Uganda - Southwest Region Agricultural Rehabilitation Project

Document of The Wtorld Bank FOR OFFCIAL USE ONLY C;~- i365-Q6r Report No. P-4651-UG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 7.6 MILLION TO UGANDA FOR A SOUTHWEST REGION AGRICULTURAL REHABILITATION PROECT iD December 11, 1987 TVs4 docuent has a rsueddstrib"o ad_ may be used by seipa only In the perfoemm of .w flo O lb ,u my ,o owt be dUeed _kou Watld Bak 8tudQmL.  CURRENCY EQUIVALENTS Exchange Rate: US$ 1.00 - Uganda Shillings (USh) 60.00 1/ : USh 1.00 US$ 0.0167 : SDR 1.00 - US$ 1.32109 21 : US$ 1.00 - SDR 0.75695 11 After currency reform and exchange rate adjustment of May 15, 1987 2/ As of October 31, 1987 WEIGHTS AND MEASURES Metric System CALENDAR Fiscal Year: July 1 - June 30 Calendar Year: January 1 - December 31 Cropping Season: February - May August December  FOR OFMAL USE ONLY z ~~~~~~~~~~~UGANDA Southwest Region Agricultural Rehabilitation Project CREDIT AND PROJECT SUMt ARY Borrower: Government of Uganda Amounts SDR 7.6 million (US$10.0 million equivalent) Terms: Standard, with 40 years maturity US$million Financing Plan: IDA 10 IFAD 12 Special Operations Facility 0.3 Government of Uganda 5.1 27.4 Economic Rate of Return: 152 Staff Appraisal Report: No. 6961 - UG i This document has a restdeted dstibution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  15~~~~~~~~~~ - .~~~~~~~~~~ 'V~~~~~~, ? P(~~~~~~~~~~~~~~~~~~~~~~~~~  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO UGANDA FOR A SOUTHWEST REGION AGRICULTURAL. REHABILITATION PROJECT 1. The following memorandum and recommendation on a proposed development credit to Uganda for SDR 7.6 million (US$ 10.0 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and help finance a Southwest Region Agricultural Rehabilitation Project. The project would be cofinanced by IFAD, who would provide a loan of SDR 9.1 million (US$ 12.0 million equivalent). 2. Background. Uganda's population of about 15 million is 901 rural. Agriculture provides 651 of GDP, 99Z of exports (coffee) and over 90X of employment. Agricultural potential is goods 701 of the land is cultivable, with smallholder production predominating. Until 1970, Uganda had one of the strongest agricultural economies in Africa. Political and military instability since then have seriously disrupted production. Output and exports of all major crops were less in 1980-85 than in 1966-70. With the near collapse of the society, and the destruction of transport and marketing infrastructure, fanmers have reverted to subsistence production, with little surplus for the domestic or export market. 3. The economic situation inherited by the National Resistance Movement in January 1986 was extremely precarious, and economic developments and policies worsened during 1986. Finally, a consensus has emerged within the Government to change its policies on the exchange rate, producer incentives, public sector enterprises and other key areas. The resulting Economic Recovery Program is already being supported by an IMF Structural Adjustment Facility of SDR 53.3 million, and the Bank and Government signed for SDR 69.7 million in Economic Recovery Credits on September 30, 1987. The credits would support reforms in agricultural producer pricing and marketing, as well as supply-side measures in the industrial and transportation sectors. This agreement with Government on the macroeconomic framework now makes it possible to undertake rehabilitation operations in the agricultural sector. 4. Rationale for IDA and IFAD Involvement. Besides adequate price incentives and open markets for food crops provided under the Economic Recovery Program, key factors in obtaining agricultural production response from smallholders will be the rehabilitation of transport and marketing infrastructure and the revival of research and extension, as provided under the proposed project. At a later stage support would be provided for  -2- strengthening of national service institutions and production and processing of particular commodities (livestock, coffee and tea). The proposed project is simple, focussirg only on inputs, roads, research and extension. Tihe Southwest region is one of the most stable and potentially productive in the country, and is currently benefiting from complementary donor support for road rehabilitation, rural water supply atU .aealth services development. With most of the land in the hands of smallholders (cropped area per farm estimated at 1.6 ha) and with a rural population density of 90 persons per square km, the project area meets IFAD's objectives of assisting small farmers with food production. 5. Proiect ObJectives. The project seeks to increase food production, incomes and living standards of small farmers in the four districts of Southwest Uganda, by increasing agricultural productivity through the provision of improved inputs, research and extension, and improving access to markets and inputs, through road rehabilitation. 6. Project Description. The project, managed by the Ministry of Agriculture, would cover the Mbarara, Bushenyi, Rukungiri, and Kabale districts, and includes four components totalling US$27.4 million: (a) Agricultural inputs (USS 8.1 million) to support food production; (b) Rural access roads (US$ 13.3 million) would rehabilitate up to 2,000 km of Class II and III roads through spot improvements, and improve district level road maintenance capabilities; (e) Adaptive research and extension (US$ 3.9 million) would rehabilitate two district farm institutes, a research substation and a MOA farm, and strengthen adaptive research and farmer outreach programs; and (d) Management, monitoring and evaluation (US$ 2.1 million). 7. Agreed Actions. Agreement was obtained that the Government will provide adequate resources from its budget to cover the operating costs of p maintaining the roads and other infrastructure to be rehabilitated. To ensure effective project execution, agreement was also obtained that: (a) the Interministerial Coordinating Committee, the Regional Coordinating Committee and key members of the Project Management Unit would be in place and the first year's Work Program would be approved prior to credit effecti-eness; (b) project input prices would approximate market wholesale rates; and (c) the project inputs wholesaling operation woula be privatized prior to the completion of the project. 8. Justification. The Southwest region has excellent agricultural potential. With supportive Government policies, coupled with the infrastructural support and improved services provided in this project, food production will return to and surpass previous levels and will yield a satisfactory rate of return.  -3- 9. Risks. The viability of this project depends on the maintenance of an appropriate exchange rate, adequate production incentives and producer prices, the liberalization of food crop marketing policies, and a reduction in the inflation rate. The project also depends on the creation of a climate of physical security and economic stability to encourage on- farm investment. -The risk that the Government may cease pursuing these policies is mitigated by its agreement to the conditions of the IMF and IDA support. Project related risks, which include the possibility of: (i) resistance to higher priced project inputs; (ii) delays in implementation; and (iii) lack of motivation amongst Government staff charged with project implementation, have been taken into consideration, and minimized, in the design of the project implementation mechanisms. 11. Recommendations. I am satisfied that the oroposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. December 11, 1987  -4- Schedule A UGANDA Southwest Region Agricultural Rehabilitation Profect Summary of Pro.lect Cost Estimates Local Forein Total ---------(US$ million)------ Comgonent Costs Rural Access Rds Rehabilitation 4.3 6.9 11.2 Agricultural Inputs 2.3 6.6 6.9 Adaptive Research and Extension 1.3 2.1 3.4 Monitoring and Evaluation 0.2 0.4 0.6 Management Support 0.3 0.8 1.1 Baseline Cost 8.4 14.8 23.2 Physical Contingencies 1.0 1.7 2.7 Price Contingencies 0.5 1.0 1.5 Total Project Cost 9.9 17.5 27.41/ Financing Plan IDA 3.6 6.4 10.0 IFAD 4.4 7.6 12.0 Special Operations Facility 0.1 0.2 0.3 21 0 Government of Uganda 1.8 3.3 5.1 Total Financing 9.9 17.5 27.4 1/ Includes US$ 3.0 in taxes and duties. 2/ IFAD's Special Operations Facility would finance project startup activities.  Schedule B Page 1 of 2 UGANDA Southwest Retlon Development Proiect Proposed Procurement Method 1l (USS million equivalent) Proiect Element ICB LCB Other Total Foreixn 2 Civil Works (Roads) 7.6 - _ 7.6 51 (6.1) Civil Works (Other) - 1.6 - 1.6 38 (1.0) Vehicles 2.3 0.2 - 2.5 95 (2.3) (0.2) Equipment 0.3 0.3 - 0.6 88 (0.3) (0.3) Agricultural Inputs 4.0 2.0 0.9 6.9 67 (3.5) (1.8) (0.7) Technical Assistance 3.3 3.3 97 (3.3) Recurrent Costs 4.9 4.9 46 (2.5) Total (IDA/IFAD) 14.2 4.1 9.1 27.4 64 (12.2) (3.3) (6.5) (22.0) I1 Brackets refer to IDA/IFAD financed procurement.  Schedule B Page 2 of 2 UGMADA Southwest ReXion Development Froiect- Allocation and Disbursement Categories for IDA Credit and IFAD Loan (US$ million equivalent) Total to 2 of be Disbursed IDA IhAD Expenditure to USS Million Credit Loan be Financed Category I - Civil WorzKs Road Rehabilitation 5.08 5.08 - 80 Other Civil Works 0.76 0.76 - 60 Category II - Vehicles S Equipment Vehicles and Equipment 2.80 2.80 - 1.00 of foreign - 50 of local Category III - Inputs for Resale Goods 4.83 - 4.83