Tanzania - Financial and Legal Management Upgrading (FILMUP) Project

6ii-R L / 3- Document of The World Bank *M t 'F'. - -, 1.',Q,;,A.I','':'F,;, !-' .v:;:i !.u X ti' , AH)O.ReportNo. P-5798-TA MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVIALENT TO SDR 14.6 MILLION TO THE UNITED REPUBLIC OF TANZANIA FOR A FINANCIAL AND LEGAL MANAGEMENT UPGRADING (FILMUP) PROJECT JUNE 1. 1992 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 disclsed without World Bank authorization.  CURRENCY EOUIVALENT Currency Unit = Tanzania Shillingb (T.Sh) US$1 = T.Sh 245 (at time of appraisal) US$1 = T.Sh 291 (April 1992) FISCAL YEAR July 1 to June 30 MEASURES Metric System ACRONYMS CPA - Certified Public Accountant DSA - Dar es Salaam School of Accountancy FMCC - Fmancial Management Component Coordinator lAA - Institute of Accountancy, Arusha IDM - Institute of Development Management, Mzumbe IFM - Institute for Fnance Management LSCC - Legal Sector Component Coordinator NBAA - National Board of Accountants and Auditors NORAD - Norwegian Agency for Development Cooperation OCAG - Office of the Controller and Auditor- General ODA - Overseas Development Administration SIDA - Swedish International Development Authority TAA - Tanzania Association of Accountants TAC - Tanzania Audit Corporation USAID - United States Agency for International Development  FOR OMCL41 USE ONLY UNnED REPUBLIC 0 ANZ EJNANCIAL ANII LEA LNAGE0 UPFGRAING (FIMIIP PRO,lC CRWR1 AND PROlE>CT SUI0ARY Borrower: Government of the United Republic of Tanzania Beneficiaries: National Board of Accountants and Auditors (NBAA); Office of the Controller and Auditor-General (OCAG); Institute of Accountancy, Arusha JAA); Institute of Finance Management (IFM); Attorney-General's Office; Registrar of Companies; the Judiciary; and the Law Reform Commission. Amount: SDR14.6 million (USDollars 20.0 million equivalent) Terms: Standard IDA, with 40 years maturity Financing Plan: IDA US$20.0 million Government US$ 2.3 million SIDA US$ 0.2 million Total US$22.5 Rate of Retr N.A. Staff Appraisal Report: No. 10625-TA This document has a restricted distribution and may be used by recipients only in the performs, ice1 of 1"elr officia duties. Its contents may not otherwise be disclosed without World Bank authorizu.ion.  MEMORANDUM AND RECOMMEDATION OF THE PRESIDENT OF TIHE INTERNATIONAL DE'ELOPMENT ASSOCIATION TO THE EXECIVE DIRECTORS ON A PROPOED CREDfT TO THE UNTED REPUBLIC OF TANZANIA FOR A FlNANCLAL AND LEGAL MANAGEMENT UPGRADING PROJECT 1. I submit for your approval the following report and recommendation on a proposed credit to Tanzania for SDR14.6 million, the equivalent of US$20.0 million, on standard IDA tenis with a maturity of 40 years to help finance a project for financial and legal management up-grading. It would be cofinanced by a grant from SIDA in the amount of US$226,000. 2. Sector Baclgod. Shortly after independence Government set up the institutions necessary for the proper functioning of the financial and legal management sectors. The NBAA was established to promote the accountancy and auditing professions, examine and certify would- be practitioners, establish and safe-guard accounting and auditing standards and ethics, and generally service the professions. The Tanzania Audit Corporation (IAC) audits the accounts of all parastatals, and a number of training institutions have been created for the financial sector, including the Dar-es-Salaam School of Accountancy (DSA) (accounting technicians); the Institute for Finance Management (IFM) unior and middle level accounting, banking, insurance and pension staff); the Institute for Development Management (IDM) (middle and senior level inancial managers); and the Institute of Accountancy, AnLsha (IAA) (full professional level Certified Public Accountants (CPAs)). 3. For the legal sector, the judiciary structure consists of 1023 primary courts, 86 district courts, 20 regional courts, the High Court in Dar es Salaam and eleven zonal centers, and the Court of Appeal, all on the mainland, while the court system in Zanibar, although separate, has a structure similar to that described above. The Attorney General is the legal adviser to the Govermnent, and carries out his functions through several divisions including, for example, the Civil and International Division, the Legislative Division, the Directorate of Public Prosecutions and the Administrator-General's Division. Other key sector institutions include the Law Reform Commission responsible for the reglar review and reform of all Tanzanian laws, and the office of the Company Registrar, formaUy known as the Department of Registration, Commercial Laws and Industrial Licensing. 4. Despite the creation of these instittions the demands on public sector accounting, auditing, financial management, legal management, and administration of justice in Tanzania have grown so rapidly during the last two decades that they have outtripped the capabilities of these instituons to meet them. in public sector accounting and auditing, the regulatory body, NBL. has not been able either to issue the necessary accouning and auditing standards or to enforce those standards it has issued. Most government ministries and parastatal organizations find it difficult to meet Bank or donor accounting and auditing requirements. Accountancy training institutions have inadequate personnel and few, mostly out of date, text-bools. The national success rate in the professional level accountancy examinations averages 20%. A 1989 study revealed a national shortage of 2,000 Certified Public Accountants (CPAs), 5,600 semi-qualified accuntan and over 15,000 accounting technicians. S. Ihe performance of the legal framework and the administration of justice suffer due to lack of knowledge of modern commercia aw - an area neglected since the emphasis on public  -2- sector development began in the late 1960s. The judiciary is also overloaded and inefficient, and most of Tanzania's laws have not been revised or updated for ades. 6. In addition, both sectors, created and developed over twi. decades to service a highly- centralized economy, now have to adapt, revise out-dated laws and policies, and be strengthened so that they can deal with the needs of the liberalized economic and political systems now evolving in Tanzania. 7. Govmen &WW. The Government strategy (shared by the Bank and bilateral donors) for developing accounting and auditing, involves, among other things, withdrawal of the NBAA from the training of students for its own examinations, intensification of NBAA activities in issuing and enforcing accounting and auditing standards, reviewing and monitoring the performance of practising accountants and auditors, introducing continued professional education (CPE) and a new Advanced Diploma in Government Accounting and Auditing for those accountants wishing to specialize in government, removal of TAC's monopoly of the audit of parastatal organizations, and material support to NJBAA and training institutions to enable them to improve their performance in measurable ways. 8. In the legal sector beyond the obvious need for improved skills and material resources, there is currently no clearly-articulated long-term development strategy. There is, nevertheless, broad recognition of major problem areas within the legal profession, the judiciary, and their support services. Some of these needs are so obvious and non-controversial that they can (and need to) be immediately addressed. Accordingly, Government, the Bank and bilateral donors have agreed on a two-pronged strategy for meeting. the development needs of the sector, consisting of, on the one hand, limited direct assistance to address some of the immediate human and material resource needs of the sector; and on the othxr hand, a major sector study, with Government, bank and bilateral donor participation, designed to diagnose the sector's problems, and prepare an action plan for its long-term development. 9. Proect .WectiyA The objectives of the project are to improve accounting and auditing standards on the one hand, and the legal framework and the administration of justice on the other, by strengthening key insutions involved in both activities through improvements in their human and material resources; and undertaking studies designed to prepare a detailed strategy for the development of the legal sector, improve cost recovery, and increase competition and efficiency in the audit of parastatal organizations. 10. Proect Descrtion. The project would, over a five-year period, provide assistance for: (a) Elnancat Mnamet hnpro91et through upgrading of accounting and auditing (US$14.6 million), training, technical assistance, office, classroom and transport equipment, and office and residential accommodation for the accountancy regulatory body NBAA, the Office of the Controller and Auditor-General (OCAG), the IAA which trains students for the highest level (CPA) examinations, and the IFM which prepares them for intermediate level examinations; () Upgrading of the Lqgal Sector (US$6 million): (i) training and limited office and computer equipment for the Attorney-General's Department; Judiciary, the Registrar of Companies and the Law Reform Commission; and (ii) revision and publication of the laws of Tanzania, and (iii) review of commercial and related laws relevant to private sector development and the parastatal reform program; (c) Sudies (US$0.4 million) including (i) a legal sector study to prepare a detailed strategy for the developmen of the legal sector; (ii) a cost recovery study to suggest ways of improving cost recovery in project beneficiary insttions, and (iii) a TAC study to  -3 - suggest practical steps necessary for implementing the Government decisicn to open up the audit of parastatal accounts to competition; (d) Project Coo( dinatign (US$1.3 million) to pay for the office costs and salaries of two project co-ordinators: one for the financial management component, and the other for the legal sector component, and the incremental operating costs of project institutions (to be financed by the Government). The project, to be implemented over 5 years, is estimated to cost US$22.5 million. Project costs and financing are summarized in Schedule A. The proposed procurement methods, allocation and disbursement of the IDA Credit are in Schedules B and C. Staff Appraisal Report No. 10625-TA is being distributed separately. 11. Project hnplementation. No new institution is to be created under this project. The aim is to reinforce existing institutions by providing them with the resources essential for carrying out the tasks for which they were established. Each project beneficiary institution would implement its own components of the project. However, in view of the large number of fairly small government agencies involved, and to facilitate coordination of project implementation, reporting, monitoring and supervision, project agencies have been grouped into two broad categories corresponding broadly to the two functional areas the project is designed to improve. Thus, financial management upgrading (basically accounting and auditing), involving the NBAA, the IAA, the IFM, and ihi; Controller and Auditor-General's Office, as well as the TAC and cost recovery studies would be coordinated by a Financial Management Component Coordinator located in NBAA. The upgrading of the legal sector (including the legal sector study) involving the Attorney-General's Office, the Registrar of Companies, the Law Reform Commission, and the Judiciary, would be coordinated by a Legal Sector Component Coordinator located in the Attorney-General's office. The above grouping of responsibilities has been tested and proved effective during project preparation. 12. Project Sustainabilitv. The reformed laws, trained personnel, improved examinations, libraries, and accommodation provided under this project would continue to yield benefits with little incremental recurrent expenditure for many years to come. In appropriate cases, e.g., IFM and IAA courses, efforts would be made to recover as much of the cost of operation as possible, thereby ensuring long-term sustainability. 13. Lessons from Previous Bankf_DA Involvenent. Neither of the sectors, nor any of the project institutions, has previously benefited from Bank Group assistance. However, based on the findings of OED studies on technical assistance, and on experience from other projects, the emphasis of this project would be more on training than on technical assistance (T/A); and more on short-term than on long-term T/A. In particular OED Report No 8573, of April 1990, entitled "Free-Standing Technical Assistance for Institutional Development in sub-Saharan Africa" recommends continued Bank support for institutonal development on a free-standing basis, properly designing terms of reference for consultants, and only commissioning studies when needed. All these recommendations are reflected in the design of this project. 14. Rationale for IDA Involvement. This project is a necessary practical foundation for the policy dhanges IDA is promoting in Tanzania. Without Bank involvement, neither local resources, nor donor funding, would achieve the level necessary to make the desired impact on the performance of the institutions involved. Donors are keenly interested in working with the government and IDA to develop a strategy for the long term development of the legal sector under IDA's aid co-ordination.  -4- 15. Aged Actions, (a) Condition of effectiveness: appointment of the two project co- ordinators (paragraph 11 above) would be a condition of effectiveness of the IDA Credit; (b) Conditions of disbourumUL disbursement for the NBAA building would be conditional on NBAA offering space in that building to the Tanzania Association of Accountants. Disbursement for IAA's hostel and staff residential accommodation would be conditioned on confirmation that the student population has increased sufficiently to justify the additional accommodation; (c) Other cMnditl; during negotiations agreement was reached wifth the Govenmen on, among other things: (i) the accounting and auditing standards to be issued by NBAA during the next five years; (ii) the areas of law (mostly commercial and related aspects) to be reviewed during the first two years of the project; and (iii) tie improvement of cost recovery at the Administrator- General's office through the charging of realistic fees for services rendered to the public. 16. Bank's Program Cbjective Cates. The improved accounting standards and practices anticipated from the project are expected to result in better public sector management, and the company law reform would assist private sector development and the Government's privafization program. 17. Environmental Asgt. The project is a technical assistance and training effort raising no environmental issue. 18. .Weet BenefitsT he project is expected to result in both quantitative and qualitative mrovements in the perfrmance of beneficiary institutions. Although the institution building nature of this projoct makes many of its benefits hard to quantify, a few of the benefits are quantfiable, and would be closely monitored during the project. These include, for example, the rates at which NPAA issues accounting and auditing standards; the success rate of [AA and 1PM students in national accountncy examinations; and the rate at which the Attorney-General's Office and the Law Reform Conunission revise and publish Tanzanian laws. Non-quantifiable, but nevertheless monitorable qualitative benefts would include: NBAA's capacity to introduce and enforce accountig and auditing standards within Tanzmia, set and mark the necessary examinations, and reguate the two professions; the efficiency and ease with which the Attorney- General's Office carries out its duties; and the capacity of the courts and lawyers to administer the laws. 19. 1Wa. The only foreseen risk is the possible inability of the beneficiary agencies to absorb and put to good use the resources being provided through the projec. Built-in project features, such as trinin, technical assistance, careful phasing of implementtion and highly de- centralized but closely co-ordinated management are all designed to minmize this risk. 20. Renmndation. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association and recommend thiat the Executive Directors approve it. Lewis T. Preston President Washington June 1, 1992  -5- SCHEDULE A ESIMATED C(USI AND FINANCING Pojt ost Sumnay LIc P Toa Of Tot Improvement of Fnancial Management 2.7 9.6 12.3 64 Improvement of the. Legal Framework 1.4 3.9 5.3 28 Studies - 0.4 0.4 2 Project Coordination 0.2 0.2 0.4 2 Incremental Operating Cost 0.8 - 0.8 4 Total Bas Cost 5.1 14.1 19.2 100 Physical Contingencies 0.2 0.6 0.8 4 Price Contingencies 1.4 1.1 2.5 13 Total Project Costs 6.7 15.8 22.5 117 Eigin PZia US$ Miln LOW Total IDA 4.3 15.7 20.0 Government of Tanzania 2.3 0.0 2.3 SIDA 0.1 0.1 0.2 TOTAL 6.7 15.8 m  -6- SCHEDULEB Page 1 of 2 Summary of Proosed Procurement Arranuements (LSS million eaulvalent Includina Continaencied) Procurement Methods Total Prolet Elements ICB LeB Other N.B.F. Cost 1. Civil Works Contracts (buildings) 6.85 - - - 6.85 (Excluding Part B) (5.95) - - (-) (5.95) 2. GOODS 2.1 Vehicles 0.55 0.10 - - 0.65 (Excluding Part B) (0.52) (0.09) - (0.61) 2.2 Office Equipment& Computers 1.00 0.54 0.20 - 1.74 (0.98) (0.49) (0.18) - (1.65) 2.3 Printing of Law books t Reports 2.83 - - 2.83 (Excluding Part A) (2.69) - - - (2.69) 2.4 Ubray Books & Ubrary Equipment 1.12 - 0.10 - 1.22 (1.08) - (0.09) - (1.15) 3. CONSULTANCIES 3.1 Design/Engineering/Supervision - - 0.72 - 0.72 (Excluding Part B) - - (0.72) (-) (0.72) 3.2 Technical Assitance - - 2.92 0.22 a 3.14 - - (2.92) (-) (2.92) 3.3 Editing of Study Manuals - - 0.18 - 0.18 (Exciuding Part B) - - (0.18) - (0.18) 3.4 Training - - 3.73 - 3.73 - - (3.73) - (3.73) 4. MISCELLANEOUS 4.1 Project Coordination (Salaries) - - 0.13 - 0.13 - - (0.13) - (0.13) 4.2 Project Coordination (Operation & Maint.) - - 0.27 - 0.27 - - (0.27) - (0.27) 4.3 Incremental Operating Costs - - - 1.12 lb 1.12 - - _ (-) 0.00 Total Costs 12.35 0.64 8.25 1.34 22.58 Total Financd by the IDA credit (11.20) (0.58) (822) (-) (20.00) t~~u~u u~  -7- CtHEDULES Page 2of2 ALLOCATION AND DISBURSEMENT OF THE IDA CREDIT (a) CMI Works 6.37 100% 100I of foreign and 85%9 of local oagts (b) Vehicles and Equipment 2.06 10046 100%A of foreign and 90%6 of local costs (c) Tralning 3.38 100IO (d) Technical Assisance 2.92 OOA (e) Ubrary books and equipment 1.05 100% 100%A of foreign and 90%A of local costs () Printing 2.42 10046 10096 of forelgn and 90%b of local oosts (g) Studies 0.38 100%6 (h) Proct Coordination (Financial) 0.36 10046 () Refunding of PPF 0.25 UJ Unallocated 1.80 ESTIMATED IDA DISBURSEMENT SCHEDULE (US$ Million) Fiscal Year 1993 1094 1996 1006 1997 198 Annual 0.80 4.60 7.00 6.40 0.70 0.40 Cumulative 0.80 5.40 12.40 18.90 19.60 20.00  SCHEDULE C UNITED REPUBLIC OF TANZANIA EINANCIAL AND LEGAL MANAGEMENT UPGRADING fILMUD EPRQC Timetable of Kea Project Processing Activities (a) Project Preparation Time: 8 monhis (b) Prepared by: Government with IDA assistance (Mbanefo, Adu and Johnson) (c) First IDA Mission: July 1991 (d) Appraisal Mission Departure: February 1992 (e) Date of Negotiations: May 1992 (0 Planned Date of Effectiveness: September 1992 (g) Relevant PCRS and PPARs: None  PAGE 1 -9- SCHEDULE D Pa~geF1of 3 TANZANIA Status Of 8ank Group Operations In TANZANIA PFD0R25 - Summary Stateewnt Of Loans and IDA Cred;ts (LOA data as of 4/30/92 - MJI data as of 05/22/92) By Coumtry Country: TANZANIA Amowit in USS miltUon (ltss cancellations) Loan or Fiscal Undis- Closing Credit No. Year Borrower Purpose Bank IDA bursed Date .......... ...... ........ ....... .... ... ...... ....... Credits 62 Credits(s) closed 841.36 C1oiso-TAN 1980 TANZANIA GRAIN STORAGE & KILL 43.00 6.25 06/30/92(R) C1056F-TAN 1981 TANZANIA EDUCATION VII 25.00 1.36 12/31/90(R) C14050-TAN 1984 TANZANIA POaER IV 35.00 .79 12/31/91(R) C15360-TAN 1985 TANZANIA PORTS REHAB. 27.00 1.22 06/30/92(R) C16040-TAN 1985 TANZANIA PETRO.SECTOR.T.A 8.00 3.42 06/30/92(R) C16870-TAN 1986 TANZANIA FCWER REHAB./ENERGY 40.00 1.72 12/31/92(R) C16880-TAN 1986 TANZANIA ROADS REHAB. 50.00 16.18 06/30/93(R) C18100-TAN 1987 TANZANIA TELEC.II 23.00 3.10 06/30/92(R) C18910-TAN 1988 TANZANIA AGR.EXPORTS REH. I 30.00 23.81 06/30/96 C19690-TAN(S) 1989 TANZANIA IND.&TRADE ADJUS.CR. 135.00 17.82 12/31/92(R) C19700-TAN 1989 TANZANIA NATL.AG.& LIV.RES. 8.30 7.03 03/31/97 C19940-TAN 1989 TANZANIA AGRIC. EXT. 18.40 12.46 03/31/97 C20500-TAN 1989 TAUZANIA TREE CROPS 25.10 19.14 06/30/96 C20950-TAN 1990 TANZAYIA PORTS MODERNIZATION 37.00 37.78 06/30/97 c20980-TAN 1990 TANZANIA HEALTH & NUTRITION 47.60 45.44 06/30/96 C21160-TAN(S) 1990 TANZANIa AGRIC. ADJUSTMENT 200.00 105.07 06/30/92 C21370-TAN 1990 TANZANIA EDUC PLANNING & REHA 38.30 37.28 12/31/96 C21490-TAN 1990 TANZANIA ROADS 1 180.40 173.93 06/30/98 * C22020-TAN 1991 TANZANIA PETROL REHAB 44.00 46.17 12/31/97 C22670-TAN 1991 TANZANIA RAILWAYS RESTRUCTURI 76.00 76.87 12/31/99 C21162-TAN(S) 1992 TANZANIA AGRIC. ADJUSTMENT 11.30 .18 01/29/93 C22910-TAN 1992 TANZANIA URBAN SECTOR ENG. 11.20 10.75 12/31/95 C23080-TAN(S) 1992 TANZANIA FIN SECTOR 200.00 143.82 06/30/94 * C23300-TAN 1992 TANZANIA ENGINEERING CREDIT 10.00 10.28 06/30/95 * C23350-TAN 1992 TANZANIA FOREST RESOURCES MAN 18.30 18.09 06/30/98 TOTAL number Credits a 25 1,341.90 819.97 Loans 19 Loans(s) closed 313.06 All closed for TANZANIA TOTAL uruber Loans a 0  PAGE 2 - 10 - SCHEDULE D Page 2 of 3 TAN2ANIA Status Of Bank Group Operations In TANZANIA PFOSR25 - Sumary Stateaent Of Loaos and IDA Credits (LOA data as of 4/30/92 - MIS data as of 05/22/92) ,..... ........ .. ...................................... By Country Country: TANZANIA Ancunt in USS million (less cancellations) Loan or Fiscal Undis- Closing Credit No. Year Borrower Purpose Sank IDA bursed Date ,............. ------.... ........ ............. .... . .... ..... ...... ... ....... ... .. .. TOTAL*** 313.06 2,183.26 of which repaid 194.92 48.27 TOTAL held by Bank & IDA 118.14 2,134.99 Amount sold .09 of uhich repaid .09 TOTAL undisbursed 820.04 Notes: ................ * Not yet effective N* ot yet signed T-* total Approved, Repaynents, and outstanding balance represent both active and inactive Loam ard Credits. (R) indicates formally revised Closing Date. (S) lndicates SAUJSECAL Loans and Credits. The Net Approved and Sank Repayments are historical value, all others are market value. The Signing, Effective, and Closing dates are based upon the Loan Department offical data and are not taken fron the Task Budget file.  SCHEDULE D Page 3 of3 TANZANIA Statement of IFC Investments as of Mar 31, 1992 Invest Type of Number FY Obligor Business Loan Equity Total --------- -------- --------------------- ---------------- --------US$ Million--------- 744-TA 1985 Amboni Limited General Mfg 5.4 5,4 410-TA 1978 Highland Soap General Mfg 1.3 0.4 1.7 25-TA 1960/64 Kilombero Sugar Food/Food Proc 4.0 0.7 4.7 460-TA 1979 Metal Products Ltd Hsehold Utensils 1.3 0.2 1.5 2148-TA 1991 Mufindi Tea Tea 2.8 0.0 2.8 1159-TA 1990 TASCO Sisal Agribusiness 2.0 2.0 Total Gross Commitments 16.8 1.3 18.1 Less: Cancellations, terminations, exchange adjustments, repayments, write-offs, and sales 9.3 1.3 10.6 Total commitments held by IFC 7.5 0.0 7.5 Total Undisbursed 2.5 0.0 2.5 Total Disbursed 5.0 0.0 5.0