations, assurances were obtained that theGovernment will take steps to ensure that this minimum number of beds isin operation by 1985, unless the Bank and the Government agree otherwisebecause of inadequacy of the potential market.

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B. Market Prospects

5.06 Africa has traditionally been identified as a multiple-stopdestination for wealthy visitors motivated by cultural and wildlifeattractions. In the 1960s, however, favored by the increasing developmentof relatively low-cost inclusive tours, African tourism expanded pro-gressively to include middle-income vacationers in search of uncrowdedbeaches. Such beach-motivated traffic, generally to a single destination,was largely responsible for the rapid growth of tourism in Africa d-uringthe past decade when tourist arrivals increased at an annual rate of 13%(as compared with an 8% annual growth rate worldwide).

5.07 Development of tourism accommodation in North Africa, a destin-ation close to Europe but with a relatively short bathing season, startedin the early 1960s. Longer-haul West African destinations, with a bathingseason extending to winter months, started developing their assets only atthe beginning of' the present decade. Among emerging West African destina-tions for sun and beach-based tourists, Senegal is one of the newesit and al-ready best established. A survey of major European tour operators 1/ con-cluded that Senegal's tourist attractions rate highest among those of WestAfrican destinations and second only to those of Kenya and Morocco :Ln allof Africa. Indeed, the country enjoys considerably lower humidity aLndmuch clearer skies than the Ivory Coast, Togo and Cameroon and virtuallyno rain during the winter. Like The Gambia, the country offers attractiveand safe beaches and truly pleasant weather, but it is additionally favoredby colorful scenic contrasts, varied cultural attractions and a moderncapital that is among the leading metropolises in West Africa. Furthermore,Senegal is the winter beach destination in West Africa nearest the mlainEuropean tourist-generating markets.

5.08. Beach-'based tourism in Senegal started to develop early in 1973when Neckermann opened a 500-bed tourist village on the Petite Côte. Itcontinued with the opening of the 140-bed Domaine de Nianing Hotel (1974);the 100-bed expansion of Neckermann (1975) on the Petite Cote and theopening of the 300-bed Club Mediterranée facility in Casamance (1974k). Theprogressive expansion of capacity on the Petite Cote and in Casamance didnot result in a decline in either occupancies or tariffs. On the contrary,occupancies and tariffs continued to climb (the latter even in real terms)as these two destinations became more established on the internationalmarket. The following table illustrates the evolution of capacities,occupancies and tariffs at vacation villages on the Petite Cote and inCasamance.

1/ The survey polled the views of 13 tour operators on such competitivetactors as climate, beach quality, political stability, cuisine andrelative price competitiveness.

2 9

'etite Core Casamnance TotalBed Bed a/,Tariffs b/ Bed Bed a/ Tariffs c/ Bed Bed a/

Capacity Occ. US_ CFAF Capacity Occ. US$ CFAF Capacity Occ.

1973 500 55% 23 5,600 - - - - 500 55%1974 640 60% 25 6,100 300 45% n.a. n.a. 940 55%1975 740 62% 28 6,830 J00 48% 28 7,000 1,040 58%1976 740 n.d . 31 7,500 300 n,d . 36 8,800 1,040 n.d .

a/ Occupancy computed over 365 days. During the six months it was open in1974 and 1975, the Club Mediteranee in Casamance achieved occupancies of89% and 94% respectively.

b/ Full board at Neckermann-run Aldiana Village (1973 to 1975) and NianingVillage (1976).

c/ Full board at Club Mediterranee-run Cap Skirring Village.

Encouraged by these favorable trends, Club Mediterranee is now proposing a100-bed expansion of its village in Casamance. 1/ The performance of thePetite Côte as a rapidly emerging international resort was all the more re-markable since it coincided with the 1973-74 economic recession irn majortourism supplier markets.

5.09 Implementation of the accommodation development schedule referredto in para. 5.01 at current occupancy levels assumes that bednights on thePetite Cote would increase by 55,000 per annum during the 1975-85 period(equivalent to a yearly growth rate of 15%). This target seems reasonablein light of the favorable response of the market to the increase in accommo-dation along the Petite Côte in the years 1973-75, when bednights increasedby 56,000 annually (73,000 in Petite Cote and Casamance combined). Giventhe high rate of utilization of accommodation on the Petite C6te in peakmonths (over 80%) in the 1973-75 period, it stands to reason that growth ofbednights would have been greater had more capacity been available.

5.10 At the national level, an incremental demand of 930,000 bednightsor 104,000 visitors would have to be attracted to Senegal by 1985 in orderto meet the combined requirements of the proposed development at SaliPortudal and of nearly constructed or planned hotels elsewhere in the country.Implied bednight and visitor annual growth rates for the country overallwould thus be 9.5% and 6% respectively. These growth rates appear plausiblewhen compared with past development trends of world tourism (7% per yearfrom 1965 to 1975), tourism on the African continent (11% per year from1966 to 1975) and tourism in the West African region (16% per year from1972 to 1975). The following table sumnarizes demand and supply in Senegalin 1975 and 1985:

/ Club Mediterranée has also recently negotiated the lease of the 600-bedAlmadies Hotel in Dakar.

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ElsewherePetite Cûte in Senegal Total

1975 Beds in operation 740 2,660 a/ 3,400 a/Bednights ('000) 164 469 632Occupancy rates (%) 61 48 51

1985 Beds in operation 3,300 4,700 8,000Bednights ('000) 722 838 1,560Occupancy rates (%) 60 49 53

a/ Excluding 800 beds which opened in late 1975 in Dakar

5.11 The facilities proposed at Sali Portudal would be mostly of .3-starcategory. Projected full-board tariffs (CFAF 6,000 or US$24 in 1976 pricesnet of sales tax and tour operatorst margins) are slightly below thosecurrently charged in existing vacation villages in Senegal. Suggestedpackage prices for Sali Portudal would include one-, two- and three-weekvacations marketed through tour operators. For the high season, a typicaleight-day/seven-night package on full board has been costed at US$500 :in-clusive of air transport by charter. This package tour price, equivalentto the current minimum tour prices available for Senegal, compares favorablywith those in other competing winter destinations;

a/Comparison of Tour Prices

(In 1975 dollars)From: France (Pariq} From: Germany (Frankfurt) _

No. of Pension No. of 'ensionMinimutm Maximuni Pays elan Minimum. Mawdmpuxn pays Plan

Senegal 496 789 8 Full 515 8 Full533 747 8 Ralf - - -

Ivory Coast 644 789 8 Full 596 612 8 Full667 780 8 Xalf - - - -

Cameroon 661 1,100 8 Full - - -

668 778 8 Ralf - - -

Kenya 511 856 8 Full 334 678 8 Full596 778 8 lHalf 336 554 8 lialf

Thailand - - - - 596 747 8 Full

738 800 8 lialf 436 676 8 Half

a/ Includes air transportation. Alh prices per person for double occupancy.

Sources; France - Jet Tours, Africatour, Vacances 2,000, le TourismeFran§ais, Escotours, Planéte

Germany - Touropa, jKaufhof Reisen, Neckermann Fernreisen

- 3.Li -

5.i2 Tne commercial success of the Sali Portudal project wil' be en-hanced if operators from all origir.ating countries can use charter flightsto bring tourists to Senegal. As stated above, only charters froai Switzer-iand and Germany are allowed on a regular basis at present. During appraisal,the Government indicated its intention to authorize air charter operation forcompanies from countries in addition to Germany and Switzerland. The Govern-ment agreed to use its best efforts to permit before June 30, 1980 air chartertraffic to Dakar to the extent needed by full-scale operations at Sali Portudal.

5.13 Like those to most long-haul destinations, packages to Senegalare relatively expensive and purchased primarily by higher-income segmentsof the travel market. This could be both a strength and a weakness. Onthe one hand, the select nature of Senegalese tourism resorts makes themless vulnerable than lower-priced destinations to possible reductions indisposable income in the tourism-generating markets. On the other hand,it naturally tends to restrict their potential market. Consequently, therisk exists that the market will not respond as favorably as in the pastto future substantial increases in accommodation capacity at Sali Portudal.This could translate into either a slower accommodation build-up, or indeclining occupancy rates or in lower tariffs. The ensuing impact of theseadverse events (taken both individually and in various combinations) on theeconomic viability of the project is shown in Chapter VII, "Economic Justi-fication."

VI. FINANCIAL ASPECTS

6.01 SAPCO would be financially responsible for the investments in Sali

Portudail except fcr water and sewerizge systems which would be the resDonsibilityof the Government. Thus, SAPCO woiild he financïally responsible -or:

(a) the infrastructure investment in roads and parking lots,streetlighting, power supply, telecommunications,

solid waste disDosal svstem, landscanine and irri:t1toncomponents;

(b) the investment in common facilities;

(c) the expenditures for project administration; and

(d) the pilot hotel.

6.02 Even though power supply and telecommunications are revenue-earning utilities, their extension to the project development from thenational network must be financed by the developer, namely SAPCO, as isusual under Senegalese practice. The extensions would then be transferredat no cost to the utilities - SENELEC and OPT respectively - for operation.The end users, namely the varîous tourism enterprises, would then be billeddirectly by the utility companies at their usual tariffs. SAPCO, for its

- 32 -

part, would recoup investment costs of these components by incorporatingsuch costs in the charges for leasing land. Since the investment in theM'Bour telephone exchange would upgrade the national network and benefitthe M'Bour region in general, the financial responsibility for tiis partof the project rests with OPT.

6.03 Separate pro forma income statements were prepared for the pilothotel, for SAPCO's investment and Lor the water and sewerage components.Consolidated sources and applications of funds and balance sheets for SAPCO'soperation are also presented. Inflation rates of 8% per annum urtil 1980 andof 6% afterwards were assumed.

A. Income Statement of the Pilot Hotel

6.04 The investment in the 250-bed pilot hotel, including interest:during construction and project administration, amounts to CFAF 1,080 millionor US$4.4 million and represents 24% of the project cost. A detailed financialanalysis has been carried out for the pilot hotel whose operations are ex-pected to be representative of superstructure operations in Sali Portuldal.The income projections were prepared following the TJniform System of Accountsfor Hotels and are based on the actual experience of hotels on the Pet:iteCote and other relevant areas in Senegal.

6.05 Bed occupancies have been forecast at 50% in the first year risingto 60% in the third year of operations. Since most of the clientele is ex-pected to arrive in groups, most rooms will be occupied by two persons sothat room occupancies will be only marginally higher than bed occupancies.Year-round rates currently achieved in Senegal for rooms and meals have beenadopted, together with the assumptlor that practically all guests wou:Ld stayon a full-board plan. Expenditures for beverages, gift shop and other sales(telephone, laundry) were calculated on a per guestnight basis. The resultingaverage guestnight expenditures in the hotel are as follows (net of sales tax):

CFAF US$

Room 3,200 13.1Fcod 2,800 11.4Beverages 800 3.3Other 400 1.6

Total 7,200 29.4

6.06 The departxuental expenses were estimated as ratios to departmentalsales. A ratio of 35% was used for food and 30% for beverages. The numberof employees per room averages 0.75 in existing hotels. Based or. this ratioand app'licable wage rates in Senegal, the department-al payrolls amount to

-,9% of total sales including allowances for housing, meals andtranspcrt. The. category of "other direct expenses" includes cleaning supplies,replacemenr of linen, china and glassware and agency commissions and represents

8%7 of total sales. The ur.oiszriouted expense categories xeere calculatedusing ratios based on experience in tihe area. (Administrative and generalexpenses were taken equal to 12% of sales; advertising and promotion 2% ofsales; heat, light and power 8% of sales; repairs and maintenance L.5% oftotal investment.) The hotel was charged SAPCO's land rent and servicecharge (para. 6.13). The fîixed provisions (exemption of import dur:ies, salestax for five years and income tax for eight years) of the incentiveslegislation were applied. It was assumed that by the time the hotels wouldhave to pay sales taxes (after five years of operation) they would be in aposition to increase their rates by 10% SO that their receipts would remainconstant. The expectation that the project hotels would be able to chargesomewhat higher rates after Sali Portudal has become established on theinternational market appears reasonable.

6.07 The pro forma income statement of the pilot hotel opera:ion onpage 34 has been prepared assuming that the proceeds of the Bank loan wouldbe onlent for 20 years, including 4.5 years' grace at an interest rate of8.5%. All assets are depreciated over 25 years. Provision for replacementsamounts to one-third of tne investment over the life of the aseet. The hotelwould reach a steady gross operating profit of 23% after the second year ofoperation. The financial (DCF) rate of return for the pilot hotel would be9.0%. The return on equity was computed assuming that the complementaryGovernment loan was an equity contribution. The return on equity X^would be14.8% if the hotel is run by an individual manager and 7.6% if SAPCO hires amanagement company.

6.03 The table on page 35 illiistrates the sensitivitv of the rate ofreturr on the hotel investment and on the equity to variations in hotelreceipts, occupancies and investment cost. In addition, the rate of returnon equity would be sensitive to variations in the terms of the debt capitaland to the type of management contracts. Two debt capital structures havebeen tested. The one reflects the terms of onlending of the proceeds of theBank loan to SAPCO (8.5% i.nterest rate over 20 years including 4.5 years ofgrace covering 65% of the investment) and corresponds to the situation ofthe pilot hotel. The other reflects the terms a private investor can be ex-pected to firnd in Senegai (25% of the investment financed at 12% irtterest

-, 34 -

Projected Income Statement for the Pilot Hotel(CFAF mnillion)

Year 1980 1981 1982 1983 1984 1985

Revenues (1979 prices)Accommodation 184 203 221 221 221 221Food i61 176 193 193 193 193Beverage 47 50 54 54 54 54Other 23 25 28 28 28 28

Total 415 454 496 496 496 496

Departmental Expenses (1979 prices)Cost of sales 76 82 88 88 88 88Payroll 77 84 93 93 93 93Other direct expenses 33 37 40 40 40 40

Total 186 203 221 221 221 221

Undistributed Expenses (1979 prices)Administration & genleral 48 53 57 57 57 57Advertising & promotion 8 9 10 10 10 10Heat, light & power 32 35 38 38 38 38Repairs & maintenance 18 18 18 18 18 18

Total 106 115 123 123 123 123

Local taxes 9 9 9 9 9 9

Profit before ground rent &service charge 114 127 143 143 143 143

Land leases 13 13 13 13 13 13Service charge 14 15 16 16 16 16

GOP (1979 prices) 87 99 114 114 114 114Less depreciation 43 43 43 43 43 43

Net profit pilot hotel (1979 prices) 44 56 71 71 71 71

Adjusted to current prices 48 64 86 91 97 103

Interest 62 58 54 56 5,2 48

Income tax - - - - - -

Net Income (14) 6 32 35 45 55

Casil FiowCasn generazion (current prices) 94 113 138 147 155 165

Debt service 62 105 101 103 99 140'^-come ;ax - - - _ - _

LSec casr-, iow 32 8 37 44 56 25

&37f! ofa1 revenues %) 21 22 23 23 23 232eat service coverage 1.51 1.08 1.37 1.43 1.56 1.12

- 35 -

rate for a term of ten years with four years' grace (Central Bani dis-counting) and 40% of the investment financed at 12% interest ratc fora term of 18 years with four years grace (SOFISEDIT financing)).l'ne rate of return on equity under each financial plan has been computedwith two assumptions concerning the payrment of management fees: no manage-ment fees and a management fee (3% of sales and 15% of GOP):

Internai Rate ofReturn on Internal Rate of

Overall investment Return on Eguity

Including No ManagementManagement Fee Fee

(1) (2) (1) (2)

Best estimate 9.0 7.6 5.1 14.8 11.2

Hotel receipts + 10% 12.0 12.9 9e6 21.2 17.0- 10% 5.5 1.8 0.3 7.7 5.2

Occupancy + 20% 12.5 13.4 10.0 ?2.2 17.9- 10% 7.2 4.8 2.7 11.0 8.0

Invest.ment cost + 10% 7.6 5.6 3.4 12.0 8.8

(1) Assuming long-teri deot at 8.5% interest rate over 20 yearsincluding 4.5 years of grace ! covering 65% of the investment

(2) Assumingdebt financing covering 65% of the investment asfollows: 25% for a term of 10 years at a 12% interest rate(Central Bankdiscounting), 40% for a term of 18 years with 4 years' grace at a12% interest rate (SOFISEDIT terms)

The sensitivity analysis above indicates that financial returns in constantterms Doth on the overall ir.vestment and on equity are particularly sensi-tîve to changes in notel occuDancy rates and tariffs. Thus a significantdecrease in eirner of these èeterminants of hotel revenues could lead toreturnis u:atzractive to -S-invesLors, - situation which might occur if thedemanG did not keep pace witli he "roposed development of accommodationcapacity. in order to reduce ,he risk that this situation occurs, theGovernme-nt agreed thaz no incer.tives wil' be granted to any competing ûew hoteldevelopment which might jeopardize cne financial viability of the propose1developmenc in Sali Portudal. As its initial task, the EAPU will---in consulta-tion with the Bank--establïsh the criceria that will be used to determine whethercompeting developments jeopardize the financial viability of thne Sali development.

- 36 -

B. Financial Analysis cf SAPCO

6.09 The investment considered in this analysis includes all SAPCOinvestment (except for the water and sewerage components); it amounts toCFAF 2,993 million (or US$:L2.2 million) and represents 66% of project in-vestment.

6.1.0 SAPCO's financial objectives would bei

(a) to recover its investments including those in thepower and telecommunications components whichwould be transferred at no cost to SENELEC and OPT;

(b) to earn a satisfactory rate of return on its in-vestments; and

(c) to maintain adequate debt service coverage.

6.11 The following table summarizes SAPCO's estimated sources anciapplication of funds during the construction period to June 30, -1980,

1977-1980CFAF Million US$ Million

Financial Requirements

Construction expenditure, includingproject administration:

Pilot hotel 1,007 4.11Other SAPCO coDmponents 1,609 6.56

2,616 10.68Working capital 171 0.70Interest during construction 206 0.84

Total Requirements 2 12.22

Sources

Proceeds IBRD loans 2,043 8.34Government equily 350 1.43Government loan 600 2.45

Total Sources 2,993 12.22

This financial plan is based on the understanding confirmed during negotiationsthat SAPCO wouid be exempt from import duties and value-added taxes.

6.12 SAPCO's p.aro foa ;'come s tatement (page 38) has been prepared

on the following assumptions:

(a) SAPCO would earn revenues from:

(i) leases of land and property;

(ii) service charge payments by hotels on a bednightbasis to cover the use of common facilitiesand services performed by SAPCO (e.g., street-

lighting, solid waste disposal);

(iii) fees paid by other entrepreneurs such as taxior fishing boat owners; and

(iv) operations of the pilot hotel.

(b) SAPCO's costs based on consultants' estimates would include:

(i) administrative expenses amounting to 10%of sales;

(ii) maintenance expenses equal to 2% of grossfixed assets;

(iii) expenses for utilities; and

(iv) promotion expenses during the first two years ofoperation.

6.13 The levels at which SAPCO will set the leases, charges and fees

to achieve the objectives mentioned in para 6.12 would be attractive to

hotel investors. SAPCO agreed to prepare and discuss with the Bank the

methodology for calculating leases and service charges by December 31, 1978.

For analytical purposes, land leases were assumed at CFAF 40,000 or US$163

per bed per year and the service charge at CFAF 250 or US$1.0 per bednight.These leases and service charges are comparable to those existing in com-

peting destinations.

6.1i The income statement has been prepared assuming that the proceedsof the Bank loan would be onlent for 20 years including 4.5 years' graceat an interest rate of 8.5%. All assets are depreciated over 25 years. Theprojections reflecting market conditions as to the timing and level of landand property leases indicate that SAPCO would earn an 8.9% DCF rate of returnon its operation. By 1983, when the project would be fully operational, thereturn on net assets wouLG be about 11% and would meet the financial objectivesoutlined in para. 6.12. The Government agreed tnat commencing with FY 1986SAPCO would earn a rate of return on properiy valued net assets in operationof not less than 8%, which should give SAPCO sufficient debt service andinterest coverages; additaonally, t-hat SAPCO would not pay dividends if suchdividends would reduce SAPCO's working capital to less than 1.5 times itsdebt due the following year.

- 38 -

SAPCO

Est-Lmated Inc1ome Statement(CFAF million)

Year 1980 1981 1982 1983 1984 1985

Revenues (1979 prices)Land leases 34 71 101 126 126 126Property leases 19 28 28 28 28 28Service charge 41 88 128 162 169 171Fees 5 il 1.6 20 21 21

Total Revenues 99 198 273 336 344 346

Operating Expenses (1979 prices)Administration 26 34 35 35 35 35Maintenance 33 33 33 33 33 33Utilities 16 23 23 23 23 23Promotion 4 4 - - - -

Depreciation 35 70 70 70 70 70

Total Operating Expenses 114 164 161 161 161 .161

NET OPERATING INCOME(1979 prices) (15) 34 112 175 183 185

Adjusted to current prices (16) 39 136 226 251 268

Net profit pilot hotel (1979prices) 44 56 71 71 71 71

Adjusted to current prices _6 6_ 86 91 97 103

TOTAL NET OPERATING REVENUE 32 103 222 317 348 371

Interest-proceeds IBRD loans 128 174 163 152 141 1.30

-Government loan - - - 32 32 32

Total Interest 128 174 163 184 173 162Income tax _ - - _ _ -

NET INCOME (96) (71) 59 133 175 209

Times interest covered bynet operating income 0.25 0.59 1.36 1.72 2.01 2.29

6.15 SAPCO's estimated sources and applications of funds are shown onpage 40. The sources of funds for constructlion and working capi_al, apartfrom the proposed Bank loans, are: (a) a Government equity con,:ribution ofCFAF 350 million; and (b) a boan of CFAF 600 million bearing a 5.5% interestwith a maturity of 11 years includ.ng a grace period of 6 years. Reim-bursement of the complementary loan would be subordinated to reimbursement bySAPCO of the proceeds of the IBRD loans. In ary given year SAPCO wouldrepay the complementary loan only if by doing so, it would not reduce itscurrent assets to less than 1.5 times its current liabîlities (iuicludingthe debt service due the following year). The Goverrnment agreed to pay theincreased equity and the complementary loan as follows:

Date Eguity Complementary Loan Toaal(CFAF million)

Before October 1977 175 75 ,50Before October 1978 87.5 212.5 300Before October 1979 87.5 212.5 300Before October 1980 _ 100 100

Total 350 600 950

The table on page 40 indicates a satisfactory interest coverage of 2.3by 1985. However, in order to preserve a good financial positionl, SAPCOagreed not to incur further debt without Bank approval unless its currentrevenues are sufficient to cover future debt service at least 1.5r times.

6.16 Projected balance sheets (page 41) show a satisfactory Tpositionin 1985 when it is possible to start reimbursing the complementaryGovernment loan. In presenting the balance sheets, fixed assets and de-preciation have been revalued to reflect the anticipated inflation mentionedin para. 6.03.

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SAPC0

Projected Sources and Ap lications of Funds(CFAF mil ion)

YEAR 1977 1978 1979 1980 1981 1982 1983 1984 1985

Sources of FundsInternal Sources

Net operating revenues-hotel - - - 48 64 86 91 97 103-other - - - (16) 39 136 226 251 268

Depreciation -hotel - - - 46 49 52 55 57 62-other - - - 37 80 84 90 95 100

Subtotal - - - 115 232 358 462 500 533

Less: Taxation - - - - - - - - -Internal cash generation - - - 115 232 358 462 500 533

Equity Contribution 175 87 88 - - - - - -

LoansProceeds of IBRD loans 228 607 885 323 - - - - -

Government loan 75 213 212 100 - _ - - _

Total Loans 303 820 1,097 423 - - - - -

TOTAL SOURCES 478 907 1,185 538 232 358 462 500 533

Application of Funds

Construction expenditures 432 839 1,085 260 - - - - -

Working capital 36 23 (-8) 107 (-8) 63 146 195 89

Debt ServiceInterest

Proceeds of IBRD loans 10 45 108 171 174 163 152 141 130

Government loan - - - - - - 32 32 32

Total Interest 10 45 108 171 174 163 184 173 162

AmortizationProceeds of IBRD loans - - - - 66 132 132 132 132

Governmment loan - _ - - - - - - 150Total Amortization - - - - 66 132 132 132 282

Total Debt Service 10 45 108 171 240 295 316 305 444

TOTAL APPLICATION 478 907 1,185 503 232 358 462 500 533

SAPCO

Estimated Balance Sheets(CFAF million)

YEAR 1977 1978 1979 1980 1981 1982 1983 1984 1985

AssetsFixed Assets

Pilot hotel - - - 1,167 1,237 1,311 1,390 1,473 1,561

Less: Depreciation - - 46 95 147 202 259 321- - - 1,121 1,142 1,164 1,188 1,214 1,240

Other fixed assets - - - 1,880 1,993 2,112 2,239 2,373 2,516

Less: Depreciation _ _ - 37 117 201 291 386 486- - - 1,843 1,876 1,911 1,948 1,987 2,030

Total net fixed assetsin operation - - - 2,964 3,018 3,075 3,136 3,201 3,270

Work in progress 442 1,326 2,519 - - - - - -

Working capital 36 59 51 158 150 213 359 554 643

TOTAL ASSETS 478 1,385 2,570 3,122 3,168 3,288 3,495 3,755 3,913

Capital & LiabilitiesEquity

Shareholders' equity 175 262 350 350 350 350 350 350 350Revaluation reserve - - - 225 408 601 807 1,024 1,255Retained earnings - - - (96) (167) (L08) 25 200 409

Total Equity 175 262 350 479 591 843 1,182 1,574 2,014

LoansProceeds of IBRD loans 228 835 1,720 2,043 1,977 1,845 1,713 1,581 1,449Covernment loan 75 288 500 600 600 600 600 600 450

Total Loans 303 1,123 2,220 2,643 2,577 2,445 2,313 2,181 1,899

TOTAL CAPITAL & LIABILITIES 478 1,385 2,570 3,122 3,168 3,288 3.495 3_755 3,913

Return on net fixed assets (%) - - - 1.1 3.4 7.2 10.1 10.9 11.3

Debt/Equity ratio - - - 85/15 81/19 74/26 66/34 58/42 49/51

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C. Incorme St8LetneI. for tne Water and Sewerage Components

6.17 The inveXstment in the water supply and sewerage systems amountsto CFAF 573 million or 'US$:2.3 million, representing 13% of proje-:t cost.Water demand has been projiected on the basis of an average consumption of800 liters per guestnight, including landscape irrigation. In the villages,80% of the people would be served by public standpipes and consume 2.5 litersper day; the remaining 20% wouLd benefit from private connections and con-sume 80 liters per day. Village ccinsumption is projected to inc.?ease by 5%annualLy. Water leakage has been assumed at 15% of total water usage.

6.18 The pro forma income statement projections have been esiablishedon the assumption that hotel operators wouldpay the fuli_cost of water

(CFAF 140 per m in 1979 prices 1/), while villagers \who account for35% oi' total water consumption) would receive the water free. Sewerageincome was estimated at CFAF 57 per m3. It was also assumed tha- thetreated water would be sold for irrigation purposes at CFAF 20 peroperating costs are derived from the cost incurred by SONEES in the operationof small-scale systems. A1. assets have beenr depreciated over 25 years. Theprojections show that the water and sewerage components would ea,n an annualfinancial rate of return or. the investment of 9% or more starting with FY 1984,The Government agreed that SONEES would set its water and sewerage clhargesat levels such that coomenc,ing with FY 1986 SONEES would earn a return of 8%on its net water and sewerage assets in operation.

D. Accounts and Audits

6.19 The Government agreed that:

(a) SAPCO would establish before January 1979 and maintainwithin an adequately staffed accounting department andwith assistance of consultants agreeable to the Bank,two sets of commercial accounts, one for the SaliPortuda:L infrastructure (except the water and seweragesystems) and commron facilities and the other for thepilot hotel;

(b) SONEES would esta'blish before June 30, 1978 and maintainseparate commercial accounts for the Sali Portudal watersystem;

(c) these three sets of accounts would be audited annuallyby independent auditors, acceptable to IBRD; and

(d) the audited accounts and report would be submitted tothe Bank no later than six months after the close of eachfiscal year.

_l ?nis compares with CFAF 115 charged by SONEES in 1975.

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Water and Sewerage components

Estimated Income Accounts(CFAF million)

Year 1980 1981 1982 1983 1984 1985 1986

Water sales ('000 m ) 138 225 326 412 430 434 438

Revenues - (1979 prices)

Water 19.2 31.5 45.6 57.8 60.2 60.8 61.3Sewerage treatment 6.0 15.0 23.0 28.0 29_. 29.0 29.0

Total 25.2 46.5 68.6 85.8 89.2 89.8 90.3

Operating Expenses (1979 prices)Salaries 2.5 4.6 6.9 8.6 8.9 9.0 9.0Maintenance 6.2 6.7 7.2 7.7 8.2 8.3 8.5Power 2.9 4.3 5.9 7.3 7.7 7.8 7.9Tax 2.0 3.0 4.3 5.3 5.5 5.7 5.8Depreciation 10.8 21.6 21.6 21.6 21.6 21.6 21.6

Total operating expenses 24.4 40.2 45.9 50.5 51.9 52.4 52.8

Net Operating Income (1979 prices) 0.8 6.3 22.7 35.3 37.3 37.4 37.5

Adjusted to current prices 0.9 7.2 27.5 45.4 50.8 54.0 57.5

Net assets 571 580 588 695 602 607 611

Rate of return 0.2 1.2 4.7 6.5 6.2 8.9 9.4

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VII. ECONOMIC JUSTIFICATION

7.01 The project is designed to provide basic infrastructure and otherfacilities to support a major tourism development. The investment programto be justified includes the infrastructure, common facilities, pilot hotel,irrigation and Gorée renovation to be financed under the proposed projectand in addition, the superstructure facilities (e.g., hotels, shops) whichare expected to be developed by the private sector to serve the Sali I'ortu-dal visitors. All costs and revenues are in 1976 prices.

A. Benefits of Tourist Activities

7.02 The gross benefits, resulting from the development of tourismnfacilities would be the expenditures in the project area of tourists 'whostay in the resort accommodation facilities. In the existing vacationvillages, occupancies are high year round. The project is not expectedto divert traffic from the existing beach-based hotels. As for hotels inDakar, they cater predominantly to an altogether different market consistingof business visitors and vacationers on multiple-stop tours of Africa. Con-sequently, the visitor bednights in the project area have been assumed torepresent incremental tourism traffic to Senegal as a whole, rather than adiversion of demand from existing destinations in the country.

Investment Cost Assumptions

7,03 Investment costs for the infrastructure components of the projecthave been derived from the construction cost estimates described in Chapter II.The investment costs for hotels (CFAF 3.4 million or US$13,900 equivalent perbed) are derived from the historic cost of similar accommodations in Senegal.Investment costs of facilities outside the resort which cater to Sali Portudalvisitors (e.g., shops and restaurants) have been estimated on the basis of anincremental capital/sales ratio of 0.5, as calculated by consultants on thebasis of experience in the area. The investment costs (excluding repliacements)of the project amount to CFAF 11,800 million (US$48.2 million) brcken downas follows:

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CFAF Million As % of Tota:

Infrastructure Development a/ 1i843 15.6

Sali Portudal infrastructure 1,341Gorée renovation 410M'Bour telephone exchange 92

Superstructure Development 9,992 84.4

Hotels b/ 8,781Common facilities c/ 341Investments outside theproject area d/ 870

Total 11,835 100.0

a/ Net of taxesb/ Including working capital and preopening expensesc/ Facilities financed under the project and detailed in Chapter IIId/ E.g., investment in shops, handicrafts production and transportation

outside Sali Portudal

The following replacement expenditures were assumed:

Annual Replacement RateType of Work % of Original Investmient

Infrastructure 2Hotels 1Common facilities 3

Investment outside Sali Portudal 3

7.04 Economic costs of superstructure operations are derived from theprojected financial accounts of hotels, restaurants and other facilitieswhich in turn are based on actual accounts of similar establishments inSenegal. l/ Incremental gross operating profits of utility companies gen-erated by servicing the Sali Portudal accommodation have been assumed tocover the maintenance expenses of the Sali Portudal utilities works andhave therefore been excluded from rate of return calculations. The oper-ating and maintenance costs of nonrevenue-earning infrastructure items(such as streets, streetlighting and landscaping) as well as the costs ofservices such as solid waste disposal and environmental sanitation are in-cluded in the operating costs of SAPCO. 2/ The share of Senegalese tourism

l/ These estimates were prepared by consultants and verified in the field.2/ These are shown in the projected income statement of SAPCO (Chapter VI).

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promotion and training costs attributable to the project, estimated at 1%and 2% respectively of the gross receipts 2J from visitors and arounting toCFAF 54 million in 1979 rising to CFAF 171 million from 1984 on, have beenincluded in the rates of return computation. Incremental airport costshave been assumed to be covered by increased airport revenues and both areexcluded from the calculations.

Benefit Assumptions

7.05 The gross benefits to the economy resulting from the projectwould be the expenditures of tourists attracted to the Sali Portudal area.In sensitivity tests, the gross benefits to the economy were adjusteddownward to account for possible tariff reduction and slower accomnmodationbuild-ups. The benefits associated with the irrigation component and theprovision of utilities to the neighboring villages are minor and qave notbeen quantified. The benefits generated by the investment in Gorée havebeen taken into account only to the extent that they appear in the pro-jected expenditures of Sali Portudal visitors (e.g., in the excursion ex-penditures). F.ven using this conservative approach, the proposed invest-ment in Goree would yield a satisfactory rate of return. Nonetheless, themajor justification for the investment in Goreée is the preservation of anarea of cultural and historical importance which enhances Senegal's attrac-tiveness as a tourist destination.

7.06 Although development of Sali Portudal beyond the 2,500 hotel bedsplanned under this first phase will require additional infrastructure in-vestment, it will make use of some of the infrastructure provided under theproject (such as the main power, water, sewerage and telecommunicationslines, streets and access roads). Thus, a share of the benefits resultingfrom development of the Sali Portudal area beyond the capacity planned inthe first phase would be properly attributable to the present project. Tothe extent that these benefits have not been included in the computation ofthe rates of return, these rates are underestimated.

7.07 The experiditures of visitors to Sali Portudal have been estimatedon the basis of tourist expenditures at similar facilities in Senegal andcompeting destinations. Visitors to Sali Portudal would spend an averageof CFAF 10,400 (US4,42) per guestnight. 2/ The breakdown of average dailyexpenditures is summarized below:

1/ The 1% share of promotionai experses compares with 0.6% of gross receiptsspent by the authorities in 1974. The training costs amounting toCFAF 114 million in 1984 and thereafter are based on an annual cost ofabout CFAF 83,000 per employee.

2/ This amount corresponds approximately to the average daily expenditureper tourist in 1974 (para. 1.07), adjusted to 1976 prices.

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Breakdown of Exrder.dt,ures to Sali Portuda:l

Uotels Outside ̀ dotels TotalCFAF US$ CFAF US$ CFAF US$ %

Accoiimodations, foodand beverages 6,800 27.8 600 2.5 7,400 30.3 71

Shopping - - 1,500 6.1 1,500 6.1 14

Sports andentertainment - - 400 1.6 400 1.6 4

Excursions and othertransportation - - 600 2.5 600 2.5 6

Other a/ 400 1.6 100 0.4 500 2.0 5

Total 7,200 29.4 3,200 13.1 10,400 42.5 100

a/ Includes telephone, laundry, etc.

Gross Operating Profits

7.08 The gross operating profits projected for the main categories ofvisitor expenditures are shown in the table on page 48 for the year 1983when all the hotels and other facilities are in operation.

Shadow Price Considerations

7.09 Given the extent of unemployment and underamployment on thePetite Côte and in Senegal in general, the opportunity cost of unskilledlabor is likely to be lower than wages received by employees in the projecthotels. The economic cost of unskilled labor is assumed equal to 50% of itsmonetary value. Since wages received by the unskilled labor force employedin the hotels amount to 30% of the total wage bill paid by hoteliers, thebase case rate of return computation weighs the hotel wage bill with ashadow price of 0.85. All receipts are assumed to be in foreign exchange.The foreign exchange component of capital ihvestments is based on theproject costs and other mission estimates. The official exchange rate wasused because no estimates of the shadow exchange rate were available. Forillustrative purposes, however, a sensitivity test was made with i:he use ofa 20% premium on foreign exchange. The use of the land was valued at thebenefits foregone in agriculture (US$200,000 per year).

Internal Rate of Return

7.10 Each project facility and equipment will have a different economiclife. For purposes of rates of return calculations, however, a d,scounting

Average Daily Visitor Expenditures Gross Operating ProfitIn Hotels Outside Total Hotels Outside TotalCFAF CFAF CFAF CFAF _ CFAF % CFAF %

Accommodation, foodand beverages 6,800 a/ 600 7,400 1,656 b/ 23 b/ 180 30 1,836 b/ 24 b/

Shopping - 1,500 1,500 - - 525 35 525 35

Sports andentertainment - 400 400 - - 80 20 80 20

CoExcursions and o

other - - -

Transportation - 600 600 - - 180 30 180 30

Other 400 100 500 -b/ -b/ 33 33 33 c/ 33 c/

Total 7,200 3,200 10,400 1,656 b/ 23 b/ 998 31 2,654 25

a/ Includes CFAF 6,000 for accommodation and foodb! Gross operating profit of "other" expenditures in hotels is input to the gross operating profit of

expenditures on accommodation, food and beverages in hotelsc/ Excludes gross operating profit of "other" expenditures in hotels

norizon of 30 years was chose-n wit', no -esi aual values. With tne previousassumptions; the internai econoxnic rate of return on the project would be16.1%. Assumxing that about three-quarters of t4e equity and the debt cap-ital for hotel investmnent would conre from abroad, and that three-*quartersof the hotels would be foreign-managed, the rate of return on the nationalinvestment outlays for tne tourism-reiated works (including the IBRD loan)would be 18.8%. This rate is higher than the rate of return of tte overallproject because foreign hotel investors would not benefit froem tourist ex-penditures outside the hotels and would receive an after-tax return lowerthan the rate of return of the overali project. Since the return on boththe overall investment and the Senegalese funds in it (including ,he IBRDloan) are quite satisfactory, the project is acceptable under any reason-able assumption about its impact on foreign capital inflow into the economy.

Sensitivity

7.11 The rate of return would be sensitive to changes in investmentcosts, gross operating profits, the timing of hotel development, hotel re-ceipts and shadow pricing of foreign exchange. Rates of return resultingfrom alternative assumptions for each of these variables have beefn computedand are summarized below:

Rate of Return

Best estimate 15.8Without shadow pricing of labor 13.9Investment cost + 20% 12.9Gross operating profits

+ 10% 17.5- 10% 14.1

IHotel development atover Il years 14.0over 15 years 13.1

Shadow pricing of foreign exchange(20% premium) 20.8

a/ Instead of five years in base case

7.12 The rate of return is most sensitive to changes in the shadowprice of foreign exchange and labor and to a lesser extent, to the pace ofhotel development and to the level of hotel receipts.

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B. Distribution of Project Benefits

7.13 rhe three main beneficiaries of the project would be;

(a) the Government;

(b) the workers to be employed in tourism activitiesand the residents of villages which would beprovided with improved utilities; and

(c) the private investors in hotels and relatedtourism facilities.

7.14 The following table indicates the distribution of benefitsdirectly generated by the Sali Portudal development:

Share of Investments Share of Benefits

Government direct]y orthrough SAPCO 41 b/ 43

Hotels 49 37

Other private a/ 10 20 c/

Total 100 100

ai Includes common facilities in resort area plus otherfacilities outside such as shops, taxis, etc.

b/ Includes Gorée investmentc/ Includes benefit:s from excursions to Gorée

7.15 The Government would benefit both directly and indirectly fromits investment in the area. In addition to the direct earnings throughSAPCO, the Government would receive sales taxes on the expenditures oftourists for accommodations, food, beverages and souvenirs, indirect taxesand duties on items purchased by the tourism industry, as well as incometaxes on firms and individuals engaged directly in the tourism sector.Government budgetary expenditures for the project would include the costof vocational training and the share of the Government's tourism promotionattributable to the project. The following table summarizes the Govern-ment's projected budgetary receipts and expenditures for selected years:

ReceiptsSales and Net Budgetary

Expenditures Income Taxes Other Taxes Total PositionCFAF US$ CFAF USe CFAF US$ CFAF US$ CFAF US$Mil Mil Mil Mil Mil Mil Mil Mil Mil Mil

1979/80 54 0.2 35 0.1. 87 0.4 122 0.5 68 0.31985/86 171 0.7 306 1.2 366 1.5 672 2.7 501 2.01990/91 171 0.7 629 2.6 366 1.5 995 4.1 824 3.4

Taking into account the net budgetary receipts and the net income fromSAPCO's operations, the internal rate of return to the Government on itsinvestment would be 14.5%.

7.16 The workers (and their families) who are employed in tourism activ-ities as a result of the project would benefit primarily from the higher wagelevels in tourism as compared with those in agriculture. The investment invillage improvements and the irrigation component would benefit the area'sinhabitants including those not directly involved in the tourism sector. Theprivate hotel investors are estimated to obtain DCF returns on total capitalinvested in hotels of about 9% in constant terms (para. 6.08). The DCF re-turn on capital investment outside hotels (shops, restaurants, nightclubs,etc.) would be somewhat higher.

C. Balance of Payments

7.17 The foreign exchange costs of the proposed project would becovered by the IBRD loan. The foreign exchange costs of the accommodationfacilities would amount to 68% of their investment costs and would roughlybe covered by the anticipated foreign capital inflow from foreign investorsand lenders.

7.18 From 1979 on, the expenditures of foreign tourists are projectedto result in substantial inflows of foreign exchange earnings, as indicatedin the table below. The outflow of foreign exchange as a result of theproject's operations would include the import component of operating costsfor hotels and other superstructure activities, and also the import componentof replacement costs. Additional outflows of foreign exchange would be re-quired in arder to service foreign debt (both the IBRD loan and the foreignloans obtained from hotels) and for the payment of dividends to foreignequity investors. These foreign exchange receipts and costs are sunmmarizedbelow for selected years (CFAF/US$ millions, in constant prices):

F.E. Receipts F.E. Costs Net Impact on Balance of PaymentsYear CFAF US$ CFAF US$ CFAF US$ % of F.E. Receipts

1978/79 759 3.1 479 2.0 279 1.1 371981/82 4,232 17.2 1,290 5.3 2,942 11.9 701986/87 5,694 23.2 2,050 8.4 3,643 14.8 64

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D. .Employment Effects

7.19 The development of hotels and other superstructure facilities isexpected to generate a substantial number of jobs in the Petite Cote area,as shown in the table below. During implementation of the project, therewill also be a sizable number of construction workers employed in the projectarea. In addition to employment generated directly in the hotels, shops,nightclubs, restaurants and excursion activities, an estimated two indirectjobs for every direct job are expected to be created in related sectors(such as handicrafts, agriculture, food processing, furniture manufacturing,distribution, etc.). The employment projections for selected years aresummarized in the table below:

Rotels and Related Construction Indirectly inYear Commercial Activities Industry Other Sectors Total

1979/80 400 440 580 1,4201983/84 1,225 120 1,880 3,2251985/86 1.,225 30 1,880 3,135

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VIII. SaCZ: 1.2ACT

8.01 The project includes a number of works specifically directedtoward improving the living conditîons of the population ln the SaliPortudal area;

(a) four villages in the area would be provided w1th freewater service since the corresponding charges *vouldbe borne by the hotels; similarly, Sali Portudal wouldbe provided with free sewerage service;

(b) site and services would be provided for the expansionof Sali Portudal village; and

(c) 20 ha of irrigated area, which would produce fruit andvegetables for the tourist complex, would create em-ployment opportunities for 40 families.

8.02 The project is not expected to have significant psycl.clTg'cal orsocial costs. On the basis of the experience gathered from tlie operationsof existing villages, the influx of foreign visitors would be welcoîred bytl-e Senegalese who have a reputation for hospitality and friendlinesE'. Theworkers would live in M'Bouir, a spontaneously growing city, and woulid nlotbe restricted to a "company town." M'Bour, within easy reach of the resort,,wou'ld also be a popular excursion for visitors who would have an opportunit-v-to participate in some aspects of Senegalese life. Far from disruiptingtraditîonal activities in the area, tlie tourismi developinent in Sali Portudalis expected tc improve the life chances of the local residents by prrvidli-an expanding market for local food and fish production. At present, iimittedagricultural activity takes place on the project site wlich belongs in thenational domain. The Government wculd chtain the land needed for the pro.-posed development by compensating the local pnpulation witli other land, ilu-cluding the irrigated perimeter constructed under tlie project where fruitand vegetables for tourist consumption would he grown. The fishing activl-*ties in Sali Portudal would not be harapered bv the developtent. At present,fisi-ermen experience difficulties in marketing their catch. Tourisin devel-opment would provide them with a steady market for quality production. Apart of the Resort CoFmmi ttee's activity would be to promote food productionnear the project site and to assist local farmers and fishermen in marketingtheir products.

8.03 The Government is, however, poorly equipped to handle social prob-lems which could arise around the resort. The project provides for theservices of a sociologist to monitor the impact of the project on the socialfabric of the M'Bour region and who would advise DGT and SAPCO on stepsaimed at ensuring that contacts between the population and the touristswould result not in distrust and hostility but rather in understanding andmutual respect.

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IX. AGREDIENTS REACHED AND RECOMMJNDATION

9.01 During negotiations, the Government agreed:

(a) to create, staff and fund an EAPU within DGT and refusethe benefits of Law 72-43 for projects evaluated neg-atively by EAPU (para. 1.13);

(b) to complete registration of Sali Portudal's land beforeNovember 1, 1977, to lease it to SAPCO before January 1,1978 and to give SAPCO the use of the land needed forproject implemenltation until December 31, 1977 (para. 2.06);

(c) to agree with the Bank before appointing expatriatestaff to EAPU and to provide qualified counterparts(para. 2.30);

(d) to discuss the recommended marketing program with theBank before January 31, 1979 and to implement the agreed-upon program on EL continuing basis (para. 2.30);

(e) on the timetable for the employment of consultants(para. 2.32);

(f) to prepare a critical path network of all project worksbefore April 1, 1978 and ta review such network everysix months in consultation with the Bank (para. 3.04);

(g) to inform the Bank of any proposal to replace SAPCO'spresident and to consult with the Bank on proposalsto change SAPCO's organization and to fill vacancies inthe positions of technical director, commercial directorand architect adviser (para. 3.08);

(h) to suspend authorization of any hotel investment insites on the Petilte Cote other than Sali Portudal untilcompletion of the accommodation build-up under theproposed project, not to grant hotel investors else-where in Senegal more favorable incentives than thosegranted in Sali Portudal and to set lease rents for hotelsites elsewhere in Senegal at levels comparable to thosein Sali Portudal (para. 5.02);

(i) to make available necessary comnlementarv debt financing forhotel investments (para. 5.03);

(j) to take steps to ensure that a minimum of 1,500 beds bein operation by 1985 unless the Bank and the Governmentagree otherwise because of inadequacy of the potentialmarket (para. 5.05);

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(k) to use its best efforts to permit before June 30,1980 air charter traffic to Dakar to the extent

needed by full-scale operations at Sali Portudal(para. 5.12);

(1) not to grant incentives to any new hotel developmentwhich would jeopardize the financial viability of theSali project (para. 6.0e);

(m) that SAPCO would prepare and discuss with the Bankthe methodology for calculating leases and servicecharges by December 31, 1978 (para. 6.14);

(n) that SAPCO would earn an 8% return on net assetscommencing with FY 1986 (para. 6.14);

(o) on the disbursement schedule of the complementaryGovernment loan and a scliedule for paying in ofSAPCOes equity (para. 6.15);

(p) that SAPCO would not pay dividends if such dividendswould reduce SAPCO's working capital to less than1.5 times its debt due the following year (para. 6.14)and would not incur further debt without Bank approvalunless its current revenues are sufficient to coverfuture debt service at least 1.5 times (para. 6.1.5); and

(q) that SAPCO would establish before January 1979 andmaintain within an adequately staffed accounting de-partment and with the assistance of consultants, twosets of commercial accounts, one for the SaliPortudal infrastructure and one for the pilot hotel;that SONEES would establish before June 30, 1978 andmaintain separate commercial accounts for the SaliPortudal water system; and that these three sets ofaccounts would be audited annually by independentauditors acceptable to the Bank no later than sixmonths after the close of each fiscal year (para. 6.19).

9.02 Conditions of effectiveness of the proposed loans are:

(a) enactment of Sali Portudal's development plan (para. 2.05);

(b) promulgation of a decree initiating procedures for theregistration of Sali Portudal land,the signing of aconvention ge'ne'rale satisfactory to the Bank andtransfer of the Sali Portudal land to SAPCO (para.2.06);

(c) selection of suitable management for the pilot hotelon terms and conditions satisfactory to the Bank(para. 2.21);

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(d) signing of inleragency agreements (para. 3.03);

(e) increase of SAPCO's subscribed equity by CFAF 350million and the paying in of CFAF 87.5 million(para. 4.06);

(f) signing of a subsidiary loan agreement betweenSAPCO and the Government (para. 4.06); ard

(g) approval of a cahier des charges acceptable to theBank (para. 5.04).

9.03 Conditions of cLisbursement of the related funds are:

(a) Bank approval of a marketing program for the Relaisde l'Espadon (para. 2.28);

(b) appointment within DUH of an architect in chargeof the Gorée works (para. 3.10); and

(c) conclusic*r of a subsidiary loan agreement betweenOPT and the Government satisfactory to the Bank(para. 4.07).

The proposed project is suitable for a Bank loan of US$5.6 millionequivalent for a term of 20 years including a grace period of 4.5 years, andfor a Third Window loan of US$8 million equivalent on standard Third Windowterms.

APPENDIX

Related Documents and Data Available in the Project Files

A. General Reports and Studies Relating to the Sector

1. Tourism statistics, 1973 through 19752. Note Technique - Le Secteur Tourisme

Quatrième Plan de Développement Economique et Social(1973-77)

3. Market Study - Alfredo Balasso - April, May 19744. Les Investissements Touristiques au Sénégal - BCEAO - Dec. 1975

5i Investment Code6. Enquê'te sur la Structure de la Demande Touristique et les

Préférences Déclarées des Touristes Visitant le Sénegal,August 1974

B. General Reports and Studies Relating to the Project

1. Développement Touristique de la Petite Cote - Study by theUNDP consultants, Louis Berger>International

2. Plan Directeur de Rénovation de l'Ile de Gorée - Study byUNESCO consultants, May 1975

3. Aspects Juridiques et Financiers du Programme de Renovationde l'Ile de Gorée - Study by UNESCO consultants, August 1975

4. Legal BackgroundGor 5eSali PortudalLand IssuesIncentives

C. Selected Working Papers, Tables, Drawings, Maps

1. Cost estimates2. Background on hotel and construction industries3. Working papers on the sector4. Working papers on the financial analysis5. Working papers on the market aspects6. Working papers on the economic analysis7. Organization and statutes of SAPCO

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