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The World Bank

FOR OFFICIAL USE ONLY

Report No.: 16821

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF UGANDA

AGRICULTURAL SECTOR ADJUSTMENT CREDIT(Cr. 2190-UG)

June 27, 1997

Agriculture OperationsEastern and Southern AfricaAfrica Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

At Appraisal: USh 510-USS IAt Completion: USh 1,050 - USS I

ABBREVIATIONS AND ACRONYMS

AEP Agricultural Extension ProjectAGDP Agricultural Gross Domestic ProductAGSEC Agricultural SecretariatAPC Agricultural Policy CommitteeAPSEC Agricultural Policy SecretariatARDP Action Research and Development ProgramARTP Agricultural Research and Training ProjectASAC Agricultural Sector Adjustment CreditASAP Agricultural Sector Adjustment ProgramASMP Agricultural Sector Management ProjectBOU Bank of UgandaCDO Cotton Development OrganizationCIR Country Implementation ReviewCMB Coffee Marketing BoardCMBL Coffee Marketing Board LimitedCMU Coffee Monitoring UnitCOREC Coffee Research CenterCP FAO/World Bank Cooperative ProgramCSBM Coffee Subsector Budgetary and Monitoring SystemCSDP Cotton Subsector Development ProjectCSM Coffee Subsector ManagementDCA Development Credit AgreementERP Economic Recovery ProgramFAO Food and Agricultural OrganizationGOU Govemment of UgandaHARE Headstart Program for Agricultural Research and ExtensionICR Implementation Completion ReportIDA Intemational Development AssociationIFAD Intemational Fund for Agricultural DevelopmentLPRP Land Policy Research ProgramLPRC Land Policy Research CommitteeMISR Makerere Institute for Social ReseachMAAIF Ministry of Agriculture, Animal Industry and FisheriesMFEP Ministry of Finance and Economic PlanningMLHPP Ministry of Lands, Housing and Physical PlanningMOTI Ministry of Trade and IndustryNARO National,Agricultural Research OrganizationNARSP National Agricultural Research Strategy and PlanNAESP National Agricultural Extension Strategy and PlanNGO Non-govemmental OrganizationPASP Program for Agricultural Sector PlanningPCU Project Coordination UnitPIU Project Implementation UnitRM Resident MissionSAC Structural Adjustment CreditSCORE Sub-committee on Research and ExtensionUCDA Uganda Coffee Development AuthorityUNEX Unions Export ServicesUCTF Uganda Coffee Trade FederationUSAID United States Agency for International DevelopmentVODP Vegetable Oil Development Project

FISCAL YEAR OF BORROWER

Govemment of UgandaJuly I - June 30

Vice President C. MadavoCountry Director J. AdamsTechnical Manager S. GangulyTask Team Leader T. Sharif

FOR OFFICIAL USE ONLY


REPUBLIC OF UGANDA


CONTENTS

PREFACE ...................................................................... i

EVALUATION SUMMARY ..................................................................... ii

INTRODUCTION ........................................................................ i

PROJECT OBJECTIVES ....... .............................................................. ii

IMPLEMENTATION EXPERIENCE AND RESULTS . . .................................................................... iv

FUTURE OPERATIONS AND KEY LESSONS LEARNED .................................................................. . . .. Vi

PART 1: PROJECT IMPLEMENTATION ASSESSMENT .................................................................. . . .. I

A. STATEMENT/EVALUATION OF OBJECTIVES ...................................................................... I

B. ACHIEVEMENT OF OBJECTIVES . ..................................................................... 2

C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT .................................5

Implementation Record ........ ............................................................. 5

Major Factors Affecting Project Implementation ............................ .......................................... 9

D. PROJECT SUSTAINABILITY ...................................................................... . 10

E. BANK PERFORMANCE ...................................................................... 11

F. BORROWER PERFORMANCE ....................................................................... 11

G. ASSESSMENT OF OUTCOME ................................................................................ 12

H. FUTURE OPERATIONS ........................... 13

1. KEY LESSONS LEARNED ........................... 13

PART I: STATISTICAL TABLES .......................... . . . 15

A. Aide Memoire

B. Evaluation Summary of Government's Completion Report

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.


REPUBLIC OF UGANDA


PREFACE

I. This is the Implementation Completion Report (ICR) for the Agricultural Sector AdjustmentCredit (ASAC), Uganda, for which Credit 2190-UG of SDR 69.5 million (US$ 100 million equivalent)was approved by the International Development Association (IDA) on December 13, 1990 and becameeffective on January 3, 1991. The Credit closed on December 31, 1996 after three extensions to theoriginal closing date of June 30, 1995. SDR 68.3 million (98%) of the credit was disbursed, with the lastdisbursement taking place on June 24, 1997 following the processing of the final withdrawal application.SDRI.2 million (US$1.7 million) is being canceled.

2. The ICR was prepared by staff of the FAO/World Bank Cooperative program (CP) on behalf ofAFTA l/CD4 of the Africa Region. Contributions to the report were made by Brian Falconer (AFCO4)Charles Magnus (AFTS 1), Edgardo Quisumbing, Fred King and Taqi Sharif (AFTA 1) and it wasreviewed by Sushma Ganguly, Technical Manager, AFTA1. The ICR is based on information obtainedfrom the project files and on the findings of an ICR mission which visited Uganda in April/May, 1997.The mission's aide-memoire is attached as Appendix A. The borrower prepared its own assessment ofthe project performance, a copy of which is attached as Appendix B.

Messrs. T. Lamrock (Economist/Mission Leader) and L.E. Eturu (Management Specialist, Consultant).

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REPUBLIC OF UGANDA


EVALUATION SUMMARY

INTRODUCTION

1. The project was designed and appraised in the context of far reaching macro-economic andsector policy reforms by the Government of Uganda (GOU) during the period 1991-93, following thesubstantial gains made under the Economic Recovery Program (ERP) of 1988-1990. As an integral partof these reforms, the Agricultural Sector Adjustment Program (ASAP) set out the Government's guidingpolicies for reform and growth in the agricultural sector and formed the basis for external support byIDA under ASAC. Foreign exchange availability for agricultural inputs was limited and the Governmentrecognized the importance of market reform, research, extension and sectoral management as keycontributors to growth in the agricultural sector. Coffee production was well below past levels andcontinual problems were being faced by Government in financing the procurement of the crop under theGovernment-owned Coffee Marketing Board (CMB). The ASAC project was, therefore, designed as ahybrid, with complementary adjustment (84% of project costs) and investment (16% of project costs)components. Reforms in the agricultural sector were rightly focused on coffee, owing to the crop'simportance in terms of employment and rural incomes, and in trade and foreign exchange earnings. Thereform program was set out in a letter of development policy to IDA in November 1990.

PROJECT OBJECTIVES

2. ASAP's objectives were: (a) to promote agricultural growth and diversification by institutional,price and tax reform in coffee procurement, marketing and export, and by strengthened agriculturalresearch, extension and sectoral management, and (b) to support the financial stabilization of the coffeesubsector by controlling credit expansion through improved institutional arrangements for the financingof coffee procurement and marketing. To complement IDA's support to the Government'smacroeconomic reforms, ASAC was designed to help address the Government's need for balance ofpayments support and policy reform (the adjustment component), financing essential agricultural sectorimports, including fuel, and to assist in capacity building of institutions charged with the responsibilityfor the implementation of the Government's agricultural growth strategy (the investment component).

3. A number of key policy areas were supported under the project. These included: (a) appropriatemeasures to ensure that positive interest rates were maintained on commercial bank loans, including cropfinance loans; (b) implementation of the Coffee Subsector Budgeting and Monitoring System andadoption of a Coffee Subsector Budget for 1992, based on expenditure priorities; (c) issuance of coffeeexport licenses to the private sector; (d) adoption of measures to facilitate the marketing of a significantshare of coffee exports by the private sector; (e) revision of the coffee export taxation system to furtherincrease incentives to exporters; (f) the institutional and financial restructuring of CMB, and

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strengthening institutional arrangements for regulatory functions consistent with GOU's exportliberalization strategy; (g) adoption of an Agricultural Sector Rehabilitation and Development Plan and(h) establishment of a National Agricultural Research Organization (NARO) to plan and oversee theimplementation of a national agricultural research program. The project's objectives were highlyrelevant to the liberalization of the economy in general, and were consistent with the Government'sobjectives in encouraging private sector trade and investment. The reforms in the coffee subsector wereaimed at liberalization while recognizing that a number of policy changes were appropriate as a firststage intervention in reforming a subsector with entrenched parastatal control.

4. The investment component, as appraised, comprised the following five sub-programs: (a) HeadStart Program for Agricultural Research and Extension (HARE) to implement high-priority adaptiveresearch and extension activities through a series of sub-projects; (b) Program for StrengtheningAgricultural Sector Planning (PASP) to improve the efficiency of policy reform and project preparation,appraisal and implementation; (c) Land Policy Research Program (LPRP) to enhance the capacity of theMakerere Institute for Social Research (MISR) for sustained applied research in land access and policydevelopment; (d) Support for Coffee Subsector Management (CSM) including the establishment of theUganda Coffee Development Authority (UCDA), the restructuring of CMB and the commercialization ofCoffee Marketing Board Limited (CMBL); and (e) Support for Project Coordination and Monitoring.

5. In 1994, ASAC was restructured at Government's request. It was decided to address the capacityconstraints of the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) through a separateAgriculture Sector Management Project (ASMP) and to cancel the PASP component. Additionalactivities consistent with the ASAP were introduced. The main changes were: (a) further balance ofpayments support under the adjustment component ($1.4 million); (b) a nursery development program tobe implemented by UCDA (cost US$ 1 million) to facilitate the availability of coffee seedlings from theprivate sector; (c) rehabilitation of the Land Registry (US$ 1.1 million) to be implemented by theMinistry of Lands, Housing and Physical Planning (MLHPP) to provide essential equipment formaintaining records properly; and (d) support to the Cotton Development Organization (CDO), prior tothe effectiveness of the Cotton Subsector Development Project (CSDP), for the procurement, dressing,and distribution of improved cotton seed to farmers (US$ 1.5 million) to enhance cotton production.Other items included support to business advisory services in connection with the ginneries'restructuring in the cotton subsector, and pre-project activities for Vegetable Oil Development Project(VODP). Three extensions of the closing date (originally June 30, 1995) to December 31, 1996 wereapproved to assist in the completion of these activities. This reallocation of funds under the investmentcomponent, albeit close to the original closing date, provided support for activities that strengthenedprivate sector participation and agricultural growth and diversification (e.g. coffee nurseries, cotton,oilseeds).

6. Project costs were estimated at SDR70.6 million (US$101.6 million) at appraisal, of which IDAwas to finance SDR69.5 million (US$100 million, consisting of the adjustment component (SDR60.1million) and the investment component (SDR9.4 million). The adjustment component, which was to bereleased in two tranches, was fully disbursed. Project costs under the investment component wereSDR8.6 million. In total, project costs are estimated at 98% of SAR estimates. Investment costs werelower than forecast because of shortfalls in civil works and under-utilization of funds in the case of theLand Registry Rehabilitation subcomponent.

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IMPLEMENTATION EXPERIENCE AND RESULTS

Adjustment Component

7. The implementation of the project has been satisfactory, with major changes in the policyframework in agriculture contributing to the improved economic growth and development in the country.ASAC has made a positive contribution to overall agricultural growth (which has averaged 7.9% perannum for food crops, and 6.3% for export crops, during the project) and diversification. Policy changesunder ASAC complemented reforms in the coffee subsector that were supported by the country's secondStructural Adjustment Credit (SAC II), 1993-1996. The project was well designed to address issues in,and to support, the reform process in the coffee subsector, and to make a good start on the overallsectoral growth strategy in research, extension and planning. Whilst effectiveness (and the first trancherelease of the adjustment component) was on time, the second tranche of the adjustment component,originally expected in October, 1991, was released in December, 1992, following completion of actionon outstanding policy measures.

8. Overall, the project has made substantial contributions in achieving its objectives. Theadjustment component of ASAC assisted in stabilizing the financing of the coffee subsector and pavedthe way for commercial financing, initially domestic, but now mainly foreign sourced. It wasinstrumental in establishing an industry framework consistent with the Govemment's macroeconomicstrategy of liberalization involving the commercialization and eventual privatization of CMB (one of thefirst parastatals to be so restructured), the establishment of an industry regulatory authority (UCDA), andthe introduction of private sector competition. Policy reforms were further deepened under SAC II.UCDA's Board of Directors were made more representative of the coffee industry, issuing of licenses tothe private sector was simplified, and UCDA's key role in monitoring coffee quality was strengthened.ASAC also supported studies and technical assistance on such important topics as the CoffeeStabilization Tax (when coffee prices were extraordinarily high), the Warehouse Receipt System (tofacilitate crop financing of smallholder coffee traders), and training of coffee traders and processors onrisk management. The project provided foreign exchange resources at a critical time in Uganda'seconomic recovery program, contributed to the macro-economic stabilization and adjustment process,and increased the incomes of an estimated one million smallholders. Coffee production has grown froma level of 2 million bags (60 kg) in 1991/92, with an export value of US$121 million, to a record 4.1million bags in 1995/96, with an export value of US$389 million. Farmers' share of the export price hasrisen from 30% in 1991 to over 60% in 1996.

9. The project set minimal subsector marketing reforms to be achieved, but the reforms actuallyintroduced were far deeper than those specified. Under ASAC, it was envisaged that the liberalization ofexport marketing would be limited to the issuing of export licenses to selected cooperative unions andtwo private sector exporters, with CMB, the parastatal solely responsible for coffee procurement andmarketing, being restructured to operate commercially within a competitive system. However, by May,1992, the export marketing of coffee had become fully liberalized. There were I I export licenses issued;the system of administered prices and taxes had been removed; CMB's financial, inventory andmarketing systems were strengthened through technical assistance from ASAC, and the Governmentprovided further equity to complete the financial and institutional restructuring to enable CMB to operatecommercially. CMB had been transformed into CMBL, a limited liability company, initially owned bythe Government, but which was to be privatized by September 1996. As envisaged during appraisal,CMBL is being privatized, with GOU currently reviewing bids received from the private sector. The

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industry regulatory function had been taken up by the Coffee Monitoring Unit (CMU) which laterbecame UCDA, and has contributed in undertaking reforms that were necessary to liberalize the areas ofproduction, processing, marketing and transportation All export sales were through public tenders andthe private sector was dealing with 25% of coffee exports. The development cess was being collected andthe financing of the crop was being handled totally through commercial banks. There was a broadeningof private sector participation with the export registration of coffee traders reaching a peak of over 150 innumber in 1994/95. This was, however, an initial over-reaction to liberalization. By the close of theproject, the active licensed exporters numbered 42, with 10 major traders exporting 66% of the coffeecrop.

10. Internal marketing of coffee has also changed drastically since 1991. Previously, farmers soldcoffee to primary cooperative societies or domestic traders for primary processing and onward transfer,reprocessing, and grading by CMB, through the cooperative unions. Now, in addition to the CMBLcentral processing facility, 14 private final processing plants are operational, as well as 30 CooperativeUnions and over 300 private hulling facilities. Vertical integration is now a wide-spread characteristic ofUgandan coffee marketing. Much of the processing in the CMBL facility is undertaken on a contractbasis as opposed to purchase and resale of processed coffee amongst domestic traders. Some 90% of thecoffee crop is now procured through village-based agents on behalf of the exporters, who arerepresentatives of either international traders or roasters.

Investment Component

11. Most of the project's investment related activities have been successfully implemented. Theperformance of capacity building programs in subsector management, and agricultural and socialresearch were satisfactory, and the nursery development program achieved its targets. But there weresome shortfalls. First, PASP, the component for building capacity for sector planning was notimplemented. Instead, IDA and GOU agreed that it should be canceled and sector planning be addressedthrough the ASMP. Second, the rehabilitation of the land registry system was not fully completed as thecomponent was only added about one year prior to the original closing date. The main proceduralimplementation difficulties were experienced in the areas of release of Government funds for projectactivities, delays in the withdrawal of funds from the Special Accounts in the Bank of Uganda (BOU),and, in adherence to the Bank's procurement procedures, described as "cumbersome" by the project'simplementors. The technical assistance to the Project Coordination Unit (PCU) for advice inprocurement matters started in June, 1991, thereby initially delaying implementation of the projectinvestment subcomponents. There were also delays in meeting the conditions of effectiveness forHARE.

12. As indicated earlier, ASAC has made a positive contribution to overall agricultural growth, but itis difficult to quantify fully. This is particularly so in agricultural research and extension. Under HARE,notable achievements were recorded in releases to farmers of improved food crop varieties which havecontributed to increased agricultural production. Other achievements include training and sensitizationof farmers to eradicate tsetse fly, and production of over 457,000 seedlings of various types of treesunder the agroforestry sub-program. The project was the vehicle by which NARO was established toraise the status and improve the capacity for agricultural research, and by which further IDA support toresearch and extension was prepared and initiated.

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13. ASAC has provided support for crop diversification by financing activities in the cottonsubsector prior to the effectiveness of the Cotton Subsector Development Project (CSDP), the proposedIFAD-supported VODP, and the establishment of Coffee Research Center (COREC). Valuable supportwas provided to the land debate by building capacity for land research in MISR, and assisting in bringingthe research results into the policy discussions leading to the draft Land Bill of 1993, the land law in theConstitution, and the draft Land Tenure and Control Bill of 1997.

Overall Project Management

14. While project management responsibility was vested with the individual project implementationunits in each ministry/agency, overall responsibility for agriculture sector policies, project coordination,and monitoring was mandated to the Agricultural Policy Committee (APC), a multi-sectoral body,chaired by the then Permanent Secretary, Ministry of Finance and Economic Planning (MFEP), andcomprised of permanent secretaries of several key ministries and heads of relevant agencies. In terms ofmeeting its commitments on key policy actions required under ASAC, the performance of the Borrowerhas been commendable. This can largely be attributed to the pivotal role played by APC, which alsoreceived solid technical support from the AGSEC/PCU. A major factor in the successful implementationof policy reforms in the coffee subsector was the key role played by the Chairman of the APC. By virtueof his office as Permanent Secretary, MFEP/ Secretary to the Treasury, he was able to represent theinterests of the agricultural sector at meetings of the cabinet and of the President's Economic Council.

15. The project was complicated with many components being implemented by a number ofagencies and departments. Therefore, coordination of project activities, procurement and reporting tookon an important function to ensure successfui implementation. The structure of the project'smanagement, with the centralized PCU coordinating Project Implementation Units (PIU's) in eachagency, was well designed to address this. Disbursements were, however, slow initially. Under theadjustment component, they were slow on account of a number of factors such as the non-eligibility ofpetroleum imports prior to project effectiveness, limitations on number of items eligible for import, and acomplex disbursement mechanism. Following modifications in these areas, the disbursements flowedsmoothly. Disbursements were slow under the investment component as there was only one specialaccount for all the implementing agencies. This problem was addressed by providing a separate specialaccount for the requirements of the research subcomponent.

16. Supervision of the project, both from the Resident Mission (RM) and from Headquarters, wassatisfactory. Continuity of Bank staff for task management, and close liaison between Headquarters andRM staff in supervision, as part of a team, contributed to achieving project objectives. The Bankmanagement's prompt action in agreeing to a restructuring of ASAC in mid-1994 had a positive impacton implementation progress.

FUTURE OPERATIONS AND KEY LESSONS LEARNED

17. HARE was the forerunner to the Agricultural Research and Training Project (ARTP - Cr. 2446-UG), and the Agricultural Extension Project (AEP - Cr. 2424-UG). UCDA is earning a significantincome from the cess on coffee to sustain its operations in the future. CDO, which received initialsupport form ASAC, is now being fully supported under CSDP. Research on cash crops, such as coffeeand cotton, will also be sustained from the cess that is being collected by the regulatory agencies.Overall, therefore, the prospects for agricultural growth and diversification are promising following thesupport received from ASAC, and the project's results are expected to be sustainable.

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18. The key lessons learned from the project were as follows:

(a) Impressive achievements were made under the project, particularly in the areas of policyreforms in the liberalization of the coffee subsector, and in facilitating the establishmentof institutions for coffee development (UCDA) and national research (NARO). This isthe result of Government's strong commitment to policy reform, which provided theproject management team with strong support and funding.

(b) Effecting substantial policy reforms requires a strong and effective mechanism tocoordinate policy issues affecting several sectors. The APC, comprised of permanentsecretaries of several key ministries and heads of relevant agencies, and with solidtechnical support from AGSEC/PCU, was instrumental in steering the policy reformsthat were required, and in facilitating the achievements under the investment component.The Permanent Secretary, MFEP/ Secretary to the Treasury, played a key role.

(c) The survival of CMB (which was transformed into CMBL) was necessary to avoid atotal collapse in the industry at the time of deregulation, and this was reflected in theproject's design. When market reforms are being introduced, it is important that there is aphased entry of private sector participation.

(d) The policy reforms that were undertaken required institutional and financialrestructuring of existing institutions and the establishment of new ones. The hybriddesign of the project, which provided financial and technical support to these institutionsthrough the investment component, was an important factor in the achievement of theproject's objectives.

(e) Disbursements were initially slow as there was only one special account for a number ofimplementing agencies under the investment component. In the case of sizablesubcomponents that require disbursements to a number of locations in the field, it ismore appropriate to provide separate special accounts for them.

(f) Capacity building and gaining experience in procurement is critical for smoothimplementation and takes time. Centralizing procurement for a multi-agencyimplemented project helped in this area.


REPUBLIC OF UGANDA


PART I: PROJECT IMPLEMENTATION ASSESSMENT

A. STATEMENT/EVALUATION OF OBJECTIVES

1. The project was designed and appraised in the context of far reaching macro-economic andsector policy reforms by the Government of Uganda (GOU) during the period 1991-93, following thesubstantial gains made under the Economic Recovery Program (ERP) of 1988-1990. As an integral partof these reforms, the Agricultural Sector Adjustment Program (ASAP) set out the Government's guidingpolicies for reform and growth in the agricultural sector and formed the basis for external support byIDA under ASAC. Foreign exchange availability for agricultural inputs was limited and the Governmentrecognized the importance of market reform, research, extension and sectoral management as keycontributors to growth in the agricultural sector. Coffee production was well below past levels andcontinual problems were being faced by Government in financing the procurement of the crop under theGovernment-owned Coffee Marketing Board (CMB). The ASAC project was, therefore, designed as ahybrid, with complementary adjustment (84% of project costs) and investment (16% of project costs)components. Reforms in the agricultural sector were rightly focused on coffee, owing to the crop'simportance in terms of employment and rural incomes, and in trade and foreign exchange earnings. Thereform program was set out in a letter of development policy to IDA in November 1990.

2. ASAP's objectives were: (a) to promote agricultural growth and diversification by institutional,price and tax reform in coffee procurement, marketing and export, and by strengthened agriculturalresearch, extension and sectoral management, and (b) to support the financial stabilization of the coffeesubsector by controlling credit expansion through improved institutional arrangements for the financingof coffee procurement and marketing. To complement IDA's support to the Government'smacroeconomic reforms, ASAC was designed to help address the Government's need for balance ofpayments support and policy reform (the adjustment component), financing essential agricultural sectorimports, including fuel, and to assist in capacity building of institutions charged with the responsibilityfor the implementation of the Government's agricultural growth strategy (the investment component).

3. A number of key policy areas were supported under the project. These included: (a) appropriatemeasures to ensure that positive interest rates were maintained on commercial bank loans, including cropfinance loans; (b) implementation of the Coffee Subsector Budgeting and Monitoring (CSBM) Systemand adoption of a Coffee Subsector Budget for 1992, based on expenditure priorities; (c) issuance ofcoffee export licenses to the private sector; (d) adoption of measures to facilitate the marketing of asignificant share of coffee exports by the private sector; (e) revision of the coffee export taxation systemto further increase incentives to exporters; (f) the institutional and financial restructuring of CMB, andstrengthening institutional arrangements for regulatory functions consistent with GOU's export

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liberalization strategy; (g) adoption of an Agricultural Sector Rehabilitation and Development Plan and(h) establishment of a National Agricultural Research Organization (NARO) to plan and oversee theimplementation of a national agricultural research program. The project's objectives were highlyrelevant to the liberalization of the economy in general, and were consistent with the Government'sobjectives in encouraging private sector trade and investment. The reforms in the coffee subsector wereaimed at liberalization while recognizing that a number of policy changes were appropriate as a firststage intervention in reforming a subsector with entrenched parastatal control.

4. The investment component, as appraised, comprised the following five sub-programs: (a) HeadStart Program for Agricultural Research and Extension (HARE) to implement high-priority adaptiveresearch and extension activities through a series of sub-projects; (b) Program for StrengtheningAgricultural Sector Planning (PASP) to improve the efficiency of policy reform and project preparation,appraisal and implementation; (c) Land Policy Research Program (LPRP) to enhance the capacity of theMakerere Institute for Social Research (MISR) for sustained applied research in land access and policydevelopment; (d) Support for Coffee Subsector Management (CSM) including the establishment of theUganda Coffee Development Authority (UCDA), the restructuring of CMB and the commercialization ofCoffee Marketing Board Limited (CMBL); and (e) Support for Project Coordination and Monitoring.Items to be financed under the investment component were mainly renovation and construction ofresearch and office facilities, vehicles and equipment, training and study tours, consultant services forcoffee subsector reform, and incremental staff and operating costs for project management.

5. In 1994, ASAC was restructured at Government's request. It was decided to address the capacityconstraints of the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) through a separateAgriculture Sector Management Project (ASMP) and to cancel the PASP component. Additionalactivities consistent with the ASAP were introduced. The main changes were: (a) further balance ofpayments support under the adjustment component ($1.4 million); (b) a nursery development program tobe implemented by UCDA (cost US$ I million) to facilitate the availability of coffee seedlings from theprivate sector; (c) rehabilitation of the Land Registry (US$ 1.1 million) to be implemented by theMinistry of Lands, Housing and Physical Planning (MLHPP) to provide essential equipment formaintaining records properly; and (d) support to the Cotton Development Organization (CDO), prior tothe effectiveness of the Cotton Subsector Development Project (CSDP), for the procurement, dressing,and distribution of improved cotton seed to farmers (US$ 1.5 million) to enhance cotton production.Other items included support to business advisory services in connection with the ginneries'restructuring in the cotton subsector, and pre-project activities for Vegetable Oil Development Project(VODP), being supported by the International Fund for Agricultural Development (IFAD). Threeextensions of the closing date (originally June 30, 1995) to December 31, 1996 were approved to assist inthe completion of these activities. This reallocation of funds under the investment component, albeitclose to the original closing date, provided support for activities that strengthened private sectorparticipation and agricultural growth and diversification (e.g. coffee nurseries, cotton, oilseeds).

B. ACHIEVEMENT OF OBJECTIVES

6. Overview. The Credit was appraised in June, 1990, approved in December, 1990 and becameeffective on January 3, 1991. Support for CMBL and MISR subcomponents, under the investmentcomponent, closed on June 30, 1995, as planned. After three extensions to the original closing date ofJune 30, 1995, the Credit finally closed on December 31, 1996. A total of SDR68.3 million wasdisbursed and an undisbursed amount of about SDRI.2 million is being canceled. Investment costs were

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lower than forecast because of shortfalls in civil works and under-utilization of funds in the case of theLand Registry Rehabilitation subcomponent.

7. Adjustment Component. Overall, the project has made substantial contributions in achieving itsobjectives. The adjustment component of ASAC assisted in stabilizing the financing of the coffeesubsector and paved the way for commercial financing, initially domestic, but now mainly foreignsourced. It was instrumental in establishing an industry framework consistent with the Government'smacroeconomic strategy of liberalization involving the commercialization and eventual privatization ofCMB (one of the first parastatals to be so restructured), the establishment of an industry regulatoryauthority (UCDA), and the introduction of private sector competition. Policy reforms were furtherdeepened under the Second Structural Adjustment Credit (SAC II). UCDA's Board of Directors weremade more representative of the coffee industry, issuing of licenses to the private sector was simplified,and UCDA's key role in monitoring coffee quality was strengthened. ASAC also supported studies andtechnical assistance on such important topics as the Coffee Stabilization Tax (when coffee prices wereextraordinarily high), the Warehouse Receipt System (to facilitate crop financing of smallholder coffeetraders), and training of coffee traders and processors on risk management. The project provided foreignexchange resources at a critical time in Uganda's economic recovery program, contributed to the macro-economic stabilization and adjustment process, and increased the incomes of an estimated one millionsmallholders. Coffee production has grown from a level of 2 million bags (60 kg) in 1991/92, with anexport value of US$121 million, to a record 4.1 million bags in 1995/96, with an export value of US$389million. Farmers' share of the export price has risen from 30% in 1991 to over 60% in 1996.

8. The project set minimal subsector marketing reforms to be achieved, but the reforms actuallyintroduced were far deeper than those specified. Under ASAC, it was envisaged that the liberalization ofexport marketing would be limited to the issuing of export licenses to selected cooperative unions andtwo private sector exporters, with CMB, the parastatal solely responsible for coffee procurement andmarketing, being restructured to operate commercially within a competitive system. However, by May,1992, the export marketing of coffee had become fully liberalized. There were I I export licenses issued;the system of administered prices and taxes had been removed; CMB's financial, inventory andmarketing systems were strengthened through technical assistance from ASAC, and the Governmentprovided further equity to complete the financial and institutional restructuring to enable CMB to operatecommercially. CMB had been transformed into CMBL, a limited liability company, initially owned bythe Government, but which was to be privatized by September 1996. As envisaged during appraisal,CMBL is being privatized, with GOU currently reviewing bids received from the private sector. Theindustry regulatory function had been taken up by the Coffee Monitoring Unit (CMU) which laterbecame UCDA, and has contributed in undertaking reforms that were necessary to liberalize the areas ofproduction, processing, marketing and transportation All export sales were through public tenders andthe private sector was dealing with 25% of coffee exports. The development cess was being collected andthe financing of the crop was being handled totally through commercial banks. There was a broadeningof private sector participation with the export registration of coffee traders reaching a peak of over 150 innumber in 1994/95. This was, however, an initial over-reaction to liberalization. By the close of theproject, the active licensed exporters numbered 42, with 10 major traders exporting 66% of the coffeecrop.

9. Internal marketing of coffee has also changed drastically since 1991. Previously, farmers soldcoffee to primary cooperative societies or domestic traders for primary processing and onward transfer,reprocessing, and grading by CMB, through the cooperative unions. Now, in addition to the CMBLcentral processing facility, 14 private final processing plants are operational, as well as 30 CooperativeUnions and over 300 private hulling facilities. Vertical integration is now a wide-spread characteristic of

- 4 -

Ugandan coffee marketing. Much of the processing in the CMBL facility is undertaken on a contractbasis as opposed to purchase and resale of processed coffee amongst domestic traders. Some 90% of thecoffee crop is now procured through village-based agents on behalf of the exporters, who arerepresentatives of either international traders or roasters.

10. Investment Component. Most of the project's investment related activities have beensuccessfully implemented. The performance of capacity building programs in subsector management,and agricultural and social research were satisfactory, and the nursery development program achieved itstargets. But there were some shortfalls. First, PASP, the component for building capacity for sectorplanning was not implemented. Instead, IDA and GOU agreed that it should be canceled and sectorplanning be addressed through the ASMP. Second, the rehabilitation of the land registry system was notfully completed as the component was only added about one year prior to the original closing date. Themain procedural implementation difficulties were experienced in the areas of release of Governmentfunds for project activities, delays in the withdrawal of funds from the Special Accounts in the Bank ofUganda (BOU), and, in adherence to the Bank's procurement procedures, described as "cumbersome" bythe project's implementors.

11. As noted earlier, ASAC has made a positive contribution to overall agricultural growth, but it isdifficult to quantify fully. This is particularly so in agricultural research and extension. Under HARE,notable achievements were recorded in releases to farmers of improved food crop varieties which havecontributed to increased agricultural production. Other achievements include training and sensitizationof farmers to eradicate tsetse fly, and production of over 457,000 seedlings of various types of treesunder the agroforestry sub-program. The project was the vehicle by which NARO was established toraise the status and improve the capacity for agricultural research, and by which further IDA support toresearch and extension was prepared and initiated.

12. ASAC has provided support for crop diversification by financing activities in the cottonsubsector prior to the effectiveness of the Cotton Subsector Development Project (CSDP), the proposedIFAD-supported VODP, and the establishment of Coffee Research Center (COREC). Valuable supportwas provided to the land debate by building capacity for land research in MISR, and assisting in bringingthe research results into the policy discussions leading to the draft Land Bill of 1993, the land law in theConstitution, and the draft Land Tenure and Control Bill of 1997.

13. In overall sector planning, PASP did not proceed and was later canceled in 1994. Sectorplanning then became the subject of the ASMP, which was not effective at the time of ASAC's closing,but is expected shortly. Therefore, ASAC's impact on sectoral planning was less than planned. Still, themajor policy reforms in the sector, which were supported by the Agricultural Policy Committee (APC)and technical assistance under ASAC, were well planned and sequenced.

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C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT

Implementation Record


14. The implementation of the project has been satisfactory, with major changes in the policyframework in agriculture contributing to the improved economic growth and development in the country.ASAC has made a positive contribution to overall agricultural growth (which has averaged 7.9% perannum for food crops, and 6.3% per annum for export crops, during the project) and diversification.Policy changes under ASAC complemented reforms in the coffee subsector that were supported underSAC II during 1993-1996. The project was well designed to address issues in, and to support, the reformprocess in the coffee subsector, and to make a good start on the overall sectoral growth strategy inresearch, extension and planning. Whilst effectiveness (and the first tranche release of the adjustmentcomponent) was on time, the second tranche of the adjustment component, originally expected inOctober, 1991, was released in December, 1992, following completion of action on outstanding policymeasures.

15. Initial disbursement progress was slower than expected. This was due to a number of factors.First, petroleum imports were not eligible prior to project effectiveness. Second, the original eligibleimports list was limited, and had to be expanded. Third, the disbursement mechanism was complex, andrequired modification. Fourth, demand for imported agricultural inputs was far less than that assumed atappraisal on account of high interest rates, and depreciation of the Ugandan Shilling. There was also ageneral lack of local currency in the banking sector. In addition, donor-financed aid programs suppliedlarge quantities of inputs at subsidized prices. To facilitate disbursement, the positive list was extendedto include items that were not specifically for the agricultural sector (e.g. roofing sheets, bicycles andcement). When the foreign exchange auction system replaced the Open General License and SpecialImport Program systems, the originally designed mechanisms for disbursement, the Development CreditAgreement (DCA) was amended (January, 1993) to permit ASAC adjustment funds to be used in theauction for imports, subject to the standard negative list that applied to other IDA adjustment credits. Atthe same time, the amount eligible for petroleum imports was increased. Further changes were necessaryto permit these funds to be used for interbank transactions when the auction system was terminated.Following these changes, disbursement was prompt and 100% of the adjustment component (SDR 60.1million) was disbursed.

16. The project helped build capacity to undertake a number of key studies to support policy analysisand formulations. The most notable contributions were the regular studies on cost of production andmarketing of coffee, and analysis of the comparative advantage of Uganda's agricultural commodities.These studies established the foundation and data base for much of the analysis of coffee pricing,taxation and financing, and indeed in other subsectors. It also provided technical advice to the APC onginneries' restructuring in the cotton subsector, and on policy options and strategies to improvecompetitiveness of crops in line with GOU's policy to increase and diversify exports.

17. Of the total SDR 60.1 million (US$ 84.6 million) disbursed under the adjustment component,SDR 23 million (US$ 32.4 million) was disbursed under the positive list for agricultural inputs, SDR18.8 million (US$ 26.2 million) for petroleum produacts, and SDR 18.3 million (US$ 26.0 million) forgeneral imports.

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18. The technical assistance to the Project Coordination Unit (PCU) for advice in procurementmatters started in June, 1991, and so the implementation of the project investment subcomponents wasinitially delayed. There were also delays in the satisfaction of the conditions of effectiveness for theHARE subcomponent, namely the appointment of the Project Implementation Unit (PIU) head andSenior Agricultural Services Adviser. The components of the investment program are discussed in detailbelow, but it should be noted that, in the overall impact of the project, the positive impact of theadjustment component was more important.

Head-Start Program for Agricultural Research and Extension (IHARE)

19. HARE was designed to implement high priority research and extension activities through a seriesof sub-projects which would focus on production constraints and adaptive research to fine-tunetechnologies, and would improve their dissemination. In addition, HARE was designed to providetechnical assistance, training, studies, vehicles and equipment, and selective rehabilitation andreconstruction of research facilities. The nine sub-projects comprised a package which was expected tobe an effective way of achieving the longer-term objective of building a research capacity. Theestablishment of a semi-autonomous research organization was a condition of the second tranche release.

20. During 1992-93, the AEP and ARTP came on-stream before the technology dissemination andresearch sub-projects were completed. The transition from HARE to the new projects was eventuallyachieved through a restructuring of both ASAC and HARE itself. Following the establishment of NAROand a review of the HARE program, NARO identified a number of improved technologies for on-farmdemonstration and seed multiplication, and training of field extension staff. Twelve sub-programsimplemented by NARO under an Action Research and Development Program (ARDP), including mostthat had previously been identified under HARE, generally achieved their original objectives. Notableachievements were recorded in releases to farmers of improved varieties which have contributed toincreased agricultural production (e.g. cassava, groundnuts, simsim, new beans, sweet potato, potatoes);training and sensitization of farmers to the use of mono-screen trap for tsetse fly control; rehabilitation of66 fish ponds (60% of target) and distribution of 72,000 fish fry (85% of target); on-farm grain storagetrials, training and technology dissemination in 10 districts; production of over 457,000 seedlings ofvarious types of trees under the Agroforestry Research and Extension sub-program; field studies onImproving Production and Utilization of Forest Plantations; and Improving Smallholder DairyProduction.

21. The APC's Sub-committee on Research and Extension (SCORE), which was chaired by theSecretary for Research in the MAAIF, was responsible for review and approval of the work plans andbudgets, setting priorities, approving individual sub-projects, and recruitment of staff. The componentwas implemented by the PIU in MAAIF. There was a lack of consensus amongst those involved on theseinstitutional arrangements for implementing HARE, and this caused delays in implementation.

Program for Agricultural Sector Planning

22. PASP was conceived at a time when there were several other initiatives to strengthen sectoralplanning in different ministries responsible for agricultural development. The main objectives were toprovide technical assistance and capacity building support to MAAIF, newly established from a numberof hitherto independent ministries, and to the agriculture section of the former Ministry of Finance andEconomic Planning (MFEP). PASP subsequently underwent a number of revisions in response to

- 7 -

institutional changes and the restructuring of key ministries, with the last revision undertaken inSeptember, 1993. The overall subcomponent objectives, however, remained valid and unchanged. Bythe time an agreement, in principle, was reached between the Borrower and the Food and AgriculturalOrganization (FAO) for TA support under this subcomponent, PASP was declared non-core byGovernment in fiscal year 1993/94. In light of this decision by GOU, and with two years remaining tothe original closing date, the Bank advised GOU that it would be better to cancel this subcomponent, andaddress the capacity building requirements of MAAIF fully through the proposed ASMP. Following theacceptance by GOU of this strategy, which was preferred over a piece-meal approach to capacitybuilding, the subcomponent was canceled in March, 1994. While the main program under PASP was notimplemented, the relevant ministries received vehicles, equipment, and some overseas training.Strengthening of agriculture sector planning/prioritization of expenditures to make public spending moreefficient is underway, and is to be further addressed under ASMP.

Land Policy Research and Legislation

23. In conjunction with the financial support provided by the United States Agency for InternationalDevelopment (USAID) to Makerere Institute for Social Research (MISR), ASAC's support has beensuccessful in rehabilitating its physical facilities and building its capacity to move forward into anoperational phase in which it will be able to compete for Government and donor-financed researchprograms. The capabilities of MISR have been raised, and its status within the Makerere University isnow semi-autonomous, an important factor for it to be able to set conditions of service to retain the stafftrained overseas under ASAC. The research findings on land issues were an important input to thediscussions in the Constituent Assembly on the new constitution, and into the draft land legislation.ASAC helped this process by financing seminars and workshops to build the link between the researchand policy formulation. The quality of the MISR civil works contract, and delays in procurement werethe main implementation problems. The delays in procuring the library equipment were such that it couldnot be completed before the closing date of the project. Only part of the required equipment wasprocured, and this has resulted in the library being partially operational.

Coffee Subsector Management

24. The project's activities in this area were originally designed to support the organizational,financial and institutional restructuring of the CMB and the Cooperative Unions, and the transfer ofCMB's regulatory function to an autonomous authority. ASAC financed many important studies coveringthe coffee subsector that have guided the reform process. Following an initial study to recommend thedesign of UCDA, ASAC assisted in joint Government of Uganda/World Bank subsector reviews in 1993and 1995 that were central to guiding policy and resolving issues. The project provided equipment toUCDA, particularly communication and information systems, that have proved to be vital in obtaining,analyzing, and distributing daily international coffee market information.

25. The commercialization of CMBL was crucial to its continuation as a participant in the coffeemarket. The project's support to CMBL was in the form of technical assistance in the areas of financialmanagement and information systems, and these have made a valuable contribution to thecommercialization of CMBL. The project specified financial restructuring measures for CMBL to betaken by the Government as conditions under the Credit. However, the commercialization process washampered as CMBL remained constrained by cumbersome decision making between the management,board and the Ministry of Trade and Industry (MOTI), by the cost of maintenance of non-productiveassets, and the inability of the management to rapidly restructure its staff due to trade union objections.

- 8 -

CMBL could not have competed fully with newly-licensed private sector exporters until there was acomplete acceptance, both internally and externally, for it to assume a new identity as an efficient markettrader. Its market share has fallen over the years to about 4%, although its main processing facility inKampala is currently about 40% utilized on a contract basis. GOU has recently received bids from theprivate sector for the sale of CMBL. A decision on this matter is expected shortly.

26. The responsibility for the restructuring of the Unions remained with the Unions themselves, withadvice to be provided from a Cooperatives Finance Specialist under ASAC. This technical assistance wasnot provided and the project's support to the Unions in the changing economic environment has beennegligible. The Unions initially handled 10% of the market at the beginning of the reform process, but by1996, Union Export Services (UNEX), established with support from the European Union to exportcoffee for the Unions, handled only about 1%.

Project Coordination and Monitoring

27. Government assigned the responsibility for agriculture sector policies and of overseeing theimplementation and monitoring of ASAC to APC. A PCU was established in the then AgriculturalSecretariat (AGSEC) to manage the implementation process. This included coordination of the activitiesof the various Project Implementation Units (PIUs) which were established in the relevant ministries,overall planning of procurement, and financial management and control. The Project Coordinator,Financial Advisor, Procurement Specialist, Accountant and Disbursement Officer, formed the core of thePCU. Since AGSEC had the responsibility to implement the ASAP, and the Project Coordinator was theDirector of AGSEC, the PCU was synonymous with AGSEC. ASAC funded technical assistance, whichwas provided by the FAO under an agreement with GOU, and vehicles, equipment and training.

28. The APC established five sub-committees to facilitate policy decisions, and to link and interfacemore closely with the technical ministries and departments of government responsible for the differentsubcomponents of the project. The five sub-committees were: (a) SCORE responsible for HARE; (b)Land Policy Research (LPRC) for land policy reforms; (c) Coffee Subsector Management (CSM) forcoffee reforms; (d) agricultural inputs for the adjustment component (inputs only); and (e) procurement.Apart from the Procurement Committee which was chaired by the Director AGSEC/Project Coordinator,the other sub-committees were chaired by the relevant Permanent Secretaries to whom the responsibilityfor the subcomponents fell.

29. The structure thus established for the implementation of ASAC is considered to have been welldesigned. Except for problems during the early phase of the project, overall, financial management wassatisfactory. This can largely be attributed to the pivotal role played by APC, which also received solidtechnical support from the AGSEC/PCU. A major factor in the successful implementation of policyreforms in the coffee subsector was the key role played by the Permanent Secretary, Ministry of Finance/Secretary to the Treasury. By virtue of his office as the then Permanent Secretary, Ministry of Financeand Economic Planning (MFEP)/ Chairman, APC, he was able to represent the interests of theagricultural sector at meetings of the cabinet and of the President's Economic Council.

Other Activities under Extended ASAC

30. The following activities were included when ASAC was restructured and the project's closingdate was extended:

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UCDA Nursery Program: The nursery program has successfully established 370 robusta and 70 arabicaclonal nurseries, providing about 3 million seedlings for replacing old bushes and, in the case ofrobustas, replacing wilt-affected bushes with disease tolerant seedlings. ASAC supported this programby financing basic inputs for the establishment of the nurseries to be operated by private farmers.

Rehabilitation of Land Registry/Land Administration Systems: The strategy for land administrationsystems had to be in accordance with the land legislation including the Land Reform Act and theGovernment's decentralization strategy, and ASAC financed an external study to recommend new landinformation systems. The results of this study were not known by the time of the project's closing.However, there was a recognized need to at least halt the deterioration of the central land records bybuying essential equipment identified on the basis of an initial study on computerization of land records.On account of indecisiveness on the part of MLHPP, the procurement of this equipment could not becompleted.

Cotton Subsector: Prior to the effectiveness of CSDP, ASAC financed the procurement and distributionof improved cotton seed by CDO to farmers for the 1994/95 planting season, and provided businessadvisory services for the financial management and restructuring of institutions in the cotton subsector.

Coffee Research Center: ASAC supported the establishment of the Coffee Research Center (COREC),formned by upgrading the coffee research program to the status of an institute under NARO, on the site ofthe coffee, cocoa, tea and palm oil research station in Mukono district. COREC is expected to play animportant role in the research and monitoring of tracheomycosis (coffee wilt disease), and testing anddisseminating preventive strategies.

VODP: ASAC supported some pre-project activities (e.g. soil surveys) but, pending the selection of theprivate sector investor for the project, the proposed import of oil palm seeds was not undertaken.

Project Costs

31. Project costs were estimated at SDR70.6 million (US$101.6 million) at appraisal, of which IDAwas to finance SDR69.5 million (US$100 million, consisting of the adjustment component (SDR60. 1million) and the investment component (SDR9.4 million). The adjustment component, which was to bereleased in two tranches, was fully disbursed. Project costs under the investment component wereSDR8.6 million. In total, project costs are estimated at 98% of SAR estimates. Investment costs werelower than forecast because of shortfalls in civil works and under-utilization of funds in the case of theLand Registry Rehabilitation subcomponent.

Major Factors Affecting Project Implementation

32. The main procedural implementation difficulties were experienced in the following areas:

Counterpart Funding: Even though budgetary provisions for project counterpart funds were made,central budgetary constraints often resulted in reduced allocations being released. This was overcome bydevising a system to advance funds from the Special Accounts to meet local costs. In the extensionphase, some of the components' expenditures fell under technical assistance contracts which were indisbursement categories that could be 100% financed. This allowed the project to continue with minimalinterruption;

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Special Accounts (SAs): Delays were experienced in the withdrawal of funds from the SA in BOU.The pace of disbursements was affected by having only one SA for all the subcomponents under theinvestment component. Disbursements under the NARO/HARE subcomponent improved following thesetting up of a separate SA for NARO activities under ASAC. Flows of funds from SAs improvedfurther when they were transferred from BOU to commercial banks; and

Adherence to Bank's Procurement Procedures: procurement procedures proved to be cumbersome tothe implementing and coordinating units, particularly because of delays in establishing letters of creditand clearing goods. There were also difficulties in specifying, within the procurement procedures, ageneral standard of quality and the local availability of technical support and service for equipment. Thishas occasionally resulted in sub-standard or unserviceable equipment being procured in some cases,although it had met the required specifications.

33. The investment component of the project was complicated with many subcomponents beingimplemented by different agencies and departments. Therefore, coordination of project activities,procurement, and reporting took on an important function to ensure successful implementation. Thestructure of the project's management, with the PCU coordinating PlUs in each agency, was welldesigned to address this.

34. As mentioned above, following the consolidation of the separate ministries of agriculture andfisheries into MAAIF, the activities of PASP being declared non-core in the 1993/94 GOU Budget, andthe decision to decentralize implementation responsibility to the districts, it was agreed to address thecapacity building constraints of MAAIF at the center and in a few selected districts through a proposedstand-alone project - ASMP.

D. PROJECT SUSTAINABILITY

35. The sustainability of the major policy reforms is very likely. Government has continued on theadjustment path and economic growth has been high. Growth in agriculture has remained strong, evenwith drought in 1996/97. Private sector participation has helped lead to continuing growth in coffee andother export crops. In addition, the sustainability of many of the organizations and institutions thatASAC helped to build is promising. CMBL is now under the final stages of privatization with arebidding process concluded in June 1997. A sale will enable CMBL to operate competitively andcommercially in the coffee industry. UCDA has an assured budget derived from the export cess oncoffee, and these funds will continue to support research and development in the industry, both inmarketing and quality, and in production renewal and expansion. MISR will continue to be supportedthrough a combination of Government funds and other donor supported programs, and will continue itscollaboration with the Land Tenure Center, Wisconsin. The lands information systems study forMLHPP, now under consideration, will set out a plan of activities and investments, the source offinancing for which has not yet been identified. CDO, which received initial support from ASAC, and isnow being funded under CSDP, has been procuring and distributing sufficient quantities of cotton seed tofarmers. Cotton production has increased from 15, 000 bales in 1993/94 to 57,000 bales in 1995/96, andis estimated at 100,000 bales during 1996/97.

36. NARO has developed a prioritized research program, and has established a research networkconsisting of nine institutes, each having a set of disciplines and geographical mandate. NARO isbenefiting under the ARTP and will continue to be supported through a combination of Government and

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donor funds. Presently, over 90% of the NARO budget is funded through externally funded projects.Government budget is small but rising, from less than 0.1 % of agricultural gross domestic product(AGDP) at the beginning of the project to between 0.4-0.5% of AGDP in 1996/97.

37. AGSEC was transferred from the Bank of Uganda to MFEP in August, 1995 and, following thatMinistry's restructuring, is now under the Ministry of Planning and Economic Development. Followinga review of APC's and AGSEC's new roles, and implementation responsibility for components undernew IDA-supported projects resting with concerned ministries/agencies, AGSEC has been restructuredinto a smaller unit. Now known as the Agricultural Policy Secretariat (APSEC), its main functions are toperform secretariat services for the APC, and to continue to provide advice to it, as required. APSEC isalso the coordination unit for CSDP. The funding of APSEC is provided from CSDP until the end of1999. After that time, the Government will need to find the appropriate role and financing for APC andAPSEC.

E. BANK PERFORMANCE

38. Supervision of the project, both from the Resident Mission (RM) and headquarters, wasconsidered satisfactory. During January 1991 - April 1997, 11 supervision missions were undertaken,and additional specific reviews of reforms in the coffee subsector and supervision of the HARE and LandTenure Research programs were also carried out. Continuity of task management, initially from the RMand then from headquarters, combined with Bank management's decision to provide specific supportthrough an alternate task manager, alternating between headquarters and the RM, as part of a team,contributed to the achievement of project objectives. The supervision missions sought to address the keyissues affecting the project's performance by taking these up with GOU, and directing their effortstowards facilitating project implementation. The Bank management was responsive to requests from theGovernment for modifications to procedures and component design, in keeping with the overall thrust ofthe ASAP, as circumstances changed. In particular, the Bank's prompt action on agreeing to arestructuring of ASAC in mid- 1994 had a positive impact on the progress of most components.Disbursements, which totaled about 65% in early 1994, improved to 98% when the project closed(December 31, 1996). The Bank also provided technical advice on, inter alia, such important matters asCoffee Stabilization Tax (when coffee prices were high) and Warehouse Receipt System (which wouldfacilitate crop financing of smaller traders), and training on Risk Management. Difficulties wereencountered in resolving procedural issues, mainly relating to procurement, during the first half of theproject.

F. BORROWER PERFORMANCE

39. Overall, in terms of meeting its commitments on key policy actions required for liberalization ofthe coffee subsector and other critical actions required for project implementation, the performance ofthe Borrower has been commendable. This was largely possible on account of the pivotal role played bythe APC, and the continuity provided by policymakers represented on the APC from key ministriesthroughout the project period (e.g. MFEP, MOTI). In addition, APC received solid technical supportfrom the AGSEC/PCU (including from experts funded under technical assistance) on policy-related andproject implementation matters. The performance of MAAIF/NARO and MISR was, overall,satisfactory, while IJCDA recorded major achievements While the intenit ot GOUJ was to eventually

- 12-

divest its shareholding in CMBL, CMBL continued to lose its market share of coffee exports over theyears.

40. Compliance with covenants under the DCA have been satisfactory with the exception of thedelayed compliance with the requirement to provide audited accounts, particularly of CMBL. Severalreviews of CMBL's financial statements for the fiscal years 1993/94, 1994/95 (last year of CMBLsubcomponent), and 1995/96 were undertaken by private firms of auditors to determine the market valueof CMBL's assets, prior to GOU seeking bids for CMBL from the private sector. Despite regular followup by IDA, the audited accounts of CMBL for 1993/94 and 1994/95, which were the responsibility of theAuditor General, were not provided to IDA. (CMBL has submitted draft financial statements for1993/94 and 1994/95 to the Auditor General). The shortage of Government's funds for project activitieshas been mentioned above. The Government has provided its evaluation of project performance as itscontribution to the ICR (see Appendix 2).

G. ASSESSMENT OF OUTCOME

41. ASAC was a strong contributor to the overall economic changes during the project period and itcomplemented policy-related conditionalities under SAC 11 and accompanying developmentinterventions. As indicated in paras. 7-12 above, the project's overall impact has been substantial andpositive. It successfully supported the stabilization and growth objectives of ERP, and an annual growthrate target of 5% was exceeded. Estimates indicate that more than one million coffee farmers producing,on average, between one to twenty bags of kiboko coffee, have benefited under ASAC.

42. During 1992, in conjunction with the on-going adjustment program and agreement with IDA,further reforms were introduced. Coffee proceeds were permitted to be exchanged at the Bureauexchange rate, the export tax was replaced by a processor withholding tax, and a minimum floor price forcoffee was introduced. From the end of 1993, full retention of export proceeds were permitted. A CoffeeStabilization Tax was introduced in the 1994/5 budget, intended to stabilize the currency during thecoffee boom of that time, but was discontinued in 1996. The continuation of subsector reforns thenbecame conditions of SAC II in 1993, and included actions on the removal of the floor price, and therestructuring of UCDA.

43. The export registration of coffee traders reached a peak of over 150 in number in 1994/95, butmany of the new licensed traders dealt in low volumes for a short period of time or were inexperiencedin dealing in a sophisticated international market, thus suffering financial losses. During this time, theindustry experienced a setback in its international reputation due to exports of low quality coffee bysome exporters. This issue was subsequently addressed by UCDA and the then Uganda Coffee ExportersAssociation, forerunner to the Uganda Coffee Trade Federation (UCTF), by the enforcement of qualitystandards and a code of conduct of trade. By the close of the project, the active licensed exportersnumbered 42, with 10 major traders exporting 66% of the coffee crop.

44. There were, however, exceptions. Firstly, as indicated previously, PASP was not implemented.Secondly, the rehabilitation of the land registry systems was not fully completed. This subcomponentwas included at the time of the project's extension and the main problems related to indecisiveness on thepart of MLHPP in terms of preparation and sequencing of the activities to be undertaken in a short timeframe to meet the closing date of ASAC. The major part of the canceled credit relates to this item.

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H. FUTURE OPERATIONS

45. HARE was the forerunner to the Agricultural Research and Training Project (ARTP - Cr. 2446-UG), and the Agricultural Extension Project (AEP - Cr. 2424-UG). To ensure the sustainability of theextension services in the future, efforts are ongoing to make these services demand driven byempowering the communities at grassroots level to decide which services they regard as beneficial, andfor which they are initially prepared to share the cost. Under a proposed AEP II, the delivery ofextension services by specialized non-governmental organizations (NGOs) is also being considered ifthis proves more cost-effective. UCDA is earning a significant income from the cess on coffee to sustainits operations in the future. CDO, which received initial support form ASAC, is now being fullysupported under CSDP. Research on cash crops, such as coffee and cotton, will also be sustained fromthe cess that is being collected by the regulatory agencies. Overall, therefore, the prospects foragricultural growth and diversification are promising following the support received from ASAC, and theproject's results are expected to be sustainable.

I. KEY LESSONS LEARNED

46. The key lessons learned from the project were as follows:

(a) Impressive achievements were made under the project, particularly in the areas of policyreforms in the liberalization of the coffee subsector, and in facilitating the establishmentof institutions for coffee development (UCDA) and national research (NARO). This isthe result of Government's strong commitment to policy reform, which provided theproject management team with strong support and funding.

(b) Effecting substantial policy reforms requires a strong and effective mechanism tocoordinate policy issues affecting several sectors. The APC, comprised of permanentsecretaries of several key ministries and heads of relevant agencies, and with solidtechnical support from AGSEC/PCU, was instrumental in steering the policy reformsthat were required, and in facilitating the achievements under the investment component.The Permanent Secretary, MFEP/ Secretary to the Treasury, played a key role.

(c) The survival of CMB (which was transformed into CMBL) was necessary to avoid atotal collapse in the industry at the time of deregulation, and this was reflected in theproject's design. When market reforms are being introduced, it is important that there is aphased entry of private sector participation.

(d) The policy reforms that were undertaken required institutional and financialrestructuring of existing institutions and the establishment of new ones. The hybriddesign of the project, which provided financial and technical support to these institutionsthrough the investment component, was an important factor in the achievement of theproject's objectives.

(e) Disbursements were initially slow as there was only one special account for a number ofimplementing agencies under the investment component. In the case of sizable

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subcomponents that require disbursements to a number of locations in the field, it ismore appropriate to provide separate special accounts for them.

(f) Capacity building and gaining experience in procurement is critical for smoothimplementation and takes time. Centralizing procurement for a multi-agencyimplemented project helped in this area.

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PART II: STATISTICAL TABLES

Table 1: Summary of Assessments

A. Achievement of obiectives Substantial Partial Negligible NotApplicable(/) (/) ~~(V) (10

Macro policies El El ISector policies E L I r :

Financial objectives L LI FIInstitutional development [71 FI LI ElmPhysical objectives C E ElPoverty reduction LI LI I]Gender issues FJ LI IOther social objectives FI L L IEnvironmental objectives LI LIPublic sector management EF LI FIPrivate sector development [I LI LI LIOther (specify) FI L EL LI

B. Project sustainability Likely Unlikely Uncertain(/) (1) (E)

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HighlyC. Bankperformance satisfactory Satisfactory Deficient

Identification 1 [El

Preparation assistance EI E

Appraisal FI Zg ED

Supervision E E E

HighlyD. Borrower performance satisfactorv Satisfactorv Deficient

Preparation | E z

Implementation FII EC ICovenant compliance F } E

Operation (if applicable) F 1 [

Highly HighlyE. Assessment of outcome satisfactory Satisfactory Unsatisfactory unatisfactoI3

(0, (/) (/) (V)

[2 [3~F E~ C:

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Table 2: Related Bank Loans/Credits

Loan/Credit Title Purpose Year of approval StatusPreceding operations1328-UG Ag. Rehabilitation Project 1983 Completed1434-UG Second Technical Assistance 1983 Completed1539-UG Agricultural Development 1985 Completed

Project1824-UG Forestry Rehabilitation 1987 Completed1893-UG Sugar Rehabilitation 1988 Completed

Following operations2178-UG Livestock Services 1990 Ongoing2424-UG Agricultural Extension 1992 Ongoing2446-UG Agricultural Research and 1993 Ongoing

Training2608-UG Structural Adjustment Credit II 1993 Completed

2609-UG Cotton Subsector Development 1994 Ongoing2845-UG Agricultural Sector Management 1996 Awaiting

Effectiveness

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Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual/LatestEstimate

Identification Nov. 1988Preparation Nov. 1988-May 1990Appraisal June 1990Negotiations Oct. 1990Board presentation June 1989Signinig Dec. 13 ,1990Effectiveness Feb. 1, 1991 Jan 3, 1991First Tranche Release Feb. 1991 Feb. 1991Second Tranche Release Oct. 1991 Dec. 1992Midterm review Dec. 1992 - HARE

June 1993 LPRP 2/

anid PASPProject completion June 1995 Dec. 31, 1996Credit closing June30, 1995 Dec.31, 1996

Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual(US$ millions)

| FY .1991 1992 1993 1994 1995 1996 1997

A. Expressed in SDRAppraisal Estimate 25.7 54.1 66.5 68.2 69.5 - -

Actual 14.4 27.0 36.2 54.2 64.2 66.7 68.3Actual as % of estimate 56% 50% 54% 79% 92% 96% 98%

B. Expressed in US$Appraisal Estimate 37.0 77T9 95.7 98.2 100.0 - -

Actual 20.5 37.8 50.1 76.2 91.0 94.7 96.9Actual as % of estimate 55% 48% 53% 78% 91% 95% 97%

I/

Prepared by Bank of Uganda Agricultural Policy Committee with assistance from IDA

2/ With HARE being integrated into NARO's work program under ARTP, satisfactory progress under LPRP,and discussions between GOU and IDA on canceling PASP, the MTR of these subcomponents was notundertaken.

- 19-

Table 5a: Key Indicators for Project Implementation

The President's Report listed a number of policy actions that were to be monitored under the Credit. Thefulfillment of these policy actions were conditions of the second tranche release. These policy actionsand conditions, set out below, were considered to have been fulfilled by December, 1992, originallyplanned for October, 1991. Table Sb summarizes the policy actions that were required under ASAC anda time table for their implementation.

Conditions for Second Tranche Release

(a) In the context of the macro-economic framework as set out in the Government's PolicyFramework Paper (FY 91 to FY 93) continue to apply policy measures to ensure that positivereal interest rates on commercial bank loans, including crop finance loans are maintained.

(b) Progress in the implementation of the Coffee Subsector Budgeting and Monitoring Systemfor the CS 91, according to an agreed work plan, and adoption by the Government of a Coffeesubsector Budget for CS 92, satisfactory to IDA.

(c) Complete the financial and institutional restructuring of CMB satisfactory to IDA,consistent with the findings of the CMB balance sheet report, including formalizingGovernment's injection of working capital to CS91 as contribution to CMB's equity,providing additional equity capital, as required, to meet CMB's incremental base workingcapital requirements for CS92, and strengthening institutional arrangements for developmentand regulation of the coffee industry consistent with the Government's coffee exportliberalization strategy.

(d) Issue coffee export licenses to at least two private sector parties other than cooperativesand implement measures to significantly increase the share of the coffee exports by the privatesector by: (i) ensuring adequate profit elements in exporters fixed margins; and (ii)establishing a price grading structure for coffee to maximize quality and sales value. Adopt anaction plan to implement a new coffee export taxation system to further increase tradeincentives while safeguarding fiscal objectives under the stabilization program.

(e) Establish a semi-autonomous National Agricultural Research Organization to plan andoversee the implementation of a national agricultural research program, satisfactory to IDA.

- 20 -

Table Sb: Proposed Action Matrix for Implementation of Recommendations of the Task Forcesbased on Policy Actions Required under ASAC and the Coffee Subsector Review of 1993

Recommendations Action by Recommende Actuald Completion Completion DateDate

A. Production Issues

1. UCDA to finalize UCDA 12/1/93 Completed duringcomprehensive Nursery Development December 1993.Program.

2. Government Nurseries to be Privatizationcommercialized on cost recovery recommended -basis. MAAIF 6/30/94 August 1994.

3. Establish 75 private sector MAAIF and 6/30/94 There were 126nurseries with mother gardens. UCDA Nurseries by June

1994.

4. UCDA budget target for UCDA 6/30/94 On going butCoffee Subsector Research and budget preparedDevelopment to 40 percent. in Oct. 1993.

B. Marketing Issues

5. Allow exporters to chooseany of the marketing methods thatsuits them best. UCDA 12/1/93 March 1994.

6 Submit evaluation report onintroducing Auction System formarketing Uganda Arabica coffee. UCDA 3/3194 February 1995.

7. Floor Price

7.1 Finalization of therecommendations of the Price PolicyCommittee. UCDA 10/1/93 February 9, 1994.

7.2 Implementation of therecommendations of the Price PolicyCommittee. UCDA 12/1/93 February 0,

1994.

- 21 -

Table Sb (Cont'd): Proposed Action Matrix for Implementation of Recommendationsof the Task Forces based on Policy Actions Required under ASAC and the Coffee

Subsector Review of 1993

Recommendations Action by Recommende Actuald Completion Completion DateDate

7.3 Review Floor Price Systemand replace it with Indicative PriceSystem. UCDA 10/1/94 Published daily

since February1994.

8. Implement the revisedcriteria for licensing/registration ofexporters. UCDA 12/1/93 March 9, 1994.

9. Each export processing plant Exporting 12/1/93 Continuous asshould have a 'Registered Quality Processing new exportersController'. plants and start new

UCDA processing plants(being compliedwith).

10. UCDA

10.1 Preparation of a plan forrestructuring of UCDA especiallywith regard to the composition of UCDA 10/1/193 February 1994.Board of Directors, quality control,its role in expanding nurseries forclonal varieties and research.

10.2 Amendment of UCDA Ministry ofStatute, 1991, and rectification by Trade andBoard of the plan for restructuring. Industry 12/1/93 April 15, 1994.

10.3 Establishment of new Boardof Directors of UCDA and itsstanding Committees UCDA 12/15/93 July 1994.

10.4 Establishment of Exporters Coffee 11/15/93 December 1993Association Exporters

- 22 -

Table 5b (Cont'd): Proposed Action Matrix for Implementation of Recommendationsof the Task Forces based on Policy Actions Required under ASAC and the Coffee

Subsector Review of 1993

11. CMBL

11.1 Preparation of corporate plan CMBL 10/1/93 June 1994.for CMBL which would inter-aliaincorporate the establishment of costcenters to facilitate privatization in aphased manner.

11.2 Ratification of the plan by CMBL 12/1/93 August 1994.CMBL Board

11.3 Privatization of CMBL CMBL 9/30/96 Bids for sale ofCMBL to privatesector received inJune 1997.

C. Transport Issues

12 Partial liberalization of coffee UCDA 12/1/93 Completetransportation by allowing exporters liberalizationto transport up to 20% of annual implemented onexports by road to ports of export. March 9, 1994.

13. Implementing road user Ministry of Under review ascharges based on road damage costs. Communication part of Roads

s, Works and 6/30/94 Sector InvestmentTransport Program.

14. Restructuring of Uganda As in 13 above. ContinuousRailway Corporation

15. Full liberalization of coffee UCDA 10/1/94 March 9, 1994.transportation to ports of export.

- 23 -

Table 6: Key Indicators for Project Operation

ACTION PROGRAM ACTUAL ACHIEVEMENT

Coffee Crop Financing Achieved before second tranche release inDec. 1992. For 1993/94, US $38 million

Reinstate commercial banks as lenders for was available to exporters as prefinancecrop finance/revise institutional funds. Since 1993/94, crop financing hasarrangements. been a minor problem.

Pricing of Export Crops Farmers are now recovering about 60% ofthe export price against 20% before

Adjust producer prices and liberalization. GOU removed export tax onprocessing/marketing margins for coffee. coffee in July 1992. A new stabilization tax,Increase farmers' share of the long-term imposed in 1994/95, was abolished effective,coffee export price. Increase price and tax July 1, 1996.incentives for exporters.

Processing and Market Institutions Against a target of 40 licenses to privatesector exporters by 1993/94, 87 have been

Abolish CMB's export monopoly and issued in 1995/96. The private sector is nowprovide incentives for private sector responsible for 95% of coffee exports.participation in exports.

Public Expenditure Review

Establish and secure funding for high PER's have been undertaken since 1993/94priority agricultural projects. to establish such priorities.

Agricultural Research and Extension

Implement an integrated national NARO has been established and is beingagricultural research plan and support the supported under ARTP (CR. 2446-UG),establishment of a semi-autonomous while a national unified extension system isNational Agricultural Research Organization being supported under AEP (CR. 2424-UG).(NARO).

- 24 -

Table 6 (Cont'd):... Key Indicators for Project Operation


Production

* UCDA to finalize comprehensive Completed in 12/93. 370 new nurseriesNursery Development Program by Dec. (105% of target) and 333,750 mother bushes1993. (79% of target) have been established.

* Establish 75 private sector nurseries by 126 nurseries were in place at 5131/94.June 1994.

Marketing

Allow exporters to choose any method that Completed in March 1994.suits them best by Dec. 1993.

Floor Price

Review Floor Price System and replace it Indicative Price System in place since Marchwith Indicative Price System by Oct. 1994. 1, 1995.

UCDA

Amend UCDA Statute, 1991 by Dec. 1993. Completed on April 15, 1994.

CMBL

Prepare Corporate Plan by Oct. 1993. Plan prepared by May 1994. Some non-Privatize CMBL by Sept. 1996. productive assets of CMBL were sold prior

to its privatization. Bids from prospectivebuyers (received in June 1997 )beingconsidered.

- 25 -

Table 6 (Cont'd):... Key Indicators for Project Operation


Transport

Partial liberalization of coffee transportation Completely liberalized in March 1994.(20% by road) by Dec. 1993.

HARE (Research) Component

The component's integration with NARO,due by 1/1/94, has been fully implemented.Performance in most sub-projects has beensatisfactory.

MISR Component

The rehabilitation of buildings and thetraining has been completed.

Land Policy Component

The Technical Committee's Report on LandTenure was published in June 1993.

- 26 -

Table 7: Studies Included in Project

Consultant/Author Title of the Study

AGSEC Economics of Crop Production 1992/93, March 1993

AGSEC Impact of Presenit Exchange Rate Appreciation on Comparative Advantage ofExport Crops 1993

AGSEC/IDA Consultant Report on Risk Management Strategies for the Uganda Coffee Sub-Sector 1993

AG SEC/Task Forces Report on Establishment of Cotton Development Organization (CDO); Report onLiquidation of Lint Marketing Board; Report on Establishment of Lint MarketingCompany; Report on Debt Relief and Cooperative Union Restructuring

Agricultural Secretariat A Working paper on: (i) CSDP Production Credit Component; (ii) AnimalTraction in North Eastern Uganda; (iii) Document on "The Cotton Sub-SectorCredit Financing Program

AGSEC/Consultant The Report on Fair Liability of Cotton Union Debts - 1994

AGSEC/ FAO Consultant Study of the Provision of Ag Services in the Context of Structural AdjustmentReforms 1994

AGSEC The Impact of Structural Adjustment on Agricultural Services - Ugandan CaseStudy 1994

AGSEC The Economics of Crop and Livestock Production - 1993/94

GOU/IDA Joint GOU/World Bank Task Force (1994) Reports on: Coffee Production,Processing, Marketing and Coffee Transportation; Key Issues andRecommendations

AGSEC/UCDA Report of the Task Force on the Implementation of the Coffee ProductionProgram 1994

AGSEC/MFEP/BOU Coffee Stabilization Tax -Technical Committee Response to the MemorandumSubmitted by Uganda Coffee Exporters Association 1995

AGSEC/Consultants A Rapid Appraisal Of Rural Finance and Credit Schemes Vol I and II - 1994

AGSEC/BOU/MFEP Coffee Stabilization Tax - An Evaluation of Its Impact 1995

AGSEC Analysis of Cost of Processing, Marketing and Indicative Price Structure of MajorAgricultural Exports - 1994

AGSEC/NICU Strategy for Agricultural Mechanization in Uganda - 1994

- 27 -

Table 7 (Cont'd): Studies Included in Project


AGSEC/MAAIF Guidelines for Financing Veterinary Doctors for Establishment of PrivatePractices under Livestock Services Project - 1995

AGSEC/MAAIF Guidelines for Financing Small and Medium Scale Livestock Enterprises underLivestock Services Project - 1995

AGSEC/BAS CSDP Ginnery Profiles 1995 - Business Plans -Methodologies and Workplan

AGSEC Strategy and Guidelines for Supply of Cotton Pesticides and PaymentArrangements under Cotton Stabex/ADP Funds for 1995/96 Season - 1995

AGSEC/lntemational Report on the Role and Possible Restructuring of Agricultural Policy CommitteeDevelopment Consultants and Agricultural Secretariat - September, 1995

AGSEC Programs and Rural Micro-enterprise Projects in the Agricultural Sector -November 1995

AGSEC Towards Employment Oriented Growth and Poverty Reduction in Rural Areas -An Agenda for Possible Solution - November 1995

AGSEC Towards Growth and Poverty Reduction in Rural Areas - A Review ofAgricultural Policy Agenda and Future Perspectives - November 1995

AGSEC/National Tech. Emergency Action Plan for Control of Water Hyacinth - November, 1995Committee

AGSEC/UCDA The Roles and Activities of Uganda Coffee Development Authority (UCDSA) inthe Context of Coffee Sub-Sector Reform - January 1996; Review of coffeeStabilization Tax, Crop Finance and Risk Management - January 1996; Review ofCoffee Research Extension and Nurseries - January 1996; Privatization of CoffeeMarketing Board Ltd - January 1996

AGSEC/ACDI A Program to Build Rural Financial Capacity -march 1996

AGSEC Private Sector Development Strategy for Rural Development - Project Profiles -July 1996

AGSEC/Task Force Report of the Task Force on Privatization of Coffee Planting Seed Services - Sept.1996

- 28 -

Table 7 (Cont'd): Studies Included in Project


AGSEC/Task Force Report of the Task Force on Operationalization of Capacity Building Program for Rural FinanceNov. 1996

AGSEC National Strategy and Program of Action for Private Sector Development in Rural Areas Vol. I and11 -November 1996

AGSEC/MPED Medium Term Agricultural Sector Modernization Plan -October 1996

AGSEC/Task Force Draft Report of Rural Development Sectoral Working Group - anti Poverty Action Plan - October1996

AGSEC Interim Report on Assessment of Impact of Sub-Sector Reforms Under ASAC and CSDP - January1997

- 29 -

Table 8A: Project Cost (USS '000s)

Appraisal Estimate ActualSubject to Revisions

Item Local Foreign Total Local Foreign Total^omponentHare 2,750.2 4,363.6 7,113.8 635.0 1,335.8 1,970.8Land Policy Research Program 615.1 761.0 1,376.1 210.0 232.5 442.5Agricultural Sector Planning 187.4 3,086.7 3,274.1 12.9 178.8 191.7Coffee Subsector Management 11.2 1,789.9 1,801.1 0.0 1,032.4 1,032.4Project Management Support 274.5 1,503.7 1,778.2 515.0 1,565.1 2,080.1PPF 239.0 1,031.0 1,270.0 430.0 623.4 1,053.4Other 0.0 0.0 0.0 2,250.0 3,399.3 5,649.3Adjustment Component 0.0 85,000.0 85000.0 0.0 84,619.0 84,619.0Total 4,077.4 97,535.8 101,613.3 4,052.9 91,683.8 97,039.2

Note: Project accounts were kept in accordance with disbursement categories. To facilitate allocation of funds amongst different activities,these were grouped under "other" in July 1995. Figures for some subcomponents were not readily available during the [CR mission, but wereprovided subsequently. Expenditures under the "other" category since July 1995, by component, are shown below.

Item Estimate ActualAgricultural Research (HARE) 2,205.6 2,477.3Coffee Nursery Program (UCDA) 1,000.0 939.8Warehouse Receipt System Study (UCDA) 48.0 36.5Land Registry Rehabilitation (MLHPP) 1,150.0 144.5Procurement and Distribution of cotton seeds 1,500.0 1,390.0Support to APSEC 630.0 615.1Women Study 21.6 21.6C-redit Study (Rapid Appraisal) 45.2 45.2Business Advisory Services (BAS) 185.0 185.0Additional Support to BAS 32.5 32.5Support to Coffee Farmers Association 25.0 30.0Support to Uganda Coffee Federation 100.0 80.2:apacity Building Study 175.0 174.0MISR ( Civil Works + Library equipment) 82.6 57.1Research on Cocoa, tea & Palm Oil 45.0 38.2Training & Study Tours (APSEC) 27.0 28.0Refurbishing of APSEC Offices 260.0 116.5Land Tenure Law Bill 17.5 11.7VODP 130.0 66.1Audit fees 0.0 7.0BMB Consultants (CMBL) 0.0 43.0Total 7,680.0 5,649.3

- 30 -

Table 8B: Project Financing

Appraisal Estimate (USSM) Actual/Latest Estimate (USSM)

Source Foreign Local Total Foreign Local Total

IDA 97.5 2.5 100.0 n/a n/a 96.8

Domestic Contribution - 1.6 1.6 - .9 .9

TOTAL 97.5 4.1 101.6 n/a n/a 97.7

Table 9: Economic and Financial Costs and Benefits

The President's Report made no estimate of the economic costs and benefits of the adjustment norinvestment components of ASAC, and no economic rate of return was calculated. In view of the sectoralnature of the project, the contributions made by the private sector and other donors under otherconcurrent and subsequent programs, other Government macro-economic policy actions that have had adirect influence on sectoral growth, and the difficulty of assessing benefits attributable to investments inresearch and extension, the economic rate of return oni the investments under ASAC was not attempted.

- 31 -

Table 10: Status of Legal Covenants

Agreement Section Covenant Present Original Description of Covenant CommentsType Status Fulfillment

date

Credit 3.01 (b) 3 C The borrower shall make available to CMBL, as a Fulfilledgrant, the proceeds of the credit which may fromtime to time be allocated as set forth in schedule 1.

Credit 3.01 (c) 3 C The borrower shall make available to Makerere FulfilledUniversity for use by MISR as a grant, the proceedsof the credit which may from time to time beallocated as set forth in schedule 1.

Credit 3.01 (f) 5 C The borrower shall carry out the project in Actionsaccordance with the implementation program set requiredforth in schedule 6 of the agreement. under the

structuraladjustmentcomponentfulfilled.

Credit 3.04 (b) I CD The borrower shall have the project accounts and Fulfilledspecial accounts for each fiscal year audited byindependent auditors; and fumish a certified copy ofthe audit report to IDA not later than six monthsafter the end of each such year.

Credit 3.04 (c) I CD For all expenditures with respect to which Fulfilledwithdrawals from the Credit account were made onthe basis of statements of expenditures, the borrowershall maintain adequate records and accountsreflecting such expenditures; and ensure that suchrecords and accounts are included in the annualaudit referred to in para (b) of the Section and that areport of such audit contains a separate opinion bysaid auditors on the proper use of SOE's.

Credit 3.05 1 CP Borrower shall cause CMBL to maintain adequate FulfilledRecords and accounts, have its records, accounts partiallyand financial statements (Balance Sheets, statementsof income and expenditure and related statements)for each FY audited, by independent Auditors, andfumish to IDA not Ister than 6 months after the endof such year: (a) certified accounts of its financialstatements for such year as so audited; and (b) thereport of such audit by said auditors.

Credit 3.06 (b) S C The borrower shall cause CMBL to carry on its Fulfilledoperations and conduct its affairs in accordance withsound administrative, commercial and financialpractices under the supervision of qualified andexperienced management assisted by competentstaff in adequate numbers.

Present Sta

C - Covenant complied with

CD - Complied with after delay

CP - Complied with partially

NC - Not complied with

- 32 -

Table 11: Compliance with Operational Manual Statements

Basically, there was compliance with the applicable Bank Operational Manual Statements.

Table 12: Bank Resources: Staff Inputs"

Stage of project cycle Planned | Revised ActualWeeks US$ Weeks USS Weeks | USS

Preparation toappraisal n/a n/a 49.3 107.8

Appraisal n/a n/a 71.5 188.2Negotiations throughBoard approval n/a n/a 2.7 7.9

Supervision n/a n/a 145.9 442.1Completion2 ' n/a n/a 12.0 54.7TOTAL 281.4 800.7

n/a - Not available from Cost Accounting System

As of June 19, 1997. The cost for completion is estimated. Amounts are in US$ thousand.

21 Undertaken by FAO/CP.

- 33 -

Table 13: Bank Resources: Missions

Performance Rating

Number Days in Specialized Staff Implementation Development

Stage of Project Month/Year of Field Skills Status Objectives Types of

Cycle Persons Represented Problems

Appraisal 5/90

Supervision 1/91 8 11 FA, Ec, Res, Proc, - - -

Disb, Mgmt, Coffee

4-5/91 2 15 FA, CO 2 1 PM

6-7/91 4 24 FA, Ec, Leg, Tea 2 1 PM, F

9-10/91 4 15 FA, EC, Land, Mgmt 2 1

5/92 3 12 FA, EC, Res 2 1 F

11/93 1 10 FA 2 1 PM, F

1/94 2 8 FA 2 I F

6/94 1 12 FA 2 1 F, Proc

2/95 1 6 FA 2 2 F, Proc

6-7/96 2 19 FA, Land 2 2 F, Proc

3-4/97 1 7 FA 2 2 -

Completion /l 4-5/97 2 14 Ec, Mgmt - -

Abbreviations: Ec = Economist; FA = Financial Analyst; Mgmt = Management Specialist;Tea = Tea Specialist; Coffee = Coffee Marketing Specialist; Disb = Disbursement SpecialistProc Procurement Specialist; Res = Research Specialist; CO = Country OfficerLeg = Legal Officer; Land = Land Tenure Specialist

PM = Project Management; F = Financing (due to shortage of counterpart contributions)Proc = Procurement

1/ Carried out by FAO/CP

Appendix A - Mission's Aide-Memoire

FOOD AND AGRICULTURE ORGANIZATION

OF THE UNITED NATIONS

Investment Centre Division

UGANDA: Agricultural Sector Adjustment Credit (ASAC) (Cr 2190-UG)Implementation Completion Report Mission - Aide-Memoire

A. Introduction

A FAO/World Bank Cooperative Program (CP) mission2 visited Uganda from 23 April to 7 May1997 to prepare the ICR for the above project. Discussions were held with the concerned officials fromthe Project Coordination Unit, the Agricultural Policy Secretariat (APSEC), staff of the Researchdepartment of the Bank of Uganda, Uganda Coffee Development Authority (UCDA), Uganda CoffeeFarmers Association (UCFA), Uganda Coffee Traders Federation (UCTF), Coffee Marketing BoardLimited (CMBL), Makerere Institute for Social Research (MISR), Ministry of Planning and EconomicDevelopment (MPED), Ministry of Lands, Housing and Physical Planning (MLHPP), NationalEnvironmental Management Authority (NEMA), Ministry of Agriculture, Animal Industry and Fisheries(MAAIF) and National Agricultural Research Organization (NARO). Field trips were undertaken to theCoffee Research Centre (COREC), and to the District Farm Institute coffee nursery at Mityana, privatecoffee nurseries and farms, and private processors.

A wrap-up meeting was held by the Agricultural Policy Committee on 6th May, 1997 at whichthis aide-memoire was discussed. The mission would like to express its appreciation for the assistancegiven by the officials of the Government of Uganda and its agencies, staff of the industry groups, and forthe cooperation and courtesy of the staff of APSEC.

B. Background

The Credit was designed and appraised in the context of far reaching macro-economic policyreforms initiated by the Government of Uganda following the Economic Recovery Program (ERP) in1988-1990. To support the ERP, the Agricultural Sector Adjustment Program (ASAP) set out the

2The mission comprised Tim Lamrock (FAO TCIR - Economist/Mission Leader) and Mr L. Eturu (Project Management Specialist -

Local Consultant).

2

Government's guiding policy for reform and growth in the Agricultural Sector and formed the basis forexternal support to the Government by IDA under ASAC. Coffee production was well below past levelsand continual problems were being faced by Government in financing the procurement of the crop underthe Coffee Marketing Board (CMB). The importance of coffee in the sector in terms of employment andrural incomes, and in trade and foreign exchange earnings, focused sectoral reforms around the coffeeindustry. Foreign exchange availability for agricultural inputs was limited and the Governmentrecognized the importance of market reform, research, extension and sectoral management as keycontributors to growth in the agricultural sector. This was set out in a letter of development policy toIDA in November, 1990.

C. Project Objectives and Components

ASAP's objectives were (i) to support the financial stabilization of the sector by controllingcredit expansion through improved institutional arrangements for the financing of coffee procurementand marketing; and (ii) to promote agricultural growth and diversification by institutional, price and taxreform reform in coffee procurement, marketing and export, and by strengthened agriculturalresearch, extension and sectoral management. To complement IDA's support to the Government underthe ERP, the Credit was designed to address the Government's need for balance of payments support foressential sector imports, including fuel, and to assist in capacity building for institutions charged with theresponsibility for the implementation of the Government's agricultural growth strategy.

The Credit totaling SDR 69.5 million (US$ 100 million equivalent) was a hybrid consisting of asector adjustment component and a complementary investment component with objectives consistentwith the ASAP. The adjustment component, available conditionally in two tranches totaling US$ 85million, was to finance specified sectoral inputs with a maximum available to finance fuel and petroleumproducts of US$ 17 million. The investment component (US$ 16.6 million including contingencies) asappraised comprised the following five sub-programs: (i) Head Start Program for Agricultural Researchand Extension (HARE) (US$ 6.0 million base costs); (ii) Program for Strengthening Agricultural SectorPlanning (PASP) (US$ 2.7 million); (iii) Land Policy Research Program (LPRP) (US$ 1.2 million); (iv)Support for Coffee Sub-Sector Management (US$ 1.5 million); and (v) Support for Project Coordinationand Monitoring (US$ 2.8 million). Items to be financed under the investment component were mainlyrenovation and construction of research and office facilities, vehicles and equipment, training and studytours, consultant services for coffee subsector reform, and operating costs for project management.

D. Achievement of Project Objectives

Overall, the period 1991-1996 saw major reforms in the coffee industry in Uganda. The projectcontributed to the sector reforms by assisting policy changes to promote private sector entry into themarketing and export of coffee, and to begin the commercialization of the Coffee Marketing Board. Thisstep included the establishment and support of the UCDA to assume industry monitoring and regulatoryfunctions. During this time, significant macro-economic changes to the Ugandan economy also tookplace that built on the project's coffee industry reforms, and key amongst these were overall marketderegulation and the introduction of a free foreign exchange regime.

The first stated objective of the project, to ensure financial stability through improvedinstitutional arrangements for the financing of coffee procurement and marketing, was mainly reached bythe time of the release of the second tranche in December, 1992. This was achieved by the withdrawal of

3

Bank of Uganda's direct financing of the coffee crop, and was replaced by the involvement ofcommercial banks, supported firstly by policy measures to ensure real positive interest rates, andsecondly by the establishment of a Coffee Subsector Budgeting and Monitoring System and thesubsequent adoption of the Coffee Subsector Budget for 1991 and 1992 crop seasons. The projectprovided foreign exchange resources at a critical time in Uganda's ERP, and contributed to the macro-economic stabilization and adjustment process at that time.

Since 1992, further developments in the Uganda coffee industry marketing and export systems,not anticipated at appraisal, have taken place that have had a direct impact on the financing of the crop.Coffee procurement and export is now carried out by three categories of businesses: (i) locally financed,local exporters; (ii) internationally financed local brokers/agents, (iii) internationally financed directprocurers. Vertical integration is now a key characteristic of the industry. By the end of 1996, over 90%of the coffee crop was procured with finance accessed from foreign sources.

The second objective, to promote agricultural growth and diversification, is a wide, non-specificobjective against which it is difficult to gauge one individual project's impact. For the coffee subsectorhowever, it can be said that this objective has been largely achieved as a result of the project. The coffeesubsector has grown from a production level of 2 million bags (60 kg) in 1991/2, with an export value ofUS$ 121 million to 4.1 million bags in 1995/6, with an export value of US$ 389 million. Farmers' shareof the export price (free on truck, Kampala) has risen from 30% in 1991 to over 60% in 1996.Rehabilitation and tree replacement with disease resistant clonal varieties has taken place, and farmers,recognizing the value of the retums possible from coffee particularly now with cash settlements receivedfrom private sector traders, are improving production from their coffee gardens. This has been achievedas a result of the marketing reforms and the establishment of UCDA as the industry regulatory body onthe marketing side, and the involvement of the private nursery development and extension activities onthe production side.

ASAC has made a contribution to overall to agricultural growth and diversification, but themission finds it difficult to quantify the extent to which this is the case. This is particularly so inagricultural research and extension, not specifically focused on the coffee industry. However, the missionrecognizes the success of some of the HARE sub-programs (notably the groundnut, simsim and cassavaprograms) that have resulted in releases to farmers of improved varieties and have contributed toincreased agricultural production. The project was the vehicle by which NARO was established to lift thestatus and capacity for agricultural research, and by which further IDA support to research and extensionwas prepared and initiated. HARE was the forerunner to the Agricultural Research and Training Project(ARTP Cr 2446), and the Agricultural Extension Project (AEP Cr 2424).

The project has assisted in the preparation of the Cotton Sub-Sector Development Project (CSDPCr 2609) and the proposed Vegetable Oil Development Project (VODP) for IFAD financing. Valuablesupport was provided to the land debate by building capacity for land research in MISR, and assisting inbringing the research results into the policy discussions leading to the draft Land Bill 1993 and the landlaw in the Constitution. ASAC has also supported the preparation of further revisions to the land law,now in the form of the draft Land Tenure and Control Bill, 1997. Therefore the project's activities can beconsidered as part of the process in promoting agricultural growth in these areas.

In overall sector planning, the PASP did not proceed and was later canceled. In 1994, sectorplanning then became the subject of the Agricultural Sector Management Project (ASMP), but this laterproject was not effective at the time of the ASAC's closing. Therefore ASAC's impact on sectoralplanning was negligible.

4

E. Implementation Experience and Results

General

The Credit was appraised in June, 1990, approved by the Board of IDA in December, 1990 andbecame effective on 3 January, 1991. The adjustment component and the support for CMBL closed on 30June, 1995 as planned. After two extensions to the original closing date of 30 June 1995 for otherinvestment components, the Credit finally closed on 31 December, 1996. A total of SDR 68.26 million(US$ 96.9 million) was disbursed and an undisbursed amount of SDR 1.24 million (US$ 1.7 million) wascanceled3 .

The implementation of the project has generally been satisfactory but was behind the timeschedule proposed at appraisal. Whilst effectiveness (and the first tranche release) was on time, thesecond tranche of the adjustment component, originally expected in October 1991, was released inDecember, 1992. The technical assistance to advise the PCU in procurement matters started in June,1991, and so the movement of the project investment components was initially delayed. There were alsodelays in the satisfaction of the conditions of effectiveness for the HARE component, namely theappointment of the PIU head and Senior Agricultural Services Adviser. As the original closing date of 30June, 1995 approached, the investment components were modified and the project's closing dateextended to 30 September, 1996, to make use of the expected undisbursed funds, arising mainly from thecancellation of the PASP component. The components added were activities not contemplated atappraisal but which were considered to fall under the general thrust of ASAP. The main changes in costterms were: (i) a nursery development program to be implemented by UCDA at a cost of US$ 1 million;(ii) rehabilitation of the Land Registry (US$ 1.1 million); and (iii) importation of cotton germplasm formultiplication (US$ 1.5 million). Other items included support to business advisory services inconnection with the cotton subsector, pre-project activities for VODP, and continuation of the originalproject activities. A further extension to 31 December, 1996 was approved to assist in the completion ofsome of these activities.

The adjustment component was fully disbursed and was generally satisfactory. The mechanismsneeded to be altered to take account of the Government's changing policies towards deregulation in theforeign exchange system.

Most of the project's investment related activities have been successfully and fully implemented.The capacity building programs in subsector management, and agricultural and social research weresatisfactory, and the nursery development program achieved its targets. But there were exceptions.Firstly, the component for building capacity for sector planning was not implemented. This was mainlydue to differing pressures on issues of institutional responsibility for sectoral planning. This could not beresolved and the PASP under ASAC was canceled. Sector planning then became the subject of the IDA-supported ASMP. Secondly, the rehabilitation of the land registry systems was not fully completed. Thiscomponent was included at the time of the project's extension and the main problems related topreparation and sequencing of the activities to be undertaken in a short time frame to meet the closing

Figures correct as at 16 April, 1997 from World Bank intemal disbursement records.

5

date of ASAC. The major part of the canceled credit relates to this item. Further details of the individualcomponents are set out below.

The main procedural implementation difficulties were in the areas of release of Governmentfunds for project activities, delays in the withdrawal of funds from the Special Accounts in the Bank ofUganda, and in the Bank's procurement procedures. Even though budgetary provisions for projectcounterpart funds were made, central budgetary constraints often resulted in reduced allocations beingmade. This was overcome initially by devising a system to advance funds from the special accounts tomeet local costs. In the extension phase, many of those components were in disbursement categorieswhich could be 100% financed. Flows of funds from special accounts improved when they weretransferred to commercial banks. Procurement procedures proved to be cumbersome to the implementingand coordinating units, particularly because of delays in establishing letters of credit and clearing goods.There were also difficulties in specifying, within the procurement procedures, a general standard ofquality and the local availability of technical support and service for technical equipment, and this hasresulted in sub-standard or unserviceable equipment being procured in some cases although it had metthe required specification.

The project was well designed to address issues in, and to support, the reform process in coffee,and to make a start on the overall sectoral growth strategy in research, extension and planning. Theproject was complicated with many components being implemented by other agencies and departments,and became more so when the project was extended. Therefore, coordination of project activities,procurement and reporting took on an important function to ensure successful implementation. Thestructure of the project's management, with the PCU in the Bank of Uganda coordinating PIU's in eachagency, was well designed to address this.


Initial implementation progress was slower than expected, particularly with respect to thedisbursements under the adjustment component. Whist this was initially due to the disqualification ofpetroleum imports prior to project effectiveness due to inadequate documentation, other factors impededdisbursement which prompted a redefinition of the eligible imports list and later to a change indisbursement mechanism. Firstly, demand for imported agricultural inputs was far less than that assumedwhen the quantum of the adjustment component was originally determined. This was due to high interestrates, depreciation of the Ugandan Shilling, and slower than expected growth in the agricultural sector.There was also a general lack of local currency in the banking sector. In addition, donor-financed aidprograms supplied large quantities of inputs at subsidized prices. To assist disbursement, the positive listwas extended to include items that were not specifically for the agricultural sector (e.g. roofing sheets,bicycles and cement). When the foreign exchange auction system replaced the Open General License andSpecial Import Program systems, the originally designed mechanisms for disbursement, theDevelopment Credit Agreement was amended (January, 1993) to permit ASAC adjustment funds to beused in the auction for imports subject to the standard negative list that applied to other IDA adjustmentcredits. At the same time, the amount eligible for petroleum imports was increased. Further changes werenecessary to permit these funds to be used for interbank transactions when the auction system wasterminated. Following these changes, disbursement was prompt and 100% of the adjustment componentwas disbursed.

SDR 23 million (US$ 32.4 million) was disbursed under the positive list for agricultural inputs,SDR 18.8 million (US$ 26.2 million) for petroleum products and SDR 18.3 million (US$ 26.0 million)for general imports. Therefore, some of the ASAC adjustment component was applied to imported inputs

6

not specifically for the agricultural sector, and it is not possible to determine the extent to which this isthe case. Given that the original adjustment amount of US$ 68 million (US$ 85 million less US$ 17million for petroleum products) was based on an assumed demand for inputs and a level of growth in theagricultural sector, the actual growth in the sector was less than that originally assumed at appraisal.


Head-Start Program for Agricultural Research and Extension (HARE)

HARE was designed to implement high priority research and extension activities. This was to bedone through a series of sub-projects which would focus on production constraints and adaptive researchto fine-tune technologies, and would then improve their dissemination. In addition, HARE would providetechnical assistance, training, studies, vehicles and equipment, and selective rehabilitation andreconstruction of research facilities. The nine sub-projects comprised a package which was expected tobe an effective way of achieving the longer-term objective of building a research capacity. Theestablishment of a semi-autonomous research organization was a condition of the second tranche release.

During 1992, the AEP and ARTP came on-stream before the technology dissemination andresearch sub-projects were completed. The transition from HARE to the new projects was complicatedbut was eventually achieved through a restructuring of both ASAC and HARE itself, and a new program,including on-farm research and outreach and called "Action Research and Development Program"(ARDP), was implemented by NARO.

The APC sub-committee on Research and Extension (SCORE), which was chaired by theSecretary for Research in MAAIF, was responsible for review and approval of the work plans andbudgets, setting priorities, approving individual sub-projects, and recruitment of staff. The componentwas implemented by the PIU in MAAIF. There was a lack of consensus amongst those involved on theseinstitutional arrangements for implementing HARE, and this caused delays in implementation.

In the final analysis, HARE achieved its main objectives. It created the institutional frameworkfor research and extension. A National Agricultural Research Strategy and Plan (NARSP) and a NationalAgricultural Extension Strategy and Plan (NAESP), supported respectively by ARTP and AEP, weredeveloped. NARO was established as an autonomous research organization, while the Unified ExtensionService was established within MAAIF. The progress of sub-projects was largely satisfactory. Notablesuccesses were recorded in cassava, sweet and Irish potato, cotton, groundnuts and beans where ground-level production impacts were achieved.

Agricultural Sector Planning

PASP was conceived at a time when there were several other initiatives to strengthen sectoralplanning in different ministries responsible for agricultural development. This component was thesubject of strong and unresolved sectoral interests which prevented it from moving forward. PASPsubsequently underwent a number of revisions in response to institutional changes and the restructuringof key ministries, with the last revision undertaken in September 1993. The overall componentobjectives, however, remained valid and unchanged. PASP was declared non-core by Government infiscal year 1993/94, following which the component was canceled in March 1994. While the mainprogram was not implemented, the relevant concerned ministries received vehicles, equipment and someoverseas training. Sector planning is to be addressed under ASMP.

7

Land Policy Research and Legislation

In conjunction with USAID's involvement in MISR, ASAC's support has been successful inrehabilitating its physical facilities and building its capacity to move forward into an operational phase inwhich MISR will be able to compete for Government and donor-financed research programs. The imageand stature of MISR has been raised, and its status within the University is now semi-autonomous, animportant factor for it to be able to set conditions of service to retain the staff trained overseas underASAC. The research findings on land issues have been an important input to the discussions in theConstituent Assembly, and into the draft land legislation. ASAC helped this process by financingseminars and workshops to build the link between the research and policy formulation. The quality ofworkmanship in the civil works contract, and delays in procurement were the main implementationproblems. The delays in procuring the library equipment were such that it could not be completed beforethe closing date of the project. Only part of the equipment requirement was procured, and this hasresulted in the library being only partially operational.

Coffee Sub-Sector Management

The project's activities in this area were originally designed to support the organizational,financial and institutional restructuring of the CMB and the Cooperative Unions, and the transfer ofCMB's regulatory function to an autonomous authority. ASAC financed many important studies coveringthe coffee subsector that have guided the reform process. Following an initial study to recommended thedesign of UCDA, ASAC assisted in joint Government of Uganda/World Bank subsector reviews in 1993and 1995 that were central to guiding policy and resolving issues. The project provided equipment toUCDA, particularly communication and information systems, that have proved to be vital in obtaining,analyzing and distributing daily international coffee market information.

The commercialization of CMBL was crucial to its continuation as a competitor. The project'ssupport to CMBL was in the areas of financial management and information systems, and these havemade a valuable contribution to the commercialization of CMBL. The project specified financialrestructuring measures for CMBL to be taken by the Government as conditions under the Credit.However, the commercialization process was not all-encompassing as CMBL remained constrained bycumbersome decision making between the management, board and the Ministry of Trade and Industry,by the cost of necessary maintenance of non-productive assets, and the inability of the management torapidly restructure its staff due to trade union involvement. CMBL could not have competed fully withnewly-licensed private sector exporters unless there was a complete change of management will, bothinternally and externally, for it to assume a new identity as an efficient market trader. Its market sharehas fallen over the years to about to 4% although its main processing facility in Kampala is currentlyabout 40% utilized on a contract basis.

The responsibility for the restructuring of the Unions remained with the Unions themselves, withadvice to be provided from a Cooperatives Finance Specialist under ASAC. This technical assistance wasnot provided and the project's support to the Unions in the change process has been negligible. TheUnions initially handled 10% of the market at the beginning of the reform process but by 1996, UnionExport Services (UNEX), established to export coffee for the Unions, handled about 1%.

8

Project Coordination and Monitoring

Government assigned the responsibility of overseeing the implementation and monitoring ofASAC to APC. A Project Coordination Unit (PCU) was established in the then Agricultural Secretariat(AGSEC) to manage the implementation process. This included coordination of the activities of thevarious Project Implementation Unit (PIUs) which were established in the relevant ministries, overallplanning of procurement, financial management and control. The Project Coordinator, Financial Advisor,Procurement Specialist, Accountant and Disbursement Officer formed the core of the PCU. SinceAGSEC had the responsibility to implement the ASAP, and the Project coordinator was the Director ofAGSEC, the PCU was in fact AGSEC. Technical assistance was provided by ASAC under a Trust Fundarrangement between IDA and FAO and vehicles, equipment and training were financed.

The APC established five sub-committees to facilitate policy decisions, and to link and interfacemore closely with the technical ministries and departments of government responsible for the differentsubcomponents of the project. The five sub-committees were: (i) sub-committee on AgriculturalResearch and Extension (SCORE) responsible for HARE; (ii) Land Policy Research (LPRC) for landpolicy reforms; (iii) Coffee Subsector management (CSC) for coffee reforms; (iv) agricultural inputs forthe adjustment component (inputs only); and (v) procurement. Apart from the Procurement Committeewhich was chaired by the Director AGSEC/Project Coordinator, the other sub-committees were chairedby the relevant Permanent Secretaries to which the responsibility for the subcomponents fell.

The structure thus established for the implementation of ASAC is considered to have beensatisfactory. Overall financial management was satisfactory.

The PCU/AGSEC facilitated implementation of policy reforms under ASAC. The project helpedbuild capacity to undertake key studies to support policy analysis and formulations. The most notablecontributions were the regular studies on cost of production and marketing, and analysis of comparativeadvantage of Uganda agricultural commodities. These studies established the foundation and data basefor much of the analysis of coffee pricing, taxation and financing, and indeed in other sectors.

Other Activities under Extended ASAC

The following activities were included when ASAC was restructured and the project's closingdate was extended:

UCDA Nursery Program: The nursery program has successfully established 370 robusta and 70 arabicaclonal nurseries, providing about 3 million seedings for replacing old bushes and, in the case of robustas,replacing wilt-affected bushes with disease tolerant seedlings. ASAC supported this program byfinancing basic inputs for the establishment of the nurseries to be operated by private farmers.

Rehabilitation of Land Registry/Land Administration Systems: The strategy for land administrationsystems had to be in accordance with the land legislation and the Government's decentralization path,and ASAC financed an external study to determine the details of recommendations on new landinformation systems. The results of this study were not known by the time of the project's closing4.However, there was a recognized need to at least halt the deterioration of the central land records. The

4Consultanfs report received April, 1997.

9

original proposal considered at the time of ASAC's extension involved a civil works component torenovate office space to house the required equipment. IDA agreed to finance a modified proposal, withthe civil works component requiring to be financed through Government funds. Due to non-availabilityof funds for this purpose, the civil works did not proceed and MLHPP decided not to proceed with theequipment procurement.

Cotton Sub-Sector: ASAC financed the import and distribution of cotton seed for the 1994/95 plantingseason for seed multiplication, and provided business advisory services for the financial management andrestructuring of institutions in the cotton subsector.

COREC: ASAC supported the establishment of the Coffee Research Centre, formed by upgrading thecoffee research program to the status of an institute under NARO, on the site of the coffee, cocoa, tea andpalm oil research station in Mukono district. COREC is expected to play an important role in theresearch and monitoring of tracheomycosis, and testing and disseminating preventative strategies.

VODP: ASAC supported some pre-project activities (e.g. soil surveys) but the proposed import of oilpalm seedlings was not undertaken.

F. Impact on Coffee Subsector

The project set fundamental subsector marketing reforms as conditions for release of theadjustm'nt component, but the reforms actually introduced were far deeper than those specified.

Under ASAC, it was envisaged that the liberalization of export marketing would be limited to theissuing of export licenses to selected cooperative unions and two private sector exporters, with CMBbeing restructured to operate commercially. The pricing and taxation mechanisms were to be replaced bya revised pricing and grading structure to maximize quality and sales value, and to implement a newtaxation system to increase trade incentives.

Government actions went further than this and by May, 1992, the export marketing of coffee hadbecome fully liberalized. There were 11 export licenses issued, the system of administered prices andtaxes had been removed, CMB had become CMBL although not fully operationally restructured, and theindustry regulatory function had been taken up by the Coffee Monitoring Unit (CMU) which laterformally became UCDA. All export sales were through public tenders and the private sector was dealingwith 25% of coffee exports. The development cess was being collected and the financing of the crop wasbeing handled totally through commercial banks.

During 1992, further reforms were introduced. Coffee proceeds were permitted to be exchangedat the Bureau exchange rate, the export tax was replaced by a processor withholding tax and minimumfloor price for coffee was introduced. From the end of 1993, full retention of export proceeds werepermitted. A Coffee Stabilization Tax was introduced in the 1994/5 budget intended to stabilize thecurrency during the coffee boom of that time, but was discontinued in 1996. The continuation ofsubsector reforms then became conditions of the IDA Structural Adjustment Credit II (SAC II) in 1994and included actions on the removal of the floor price, and the restructuring of UCDA.

The export registration of coffee traders reached a peak of over 150 in number in 1994/95 andwas more an over-reaction to liberalization. Many of the new licensed traders dealt in low volumes for ashort period of time or were inexperienced in dealing in a sophisticated international market, thus

10

suffering financial losses. During this time, the industry experienced a setback in its internationalreputation due to exports of low quality coffee by some exporters. This issue was subsequently addressedby UCDA and the then Uganda Coffee Exporters Association, forerunner to the UCTF, by theenforcement of quality standards and a code of conduct of trade. By the close of the project, the activelicensed exporters numbered 42, with 10 major traders exporting 66% of the coffee crop.

Internal marketing of coffee has changed drastically since 1991. Previously, farmers sold coffeeto primary cooperative societies or domestic traders for primary processing and onward transfer,reprocessing and grading by CMB through the cooperative unions. Now, in addition to the CMBL centralprocessing facility, 14 private final processing plants are operational, as well as 30 Cooperative Unionand over 300 private hulling facilities. Vertical integration is now a wide-spread characteristic ofUgandan coffee marketing. Much of the processing, both hulling and processing/grading in the CMBLfacility, is undertaken on a contract basis as opposed to purchase and resale of processed coffee amongstdomestic traders. Some 90% of the coffee crop is now procured through village-based agents on behalfof the exporters who are representatives of either international traders or roasters.

G. Institutional Performance

Borrower Performance

The performance of the Borrower, through its movement on policy and key actions required forproject implementation, has been satisfactory. Compliance with covenants under the DCA have beensatisfactory with the exception of the late compliance with the requirement to provide audited accountsof CMBL. The audited accounts for 1993/4 onwards have not been provided to IDA. The shortage ofGovernment's funds for project activities has been mentioned above.

The PCU has provided the Borrower's contribution to the ICR to the mission.

World Bank Performance

Supervision of the project, both from the Resident Mission and Washington, was consideredsatisfactory. Nine full supervision missions were undertaken, and additional specific supervision of theHARE and Land Tenure Research programs were also carried out. Management was responsive torequests from the Government for modifications to procedure and component design, in keeping with theoverall thrust of the ASAP, as circumstances changed. Difficulties were encountered in resolvingprocedural issues, mainly relating to procurement, due to problems in communication with Washington.Through country implementation reviews (CIRs), much was accomplished in trying to harmonize thedifferent systems of IDA and Government.

H. Project Sustainability

The sustainability of many of the organizations and institutions that ASAC helped to build ispromising. CMBL is now under the final stages of privatization with a rebidding process due to concludeby June, 1997. This will put CMBL on a footing to be able to operate competitively and commercially in

II

the coffee industry. UCDA has an assured budget derived from the export cess on coffee, and these fundswill continue to support research and development in the industry, both in marketing and quality, and inproduction renewal and expansion. MISR will continue to be supported through a combination ofGovernment funds and special projects, collaborative research funds and other donor supportedprograms, and will continue its collaboration with the Land Tenure Centre, Wisconsin. The landsinformation systems study, now under consideration, will set out a plan of activities and investments, thesource of financing for which has not yet been identified.

NARO has developed a prioritized research program, and has established a research networkconsisting of nine institutes, each having a set of disciplines and geographical mandate. NARO isbenefiting under the ARTP and will continue to be supported through a combination of Government anddonor funds. Presently, over 90% of the NARO budget is funded through externally funded projects.Government budget is small but rising, from less than 0.1% of agricultural gross domestic product(AGDP) at the beginning of the project to between 0.4-0.5% of AGDP in 1996/97.

AGSEC was transferred from the Bank of Uganda to the Ministry of Finance and EconomicPlanning in August, 1995 and, following that Ministry's restructuring, is now under the Ministry ofPlanning and Economic Development. Now known as the Agricultural Policy Secretariate (APSEC), itwill continue to provide advice to the Agricultural Policy Committee, and is the coordination unit for theCSDP. The funding of APSEC is provided from the CSDP until the end of 1999. After that time, theGovernment will need to provide for financial support to APC and APSEC in the regular budget.

I. Future Operations

Coffee Industry

Against the positive aspects of the industry reforms and the current status of the industry, somenegative aspects have also arisen that have implications for the future. These relate mainly to concernsfrom industry regulators on the impact of the emergence of a vertically integrated industry in which asmall number of large coffee traders control about 90% of the trade, with much of the financing for thecrop being sourced outside Uganda.

Firstly, this vertical integration has brought about a marketing system where coffee is not alwaystransacted at arms length at the point of export, and therefore issues concerning transfer pricing at thepoint of export are relevant. Where no arms length transaction takes place, transfer prices determinecorporate taxation and cess ultimately being levied in Uganda. There is also concern that foreignexchange is being lost to Uganda due to under-reporting of export value of coffee. On the other hand,vertical integration has bought about improvement in efficiencies in the marketing systems and higherprices at the farm level, and the collection, processing, grading, storage and transport are all economicactivities carried out domestically. This is a complex issue and a detailed study needs to be carried outinto the impact of various options on the economic and fiscal costs and benefits, and on future expansionand investment, keeping in mind that this is an issue that is not restricted to the coffee industry only.Following this, a position and options paper could be considered by the APC.

Secondly, the fact that coffee procurement is about 90% pre-financed from offshore sources isgiving rise to the concern that, if external circumstances were to change and this finance were notavailable, the industry would face a financing crisis that the domestic financial systems could not handle.

12

Also, there are a large number of locally based exporters handling between 20% and 25% of exports forwhom financing remains a constraint to their businesses. ASAC has supported an initial study intowarehouse receipt systems, and work is being continued by the Common Fund for Commodities toexamine options in this area.

Research and Extension

ASAC initiated the establishment of NARO as an autonomous agricultural research institution,and conceptually HARE was designed to incorporate both research and extension activities. Thesuccessor projects to HARE are separate projects in research and extension, and the need for cooperationand collaboration between the institutions involved to ensure that the research-extension link isstrengthened cannot be understated.

Further, two factors are currently having an impact on the delivery of extension services. Firstly,the retrenchment of staff as a result of the Civil Service Reforms has significantly reduced the number ofextension staff and, as a result, effectiveness of outreach has been reduced. Secondly, thedecentralization of the extension service to the districts, where the District Administrations may notregard agriculture as a priority in their allocation of funds, has threatened the funding and thereforesustainability of the service.

J. Main Lessons Learned

The key lessons learned from the project were as follows:

* It is useful to set quantitative targets at the design stage for project objectives to permit a moreobjective assessment of achievement to be made;

* Where a large component ( in this case Land Registry Rehabilitation) is to be added at the end ofa project, it is important that it is as thoroughly prepared and appraised as if it were included at inception,and that it can be fully completed under the resources and time frame of the remaining project's life;

* The survival of CMBL was necessary to avoid a total collapse in the industry at the time ofderegulation, and this was reflected in the project's design. When market reforms are being introduced, itis important that there is a phased entry of private sector participation;

* Whilst the project did require financial restructuring under its conditions of effectiveness, CMBLwould have fared better if it had undergone a complete commercial restructuring at its inception, and thisis now being undertaken in the lead up to privatization;

* Capacity building and the leaming process in procurement is critical for smooth implementationand takes time. Centralizing procurement for a multi-agency implemented project helped in this area.

* Procurement procedures which do not accommodate specifications on general quality and post-sale back-up can lead to unserviceable equipment being procured.

* Effecting substantial policy reforms requires a strong and effective mechanism to coordinatepolicy issues affecting several sectors.

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K. Items Outstanding

AGSEC has agreed to provide the mission with details of the final costs of the components, thestudies undertaken under the project and the training programs achieved. The audited accounts of CMBLfrom 1994/5 onwards remain outstanding.

L. Follow-up

On return to Rome, the mission will prepare a draft ICR to be forwarded to IDA by mid-May,1997.

Kampala,

6th May, 1997.

Appendix B - Borrower's Contribution

AGRICULTURAL POLICY SECRETARIAT (APSEC)

THE AGRICULTURAL SECTOR ADJUSTMENT CREDIT (ASAC)


1. OBJECTIVES AND MAIN FEATURES

1.1 ASAC which became effective on January 3, 1991, was a broad-based agricultural project aimedat enhancing the agricultural Sector's supply response under the GOU Economic Recovery Program. Theproject was also to complement IDA assistance under the Economic Recovery Program by financing theimportation of agricultural inputs, including petroleum products, by alleviating balance of paymentsconstraints and support to Government's implementation of the Agricultural Policy Agenda. Under theagenda there was also a program for Coffee Subsector reforms, emphasizing institutional and cropfinance reforms. The project therefore was a hybrid consisting of a sector adjustment component and acomplementary investment component.

1.2 The adjustment component and the support for CMBL closed on June 30, 1995 as planned. Aftertwo extensions to the original closing date of 30th June, 1995 for other investment components, theCredit finally closed on December 31, 1996.

2. THE ADJUSTMENT COMPONENT

2.2 This was supported by quick - disbursing funds equivalent to US$ 85 million for importation ofessential sector inputs including petroleum products, as part of the adjustment and stabilizationobjectives.

2.3 The funds were to be disbursed in two tranches, with the first tranche amounting to US$ 50million. Total disbursements related to the importation of petroleum and petroleum products were besubject to a ceiling of 20% (US$ 17m).

2.4 The quick disbursing part of the credit financed 100% of the CIF costs of eligible goodsaccording to a positive list approved by GOU and IDA. Contracts for goods to be imported, eachestimated to cost US$ 2 million or more were awarded following simplified ICB procedures. Imports ofsmaller quantities by Government institutions required the use of procurement procedures of thepurchasing institutions involving three price quotations. For private importers, the procedure requiredquotations from eligible suppliers from at least two countries.

2.5 The allocated funds did not move as quickly as was expected except in the case of petroleumimports, partly because the agricultural inputs as per the list had limited demand in the country while theprocurement procedures were cumbersome to the private importers including tedious L/C procedures.The banking sector also lacked adequate local shilling cover to purchase the foreign exchange. To partlyaddress the issue of demand, the positive list was in 1993 expanded to include bicycles, motorcycles,cement and iron sheets.

2

2.6 Starting from 1993, IDA approved auctioning of the funds as part of a pool in the weekly sales atBank of Uganda (BOU). The auction system involving bidding for the funds by commercial banks onbehalf of their identified clients did not significantly increase the demand as the basic constraintscontinued to exist. This situation continued in 1994 when the banks were expected to bid for the fundsfor retail to their clients.

2.7 During 1994/95, the method for accessing foreign exchange for imports changed due to theliberalization of the market. The present system, also applicable to the credit funds under the extendedperiod, involves reimbursements by the donors based on SOE of imports compiled from customs returns.This has quickened the accessing of funds.

3. INVESTMENT COMPONENT

3.7 The Investment Component consisted of five programs as follows:

(a) Headstart program for Agricultural Research and Extension (HARE) to implement highpriority adaptive research and extension activities, through a series of sub-projects.

(b) Program for Strengthening of Agricultural Sector Planning (PASP) to improve theefficiency of project implementation, policy reform implementation and project preparation andappraisal.

(c) Land Policy Research Program (LPRP) to complement on-going USAID - financedefforts to enhance the capacity of the Makerere Institute for Social Research (MISR) for sustainedapplied research in land access and policy development.

(d) Support for Coffee Sub-Sector Management (CSM) to assist the Coffee Marketing Board(CMB) in implementing its restructuring program and the Government in the detailed design of subsectorpolicy reforms.

(e) Support for Project Coordination and Monitoring, to include the PPF and operations ofthe Project Coordination Unit (PCU) and support to the Agricultural Policy Committee's oversightfunction.

3.8 The PASP program in (b) above was canceled in 1992 in favour of a larger Agricultural SectorManagement Project (ASMP) to be designed later.

3.9 The rest of the programs under the Investment Component progressed well as discussed below.

Head-Start Program for Agricultural Research and Extension (HARE)

3.10 The program, managed through a Project Implementing Unit (PIU) headed by a Director, hadnine key priority areas including technology dissemination through improved extension, improvingproduction and utilization of forest plantations, strengthening cotton research and production, fishculture research and extension, groundnut and simsim research and development, agro-forestry researchand extension and on-farm grain storage.

3.11 HARE laid the foundation for formulation of agricultural Research and Training Project (ARTP)which resulted in the establishment of the National Agricultural Research Organization (NARO) in 1993and the Agricultural Extension Program (AEP) which introduced the Unified Extension System (UES).

3

HARE further paved the way for preparing and implementing an Action Research Program which aimedat transferring the research results and technological packages from existing research stations to farmers.

3.12 The support for the extension services under ASAC ended in 1995 following the AEP Program.AEP 11 is now under preparation for further support by IDA. Agricultural research is a high priority areafor Government funding and NARO has continued to receive support from GOU and donors. Theorganization is concentrating on high priority research to generate affordable technologies which aredemand driven. Current Government policy is to promote private sector participation in agriculturalresearch.

Land Policy Research Program (LPRP)

3.13 The LPRP had three main subcomponents, namely, Land Policy Research directed at land tenureand land resource use; staff training and development; and physical rehabilitation of MISR facilities.

3.14 Research was conducted in the area of land reform policy culminating in production of a reporton Land Tenure Law Reform in April, 1993, including a draft on the Tenure and Control of Land Bill.The Bill was presented to Cabinet for review but because of the 1995 constitution making process, thedebate on the draft bill was postponed to await the new constitution.

3.15 The Draft Bill has since been revised with support from ASAC, by a Task Force to take accountof provisions in the new constitution and the 1997 Bill has been presented to Government and will bedebated by Parliament in the current session.

3.16 MISR has also carried out studies on Land Markets and Compensation, Common PropertyResources and Land Tenure, Land Disputes and Settlements and Buffer Zones. The Project has alsoundertaken rehabilitation of MISR offices and staff flats, provision of vehicles and office equipment, andtraining of staff.

3.17 MISR is a research institute of Makerere University and carries out wide ranging research onsocial and economic issues. It is expected to do this mainly on cost recovery basis. The capacity buildingprovided under ASAC has enhanced MISR's capacity to carry out its mandate.

Support to Coffee Sub sector Management (CSM)

3.18 The Coffee Sub Sector reforms and market liberalization program was launched by theGovernment of Uganda in 1990. Under ASAC, Coffee Sub sector reforms were given the highestpriority because of the compatibility of sector's objectives and performance with macro-economicobjectives of maximizing the export earnings, to minimize balance of payments problems, increasingGovernment revenue and controlling inflation.

3.19 In 1992 the Uganda Coffee Development Authority (UCDA) was established as the regulatorybody for the subsector. UCDA with support of ASAC launched a program to propagate and promote newhigh yielding variety of robusta clonal coffee. The program involved the privatization of theGovernment-owned clonal coffee nurseries and encouraging and supporting the private sector to increasethe supply of planting materials.

3.20 Following the repeal of the Coffee Marketing Board Act of 1969, the CMB ceased to existlegally and a Government Company "Coffee Marketing Board Limited" (CMBL) was floated in 1991and took over the marketing functions of CMB. Under the project, Government provided adequate funds

4

to the new company which improved the liquidity position of the company significantly and reduced itsdependence on short term borrowed funds. CMBL was also provided with Technical Assistance (TA)for a period of two years.

3.21 The CMBL played a crucial role in the initial years of the liberalization when the private sectordid not have adequate experience in coffee export. The share of CMBL in coffee export marketing hassteadily declined and is presently about 4%. The company is now set for privatization initially by sellingmajority shares to a core investor and later divesting all Government shares.

3.22 Some of the key achievements of the program are:

a. Farmers are now paid promptly and their share in realized export prices has improvedfrom 30% to about 60%.

b. The past trend of neglecting coffee trees has been largely reversed and exports have risenfrom about 2.2 million to over 4.0 million bags during 1995/96.

c. Efficiency and cost effectiveness at all levels of the coffee marketing chain hasimproved.

d. Competitiveness of the coffee sub sector has greatly improved.

Support for Project Coordination and Monitoring

3.23 A project Coordination Unit (PCU), was established in Agricultural Secretariat (AGSEC) forplanning, procurement, financial management and control and coordination of all components of theCredit. In this regard, a document setting out "Guidelines of Financial Management and InternalControls" was prepared and approved by APC and IDA.

3.24 The Management of ASAC, like other IDA assisted programs, was constrained because of thedelays in the release of counterpart funds by Government, cumbersome approval procedures forprocurement of consulting services and goods, the indefinite delays in reimbursements and withdrawal offunds from the Special Account which was maintained by the Bank of Uganda. Most of these problemswere however overcome in the early stages of the project when GOU and IDA reached agreementinvolving:

a. A system to effectively utilize the funds in the Special Accounts was developed to meetthe IDA share in local cost, thus reducing the pressure on

counterpart funds demand whose timely availability was always an issue because ofGovernment budgetary constraints.

c. Both the special and local accounts of the project were transferred from BOU toCommercial banks to speed up disbursements.

3.25 Throughout the life of the project, ASAC accounts were regularly audited, and reports submittedto GOU and IDA. Similarly regular accountability statements were submitted to Government for theCounterpart funds. Progress reports were submitted to Government and IDA at regular intervals. Specialreports were also submitted as and when required by APC and IDA.

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3.26 Agricultural Secretariat (AGSEC) now Agricultural Policy Secretariat) (APSEC) which wasoriginally a department of BOU has been transferred to Ministry of Planning and EconomicDevelopment (MPED) as a semi-autonomous body, but with the same mandate as a Secretariat to theAPC. The operations of the department are to be funded under CSDP following the closure of ASAC inDecember, 1996. Starting 1998/99 from, it is envisaged its operations will be funded under the proposedASMP.

4. ASAC EXTENDED PROGRAM

4.26 In order to allow the completion of some of the programs under ASAC and to fully utilize thesavings resulting from the PASP program which had earlier been canceled, ASAC was extended threetimes from the original closing date of June, 1995 to June, 1996, and then December, 1996. The keyactivities in question under the extended period were as follows:

Agricultural Research

Coffee Nursery Program (UCDA)

Land Registry (MLHUD)

Warehouse Receipt System

Importation of Agricultural Inputs

Support to APSEC

Credit Study (Rapid Appraisal)

Business Advisory Services (BAS)

Support to Uganda Coffee Trade Federation (UCTF)

Capacity Building Study for Rural Finance

MISR

Establishment of Coffee Research Centre (COREC)

Refurbishing of APSEC offices

Support to the preparation of the Vegetable Oil Development Project (VODP)

4.27 Most of the activities were therefore a continuation of original Credit programs and/ or activitiesrequired to complete the restructuring/process in the concerned organizations subsectors. New areasincluded the following:

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Business Advisory Services (BAS)

4.28 The Restructuring of the Cotton Sub-Sector started at the end of 1993 with the Debt Reliefprogram to cooperative unions, well before the CSDP. These activities were funded under ASAC up toits closure.

Land Registry Development

4.29 The Land Registry program is a product of the land policy studies under the MISR program. Theprogram was intended as precursor to the implementation of the expected law arising from the studiesand to stop further deterioration of the condition of the existing land records and registers and toestablish a modern computerized Land Information System. Support was in form of consultancy for theinitial computerization of the Land Registry and consultancy for the comprehensive development of theLand Registry and the procurement of computer hardware and software as well as technical and officeconsumables. The said procurement of computer equipment was however, never undertaken largelybecause of delays in finalization of the procurement list.

5. KEY ISSUES AND LESSONS

Coordination

5.1 The Agricultural Sector Adjustment Credit (ASAC) was a complex project involving manyagencies in its implementation as well as targeting reforms in key subsectors. Resistance in theimplementation of some of the reforms was experienced. This problem, together with the multi-institutional nature of the project, were overcome by working through the APC system which providedan appropriate forum for discussion of implementation and policy issues and consensus building.

Disbursements

5.2 The need for efficiency in disbursements of ASAC funds and other IDA projects brought about apolicy change by transferring the project special and local accounts from BOU to commercial banks, astep which has greatly improved the disbursement process. It also brought about the system of accessingIDA funds to meet one month's IDA share in local cost, a measure which has reduced over dependenceon counterpart funds which are often not so timely.

5.3 The flow of funds from PCU through the PIUs to the end users scattered around the country,especially under HARE was affected by untimely accountability.

Access to the Adjustment Funds

5.4 The modalities of accessing funds under this component evolved over the period of the Credit.Originally individual importers had to apply for the funds through their commercial banks. Later on thebanks were expected to apply and thereafter retail the funds to their clients. And later on reimbursementswere based on returns from commercial banks for qualifying items financed by the banks. Currentlyreimbursements are based on returns from Customs Department. Each of these was associated withvarying degrees of difficulties to access the funds. The present system appears to be more effectivelyaddressing the quick disbursing objective of the funds.

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Activities Under the Extended Period

5.5 During the extended period of the project the re-allocation of project funds facilitated theaddressing of policy issues arising from the reforms/studies.

Procurement

5.6 In some cases, items to be procured were of a highly technical nature and compilation ofprocurement lists with appropriate specifications was slow.

5.7 The securing of Tax Credit Notes (TCNs) introduced during the project period was sometimescumbersome.

5.8 IDA and Government procurement procedures were sometimes a source of delay.

Reporting

5.9 Because of the centralized nature of the project under APC, reporting worked well.

IMAGING

Report No.: 16821Type: ICR

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