Uganda - Enterprise Development Project

'S.- * ___ __ " . Document of The World Bank FOR OFFICIAL USE ONLY Report No. 9739-UG STAFF APPRAISAL REPORT THE REPUBLIC OF UGANDA ENTERPRISE DEVELOPMENT PROJECT OCTOBER 31, 1991 Industry and Energy Division Eastern Africa Department This document has a restricted distribution 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.  CVRRlENY EQUIVA-11rNM Currency Unit Uganda Shillings (Ush) USSI.OO = Ush 700.00 Ushl.00 = USS0.00143 WEHiGISF ANI)M!VRES Metric System FISCAL VYEAJ Government * July I - June 30 [tOU - July I *June 30 UDB - July I June 30 CLOSSARY AND AFBREVIATIONS APPERD Action Plan fir PE Reform & Divestiture ASAC Agriculture Sector Adjustment Credit BOD Board of Directors BOU Bank of Uganda CEO Chief Executive Officer CGF Credit Guarantee Fund CGS Credit Guarantee Scheme CMB Coffee Marketing Board CRP Corporate Restructuring Plan D] A Divestiture Account DAPCB Departed Asian's Prope.ty Custodian Board DDS Divestiture Design Study DFD Development Finance Department DIC Divestiture Implementation Committee DS Divestiture Secretariat EDP Enterprise Development Project EFMP Economic & Financia! Management Project EPC Export Promotion Council ERP Economic Recovery Program FEB Foreign Exchange Bureaux FSAC Financial Sector Adjustment Credit FSR Financial Sector Review GDP Gross Domestic Product XTCRF Investment Term Credit Refinance Fund LMB Lint Marketing Board MIS Management Information System MOF Ministry of Finance MOIT Ministry of Industry & Technology MPED Ministry of Planning & Economic Devel *ment MTAC Management Training & Advisory Center NBFI Non-Bank Financial Institution NHCC National Housing & Construction Corporation NIC National Insurance Corporation ODA Overseas Development Administration (UK) PB Participating Bank PE Public Enterprise PEP Public Enterprise Project PERD Public Enterprise Reform and Divestiture PES Public Enterprise Secretariat PIES Public Industrial Enterprise Secretariat PIP Public Investment Program PM Project Manager PMB Produce Marketing Board PRWG Policy Review Working Group PSD Private Sector Development RA Redundancy Account RF Redundancy Fund RPE Rehabilitation of Productive Enterprise Project SAC Structural Adjustment Credit SARAP Sector Administration, Reform and Planning SATM System for Selection & Appointment of Top Management in PEs SCD Statutory Corporations Division SME Small & Medium nterprise TMC Technology & Management Contract TMF Technology & Management Fund UCB Uganda Commercial Bank UDB Uganda Development Bank UDC Uganda Development Corporation  FOR OFFICIAL USE ONLY UGANDA ENTERPRISE DEVtXLOPMENT PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS CREDIT AND PROJECT SUMMARY ............................ I. COUNTRY BACKGROUND .............1 The Macroeconomic Setting .............1 Economic Potential .............2 Development Strategy .............3 II. SECTORAL CONTEXT ............ 4 A. The Enterprise Sector .............4 a) Enterprise Sector: Issues ............S5 Business and Operating Environmnent ............ S5 b) Development Prospects .............7 B. Public Enterprise (PE) Sector: .............7 a) Role and Performance .............7 b) Institutional and Legal Arrangements ....... ......8 c) Public Enterprise Issues .............9 Government/PE Fiscal Relations ....... ......9 Reasons for Poor Performance ...... ...... 10 d) Prospects for the PE Sector ............ 11 C. Financial Sector and Financial Institutions ..... ....... 11 a) Role and Status of the Financial Sector ............. 11 b) Structure of the Existing Financial System ............ 11 c) Prospects ............ 13 d) Financial Sector; Issues and Strategies ......... ... 13 This report is the result of an appraisal mission which visited Uganda from April 3rd through the 24th, 1991. The mission was led by Subhash Dhingra (Senior Industry Specialist), and included Abhay Deshpande (Resident Representative, Sudan), Juergen Franz (Principal Financial Analyst), Loup Brefort (Public Sector Management Specialist), Henry Laurant (Consultant), and T.S. Kannan (Consultant). Mr. John Nellis (Principal Management Specialist) and Mr. Khalid Siraj (Division Chief, ASTIF), are the peer reviewers for this project. Ms. Rosan Zorrilla provided secretarial support in the preparation of this report. Mr. Robert Hindle and Mr. Callisto Madavo are the Managing Division Chief and Department Director, respectively, for the operation. This document has a restricted distribution 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.  II. THE ENTERPRISE DiEVELOPMENT PROGRAM ................ 15 A. IDA's Role and Sectoral Strategy ....... .................. 15 B. The Enterprise Sector Program ........ .................. 15 a) Policy Framework for Enterprise Development .... ........ 15 Macroeconomic Measures ...... ................ 15 Business Environment ....... ................. 16 Operating Environment ....... ................. 17 b) Support Programs for Enterprise Development .... ........ 17 Investment and Financial Support Program .... ....... 17 Improvement of Technology and Management .... ..... 18 Export Development Plan ...... ................ 19 C. Action Plan for PE Reform and Divestiture ..... .............. 19 a) Strategy for PE Reform and Divestiture ..... ............ 19 b) Policy Framework for PE Reform ...... .............. 20 c) The Five-Year APPERD ....... ................... 22 IV. THE PROJECT .24 A. Project Objectives .24 B. Project Policy Framework and Strategy .24 C. Project Description .24 D. Support Programs .27 a) Investment and Financial Support .27 (i) Line of Credit .27 (ii) Technology and Management Fund .29 (iii) Restructuring Fund for PEs .29 (iv) Government Financing of PE Reform and Divestiture Program .31 b) Technical Assistance Support .33 (i) To the Bank of Uganda ........ .. 33 (ii) To Ministry of Commerce, Cooperatives & Marketing . . 34 (iii) To the Uganda Development Bank .35 (iv) To the Individual PEs through PES and PIES .35 (v) For PES and PIES to Implement APPERD .36 c) Project Management Support .37 d) Lessons Learned .37 V. Project Cost, Financing and Procurement .38 VI. Project Implementation .42 VII. Benefits and Risks .43 VIm. Agreements and Recommendations .44 ANNEXES .48  LISU OF ANNEXES Annex I List of PEs and Shareholding Status Annex 1I Financial Indicators of Performance of PE Sector Annex III Government Policy for PE Reform and Divestiture Annex IV Action Matrix for PE Reform Program Annex V-A Government - PE Financial Relation: Reform Guidelines and Implementation Annex V-B Criteria and Guidelines for Rehabilitation Operations for PEs Ani.ex VI List of PEs for Rehabilitation/Restructuring; Privatization; and Divestiture in Five-Year APPERD Annex VII-A Roles and Responsibilities of DIC, PRWG, and Coordinator, PE Reform and Divt-stiture Annex VII-B Organization Chart for PE Reform and Divestiture Annex VIII Structure of Deposit and Lending Rates Annex IX Calculation of Spreads Necessary Between Refinance and Lending Rates Annex X Negative List for Technology and Management Contracts Annex XI Roles and Responsibilities of EDPIT Annex XII Supervision Plan Annex XIII List of Documents in Project File Annex XIV Detailed Cost Table Annex XV Estimated Schedule of Disbursement  THE REPUBLIC OF UGANDA ENTERPRISE DEVELOPMENT PROJECT Credit and Proijtv Summary Boffower: Government of Uganda