Docmtm of

The World Bank

FOR omcAL USE ONLY

LI§>/I 22- T .

Rqipu No. P-6206-UG

MEMORANDUM AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERUNATIONAL DEVELOPMENT ASSOCIATION

TO TME

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

IN AN AMOUNT OF SDR 10.0 MILLION

TO

THE REPUBLIC OF UGANDA

FOR A

COTTON SUBSECTOR DEVELOPMENT PROJECT

APRIL 15, 1994

MI CROGRAPH I CS

Report No: P- 6206 UGType: MOP

This document has a restricted distribution and may be usd by reipients only in the peformanse oftheir official duties. Its contents may not otherwise be iclosed withot World Mank authorization.

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CURRENCY EQUIVALENTS

Currency Unit = Uganda Shillings (USh)US$1 = USh 1,200 (at appraisal)SDRI = US$1.39 (as of March 28, 1994)

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS AND ACRONYMS

APC Agricultural Policy CommitteeARP Agricultural Rehabilitation ProjectAS Agricultural Secretariat in the Bank of UgandaASAC Agricultural Sector Adjustment CreditBOU Bank of UgandaCB Cooperative BankCDO Cotton Development OrganizationEFMP Economic and Financial Management Project(GDP Gross Domestic ProductGOU Government of UgandaIFAD International Fund for Agricultural DevelopmentLMB Lint Marketing BoardMAAIF Ministry of Agriculture, Animal Industry and FisheriesNARO National Agricultural Research OrganizationNGO Non-Government OrganizationSAC Structural Adjustment CreditSCRP Smallholders Cotton Rehabilitation Project (IFAD)UCB Uganda Commercial Bank

GOVERNNT FISCAL YEAR

July 1 - June 30

FOR OFFICIAL USE ONLY

REPUBLIC OF UGANDA

COTTON SUBSECTOR DEVELOPMENT PROJECT

Credit and Project Summary

Borrower: Government of Uganda (GOU)

Beneficiaries: Agricultural producers, cotton ginning industry, marketing agents, CottonDevelopment Organization, Ministry of Agriculture, Animal Industry and Fisheriesand National Agricultural Research Organization

Amount: SDR 10.0 million (US$14.0 million equivalent)

Terms: Standard IDA terms with 40 years maturity.

Cofinancier: IFAD (US$12.5 million equivalent)

Financing Plan (US$ million):

Local Foreign Taxes Total

IDA 5.9 8.1 - 14.0

IFAD 5.5 7.0 - 12.5

CDO 2.5 - - 2.5

Commercial Banks 0.5 - - 0.5

GOU 0.2 - 1.7 1.9

TOTAL 14.6 15.1 1.7 31.4

Economic Rate of Return: 24%

Poverty Categor5: Not applicable

Staff Appraisal Report: Report No. 11970-UG dated April 15, 1994

Maps: IBRD 25455: Cotton Growing and Seed Multiplication AreasIBRD 25456R: Cotton Ginneries

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

MEMORANDUM AND RECONMMENDATION OF TIIE PRESIDENTOF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE

EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THF, REPUBLIC OF UGANDAFOR A COTTON SUBSECTOR DEVELOPMENT PROJECT

1. I submit for your approval the following memorandum and recomnmlenidatioln on aproposed de-elopment credit to the Governmlent of Uganda (GOU) for SDR 10.OM (US$14.0Mequivalent) to help finance a Cotton Subsector Development Project. The proposed credit wouldbe on standard IDA terms with a maturity of 40 years. The International Fund for AgriculturalDeveiopmlenti (IFAD) would cofinance the project with a loan of US$12.5M equivalent. TheEuropean Investment Bank, Kreditanstalt fur Wiederaufbau and the Interniational FinanceCorporation are expected to provide parallel financing for the credit requirements of ginneries.

Country and Sector Background

2. The Ugandan economy has been disrupted by years of political instability and civil strife.The economic recovery now under way depends heavily on agricultural growth. In 1991, theagricultural sector accounted for 51 percent of GDP, contributed over 90 percent of exports, andprovided 80 percent of employment. Agricultural GDP (average 1989/91) was distributed asfollows: food crops (71 percent); livestock products (17 percent); fisheries ;nd forestry (7percent); and export crops (5 percent). Only one-third of food crop production was marketed,compared with two-thirds of livestock production and all export crop output. Agricultural outputcomes almost exclusively from the 2.5 million smallholders, 85 percent of whom have less than 2hectares of farmland each. These farmers are poor (income per capita at market exchange rateswas about US$140 in 1990), and they use few puichased inputs. Improved agricultural seedvarieties, husbandry and inputs will substantially expand the scope for a sustainable increase inproduction and income in the smallholder sector.

3. IDA has supported the Government's Economic Recovery Program through a series ofstructural adjustment operations. The current Structural Adjustment Credit (SAC, Cr. 2314-UG)includes measures for improving tax revenue collection, redirecting the allocation of expenditurestoward developmental priorities (such as agricultural research and extension), improving thefinancial management of the Government and streamlining the administration of key ministries,including the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF). The recentlyapproved Economic and Financial Management Project (EFMP) will support furtherimprovements in the efficiency of the civil service. The agriculture sector has been supportedthrough infrastructural rehabilitationi and area development projects, operations in the sugar,livestock and forestry subsectors, a sector adjustment operation, and more recently with projectsto improve extension, research and training capacity.

4. GOU's efforts to reform the production and marketing arrangements in agriculture since1980 have received support from two IDA-funded projects supporting sectoral adjustment: (a) theAgricultural Rehabilitation Project (ARP, Cr. 1328-UG), which closed in June 1992; and (b) theAgricultural Sector Adjustment Credit (ASAC, Cr. 2190-UG), effective as of January 3, 1991.Under the ARP, the physical rehabilitation of export processing facilities in the cotton, coffee andtea subsectors was financed. No provision was made, however, for supporting policy reforms.Perhaps the most important contribution of this project was its support for the newly establishedinterministerial Agricultural Policy Committee (APC) and its executive arm, the AgriculturalSecretariat (AS) in the Bank of Uganda (BOU). Through this structure, GOU could monitorproduction and incentive problems facing farms and processing industries and was able to

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implement ARP conditionality which required that farmgate prices for export crops be adjusted tomaintain production incentives. While still administered by Government, prices and margins forexport crop purchases and processing were adjusted upwards during the early 1980s to maintainproduction and export incentives within a monopolistic, state-controlled systeni. There was somesupply response in the coffee, tea, cotton and tobacco subsectors, subsequently dampened bysecurity problems in the mid-1980s, the collapse of international markets, and a decline in realfarmgate prices.

5. ASAC was designed in 1990 to support the two objectives of the Government'sAgricultural Sector Adjustment Program: to support financial stabilization and to promoteagricultural growth and diversification. ASAC complemented the Government's macroeconomicpolicies to promote stabilization and growth objectives, with a focus on coffee subsector reforms.In addition, funds were provided to improve policy making in the agricultural sector andstrengthen agricultural research and extension capacity; and to support the promulgation of a newLand Law that would extend freehold tenure. The project has been successful and provides amodel for the process of liberalization of other export crop marketing systems.

6. There is a remaining agenda for structural change in agriculture, particularly in the cottonsubsector. In the 1960s and early 1970s, the country obtained up to 25 percent of its exportearmings from cotton. Owing to the political, military and economic turmoil that engulfed thecountry between 1972 and 1986, the cotton industry suffered a sharp decline. The seedmultiplication system collapsed and the planting seed for the two varieties (SATU and BPA)became mixed, with the result that some of the characteristics that earned Ugandan lint a premiumon the international market were lost. Moreover, the population of oxen, needed for landpreparation in the cotton growing areas of the Northeast, was decimated by the civil wars andcattle raiding. Furthermore, by the late 1960s, cotton ginning had become the monopoly of thecooperative unions (Unions) while the Lint Marketing Board (LMB) was granted a completemonopoly of the cotton lint and cotton seed trade. Management standards in the Unions andLMB deteriorated drastically. At present, all but five of the eighteen Unions are insolvent ornearly so. A prime cause of their insolvency is the heavy burden of debt (US$44.5 million) thatthey owe to the Cooperative Bank (CB), the Uganda Commercial Bank (UCB) and LMB. Thebulk of the debt was incurred for the purpose of rehabilitating the ginneries but, in mostinstances, rehabilitation was not completed. LMB is also indebted to foreign buyers of cotton forfailing to honor supply contracts. The management and financial difficulties of the Unions andLMB led to a complete erosion of two factors responsible for the rapid expansion of cottonoutput, namely, ease of marketing the crop at the village level and the reliability and promptnessof payment to farmers.

Project Objectives

7. The project would support Government's strategy to revive cotton production and exportsthrough increased competition in cotton processing and marketing and improved supportingservices. The specific objectives of the project are: (a) improved performance in the cottonindustry through liberalization of cotton processing and export marketing; establishment of anefficient regulatory framework for the cotton industry; and improved managerial, technical andoperating efficiency in a creditworthy ginning industry; (b) improved efficiency and impact ofsupporfing services through support for national research and extension programs; and (c)improved delivery mechanisms and availability of credit and seed. These objectives wouldcontribute to the broader sectoral objective of increased agricultural growth and diversification.

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Project Description

8. The project would provide financial assistance to support three broad sets of activities:(a) restructuring the cotton industry through (i) revision of the legal framework, liquidation ofthe Government regulatory and marketing agency and establishment of an industry-basedregulatory body (the Cotton Development Organization - CDO), and support of its operations; (ii)transformation of Union-owned ginneries into creditworthy operators, including strengtheningmanagement and technical training to the industry; and (iii) support of Government oversight ofthe subsector policy reforms; (b) improved supporting services through support for nationalresearch and extension programs; and (c) improved delivery mechanisms and availability ofcredit and seed through provision to farmers of short and medium term credit, the latter tosupport a program to re-introduce ox ploughing, and improved seed.

Project Financing

9. The total cost of the project is estimated at US$31.4M with a foreign exchangecomponent of US$15. 1M. The proposed IDA credit of US$14.OM would finance about 47percent of project costs, net of duties and taxes. A breakdown of costs and the financing plan areshown in Schedule A. Amounts and methods of procurement and disbursements, and thedisbursement schedule, are shown in Schedule B. A timetable of key processing events and thestatus of Bank Group operations in Uganda are given in Schedules C and D, respectively. TheStaff Appraisal Report, No. 11970-UG, dated April 15, 1994, is also attached.

Project Implementation

10. Individual ministries and agencies will be responsible for implementing their relevantproject components. The APC, in its role as the agricultural policy coordinating arm of theGovernment, would be responsible for coordination of all policy matters and inter-agencycoordination issues. To facilitate this coordination, the AS, consistent with present arrangements,would continue to provide secretariat and executive services to the APC. The APC will meetevery six months to review reports prepared by the AS on policy and inter-agency issues relatingto the cotton subsector. The project components covering extension services and researchprograms would be integrated into the existing organizational fratnework of MAAIF and theNational Agricultural Research Organization (NARO). The rehabilitation of animal holdinggrounds component relating to thle restocking of oxen will also be implemented by MAAIF. CDOwill be responsible for implementing its own component, including facilitating seed procurementand distribution, and strengthening management and technical training to the ginning industry.An APC sub-committee, chaired by the Permanent Secretary, Ministry of Trade and Industry, andcomprising the Secretary General, Uganda Cooperative Alliance, and representatives from theMinistry of Finance and Economic Planning, the Attorney General, the Auditor General, BOU,UCB, and CB will be responsible for implementing the Ginneries Restructuring and Debt ReliefProgram. The Director of AS will act as Secretary to the sub-committee. The short and mediumterm credit programs would be managed by BOU.

Lessons from Past Experience

11. Project implementation in Uganda has been affected by unnecessary governmentinterventions, inadequate and tardy counterpart funding, inadequate salaries, and weakmanagement and financial systems. These problems are being addressed by measures under the

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SAC and EFMP, as well as under the periodic Public Expenditure Reviews which identified acore public investment program. Based on the lessons learned from reforms in the coffeesubsector under ASAC, the current project has been designed to facilitate the transfer ofmanagement and/or control of the ginneries and cotton-rel!ted activities to creditworthy operatorsin the private sector.

Country Assistance Strategy and Rationale for IDA Involvement

12. The proposed project supports the Country Assistance Strategy (CAS) discussed by theBoard in May 1993, and the updated version of April 1994, which emphasizes economic growth,poverty reduction and increased exports. Agriculture is vital to attaining these goals. With itsfocus on an export crop (cotton) which is grown in the smallholder sector and has the potentialfor substantial growth, the proposed project supports the CAS objectives. IDA has beensupporting GOU's economic recovery program and, in the agricultural sector, these reforms havebeen deepened under ASAC. The proposed project is further underpinned by a thorough analysisin the Agricliltural Sector Memorandum of March 1993, and would broaden the policy reformsand investments aimed at maintaining strong agricultural growth. IDA's continued presence isessential to encourage GOU to bring about the difficult reforms in the legal, policy andinstitutional framework. These reforms are necessary to assure competitiveness of the cottonproduction system, to increase the productivity and incomes of smallholders, and to contribute tothe diversification of the export base. There is strong commitment on the part of GOU, asevidenced by its success in licensing private firms to lease ginneries and compete with LMB inlint export, and its willingness to enact the enabling legislation that would establish a level playingfield in this vital industry. Further, GOIJ recognizes that cotton, as a profitable annual crop, hasthe potential to be an important engine of growth, especially in the northern and eastern regionsof the country. The project supports several IDA initiatives such as poverty alleviation, privatesector development, and capacity building. It would complement existing projects in theagricultural sector such as the Agricultural Research and Training Project, Agricultural ExtensionProject, and the IFAD-financed Smallholders Cotton Rehabilitation Project (SCRP).

Agreed Actions

13. The organizational changes to be supported under the project have been designed onthe basis of considerable discussions within GOU and between GOU, IFAD and IDA. TheCotton Development Act, setting the legal framework for restructuring the cotton industry, hasbeen promulgated. The regulatory framework would be established through CDO. Modalities forrestructuring of the ginning industry and the debt relief program have been outlined in a directiveissued by GOU. The extent of debt relief that would be offered to the Unions nas also beendetermined. Assurances, supported by second tranche conditionalities under SAC II, have beenobtained that the Government would, by March 31, 1995, ensure the transfer of ginneries, with atotal ginning capacity of 100,000 bales, to creditworthy operators. Conditions of CreditEffectiveness would be: (a) formal establishment of CDO, and appointment of its ManagingDirector; (b) approval and notification of debt relief to the Unions by the Minister of Finance andEconomic Planning; (c) finalization of the Project Implementation Manual, satisfactory to IDA;and (d) effectiveness of the IFAD loan agreement. Conditions of disbursement would be: (a) forthe Cotton Systems Research Component - the finalization by NARO of its cotton researchprogram, including terms of reference for a study to determine the future cotton breeding policy;and (b) for the Extension Services, Extension Training, and Rehabilitation of Animal HoldingGrounds components -- the finalization by MAAIF of work programs for these components.

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Environmental Aspects

14. The project is expected to have a beneficial impact on the environment. The projectwill provide significant support for Integrated Pest Management (IPM) research and development.Extension messages would include: proper husbandry and soil management practices; croprotation; effects of uncontrolled erosion; and IPM practices, including the use of biologicalcontrol methods. However, pesticide use under the project is expected to increase in advance ofIPM development and adoption. Farmer education and training unde; the extension program will,to some extent, mitigate the environmental and health risks. The Government will regulate andcontrol procurement of chemicals and all stages of distribution by the private sector. A Statute,Control of Agricultural Chemicals, has been enacted for this purpose. There are no majorenvironmental issues in the project. It is classified as Category B. B-ank guidelines onprocurement of pesticides will be followed. A National Environmental Action Plan for Uganda isbeing prepared with assistance from IDA.

Program Objectives Categories

15. The project addresses poverty directly and indirectly. It is focussed mainly onsmallholders who are presently producing at subsistence levels. Since smallholders are the majoragricultural producers in the economy, the improved production would increase smallholderincomes, as well as export and tax revenues. The projec. would benefit women through theoverall improvements in technology transfer as well as through special emphasis on appropriateextension messages, nutrition, and incormie-generating activities. The project would supportprivate sector development through enabling legislation and the availability of credit forentrepreneurs. The project would also support capacity building in the sectoral ministries bymaking them directly responsible for the implementation of their respective components.

Project Benefits

16. The project is expected to have a significant impact on the organization andmanagement of the cotton industry through the involvement of the private sector in: (a) ginneryownership, which would make prompt payment to farmers a reality; (b) ginnery management,which would ensure a steady flow of seed cotton from villages and make it possible to have easeof marketing at village level; and (c) improving the quality of ginning and marketing to raise theginning percentage and lint value and make it possible to raise prices and incomes of farmers.There would be additional benefits if the ginneries, following their restructuring, were to becomeinvolved in the overall vertical integration of the industry, including seed and input supply,ginning and marketing. These changes, complemented by the re-introduction of ox ploughing,would lead to arn increase in the numbers of farmers growing the crop and consequently anincrease in area planted and in the national output; overall cotton lint production would increasefrom 55,000 bales in 1993 to about 160,000 bales by 1999, equivalent to US$44M in exportvalue.

Risks

17. The project is subject to policy and financial risks. Safeguards against these risks havebeen included in the project design as well as in other supporting operations. The ma,or policyrisk relates to GOU's commitment to implement the debt relief and associated restructuringprograms for Union-owned ginneries and the willingness of the Unions to restructure their

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business. The Cotton Development Act would pave the way for restructuring and diversifiedownership. Government has agreed upon and notified the creditor banks and cooperative unionsof the modalities for cotton-related union debt relief and restructuring. The modalities carry athreat of foreclosure by the creditor banks of ginneries which fail to restructure their business.The extent of the debt relief to Unions has also been determined. Approval and notification ofdebt relief by the Minister of Finance and Economic Planning would be a condition of CreditEffxctiveness. The transfer of at least 100,000 bales of ginning capacity to creditworthy andviable operators would be a condition of release of the second tranche of SAC II. Thefinancial risk relates to access to credit by both ginnery operators and cotton producers. Ginneryoperators may not be able to satisfy the lending criteria. The project would, therefore, providebusiness advisory services to assist operators in preparing viable business plans and in obtainingaccess to financing. At the producer level, credit accessibility is constrained by weak deliverymechanisms. The proposed project is expected to deliver credit through the ginneries, and wouldinclude a pilot to test an alternative credit delivery mechanism, using a well-experienced NGO.The alternative mechanisms and experiences would be evaluated at the mid-term review of theSCRP in April 1995.

Recommendation

18. I am satisfied that the proposed credit would comply with the Articles of Agreementof the Association and recommend that the Executive Directors approve it.

Sven SandstromActing President

Attachments

Washington D.C.April 15, 1994

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Schedule AUGANDA

COTTON SUBSECTOR DEVELOPMENT PROJECT

Project Cost Summary iL

PROPOSED FINANCING PLAN a/(US$ M)

COMPONENT IDA IFAD) CDO/ GOU TOTALCLB

A. COTTON INDUSTRY1. Regulatory Framework 2.4 - 1.0 0.1 3.52. Policy Coordination & Support 1.6 - - 0.1 1.73. Gin. Restructuring & Debt Relief 0.5 - 0.0 0.54. Gin. Technical Training 1.2 - - 0.2 1.4

SUB-TOTAL 5.7 1.0 0.4 7.1

B. SUPPORTING SERVICES1. National Research Program 2.2 - 0.4 2.62. National Extension Program 2.4 - - 0.3 2.73. National Extension Training Program 2.5 - - 0.4 2.9

SUB-TOTAL 7.1 - - 1.1 8.2

C. CREDIT AND SEED PROGRAMS1. Credit Programs and Studies - 9.8 0.5 - 10.32. Rehabilitation of Animal Holding Ground 0.5 - - 0.2 0.73. Seed Proc. Dressing and Distribution 0.7 2.7 1.5 - 5.1

SUB-TOTAL 1.2 12.5 2.0 0.2 16.1

TOTAL PROJECT COSTS 14.0 12.5 3.0 1.9 31.4

a/ Numbers may not add due to rounding.

Financing Plan (US$ million):

Locl Foreign Taxes Total

IDA 5.9 8.1 | 14.0

IFAD 5.5 7.0 | 12.5

CDO 2.5 - - 2.5

COMMERCIAL 0.5 - 0.5BANKS

GOU 0.2 1.7 1.9

TOTAL 14.6 15.1 1.7 31.4

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Schedule BPage I of 2

UGANDA

COTTON SUBSECTOR DEVELOPMENT PROJECT

Summary of Proposed Procurement Arrangements

(US$ M)

ICB LCB Other b/ NBF c/ AllSources

Vehicles, Machinery 3.0 - 0.5 - 3.5and Equipment (2.6) - (0.4) (3.1)

Civil Works 1.0 1.2 - - 2.2(0.8) (0.9) (1.7)

Short Term & Medium - - - 10.1 10.1Term Credit - -

Technical Assistance - - 3.7 - 3.8and Training - - (3.5) (3.4)

Incremental Recurrent - - 7.6 4.3 11.8Costs (5.8) (5.8)

4.0 1.2 11.8 14.4 31.4(3.4) (0.9) (9.7) (14.0)

a/ Numbers may not add due to rounding. Figures in parenthesis are estimatedamounts to be financed under the proposed IDA Credit.

b/ Includes procurement of consultant services following IDA guidelines, and localprocedures involving supporting quotations and direct order and for incrementalrecurrent cost.

c/ Non Bank Financed.

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Schedule BPage 2 of 2

UGANDACOTrON SUBSECTOR DEVELOPMENT PROJECT

Summary of Disbursement Schedule

(US$ M)

CATEGORY AMOUNT OF CREDIT % OF EXPENDITURETO BE FINANCED

Civil Works 1.5 75%

Vehicles, Equipment and Supplies 2.9 100% of foreign and85% of local

Technical Assistance 2.2 100%and Training

Incremental Recurrent Costs 4.7 90% upto US$1.0 Mand, 50% thereafter

PPF Refinancing 1.2

Unallocated 1.5

TOTAL 14.0

Estimated 1DA Disbursement (US$ MIJUon)

MDAfscal Year 94 95 96 97 98 99 2000

Annual 1.1 2.5 4.1 2.7 2.2 1.0 0.4

Cumulative 1.1 3.6 7.7 10.4 12.6 13.6 14.0

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Schedule C

UGANDA

COITTON SUBSECTOR DEVELOPMENT PROJECT

TIMETABLE FOR KEY PROCESSING EVENTS

(a) Time taken to prepare October 1992 to November 1993

(b) Prepared by A Task Force, comprisingrepresentatives from MAAIF, NARO,Ministry of Trade and Industry, and theAgricultural Secretariat, assisted byconsultants, and overseen by theAgricultural Policy Committee.

(c) First IDA Mission April 1993

(d) Aplpraisal Mission Departure June 27, 1993 1/

(e) Negotiations March 22 - 29, 1094

(f) Planned Date of Effectiveness July 1, 1994

(g) Relevant PCR Uganda - Agricultural Rehabilitation ProjectCredit 1328-UG

I/ This report is based on the findings of an appraisal mission in June 1993. The missionwas led by K. Loganathan (Sr. Financial Analyst, Uganda Resident Mission/TaskManager), and included V. Mackrandilal (Sr. Economist), T. Sharif (Sr. FinancialAnalyst), J. Matovu (Operations Officer, Resident Mission), N. Ofwono (OperationsOfficer, Resident Mission), Stephen Carr (Consultant, Agriculturalist), F. Gillhain(Consultant, Cotton Agronomist), D. Parish (Consultant, Private Sector DevelopmentSpecialist), S. Postma (Consultant, Project Analyst), M. Naur (Consultant, Women inDevelopment), ard J. Rwampwanyi (Consultant, Ginning Engineer). S. Mustafa(Consultant, Agronomist) participated on behalf of IFAD. Contributions based onprevious mission and subsequent review were also made by Aloysius Ordu (Economist),Agi Kiss (1PM Specialist), J. Cameron (Consultant, Cotton Expert), A. Low (Consultant,Cotton Agronomist), C. Sarvaas (Consultant, Gender and Credit), and Ms. C. Jones(Operations Analyst). The Director and staff of the Agricultural Secretariat, Bank ofUganda, also contributed to the preparation of the report. The peer reviewers wereHamdy Eisa (Sr. Agriculturalist) and A. Spurling (Pr. Agriculturalist). Ms. S. Gangulyand Mr. F. Colaco are Managing Division Chief and Department Director, respectively.Mmes Enid Kyomugisha, Agnes Kaye, Sarah Nsibirwa, Edith Ekwaro, MaxineGunawardane and Minerva Naldo provided assistance in editing and document processing.

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STATUS OF BANK GROUP OPERATIONS IN UGANDA Schedule DA. STATEMENT OF BANK LOANS AND IDA CREDITS Page I of 3

(u of December 30 1993)

Thirty (30) credits fully disbursed, 761.46of which SECALs, SAL& and Program Loans/Credits as

Cr. 12520 1982 Uganda Reconstrucdon Cr. 11 70.00Cr.13280 1983 Uganda Agric. Rehab. 66.17Cr. 14740 1984 Uganda Reconsrucdoa m 50.00Cr.A0340 1988 Uganda Economic Recovery Credit 24.00Cr. 18440 1988 Uganda Economic Recovery Ctedit 65.00Cr. 18441 1989 Ugands Economic Recovery Credit 1.70Cr. 18442 1989 Uganda Economic Recovery Credit 25.00Cr.A0341 1990 Uganda Economic Recovery Credit 12.80Cr.18443 1990 Uganda Economic Recovery Credit 1.50Cr.20871 1991 Uganda Eeonomic Recovery n 2.00Cr.20872 1992 Uganda Eeonomie Recovery U 1.60Cr.23141 1993 Uganda SAC I 1.40cr.20870 1990 Uganda Economic Recovery Credit 125.00

Cr. 14340 1984 Uganda TAS n 15.00Cr.15390 1985 Uganda Agricultural Development 10.00 1.50Cr. 15600 1985 Uganda Second Power 28.80 0.62Cr.15610 1985 Uganda Potrolum Explortio Prom 5.10 1.41Cr. 18030 1987 Uganda Fourth Highway 18.00 1.84Cr. 18240 1987 Uganda Forestry Rehabiltatoa 13.00 1.16Cr. 18690 1988 Uganda South West Ag. Rahab. 10.00 6.35Cr.18930 1988 Uganda Sugar Rehabitatio 24.90 6.52Cr. 19340 1988 Uganda Healt" Roe. 42.50 14.03C*r.1910 1988 Uganda Tech. Ast. m 18.00 0.62Cr. 19620 1989 Uganda Public Eneyrpi 15.00 5.39Cr.19650 1989 Uganda Education V 22.00 6.05Cr.19910 1989 Uganda Telecom n 52.30 9.39Cr.20880 1990 Uganda Poverty & Soc. Cos 28.00 9.40Cr.21240 1990 Ugaada Water Supply U 60.00 56.47Cr.21760 1991 Uganda Livestock 21.00 20.21Cr.21900 b/ 1991 Uganda Ag. Sector Adj. Credt 100.00 34.76Cr.22060 1991 Uganda Urban 1 28.70 22.29Cr.22680 1991 Ugada Power [i 125.00 110.70Cr.23140 b/ 1992 Uganda SAC I 12S.00 27.10Cr.23150 1992 Uganda Enterprise Developrmt 65.60 64.55Cr.23620 1992 Uganda Northern Reconstric. 71.20 67.05Cr.24180 1993 Uganda Eon. & Fnancal Managemt 29.00 22.60Cr.24240 1993 Uganda Agric. Extenso Prog. 15.79 13.84Cr.24460 1993 Uganda Agric. Roe. & Trg. 25.04 23.SSCr.24930 1993 Uganda Primary Eduw. 52.60 48.24Cr.2496(W b/ 1993 Uganda Fiancia Sector Adjusmen Ct. IO 9.00

Total 8.40 1882.99 674.67of which repaid 8.40 34.84

Total hId by Bank& IDA 1848.15Amount sold 8.32

of which repaid 8.32TOTAL Undisbursed 674.67

a/ Approved after FY80.b/ SAL, SECAL or Program Loan/Credt.

01-21-94

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Schedule DPage 2 of 3

B. STATEMENT OF IFC INVESTMENTS IN UGANDA

(as of December 30, 1993)

. .. -. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~......

1993 AEF-Clovergem Canning Preserv & Process 0.85 0 00 0.851993 AEF-NOE-GE Canning Preserv & Process 0.65 0.00 0,651994 AEF-SKYBLUE Hotels & Restaurants 0.51 0.00 0.511985,1993 DFCU Development Finance Companies 0.00 0.98 0.981993 JUBILEE 0.00 0.10 0.101965 MULCO Spinning, Weaving & Flinshing 4.32 0.71 5.031984 TAMTECO Mfg of Food Producs NEC 1.62 0.00 1.621972 TPS Tourism Services 1.11 0.00 1.111984 Uganda Sugar Cocoa Chocolates, Sugar 8.00 0.00 8.001985 Uganda Tea Food Products NEC 2.81 0.00 2.81

Total gross commitments 19.87 1.79 21.66Less: Repayments, cancelations,

exchange adjustments,terminations and sales 9.16 0.71 9.87

Total Commitments now held by IFC: 10.71 1.08 11.79Total Undisbursed 2.01 0.00 2.01Total Outstanding IFC 8.70 1.08 9.78

01-224-94ug2edl.wkl

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Schedule DPage 3 of 3

DISBURSEMENT ISSUES

1. The active IDA portfolio for Uganda at the end of December 1993, consisted of 27projects for a total commitment of US$1.09 billion, with US$674.6 Million undisbursed. Thisincluded 24 investment projects for a total of US$796 million committed and US$514 millionundisbursed. Over the last five years, the investment portfolio has shown a trend of rapidlyincreasing undisbursed balance, growing at an average rate of 17% per year, whereasdisbursements remained at about US$68 million per year on average, with US$78.8 milliondisbursed in FY93. The corresponding disbursement factor (ratio of disbursements to cumulativenet undisbursed balance at the beginning of FY) declined from an average of about 20% forFY89-91 to about 15% in FY92-93. Meanwhile, problem projects increased from 14% in FY92to 19% of the portfolio in FY93.

2. The portfolio's modest disbursement performance is due in part to its relatively young agestructure (average of 4.8 years). However, as suggested by the increasing number of problemprojects, there are also other issues which have undermined progress.

3. The major issues are: (a) shortage of counterpart funds resulting from poor mobilizationof domestic resources and an excessive portfolio of externally funded projects; (b) weakness inproject management and initial delays in meeting conditions of effectiveness; and (c) otherdeficiencies regarding procurement, management of special accounts, and compliance with auditcovenants.

4. An in-depth Public Expenditure Review (PER) is being completed, following upon asimilar exercise in FY93 to reach agreement on a core investment program for which theGovernment will provide adequate counterpart funding (even if this means postponing orcancelling non-core projects). A CPPR (Country Portfolio Performance Review) held in earlyMarch, 1994 finalized restructuring of the Bank's portfolio on the basis of the frameworkprovided by the PER. At the same time, Government and the Bank reviewed progress inovercoming generic implementation issues identified during previous CPPRs. Other plans forPY94 include: (a) organization of Sector Implementation Reviews in association with theresponsible project managers; (b) provision by the Resident Mission of greater support to projectmanagers on procurement, special accounts, disbursements, and auditing; and (c) continuation ofthe practice of preparing implementation manuals for new projects. As a result of these variousinitiatives, it is expected that most problem projects will be either closed or upgraded by the endof FY94.

MAP SECTION

IBRD 25455

30 326 1:;/ UGANDA0IOYULTE RS O3 l 100 50 I

_________________SUDAN

- -00 100 COTTON SUBSECTORDEVELOPMENT PROJECT

COTTON GROWING, SEED MULTIPLICATION,.... li>,fomfflOpl3sd24>O, .. \vr .. T. A+>4.t@ \ t )AND RESEARCH CENTERS

hlh 000k ol \ SATU SEED GROWING AREA

BPA SEED GROWING AREASATU SEED MULTIPLICATION AREA

BPA SEED MULTIPLICATION AREAS

b SERERE RESEARCH STATION (SATU)

ZAIRE ,.9/t. NAMULONGE RESEARCH STATION (BPA)

RIVERS

R FERRIES

-2 . J ;0 | / °CP \_ , > | g t \ \t - PRIMARY BITUMEN ROADS 2I-

s, - PRIMARY GRAVEL ROADSUNSURFACED ROADSRAILROADS

/ SELECTED TOWNS AND VILLAGES

__ I / ; - - < '\4 t b}U,p ' 4+ v b8 DISTRICT CAPITALS

80 MBALE WiTERN NATIONAL CAPITALDISTRICT BOUNDARIES

+ 58tUGYO )) \j~Lmim < g-- 1 5 + ~\id/ )}tWt REGION BOUNDARIES

) :' MP4 x AB E N2S D E < > U e g o os IN T E R N A T IO N A L B O U N D A R IE S

* Djst1 t noaDi shin e s cofaoide kOet , itao ithoaas

TOS- /OLA0E >i E M't CEN A KENYA

, LakO Qe MA\ AM.< K4M° A'l i D ' < P e N G A I A . - , V , 4 X .~~~~~~~~~~~~~~~~~~~~~U~A~O

*e^Tt * < ; Lote X <2WR-| I~~~~AKE VICTORIA 2

b l e ~~~~~~~~TANZANIA\

l- 30- RWAN3DA \) t O \ 3TJ AJANUARY 1 994

IBRD 25456R3v ~~ ~; 11

SUDAN4' d.nomi,,ofan. 04d oy A' UADA4

oA.e, inhn ,hown _ sUGANDA

tYiWsoden00kOt tCOTTON SUBSECTOR=::m oany°{ee ,f -OYO ) DEVELOPMENT PROJECT

KITGUM COTTON GINNERIES

*ARUA - KOTIDO 0 GINNERIES OF THE EARLY 1960's

) GL~uXw o GINNERIES OPERATIONAL- 1992/93ZAIRE J, NLU ~ ~~~~~~~~~~~~~~~~~~~~~~G SILENT GINNERIES AWAITING

ZAIRE o.op > MOROTOS (* COMPLETION OF REHABILITATIONNEBBI. ~~~~~~~~~~~~~~MOROTO

NEBI., , D *' Q ' ^'' w ' DISTRICT CAPITALS

_, o; URA 0tn J9. r\ iI NATIONAL CAPITAL

''1AC Al. DISTRICT BOUNDARIESRIVERS

MASINDIe'7-, 2.. 1 - INTERNATIONAL BOUNDARIESKXt' ASND!"''@' *b SOROrhw

° * KUMIHOIMAe. . *0m KAPCHORW}

PALLISA

~ MlALEKtBOGA oKAMULI 0

}gt ,* KIEBALE * a ip LUWERO NKJBALE ~ ~ ~ ~ ~ ~ ~ O

BUNOIBUGYO -N_ B TORORO° r

'FORT .MUBENDE KltIEO 50 ICo WPORTAL 0 IAG

.aF ,s,D . *. KAMPALA J JINJA 0 MuSS s o

r/ KASEStF, } .¢^,p r MPIGI KENYA

SUDAN

Edward

MBARARA@O UGAD

RUKUNGIRI ARRAKAI LRE

TANZANIA~~~~~~~~~~~~~~~~~~ANAI

jfWANTAZANIA

APRIL 1994