Uganda - Institutional Capacity Building Project

Document of The World Bank Report No. 13610-UG STAFF APPRAISAL REPORT REPUBLIC OF UGANDA INSTITUTIONAL CAPACITY BUILDING PROJECT MAY 9, 1995 Public and Private Enterprise Division Eastern Africa Department Africa Region  CURRENCY EQUIVALENTS Currency Unit = Uganda Shilling (U Sh) US$1.00 = U Sh 918.17 U Sh 1.00 = US$0.00109 US$1.00 = SDR 0.68529 SDR 1.00 = US$1.45924 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CBP Capacity Building Plan CBS Capacity Building Secretariat CLE Continuing Legal Education CSR Civil Service Reform DANIDA Danish International Development Assistance GOU Government of Uganda ICPAU Institute of Certified Public Accountants of Uganda MFEP Ministry of Finance and Economic Planning MJCA Ministry of Justice and Constitutional Affairs MLG Ministry of Local Government MPS Ministry of Public Service NRM National Resistance Movement ODA Overseas Development Administration of the United Kingdom PSRRC Public Service Review and Reorganization Commission RC Resistance Council ROM Results Oriented Management TA Technical Assistance UNDP United Nations Development Program USAID United States Agency for International Development GOVERNMENT FISCAL YEAR July 1 - June 30 This report is prepared by IDA in collaboration with the Government of Uganda. The IDA team members consisted of Mr. G. Tata (Task Manager), Mr. 1. Knapp and Mr. P. Langseth (Sr. Public Sector Management Specialists), Mr. J. Ford (Sr. Economist), Mr. A. Zerabruk (Sr. Legal Counsel), Ms. L. Masutti (Country Officer),Ms. S. Johnson (Consultant - Accountancy and Auditing) and Mr. S. Nogxina (Intern Legal Department). The GOU team members consisted of Ms. M. Muduuli (GOU Task Manager) and Mr. F. Tumuheirwe (Ministry of Finance and Economic Planning); Ms. D. Katuramu and Mr. G. Okutho (Ministry of Public Service); Mr. F. Lubanga and Mr. E. Mugabi (Ministry of Local Government); Mr. D. Byamugisha (Ministry of Justice and Constitutional Affairs); and Mr. G. Egaddu (Institute of Certified Public Accountants of Uganda). The team was assisted in preparation of this document by Ms. M. Fiat (Consultant) and Ms. H. Voelker (Sr. Staff Assistant). The Lead Advisor is Mr. E. Mbi and Peer Reviewers are Mr. 0. Adamolekun, Ms. E. Adu, Mr. N. Colletta and Mr. L. Roberts. The Sector Division Chief is Mr. R. E. Hindle and the Acting Country Director is Mr. Michael F. Carter.  REPUBLIC OF UGANDA INSTITUTIONAL CAPACITY BUILDING PROJECT STAFF APPRAISAL REPORT Table of Contents CREDIT AND PROJECT SUMMARY ................................... iii SECTION I - SECTOR BACKGROUND ................................... 1 A. Technical Assistance and Capacity Building ........................... 1 B. Overview . ................................................ 1 C. Capacity Building in the Civil Service .............................. 2 D. Uganda Policy on Technical Assistance .............................. 4 E. Uganda Capacity Building Plan ................................... 5 F. IDA's Previous Role and Lessons Learned ............................ 8 G. Rationale for IDA Involvement ................................... 9 SECTION II - THE PROJECT ........................................ 10 A. Project Objectives .......................................... 10 B. Summary Project Description ................................... 10 C. Detailed Project Description .................................... 11 D. Participatory Approach to Project Preparation ......................... 17 E. Project Cost and Financing Plan ................................. 18 F. Project Implementation ....................................... 19 G. Procurement .............. ............................... 21 H. Disbursements ............................................. 23 1. Accounting, Auditing and Reporting ............................... 24 J. Supervision Plan ........................................... 26 K. Environmental Impact ........................................ 26 L. Benefits and Risks .......................................... 26 SECTION III - AGREEMENTS REACHED AND RECOMMENDATION .... ........ 28 Tables in the Main Text 1. Project Cost Summary ............................................. 18 2. Financing Plan . ................................................ 19 3. Procurement . .................................................. 23 4. Disbursements . .................................................. 24  ii ANNEXES Annex 1 - Letter of Sector Policy Annex 2 - Implementation Schedules Annex 3 - Summary Monitoring Indicators Annex 4 - Project Costs Annex 5 - Supervision Plan Annex 6 - Project Implementation Structure Annex 7 - Central Government Capacity Building Component Annex 8 - Local Government Capacity Building Component Annex 9 - Legal Sector Reform Component Annex 10 - Accountancy Strengthening Component Annex 11 - Training Funds Component Annex 12 - Outline of the Implementation Manual Annex 13 - Documents in the Project File  iii REPUBLIC OF UGANDA INSTITUTIONAL CAPACITY BUILDING PROJECT STAFF APPRAISAL REPORT CREDIT AND PROJECT SUMMARY Borrower: Republic of Uganda Implementing Agencies: Ministry of Public Service, Ministry of Local Government, Ministry of Justice and Constitutional Affairs, Ministry of Finance and Economic Planning, Institute of Certified Public Accountants of Uganda Beneficiaries: Institute of Certified Public Accountants of Uganda, Local Governments from Local Government Capacity Building component and Private Sector organizations from Training Funds component Poverty: Not applicable. Amount: SDR 25.0 million (US$36.4 million equivalent) Terms: Standard, with 40 years maturity Financing Plan: See para. 2.39 Map: IBRD 26454 Project Identification No.: UG PA 2976   REPUBLIC OF UGANDA INSTITUTIONAL CAPACITY BUILDING PROJECT STAFF APPRAISAL REPORT I. SECTOR BACKGROUND A. Technical Assistance and Capacity Building 1.1 In general, within the World Bank, technical assistance (or technical cooperation) are understood to encompass a broad set of activities, only some of which directly lead to capacity building. Specifically, technical assistance is defined in Operational Directive 8.40 as the transfer, adaptation, mobilization and utilization of services, skills, knowledge, technology and engineering to: (a) carry out policy studies and provide advice; (b) support project preparation and implementation; and (c) enhance a developing country's human, economic, technical, analytical, managerial and institutional capabilities on a sustainable basis. Only activities undertaken under item (c) above are considered as capacity building or, as an alternative definition, institutional development. 1.2 The important aspect of the definition is the demarcation between provision of support for addressing immediate needs (whether policy or project based) and the focus on the long-run objective of increasing a country's ability or capacity (i.e. intellectual infrastructure, systems, procedures, etc.). In designing the proposed Institutional Capacity Building Project, emphasis has been given as far as possible to the latter set of activities. The focus of capacity building activities under the proposed project are further narrowed to: (a) those tasks which have been demarcated as most critical to supporting the key areas of Government's reform agenda (i.e. civil service reform, decentralization and private sector development); and (b) only cross-sectoral tasks have been included with sector specific capacity building activities being left to the purview of other existing or planned sectoral operations. B. Overview 1.3 The economic mismanagement and political chaos of the 1970s and the early 1980s in Uganda severely decimated one of the most respected and effective public administrations in Eastern Africa. With migration, Ugandan human capacity was further eroded. The National Resistance (NRM) Government assumed power in January 1986 and capacity building efforts in Uganda commenced in concert with the Economic Recovery Program through the Civil Service Reform (CSR) program. Recognizing that the lack of capacity in Uganda could as much be attributed to the absence of sufficient remuneration and proper incentives, as to the absence of skilled staff, GOU began an aggressive effort to increase remuneration in the Civil Service. The initiative was constrained by the lack of revenues collected by Government and, of necessity, increasing salaries meant reducing the total complement of staff through rationalizing Ministerial structures. The CSR program is discussed in detail in Section I.C below. Even as the CSR program was being implemented, GOU began a systemic evaluation of its approach to Technical Assistance which resulted in the Uganda Policy on Technical Assistance, issued in May 1993 (discussed in Section I.D). GOU also began determining, in addition to the overall CSR program,  - 2 - the priority areas upon which it should focus and this resulted in the Uganda Capacity Building Plan published in February 1994 (discussed in Section I.E. below). C. Capacity Building in the Civil Service 1.4 Central Government Reform. Through the Economic Recovery Program launched by the Government in 1987, the decline in standards and efficiency of the Civil Service has largely been arrested. The initial attempts at reform focused on reducing the numbers of part time employees and rationalizing the numbers, roles and functions of ministries. Then, in October 1990, a policy framework for a comprehensive civil service reform was presented by the Public Service Review and Reorganization Commission (PSRRC). The Commission's report, which included some 255 specific recommendations concluded that the Ugandan Civil Service had been marked not only by its bloated structure, but also by inefficiency and poor performance. Key problems were: inadequate pay and benefits; poor management skills; dysfunctional civil service organization; and inadequate personnel management and training. This led to abuse of office and government property; moonlighting and corruption; lack of discipline; an erosion of rules and regulations; obsolete procedures; lack of appropriate systems; thin managerial and technical skills; poor public service attitudes; and massive bureaucratic red tape. In 1992 the major recommendations of the Committee were adopted as a framework for reform through Sessional Paper No. 1. The chosen strategy includes: rationalization and downsizing of the civil service, reform of remuneration policy and payroll administration, restructuring of ministries and decentralization of governmental functions and development and introduction of improved personnel management systems. 1.5 To date, an impressive number of steps have been taken towards creating a small, well motivated and remunerated civil service capable of delivering timely and improved service to the public. Achievements include: significant real increases in salaries (although salary levels are still far below the Minimum Living Wage prescribed by the PSRRC); a reduction in the number of ministries from 38 in 1989 to 21 currently, and the rationalization of ministerial structures to remove duplications and overlaps as well as to reduce encroachment on the private sector. Significant progress has also been achieved in the removal of ghost workers, redundant employees, the overage and the poor performers reducing Central Government civil service staff from 1990 payroll payments of 320,000 employees to around 148,000 as of December 1994. 1.6 Despite the substantial achievements, the following issues remain to be addressed: continuing insufficiency of remuneration, i.e. pay and benefits (including non-monetary benefits) and major design weaknesses in the current pay and grading system which add lack of equity and transparency to the basic issue of low pay; insufficient management and supervisory skills; inadequate personnel management and training; lack of a Code of Conduct for Civil Servants; and inadequate facilities management and lack of a maintenance culture. 1.7 Previous and ongoing efforts by Government and related support from donors, in particular the United Nations Development Program (UNDP), the Overseas Development Administration of the United Kingdom (ODA), and the International Development Association (IDA) have, of necessity, focused on restoring efficiency to the core aspects of government business (e.g., planning, budgeting, control of financial and monetary resources). Aspects of reform in the Central Government need to be continued and assisted, particularly in relation to the areas identified in para. 1.6 above. However, the purview of the assistance needs to be also extended to Local Governments (i.e. District Level and below) as a result of Government's decision to adopt a decentralized approach to management and delivery of public services.  - 3 - 1.8 Decentralization. After taking power in 1986, one of the first goals enunciated by the NRM Government in its overall framework of social-political policy was that of decentralization. In 1987, political decentralization was introduced through the Resistance Council (RC) system which consisted of a hierarchical structure of Councils and Commnittees. Commencing in 1986, the Government also began studying the issue of decentralization of administrative authorities and responsibilities to the thirty nine Districts in Uganda to match the RC structure. There have been various reports produced over the last seven years and in 1991, Cabinet considered and approved measures to strengthen democratic decentralization. Also, in 1992, a Standing Committee on Decentralization consisting of Permanent Secretaries was established, and a Decentralization Secretariat set up in the Ministry of Local Government. In November 1993, Parliament enacted the Local Governments (Resistance Councils) Statute. The implementation of this Statute will result in Central Government functions being reduced to policy formulation, planning, inspection and the management of national programs. All other services would be provided at or below the District level. In addition to locally raised revenues, Central Government would provide support through block grants and equalization grants (the latter compensating for disparity between districts). 1.9 The implementation of decentralization is well underway and the commitment of Central and Local Governments to its implementation is evident. Work on personnel decentralization is well advanced: (a) District Service Committees for all districts have been appointed; and (b) the District Reviews (which would establish structures and staffing) for all Districts have been completed and approval of these Reviews by the District Resistance Councils of most districts has also been completed. Financial decentralization is being implemented in a phased manner. The recurrent budget is being decentralized commencing with thirteen Districts in the first year, fourteen Districts in the second year and twelve Districts in the last year. During the first year of decentralization which commenced in 1993/94, the first thirteen Districts were responsible for managing expenditures (and reporting to Central Government) on the basis of specific votes for each sector Ministry which was having its services decentralized. In the second year of decentralization, 1994/95, the first thirteen Districts have received block grants from the Central Government. The District Resistance Councils are responsible for deciding on allocation of the block grant among the various services provided. Salaries have been excluded from the block grant (and remain a line item) since the District Reviews are in process and the staffing levels have yet to be agreed between the Central Government and the Districts. In 1994/95, the second group of fourteen Districts went to the vote system. In 1995/96 the remaining group of twelve Districts will go to the vote system; the first twenty seven Districts will go the block grant system at the same time. Hence, by 1996/97 the financial decentralization process for the recurrent budget would have been completed. Progress to date in the thirteen Districts with financial decentralization is being monitored closely by the Ministry of Local Government and is reported as being good; only two out of thirteen Districts were considered to have had unsatisfactory performance in expenditure management and remedial actions have been instituted. 1.10 In addition to the decentralized activities, some activities which were to have been provided by the Central Government per the Second Schedule of the Statute (e.g. hospitals, secondary schools) have been delegated to the Districts. A substantial improvement in service delivery has resulted. For example, hospitals in Jinja, Masaka, Itojo and Kabale are reported to have experienced substantial improvement in number of patients (including outpatients) served, availability of drugs, food to patients, rehabilitation of premises, payment of staff salaries and utility bills, etc. Other notable achievements include savings on staff payments through identification of ghost employees and contracting out of services.  - 4 - 1.11 Despite the achievements to-date, it can be expected that successful implementation of the decentralization program is likely to remain extremely challenging because of shortcomings in resources and human capacities in the Local Governments. Major shortcomings that will need to be addressed include: lack of appropriate personnel and financial management systems/registries required to manage the substantially higher level of finances and personnel under the direct control of the districts after decentralization. Use of Central Government resources has also resulted in several new reporting requirements. Shortage of staff and the need for extensive training of available staff also exists in several key areas such as planning, finance/accounting, etc. Finally, under the Statute, the RCIII (i.e. the sub-county) level has a substantial role in revenue and expenditure management. While certain districts (e.g. Jinja) had already commenced providing sub-counties with the responsibility for retaining and managing a proportion of resources, in most districts strengthening the sub-counties will be a substantial task. Thus, Government is in need of considerable assistance in order to help maintain its current commitment to reform and successfully effect this fundamental change in its approach to management of the economy and delivery of services. 1.12 Donor Support for Decentralization. The Government of Denmark, through the Danish International Development Association (DANIDA) has been the lead donor and has provided/is providing support to Government in various ways. First, when IDA's District Management Study became the focus of debate and analysis within Government, experts were funded to help Government in its decision making process. Second, an inter-disciplinary task force which prepared the implementation modalities and reviewed the Local Government Statute was financed. Third, the establishment and operations of the Decentralization Secretariat are being partially financed. Fourth, substantial support for training and technical assistance is being provided up to March 1997. Fifth, some districts were supplied with limited office equipment. Finally, the District Development Program of one district (Rakai) is being financed. IDA has supported the decentralization program so far through sector work, i.e. the District Management Study (Report No. 10695-UG) and the Economic and Financial Management (EFM) Project (Cr. 2418-UG). Under that project, the District Reviews being conducted by Government have been supported. Other activities being implemented will also have an impact: systems and procedures being developed for central personnel and financial management will provide an important underpinning for decentralized systems; and some funds have been allocated for a program to commence implementation of and train staff for decentralized personnel and financial systems. D. Uganda Policy on Technical Assistance 1.13 The Uganda Policy on Technical Assistance, May 1993 (which was prepared by GOU as part of a UNDP funded National Capacity Planning exercise), classifies technical assistance activities as either investment related or as free standing; under the Bank definitions, the freestanding Technical Assistance (TA) would include both policy support and capacity building. The study established that between 1988 and 1991, commitments for technical assistance support grew from US$65 million to US$133 million. Investment related TA accounted for only 21 % of the resources; 79% was free standing. The report notes that the majority of the free standing TA was represented by smnall disjointed project interventions that usually have little impact on the overall economic performance. Consequently, the new policy defines a process which would: (a) at first, ensure that TA priorities meshed with national plan and budget priorities and, later, include TA projects as part of the budgeting process;  - 5 - (b) ensure that GOU takes the lead in project identification and that all TA projects are channelled through the Ministry of Finance and Economic Planning (MFEP); (c) focus on the motivation of nationals and on the provision of an enabling environment specifically in the civil service; (d) follow a country program approach as opposed to a project approach; (e) use national execution by Government as the primary modality for implementing TA projects supplemented by use of local consultants and expatriate nationals. Use of long term expatriate advisors would be reduced to the minimum necessary with increase in the use of short-term consultants, where necessary; and (f) TA would no longer focus only on the public sector but could be extended to the private sector (including non-governmental organizations). E. Uganda Capacity Building Plan 1.14 The Capacity Building Plan (CBP) for Uganda provides a coordinated framework of the priority areas where GOU with donor assistance could focus in the short- to medium-term. The preparation of the CBP was preceded in 1990 by a comprehensive sector report on Capacity Building prepared by the Ugandan Government and IDA together with the participation of a number of other donor agencies concerned with capacity building in Uganda. In 1991, Government set up a Capacity Building Secretariat (CBS) in the Ministry of Planning and Economic Development (now merged into the new Ministry of Finance and Economic Planning). This Secretariat was supported by an advance of US$185,000 from IDA's Special Project Preparation Facility. While being organizationally within one Ministry, the CBS had participation from a number of key ministries, the private sector and the major training and higher educational institutions in the country. The CBS commissioned various local consultancies to study a range of options and possibilities which formed background papers for the development of a Capacity Building Plan for Uganda. The Plan was completed and, in February 1994, approved by the President's Economic Council. Subsequently, in April 1994, Government held a workshop to present the findings of the plan to donors and to assess donor support for various initiatives described in the Plan. 1.15 The Capacity Building Plan (CBP) identified ten priority areas for enhancing capacity. The project is supporting three of these priority areas: legal and judicial systems; accountancy profession; and local training institutions. The issues in these areas are discussed below. Additional areas of emphasis included under the CBP which are considered key areas of capacity building are: economic policy analysis within and outside Government; manpower planning and linkages to the training function; local management training institutions; return of skilled Ugandans; local consultancy profession; technical and vocational education and industrial training capacity; contribution of women to policy development and management; and non-governmental organizations. Legal Sector 1.16 The Constitution of Uganda and the Juridicature Act of 1967 constitute the foundation of the Ugandan legal system, i.e. the continued application of the received English law and its co-  - 6 - existence with the customary law of Uganda. The body of statutory law (i.e. laws made by the legislature) is made up of largely outdated legislation in almost every sector especially laws which affect business, industry and private sector development. 1.17 The problem of outdated laws is exacerbated by the absence of timely and rigorous enforcement of these laws due to weaknesses in the major institutions in the sector. These institutions are the Ministry of Justice and Constitutional Affairs (MJCA), the Constitutional Commission, the Human Rights Commission, the Law Reform Commission and the Law Development Centre; the Law Council; the Judiciary, the Resistance Council Courts (which are a parallel system of courts which exist with respect to lower level courts) and the police. In general the sector is confronted with the following problems: insufficient staffing of lawyers, paralegal and secretarial staff; outdated office equipment and technology and the lack of proper office facilities; absence of in-service and other training programs; absence of easily available documentation with regard to the Laws of Uganda (which were last published in 1964) and the latest Court decisions (Law Reports were last published in Uganda in the early 1970s); and lack of office supplies. One of the actions that Government has undertaken in the recent past to demonstrate its commitment to reforming the sector is to significantly increase the salaries of professional lawyers as of July 1994. It is anticipated that the increased salaries would appropriately complement the inputs provided under the project and hence there should be a substantial impetus to project viability and sustainability. 1.18 Donor Assistance. Assistance in addressing the problems in the legal sector has been forthcoming on a limited basis from DANIDA, ODA, USAID and the Austrian Government. It has been mostly directed towards the provision of office equipment, vehicles and books, the upgrading of selected physical facilities, especially courts, and the supply of expatriate technical assistance to fill vacancies. Accountancy Profession 1.19 The development of accounting in Uganda has fallen behind the rest of Africa due to the past lack of support from the Government of Uganda (GOU) in the formation of the accounting profession and in the development of a local professional qualification. Uganda has a very small accounting profession, with less than 100 professionally qualified accountants and a similarly serious shortage of accounting technicians. The demand for accountants is very high, but because of the small numbers most accounting jobs are filled by staff with no formal accounting qualifications who may not be capable of carrying out the tasks assigned to them. In Government, the lack of qualified staff is exacerbated by the low remuneration and consequently, Government has been unable to produce its own accounts on time. 1.20 As a result of the mismatch between supply and demand, there is a heavy demand for accounting education in Uganda and the only accounting courses currently offered in the public sector are heavily oversubscribed. The only professional accounting qualification available to Ugandans are foreign ones: i.e., a Kenyan Certified Public Accountancy qualification or a UK qualification; either qualification requires expenditure of large amounts of foreign exchange. Further, the taxation and legal systems which are studied as part of the Kenyan and UK qualifications are not relevant to Uganda and due to unfamiliarity with these systems, Ugandan students achieve a lower pass rate in both examinations.  - 7 - 1.21 In recent years, the GOU has realized that the development of accounting is important for the economy. As a first step, it sought donor support in the form of discrete projects aimed at improving the skills of specific cadres (i.e. accountants and auditors) within Government. Donor support in the development of the profession and a local examination has consisted of two studies both funded by ODA which laid out the next steps required in developing the profession and an examination. Based on the findings of the above studies, the accountancy profession worked with GOU to legislate the necessary changes. In 1992, Parliament passed the Accountants Statute which established the Institute of Certified Public Accountants of Uganda (ICPAU) to regulate the profession and maintain standards, and the Public Accountants Examinations Board to conduct accounting examinations. Unfortunately, during the passage of the Bill through Parliament, some changes were introduced which have led to continuing disputes regarding the membership of the Institute. The Statute allows for two categories of members: full and associate with only full members allowed to vote at the Annual General Meeting and be elected to the Council of the Institute. Hence, while the Statute provides plenty of reassurance for all those currently engaged in the practice of accounting that they would be able to continue to do so, it provides for a separate category (i.e. full members) who would be expected to lead the profession. 1.22 As with similar Acts, the Statute contains a list of bodies whose members could be admitted into full membership, without the need to take any additional examinations. This list was initially restricted to internationally recognized qualifications of professional accountants in other countries. However, during the passage of the Bill through Parliament, four other bodies were added on the list, three of which are not associations of professional accountants. Of particular concern to professional accountants was the inclusion of the Institute of Chartered Secretaries and Administrators since, while qualified in the field of their specialization, the Chartered Secretaries training does not prepare them to be professionally qualified accountants. Further, since there are more Chartered Secretaries in Uganda than professionally qualified accountants, if admitted as full members they could have dominated the Institute. Not being led by professional accountants could have seriously hinder the development of the accounting profession in Uganda as well as reduced the possibility of the Ugandan qualification being internationally accepted. 1.23 GOU has recently amended the Statute to exclude the three professional associations of concern to the professional accountants, i.e. Association of International Accountants of UK, the Institute of Chartered Managers and Administrators and Institute of Chartered Secretaries and Administrators. This has allowed the ICPAU to hold its first Annual General Meeting and to elect its Governing Council. These actions had been required prior to negotiations in order to ensure IDA support to the Accountancy profession. Training 1.24 Training of Civil Service staff has in the past been undertaken in an ad hoc manner. There has been no overall training plan for GOU staff and a large proportion of the training has been undertaken through donor funding, often in the context of specific projects. Further, the past approach to the improvement of training delivery in Uganda has focused upon improving the available supply of training. Specific institutions were chosen and assisted, primarily by donors, through provision of: civil works, equipment and technical assistance (including twinning arrangements), overseas training and study tours. This approach has had two main shortcomings. First, public and private sector entities which constitute the demand for training have had only a marginal input into the structure of courses being provided by the training institutions. The only choice available to these institutions has been to send their staff to the available local training or  -8 - send their staff outside Uganda at a higher cost to be trained in more relevant skill areas. The lack of market orientation was due to a low impetus for cost recovery. Since the training institutions were being funded directly by Government or donors, the need to get revenues from the trainees was not an overarching objective. This in turn meant that tailoring courses to trainee needs and improving capacity utilization were not important priorities. Hence, the available local supply of training determined the demand for local training rather than the demand for training determining the supply of training. Second, other than the few institutions supported by donor funding, there was been no broad based development of local training institutions since there was no functioning market for matching demand and supply of training. Further, the existing training institutions, which received direct subsidy from Government and subsidies in kind from donor funded civil works, equipment, etc. were able to offer lower prices than the smaller institutions. F. IDA's Previous Role and Lessons Learned 1.25 Over the last seven years (1987-1993), Government has received significant assistance from IDA. IDA's Second Technical Assistance Project (FY84-92) and Third Technical Assistance Project (FY87-94) had as their prime objective the strengthening of the core agencies of Government: the Ministry of Finance, the Ministry of Planning and Economic Development and the Central Bank. There were some important lessons learned from these two successful technical assistance projects which were incorporated into the follow-on Economic and Financial Management Credit (FY93): subprojects/interventions were targeted to areas closely coupled with the ongoing reform effort and were in some cases upstream sector work for further reform efforts; and TA was designed and implemented with utmost flexibility, consistent with the Development Credit Agreement, which required greater amounts of supervision. 1.26 The approach utilized in the proposed project for the upstream activities which precede project preparation is similar to the successful approach under the earlier projects. First, the upstream sector work was undertaken at an early stage and in a collaborative manner with GOU and other interested donors. Second, the problems/issues identified were prioritized into key areas to be addressed in the process of developing the Capacity Building Plan. From the overall list of GOU's priorities, IDA selected a few areas of assistance. While building upon the successful accomplishments of the past projects, this project's emphasis has shifted for two reasons. First, the focus has shifted from addressing areas requiring immediate improvement to strengthening local institutions/building capacity for the future. The magnitude of the problems and the need to reestablish critical functions had required a focus on immediate results and resulted in significant use of expatriate assistance. The situation having stabilized, it is now appropriate to widen the focus from short term problem solving to building indigenous capacity, i.e. developing lasting systems and skills. Second, given the decentralization of activities to the district level, the project has expanded its focus to include local governments. 1.27 Linkages with other IDA operations. The EFM Project (FY93), which is currently underway, is assisting in the restructuring of the now combined Ministries of Finance and Planning and the integration of Government's key planning and financial systems; helping to develop the newly created Uganda Revenue Authority, and completing the reorganization of practices and procedures at the Central Bank. The EFM Project has two components which have linkages with the proposed project. First, the District Reviews being conducted by Government have been supported. Second, other activities under implementation will also have an impact: systems and procedures for central personnel and financial management will provide an important underpinning for decentralized systems; and some funds have been allocated for a program to commence  implementation of and train staff for decentralized personnel and financial systems. The Second Structural Adjustment Credit (FY94) also has some conditionalities related to the Civil Service Reform program, i.e. satisfactory progress towards the monetization of benefits and the implementation of action plans for restructuring of five ministries constitute second tranche release conditions. 1.28 Parallel Financing. Over the last two years there has been considerable donor activity in the areas of capacity building. Various donors have been involved with different elements of capacity building including: DANIDA (with judiciary and decentralization reforms); USAID and ODA (judiciary); and UNDP (CSR and NGOs); and EEC (human resource development). In addition, the Civil Service Reform program has broad based support from several donors including UNDP, ODA, Austria, Denmark, Netherlands, Norway and Sweden who have funded costs of restructuring the Civil Service and downsizing the central ministries. G. Rationale for IDA involvement 1.29 The project is closely linked with the objectives of the Bank Group Country Assistance Strategy, which is to help the country reduce poverty by: (a) maximizing labor-intensive economic growth; (b) strengthening economic and social infrastructure; (c) supporting human resource development; and (d) enhancing provision of public services with emphasis on ensuring that these services reach the poor and vulnerable groups. The strategy is designed to be both gender and environmentally sensitive and is consistent with the maintenance of macroeconomic stability. 1.30 The project focuses on three of the key areas of the Country Strategy, i.e. enhancing the provision of public services; supporting human resource development through capacity building; and improving economic growth. As capacity building is being extended to local governments at the district level and below, this is likely to improve resource mobilization and management and consequently enhance service delivery at the level at which most of the population (and the poor) live in Uganda. The project's secondary focus is on developing the legal and financial accountability frameworks for public and private sector development. The focus on training in implementation skills would also contribute towards raising the standards of public administration while supporting the development of stronger private sector institutions.  - 10 - II. THE PROJECT A. Project Objectives 2.1 The objectives of the project are to establish greater local institutional and human capacity to develop and implement public policy and support the growth of the private sector through: (a) support for the continuation of the Civil Service Reform; (b) assistance to the Government of Uganda in its decentralization program; and (c) strengthening the legal and financial accountability framework and institutions. B. Summary Project Description 2.2 The project will consist of five components as described below: (a) Central Government Capacity Building Component (US$6.62 million): would continue support to the Civil Service Reform program (which is currently being provided through the EFM Project). Assistance would be provided for: streamlining of the civil service, improving the transparency of personnel management and focusing the civil service on efficient and effective service delivery. (b) Local Government Capacity Building Component (US$12.74 million): would support Government's ongoing decentralization program through assisting in defining and implementing an appropriate system of inter-governmental finance. It would continue the process of strengthening local government financial and personnel management structures, systems and procedures. It would assist in improvement in service delivery through the introduction of Results Oriented Management to local Governments and through basic retooling, i.e. minor civil works and equipment. (c) Legal Sector Reform Component (US$8.24 million): would strengthen the legal framework for private sector development, improve availability of legal decisions, support strengthening of major institutions in the legal sector (such as the Ministry of Justice and Constitutional Affairs and Judiciary) and introduce improvements in legal education and training. (d) Accountancy Profession Component (US$0.98 million): would support the development of the professional association (the ICPAU), the establishment of a local professional qualification and examining capability and the introduction of local accounting and auditing standards. (e) Training Funds Component (US$7.02 million): would pilot a demand driven process of providing funds on a cost sharing basis to public and private sector institutions to acquire their training needs for implementation skills from the local market. It would also assist selectively identified weak training institutions with potential for improvement through staff training and acquisition of study materials and equipment on a cost sharing basis.  - 11 - C. Detailed Project Description Central Government Capacity Building 2.3 As has been described in part C of Section I, substantial efforts have been made by Government to implement a CSR program. The support to this CSR program would continue by bringing several ongoing activities to completion and developing the next stage of the reform process. The component would continue assistance in streamlining of the civil service, improving the transparency of personnel management and focusing the civil service on efficient and effective service delivery. 2.4 Support to the streamlining of the civil service would be provided at two levels. First, the overall program being managed through the Ministry of Public Service (MPS) would be supported especially through: (a) improving central personnel management systems; (b) supporting key bodies and staff undertaking a civil- service-wide classification of personnel from the perspective of identifying candidates for termination as a result of restructuring/redundancy activities; Second, at the level of individual ministries, the project would: (c) support the implementation of ministerial restructuring plans (or Ministerial Reviews) for sixteen ministries; the restructuring of the remaining five ministries is already underway. Further, since the restructuring plans do not incorporate the impact of decentralization, the project would support work to redefine and harmonize the new structures and establishment for the Central Government based on the approved structure and staffing of the districts as contained in the district restructuring plans (or District Reviews); and (d) Ministry level personnel management functions would be strengthened. 2.5 The second area of focus would be in improving the transparency of personnel administration. Specifically: (a) Improved personnel management practices would be established, i.e. a new salary structure would be established by July 1996. Other key activities would include introduction of Civil Service examinations and issuance of revised Standing Orders and introduction of a Performance Recognition System. (b) To support the move towards greater transparency, all Civil Servants will be expected to adhere to a new Code of Conduct which would be developed and issued by July 1996. (c) To ensure compliance with the new procedures, the MPS Department of Inspection would be strengthened primarily through development of inspection procedures and staff training. 2.6 The focus on effectiveness will come through introduction of Results Oriented Management (ROM) which will focus civil servants on service delivery through the achievement  - 12 - of definite objectives within specified time targets. The project would support a baseline Service Delivery Survey for Central Ministries which would collate data on quantifiable outputs and user perception surveys. This would establish the reference point for future measurement and be used to develop performance standards for each Ministry. These standards would then be introduced as part of GOU's budgeting procedures from the 1996/97 budgeting cycle to link service delivery with budgetary provision. 2.7 The focus on efficiency will come through improvement in two important support services underlying service delivery, i.e. facilities management and records management. (a) Capacity for Facility and Physical Assets Management. A study of the best approach to managing physical facilities, i.e. buildings, physical plant and equipment would be undertaken. The study would also review the utilization of Ugandan Government physical facilities abroad, recommend the optimal size of such facilities and approaches to managing them. The new policy would be implemented as part of the GOU's budgeting procedures commencing from the 1997/98 budgeting cycle. (b) Strengthening of the Records Management Function. The project would complement ongoing activities being undertaken through ODA funding. These activities have and would continue to focus on defining an overall policy framework and records management policies and procedures and assisting in the timely access to information in several ministries. The project would complement the program by providing staff training and assisting in the establishment of a National Records Centre. 2.8 Training. A substantial portion of the training for the Civil Service would be undertaken through the Training Funds component. However, two critical activities would be funded under this component, i.e. development of training plans and senior management training. 2.9 A detailed description of the Central Government Capacity Building component is provided in Annex 7. Local Government Capacity Building 2.10 This component would continue the process of assisting local governments through the Ministry of Local Government (MLG) to improve their abilities to properly manage and administer responsibilities entrusted to them and thus improve the quality of service delivery in a viable and sustainable manner. It would complement assistance already being provided by DANIDA. 2.11 Inter-Governmental Finance. The project would assist in the definition and implementation of an appropriate system of inter-governmental finance. A study of the decentralization of the development budget would be completed by June 1996 and phased decentralization would commence by July 1997. A study would also be undertaken to propose establishment, capitalization and management of a revolving development fund; this study is projected to be completed by June 1996 and a GOU position statement on its findings is to be issued by December 1996. Recognizing the evolving agenda and the consequent need for flexibility in defining the program, funds have also been provided for specific activities to be defined at a later date.  - 13 - 2.12 Strengthening offinancial and personnel management structures, systems and procedures. This would include computerization of accounts, preparation of final accounts and preparation of resource endowment profiles. The project would provide support to computerization of the decentralized payroll and decentralized records management and the redesign of the pension system. The credit would also support training in basic computer skills and records management; a substantial portion of other training (sensitization and skills development) would be undertaken through DANIDA funding and from the EFM Project. The key outcomes are expected to be: (a) the preparation and auditing of local government accounts within the six months time limit prescribed in the Local Governments Statute. By March 1996, twenty seven districts are expected to be in compliance and by March 1997 all thirty nine districts are expected to be in compliance with the Statute; and (b) by July 1995, consolidated payroll processing of all District Administration staff and staff formerly employed by the Central Government would be undertaken by the Uganda Computer Services on behalf of the districts. Further, it is projected that between July 1996 and June 1997 the districts would implement a decentralized management of payroll. 2.13 Results Oriented Management. The credit would support the introduction of ROM at the district level in a manner similar to that envisaged for the Central Ministries (para. 2.6). Training in planning at the district level would also be supported. ROM is expected to be incorporated into Local Government budgeting procedures commencing with the 1996/97 budget cycle. 2.14 Retooling, i.e. the basic improvements required to establish a reasonable level of physical infrastructure for the district administrations would be supported; existing structures would be refurbished to provide modest office out of which District Administrations could operate. Essential inputs (e.g. office and computing equipment and furnishings) would also be provided. 2.15 The project would also provide modest financing for the transportation needs of districts related to revenue collection and monitoring and supervising district-wide activities. The cost of the vehicles would be completely recovered from the districts over a five year repayment period and deposited into a Revolving Fund dedicated for purchase of vehicles. The cost recovery approach is expected to encourage the districts to choose the lowest cost solutions for their needs. This scheme is expected to commence by January 1996. 2.16 A detailed description of the Local Government Capacity Building component is provided in Annex 8. Legal Sector Reform Component 2.17 This sector has received only limited assistance to-date without an overall coordinated approach to developing the sector. GOU has developed, in the context of the Capacity Building Plan, an overall program for reforming the sector. IDA's support and the assistance provided under this project is focused upon the commercial aspects of law and on the settlement of civil disputes as required by IDA's current policies which take into account the fact that its primary mandate is economic development. The specific areas to be supported through the project are described below and the project component will be coordinated through the MJCA. 2.18 Legal Education, Training and Accreditation of Lawyers. The current system of legal education in Uganda is based on the recommendations made by the Gower Commission in 1969. Under this system, after completing the substantive study of the law, all prospective lawyers in Uganda have to undergo training in professional skills for a period of one year. This training can  - 14 - only be undertaken at the Law Development Centre (LDC) which limits its intake of students to sixty per year. Over the years, LDC's ability to provide legal training has deteriorated considerably. As LDC has struggled to meet its statutory obligations for pre-service training and law research and reporting, it has been unable to dedicate any significant level of resources to Continuing Legal Education (CLE) for the profession. This situation has been exacerbated by the absence of any mandatory requirements for CLE for lawyers as a requirement to maintain their ability to continue in practice. In order to ensure that these needs are satisfactorily addressed, a substantial change in the delivery of legal education and training in Uganda is required. As a first step, the project is funding a study to evaluate the existing status of legal education in Uganda with a view to finding ways and means of making it more relevant and responsive to the changing conditions in the country. Taking into account the findings of this study, GOU will adopt a satisfactory policy on legal education. GOU furnishing a statement defining its Policy on Legal Education is a condition of disbursement for the legal sector component. 2.19 Law Revision and Reform in Uganda. These are two related activities which are separate but have several linkages. Law revision is the process of consolidating various Laws of Uganda into a series of volumes with the objective of making these Laws readily available to various participants in the legal process. Law reform is the amendment of specific laws from the perspective of modernizing these laws within the socio-economic context prevalent in Uganda and removing impediments to Government's stated objective of making the private sector the focal point for growth in the economy. The Law Revision exercise would be undertaken through parallel donor financing (USAID to fund the consolidation of laws and ODA to fund the printing of the laws). This component would focus upon law reform to assist in Private Sector Development. The prioritization of laws requiring reform was undertaken; the private sector was consulted through a one-day workshop which was held in Kampala in October 1994. The prioritized list of laws identified for reform during the period of project implementation was subsequently agreed with IDA. The necessary draft laws are to be prepared, published as bills and submitted for the legislature's consideration by July 1996. Assistance would also be given to reform of the Domestic Relations laws which primarily impact on the rights of women and have bearing on the position and treatment of women within society and their ability to engage independently in constructive commercial/economic activity. The draft Domestic Relations Bill is to be presented to the legislature for consideration by December 1996. 2.20 Law Reporting. The Ugandan legal system is based on common law which has a legal theory that is deeply rooted in the precedent system. In the past, there has been no systematic law reporting which has handicapped advocates, prosecutors and judges who require readily available information on precedents in order to perform their duties. The main series of Uganda Law Reports is presently out of production; the backlog dates back to 1958 although between 1971-1973 three volumes were produced which are also currently out of print. In the absence of funding to produce the law reports, a shorter abstract of the decisions made by the Supreme and High Courts is currently being published; even this is out of date with its last edition having been published in 1991. The preparation and publication of Law Reports would be supported by the project and the backlog of over three decades would be removed. 2.21 Institutional Strengthening of MJCA and Judiciary. The institutional weaknesses besetting the administration of justice result in delays in the handling of cases thus causing backlogs at all levels of the courts. The waiting period for a case awaiting disposal ranges from two to six years. Record keeping and retrieval of files is entirely manual and inefficiently organized such that it takes a number of days in some instances, to locate the right file. For private sector development,  - 15 - speed, transparency and consistency is required in the disposal of commercial litigation in addition to the modernization of laws. Institutional strengthening would be undertaken by providing: substantial staff training, access to legal information, i.e. law books, updated and revised Laws of Uganda and the latest case law as embodied in the Uganda Law Reports, and increased access to inputs necessary to accomplish the job. 2.22 Improving Service Delivery and Increasing Cost Recovery for Legal Sector Services. There are certain services provided by the MJCA where there is potential to improve service delivery and increase cost recovery thereby increasing resources available to the legal sector. The project would commence with two departments where this is immediately feasible, i.e. the Administrator-General's Department (AG) and the Registrar-General's Department (RG). The AG's Department is charged with administering deceased persons' and insolvent estates, and also acts as a Public Trustee for minors and legally incapacitated persons. The RG's Department is responsible for registering all businesses and companies, births, deaths, etc, and intellectual property such as patents, copyrights and trademarks. Based on the Ministerial Review for the MJCA, Government has decided to devolve both departments from the Ministry and to establish them as separate entities. Both departments partially recover the cost of service provision; the AG recovers a fee of 1 % at the time of the distribution of funds from the estate and the RG charges for services although a substantial portion of its revenue is attributable to stamp duty. Both departments have seen their workload increasing; current revenue generation consists of 913 million U Sh in 1993 for the AG's Department and 486 million U Sh for the RG's Department. 2.23 There is considerable scope to improve service delivery in both Departments especially outside Kampala which would in turn affect both timeliness and quality of services at the district level. Studies are underway for both departments to assist in (a) preparation of Business Plans; and (b) determination of appropriate cost recovery measures for both departments. For both the offices of the Administrator-General and the Registrar-General, the provision of satisfactory business plans covering at least thefirst three years of operation are a condition of disbursement. 2.24 A detailed description of the Legal Sector Reform component is provided in Annex 9. Accountancy Strengthening Component 2.25 GOU having undertaken the preliminary steps necessary for the establishment of the Governing Council of the ICPAU, the Institute can now proceed to undertake some important steps to determine the future course of development of the profession. Consequently, the conditions of disbursement for the Accountancy Strengthening component, would be: (a) appointment of the Secretary of the ICPA U; (b) the Council of the ICPA U furnishing to IDA a satisfactory business plan covering at least the first three years of operation; and (c) GO U and the ICPA U concluding a Subsidiary Grant Agreement. 2.26 The component would be implemented and would support the accountancy profession by: (a) assisting the Institute of Certified Public Accountants to commence operations and fulfil the following functions: managing membership of its professional and student base, ensuring the maintenance of professional standards amongst members, promoting the usage of internally accepted accounting and auditing standards in Uganda and securing  - 16 - international recognition of the Institute. The accounting and auditing standards are to be completely published by June 1998. (b) developing a local professional qualification and associated examination. This would include design of a scheme of examinations, with detailed examination syllabi and reading lists, and preparation and moderation of examination papers. It is expected that the first intake of students will commence by September 1996 and the first examinations will be held by June 1997. (c) commencing the process of providing Continuing Professional Education and traiiing to members of the profession. A detailed description of the Accountancy Strengthening component is provided in Annex 10. Training Funds Component 2.27 This component will pilot a system to strengthen: implementation skills in the public and private sectors; and public and private sector training institutions through the provision of limited assistance on a competitive basis. The component will consist of two Training Funds which would be managed by the Capacity Building Secretariat (CBS) in the MFEP: (a) The Public Sector and Private Sector Matching Grant Fund (Fund I). This fund would provide matching grants to public and private sector institutions for training of their staff. For Central Ministries and Districts, Fund I would provide 90% of the resources with 10% of the resources being provided by the Government entities; actual cost funded by government entities would be higher since travel and subsistence allowances paid to trainees during training would not be funded under this component. ' Private sector organizations would access Fund I through trade/industry associations; the cost sharing arrangement would be 50% of the costs of training to be provided by the private sector and 50% to be provided by Fund I. The fund would acquire training needs through a transparent and competitive bidding process which will allow all local training institutions, both publicly funded and private, to participate in service delivery. (b) TAe Training Suppliers ' Strengthening Matching Grant Fund (Fund II) would be available to selectively identified weak training suppliers which have potential and which would be assisted in improving their service delivery capacity. Each training supplier could receive assistance for staff training (up to 90 per cent of cost), acquisition of training related study materials and books (up to 50 per cent of cost) and equipment (up to 25 percent of cost). The assistance to each institution would not exceed US$25,000. 2.28 The CBS will also manage a component of the EFM Project (Assistance to the Economic Recovery Program) which has been used largely to acquire critical training needs within Government. This program has been successful and funds have been drawn down at a rate faster It is important to note that some Government ministries and districts would receive separate training under other components which is required for the successful implementation of those components. If such Central ministries or districts require additional training, they can participate under this Fund on the prescribed cost sharing basis.  - 17 - than projected at the appraisal of the EFM Project. The proposed project provides additional funds to finance the program through the end of financial year 1998. 2.29 Phasing of Implementation. Implementation is phased because the CBS which will manage this component and also be responsible for project administration (para. 2.44) will have to be rebuilt. Though it has been in existence from 1991, it has been an ad hoc body and its members have full time duties elsewhere. The process has commenced with GOU appointing its Task Manager for the project as the Head of the CBS. The recruitment process for the group managing the Training Funds component (i.e. a Component Manager and a Senior Training Officer) is also underway. Once appointed, the staff will familiarize themselves with the training processes during a pre-operational phase, i.e. before the component begins disbursing funds. The CBS staff will work closely with the Ministries of Public Service and/or Local Government as these Ministries procure two rounds of training for the Central Government or Local Government Capacity Building components using the demand based procedures to be used under the component. The CBS will then use this experience by managing one round of procurement of training for the Legal Sector Reform or Accountancy Strengthening components. At the same time, the Training Fund implementation guidelines would be reviewed based on the experience in Uganda and other African countries where similar approaches are being attempted. 2.30 Consequently, the condition of disbursement for the Training Funds Component would be agreement between GOU and IDA that: (a) the CBS staff have demonstrated capability to implement the Training Funds component through (i) participation in the procurement of at least two rounds of training under the Central or Local Government Capacity Building components and (ii) satisfactory management of at least one round of training under the Legal Sector Reform or Accountancy Strengthening components; and (b) the detailed guidelines in the Implementation Manual pertaining to the implementation of the Training Funds component would have been reviewed and, if warranted by the review, amended in the light of experience. It is expected that, based on the projected schedule for hiring and training the Training Fund Component staff, that the component would meet its condition of disbursement no later than July 1, 1996, i.e. about one year after project effectiveness. Assurances were also received at negotiations that a special review of the operations of the Training Funds component would be undertaken after the end of thefirst year of operation of that component. 2.31 A detailed description of the Training Funds component is provided in Annex 11. D. Participatory Approach to Project Preparation 2.32 The involvement of the Ugandan counterparts in all aspects of project processing has been an integral part of the capacity building envisaged under the project. The involvement began upstream; the sector work was prepared by GOU, IDA and other interested donors in a collaborative manner. Subsequently, IDA also financed GOU's activities related to the establishment of the Capacity Building Secretariat and the preparation of the Capacity Building Plan. Upon the commencement of project preparation, GOU appointed a team (headed by a Task Manager) which has been responsible for all aspects of project preparation and which will also be responsible for project implementation. The GOU team has representatives from all the Ministries involved in the project (i.e. Ministries of Finance and Economic Planning; Public Service; Local Government; and Justice and Constitutional Affairs) and from the Institute of Certified Public Accountants of Uganda. Appraisal commenced with the arrival of this team in Washington D.C. in June 1994 and was completed with the visit of the IDA project team to Uganda in August 1994.  - 18 - The Ugandan team, having been substantially involved in the preparation of the Yellow Cover Staff Appraisal Report, participated in the Bank's (Yellow Cover) Review Meeting held in November 1994. E. Project Cost and Financing Plan 2.33 The program cost is estimated at US$42.19 million equivalent (U Sh 38.99 billion) inclusive of US$1.85 million of taxes and duties, out of which the proposed credit would finance US$36.35 million equivalent. The foreign exchange component of the program is estimated at 44% of the total cost. Base cost estimates, US$36.29 million are in August 1994 prices. Physical contingencies on the project are estimated at US$2.91 million (8% of project costs). Price contingencies are estimated at US$2.99 million (8% of project costs); for foreign costs, the Unit Value Index of Manufactured Exports (MUV Index) of 2.2 per cent has been utilized and for local costs, projected local inflation rates have been utilized. The project is expected to be completed by June 30, 2000 and close by December 31, 2000. 2.34 A summary of estimated costs is presented in the following table: Table 1: Project Cost Summary (in US$ million) Component Local Foreign Total % Foreign Central Government Capacity Building 3.69 2.93 6.62 44% Local Government Capacity Building 6.89 5.85 12.74 46% Legal Sector Reform 2.74 5.49 8.24 67% Accountancy Strengthening 0.62 0.36 0.98 37% Training Funds 5.31 1.71 7.02 24% PPF Refinancing 0.35 0.15 0.50 30% SPPF Refinancing 0.19 - 0.19 - Total BASELINE COSTS 19.80 16.49 36.29 45% Physical Contingencies 1.43 1.49 2.91 51% Price Contingencies 2.45 0.54 2.99 18% Total PROJECT COSTS 23.67 18.52 42.19 44% Note: Figures may not add due to rounding. 2.35 Government Counterpart Funds. The proposed IDA credit of US$36.35 million equivalent will finance 90% of project costs net of duties and taxes over a four-year period. The local contribution made by Government will be for an estimated amount of US$4.88 million.  - 19 - 2.36 As part of a Public Expenditure Review process which commenced in 1992, Government has been classifying all development projects into core and non-core categories. Core projects are expected to receive full funding for the estimated local counterpart contributions on a monthly basis. Over the last two years, this system has worked well. In FY94, for example, core projects received on average 93 % of their local counterpart funds. Since the proposed project is expected to be classified in the core category due to its priority nature, it is expected to receive its budgeted local funds in their entirety. At negotiations, assurances were received that GOU would establish project accounts into which it would make the required local cost contributions to the project through its established system of monthly release of-funds. GOU depositing the Uganda Shilling equivalent of US$50,000 into the project accounts is a condition of credit effectiveness. 2.37 Private Sector Contribution. The private sector will participate in the financing of the project in the training component. Under Fund I, private sector institutions receiving training for their employees will contribute 50% of the cost of the training. Under Fund II, institutions receiving strengthening will fund 10 per cent of training of trainers, 50 per cent of study materials and books and 75 per cent of cost of equipment. The private sector will contribute US$0.96 million of financing towards the project. 2.38 Parallel Financing. There are several donor initiatives which will run parallel to this project and for which close coordination is being undertaken. DANIDA has projects which support the Government's decentralization program and also a project to provide support to the judiciary. ODA has programs supporting the judiciary, records management in the Central Government and is committed to funding printing of the Revised Laws of Uganda. UNDP will finance some elements of the Civil Service Reform Program and is preparing a project for building capacity of Community Based Groups. USAID plans to finance the law revision activities which will constitute preparation of the Revised Laws of Uganda. 2.39 The proposed financing plan is set out in the following table: Table 2: Financing Plan (in US$ million) US$ m IDA 36.35 GOU 4.88 Private Sector 0.96 Total 42.19 F. Project Implementation 2.40 The primary modality for implementation is to utilize existing government staff and structures. Where external assistance would be sought, the first recourse would be to the local consulting industry. If an assessment were made that the domestic capability was not available to  - 20 - implement the project, international firms would be invited to participate in project implementation, preferably in a consortium with a domestic firm. 2.41 Overall Coordination, Administration and Supervision. The overall management structure for implementation and supervision of the project is shown in Annex 6. Coordination and supervision of project components will be the responsibility of the Project Steering Committee (PSC). The PSC which is to be established within sixty days after credit effectiveness, will be chaired by the Permanent Secretary/Secretary to the Treasury and also consist of the Permanent Secretary, Ministry of Local Government; Permanent Secretary/Solicitor General; Secretary to the Administrative Reform Commission, Ministry of Public Service; and the President of the Institute of Certified Public Accountants of Uganda. A Technical Committee, which has been established for project preparation, will continue to be responsible for project implementation and will report to the Project Steering Committee. The Technical Committee would be chaired by the GOU Task Manager and its membership would consist of the Component Managers for all five components. The Capacity Building Secretariat will be the unit supporting the Technical Committee. 2.42 The project administration structure closely mirrors existing structures within Government. Hence, the staff in MPS involved with the Civil Service Reform program would manage the Central Government Capacity Building component and those involved with the Decentralization Program in the MLG would manage the Local Government Capacity Building component. For the Training Funds and Accountancy Strengthening components, existing staff and structures are utilized but, taking into account their current lack of capacity, the project undertakes to strengthen these further. The Legal Sector Reform component is the only one where a coordinating mechanism is being created in the Ministry of Justice and Constitutional Affairs to undertake the substantive management and coordination of assistance being provided to various entities in the legal sector. 2.43 Each component will have a Component Manager who will be responsible for supervising the substantive aspects of the project. To help the Component Managers and the Project Office fulfil their roles effectively, a draft Implementation Manual was prepared as part of the appraisal process and the initial draft of the Implementation Manual for the project including Action Plans for all components were received by IDA prior to negotiations. The receipt by IDA of a revised draft of the Implementation Manual including Action Plans for all components was a condition of Board presentation. The receipt by IDA of thefinal satisfactory Implementation Manual and Action Plans for all components for thefirst year of the project is a condition of credit effectiveness. This Manual would contain: all agreed task (including TORs, procurement items and training needed to implement the tasks) and procurement, consultancy and training procedures; implementation timetables; and formats for quarterly reporting and annual work plans/programs. Assurances were received at negotiations that the project would be carried out in accordance with the Implementation Manual, satisfactory to IDA, including Action Plans for all components. Assurances were also received that, commencing from the second year of project imnplementation, the Action Plans would be refined and submitted to IDA as annual work plans (including training plans) no later than the first dav of April preceding the financial year covered in the work plan. 2.44 The CBS will have a dual role in the project. It will manage the Training Funds component and will also act as the main project office for the project. The Project Office for the Economic and Financial Management Project will be integrated into the CBS and will provide the administrative support for the project. Given that this office has successfully dealt with three IDA projects over the last several years it has a substantial base of knowledge regarding IDA's  - 21 - procurement and disbursement procedures that will allow project implementation to have an almost negligible start-up learning curve. A Project Administration group has been established within the Ministry of Local Government and is undergoing training with the objective of developing a capacity within that Ministry to manage future district level projects including the proposed IDA District Development Project (FY97), and to disseminate good procurement practices in the districts. This group would be twinned with the CBS Project Office and it would learn through on-the-job training; it would initially undertake project administration functions under the guidance of the main (i.e. CBS) Project Office and subsequently undertake these independently. A consistent overall approach will be followed to ensure that project records and accounts are maintained and audited in a consolidated manner. 2.45 In line with ensuring appropriate integration among projects, IDA supervision for both the ICB and the EFM Projects will be undertaken by the same Task Manager. The Task Manager will be supported by a multi-disciplinary team in supervising the project. The Resident Mission would be involved in project supervision on an as needed basis at the request of the IDA or GOU Task Managers for the project. Further, during one of the two yearly supervision missions, a donor coordination meeting would be organized by GOU and would be attended by IDA and donors to review the progress of the project. 2.46 The administrative activities to be supported under the project would be largely in the CBS and the Project Office of the MLG; some activities would be supported in the rest of the components. The main administrative responsibilities to be handled by the CBS or the MLG Project office, as appropriate, in consultation with the component managers would be: (a) recruitment and employment of consultants, individuals as well as firms, as requested by component managers; (b) procurement of goods, computers, vehicles, office equipment; (c) management of project accounts and special accounts, including preparation and presentation of withdrawal and replenishment applications for the credit proceeds. In addition, the GOU Task Manager would: (a) ensure that quarterly reports are prepared by the component managers, discussed by the Technical Committee, and then forwarded to IDA; (b) provide assistance to component managers for the preparation of yearly work plans; and (c) manage the secretariat function for the Technical and Steering Commnittees. G. Procurement 2.47 Procurement would be undertaken by the main project office in the CBS and the program office which has been established in MLG as discussed in para. 2.44. There is sufficient capacity to undertake procurement in the CBS project office which will include staff currently administering the EFM project and who had earlier been involved with implementation of two other IDA financed Technical Assistance projects in Uganda (the Second and Third Technical Assistance Projects). 2.48 The following civil works, goods, works and services would be procured: (a) under the Central Government Capacity building component, the major services procured would be short- term consultancies and in-country training. Office equipment would be procured and the National Records Center would be constructed and furbished with appropriate records management equipment; (b) under the Local Government Capacity building component, major services procured would be for in-country training and some consultancy studies, minor refurbishment of district administration offices would be undertaken and vehicles and office equipment and furnishings provided to local governments; (c) under the Legal Sector Reform component, major services  - 22 - procured would be for preparation of the Law Reports and Law Reform activities. Vehicles and office equipment would also be provided to the MJCA and the Judiciary; (d) under the Accountancy Strengthening component, major services procured would be a twinning arrangement with another Accountancy Association and training for members; (e) under the Training Funds component, major services procured would be training from local suppliers. Equipment and training materials would also be acquired through the Training Supplier Strengthening Fund. 2.49 Bank Group Guidelines would be followed for procurement of goods and consultants and experts for technical assistance. Specifically: (a) Prior Review. All consulting contracts with firms and procurement of civil works and goods over US$50,000 would be subject to prior review. Consulting contracts with individuals would be subject to prior review over US$30,000. (b) Method of Procurement (i) Contracts for computers, vehicles and office equipment would be combined into minimum packages of US$100,000 and awarded on the basis of international competitive bidding, in accordance with World Bank guidelines. (ii) Items which cannot be grouped as above valuing less than US$100,000 will be procured by local competitive bidding. For civil works, the aggregate amounts thus procured would be less than US$1,370,000; for goods, the aggregate amounts would be less than US$550,000; and for printing, the aggregate amounts would be less than US$660,000. (iii) Local shopping (i.e. contracts awarded on the basis of a comparison of price quotations obtained from at least three suppliers) would be undertaken for items or groups of items for goods estimated to cost the equivalent of US$25,000 or less per contract. For goods thus procured, the aggregate amounts would be less than US$240,000 and for printing, the aggregate amounts thus procured would be less than US$740,000. (iv) All International Competitive Bidding and contracts for internationally recruited consultants will follow the Bank's standard bidding and contracting procedures. (c) Procurement of training services under the Training Funds component would follow IDA's consultant guidelines. Details are provided in Annex 11. In order to ensure that actions on procurement and consultancy activities are advanced at the time of credit effectiveness, draft bidding documents and Letters of Invitation for all major contracts for thefirst year's program were provided as a condition of Board presentation. Assurances were also provided at negotiations that standard procurement/consultancy recruitment processing timetables and documents would be utilized during project implementation. The Table overleaf sunmmarizes the major types of procurement to be undertaken in the project.  - 23 - Table 3: Procurement (in US$ nillion) Procurement Method Project Element ICB LCB Other Total Civil Works 1.41 1.37 2.78 (1.22) (1.18) (2.40) Goods 9.67 0.55 0.24 10.46 (9.20) (0.55) (0.24) (9.99) Printing 0.66 0.74 1.40 (0.33) (0.37) (0.70) Consultancy Services and Training Technical Assistance: International 3.06 3.06 (3.06) (3.06) Local 6.45 6.45 (6.45) (6.45) Training: International 2.53 2.53 (2.53) (2.53) Local 12.02 12.02 (10.39) (10.39) Operating Costs 3.49 3.49 (0.83) (0.83) Total 11.08 2.58 28.53 42.19 (10.42) (2.06) (23.87) (36.35) Note: Figures in parenthesis are the respective amounts financed by IDA; figures may not add due to rounding. H. Disbursements 2.50 The proposed credit will fund: (a) 90 per cent of costs for civil works; (b) 100 per cent of foreign and 90 per cent of local costs for goods except under the Training Funds component where: (i) 50 per cent of the cost of training materials and books acquired under Fund II; and (ii) 25 per cent of the cost of equipment acquired under Fund II would be financed; (c) 100 per cent of foreign and 95 percent of local costs under consultancy services and training except under the Training Funds component where: (i) for public sector training  - 24 - acquired under Fund I and staff training under Fund II, 90 per cent of costs would be financed; (ii) for private sector training under Fund 1, 50 per cent of costs would be financed; (d) 50 per cent of costs for printing; and (e) 20 per cent of foreign and local costs for project staff operating costs and other operating costs. 2.51 The Standard Disbursement Profile for Technical Assistance credits is for a period of seven years. The experience with the management of Technical Assistance projects in Uganda shows a shorter disbursement profile which has been utilized for the proposed project. The Third Technical Assistance Project disbursed in slightly over five years thereby being fully disbursed two years ahead of the project closing date. The Economic and Financial Management Project has disbursed 43% of the credit proceeds during the first two years of project implementation. The proposed project finances activities which are to be implemented largely within the first three years of project implementation. Hence, the five year disbursement schedule presented in the Table below consists of a conservative projection of disbursement patterns. Table 4: Estimated Disbursement Schedule (in US$ million) IDA FY 1995/96 1996/97 1997/98 1998/99 1999/2000 12000/01 1st 2nd 1st 2nd 1st 2nd 1st 2nd 1st 2nd 1st Sem Sem Sem Sem Sem Sem Sem Sem Sem Sem Sem Per period 2.00 2.73 2.73 3.63 5.45 5.45 5.45 3.63 3.63 1.00 0.65 Cumulative 2.00 4.73 7.46 11.09 16.54 21.99 27.44 31.07 34.70 35.70 36.35 I. Accounting, Auditing and Reporting 2.52 Management of Project Funds. Funds for the smooth operation of the project would be managed through several types of accounts as described below: (a) Two Special Accounts would be established in US dollars in a commercial bank in Kampala, on terms and conditions acceptable to IDA as follows: (i) One Special Account of US$1,000,000 would support activities for all components other than the Local Government Capacity Building component. Funds from this Account could be advanced to two other Accounts for the use of the Ministry of Public Service and the Ministry of Justice and Constitutional Affairs, both of which are likely to have operational expenses that would necessitate quick access to funds. The two Ministries would provide an accounting of expenditures on a monthly basis in order to facilitate the monthly requests for replenishment of the main Special Account. This procedure is already in use between the EFM Project Office and the Ministry of Public Service.  - 25 - (ii) One Special Account of US$500,000 would support activities for the Local Government Capacity Building component. (iii) The Special Accounts would be replenished on the basis of monthly withdrawal requests covering aggregated monthly expenditures. Payments of less than US$50,000 for works and goods contracts and for consultancy contracts with firms and payments of less than US$30,000 for consultancy contracts with individuals would be documented through statements of expenditure, with the underlying documentation available for inspection by IDA supervision missions. (b) Government's local contributions to the project costs would be made into four project accounts established at a local commercial bank. (c) In order to ensure clear responsibilities for funds management, funds accessed directly from the IDA Credit would be withdrawn and managed only by the main project office in the CBS. (d) Funds from both IDA and GOU would be managed to cover project expenditures in accordance with the Development Credit Agreement (DCA) disbursement categories and the percentage of reimbursement. 2.53 The Implementation Manual contains details regarding the methodology to be observed in maintaining project accounts. The form of the audit and the Terms of Reference for annual financial (and operational) audits by independent auditors, satisfactory to IDA are also included. At negotiations, assurances were received that financial and operational audits would be undertaken annually during project implementation; the format of the audit report would be satisfactory to IDA; and audited accounts would be submitted to IDA within six months of the close of the financial year. 2.54 Reporting. Reports on project implementation, summarizing progress achieved, difficulties encountered and changes and adjustments to be made would be submitted quarterly by each participating agency to the Chairperson of the Technical Committee, through the Capacity Building Secretariat. The Committee would meet at least once a quarter to review progress, make appropriate decisions and assign responsibilities for any needed follow up action. The agenda and the minutes of the meetings would be the responsibility of the GOU Task Manager and would be transmitted to IDA, each quarter, after appropriate internal clearances, to assist with project supervision. The Annual Work Program for the next FY and the Annual Report on Project Performance for the previous FY would be considered by the Project Steering Committee, after endorsement by the Technical Committee. The Project Steering Committee would meet at least once every year and endorse/approve the reports prior to onward transmission to IDA. A final implementation completion report would be prepared by GOU during the final semester preceding project completion. 2.55 Reviews. At negotiations, assurances were received that GOU and IDA would jointly conduct a mid-term review for the project within 18 months after project effectiveness but not later than December 1996.  - 26 - J. Supervision Plan 2.56 The resources required for supervision will tend to be above average since a multi- disciplinary team (consisting of, in addition to the Task Manager, a public sector management specialist, a local govermnent finance specialist, an accountant, a lawyer and a training specialist) would be required. As shown in Annex 5, staff (including consultant) input will be needed for approximately twenty four person weeks in the field per annum. At headquarters, upfront effort will be required which will diminish over the life of the project; approximately an additional twenty four weeks will be required at Headquarters during the first year of project implementation, diminishing to eighteen weeks in the second year and reducing further to twelve weeks thereafter. K. Environmental Impact 2.57 The project objectives and implementation will have no direct impact on the environment. Minor civil works to be undertaken under the project will consist of building refurbishment. L. Benefits and Risks 2.58. Sustainability. The project has been designed to support the key elements of Government's reform agenda (i.e. civil service reform, decentralization and private sector development) and the project components consequently are all considered necessary and have linkages between them. GOU has prepared a Letter of Policy with regard to the various sectors being assisted under the project which summarizes the above policy and legal framework (Annex 1). The receipt of a draft Letter of Policy containing GOU'sproposedpoliciesfor the sectors being covered under the project was a condition of negotiation and receipt of the final Letter of Policy was a condition of Board presentation. The overarching policy framework within which the project is set is the GOU Policy on Technical Assistance and the GOU Capacity Building Plan. Further: (a) the Central Government Capacity Building component supports GOU's Civil Service Reform program which was defined by the PSRRC and for which an administrative structure has been in place for a few years now; (b) the Local Government Capacity Building component supports GOU's decentralization program as enacted in the Local Governments (Resistance Councils) Statute of November 1993 and for which also an administrative structure is in place; and (c) the Accountancy Strengthening component supports implementation of the Accountants Statute of 1992. The project activities are also expected to be financially sustainable. In the Central Government component, the project will assist in further rationalizing of the staffing complement and assist in developing new policies for non-staffing operational expenditures. For the Local Government component, the project will improve resource mobilization and management. In the Legal Sector component, cost recovery for the Administrator-General and Registrar-General will be an area of focus. For the Training Funds component, which is a pilot program, financial sustainability would need to be addressed at a later stage if the concept is successful in implementation. 2.59 Benefits. The project is expected to provide the following sustainable benefits. In the area of public administration, the project would begin to focus the civil service on service delivery and measurement of outputs provided to the public at large. There would also be increased transparency in salary administration and increased accountability. The project would begin the process of redressing the critical skill shortages in the accountancy and legal areas. These changes, and those that will result from improvements in the commercial code and the operation of the Judiciary should provide a stronger base for private sector development. Additionally, the  - 27 - emphasis on implementation skills and increased service delivery at the district/rural level, should have a long term beneficial impact on the poor. 2.60 Risks. The underlying assumptions/risks are: (a) GOU's reform agenda will remain unchanged in the medium-term and that the project is sustainable since it supports and is consistent with GOU policy and legal frameworks for the sectors concerned; and (b) other measures being undertaken outside of this project to support the CSR program will continue (i.e. the move towards the Minimum Living Wage and the voluntary and involuntary retrenchment programs which have been supported by donors). Other risks relate to decentralization which will relieve pressures on limited capacities in the Central Government in the medium-term but in the short-term will exacerbate pressures on the Central Government agencies implementing the reform. Finally, while the disputes in the accountancy profession have been sorted out prior to commencement of the project, some risks remain that a future recurrence may delay implementation of that component. 2.61 The project includes a considered program for mitigating some risks and maintaining active supervision to redress problems should any of the considered risks arise. First, in recognition of the fact that the decentralization agenda is substantial and evolving, provision has been made for a flexible approach to providing consultancy support for specific activities and also for acquiring expert assistance on an as-and-when-needed-basis for the entire life of the credit. Second, implementation risks would be monitored by the GOU team which has sufficient capacity to address emerging issues. The project administration staff and staff involved with implementation of two of the largest components have had previous experience dealing with IDA projects. Third, IDA staff will maintain close liaison through a multi-disciplinary team which would be used to supervise the project and Resident Mission staff would also be involved in project supervision on an as-needed basis at the request of the IDA or GOU Task Managers for the project.  - 28 - III. AGREEMENTS REACHED AND RECOMMENDATION A. Events occurring before Appraisal 3.1 The following events occurred before appraisal: (a) appointment of GOU's Task Manager and Task Team for the project (para. 2.32). B. Events prior to Negotiations 3.2 The following events preceded negotiations: (a) amendment of Accountants Statute 1992 to remove three bodies, i.e. Association of International Accountants of UK, the Institute of Chartered Managers and Administrators (ICMA) and Institute of Chartered Secretaries and Administrators (ICSA) from the Fifth Schedule of the Statute and from the full membership category, holding of the first Annual General Meeting of the Institute of the Certified Public Accountants of Uganda and the election of the Institute's Governing Council (para. 1.23); (b) receipt of a draft Policy Letter containing GOU's proposed policies for the sectors being covered under the project (para. 2.58); and (c) receipt of the initial draft of the Implementation Manual including Action Plans for all componeints (para. 2.43). C. Assurances at Negotiations 3.3 Assurances were received during negotiations that: (a) the project would be carried out in accordance with a comprehensive Implementation Manual, satisfactory to IDA, including Action Plans for all components. Commencing from the second year of project implementation, the Action Plans would be refined and submitted to IDA as annual work plans (including training plans) no later than the first of April preceding the financial year covered in the work plan (para. 2.43); (b) GOU would establish project accounts into which it would make the required local cost contributions to the project through its established system of monthly release of funds (para. 2.36); (c) financial and operational audits would be undertaken annually during project implementation; the format of the audit report would be satisfactory to IDA; and audited accounts would be submitted to IDA within six months of the close of the financial year (para. 2.53);  - 29 - (d) GOU and IDA would jointly conduct a mid-term review for the project within 18 months after project effectiveness but not later than December 1996 (para. 2.55); (e) a special review of the operations of the Training Funds component would be undertaken after the end of the first year of operation of that component (para. 2.30); and (f) standard procurement/consultancy recruitment processing timetables would be utilized during project implementation (para. 2.49). D. Conditions of Board Presentation 3.4 The following were the conditions of Board presentation: (a) the receipt of a Policy Letter containing GOU's policies for the sectors being covered under the project (para 2.58); (b) the receipt of a revised draft Implementation Manual for the project including Action Plans for all components (para. 2.43); and (c) receipt of draft bidding documents and Letters of Invitation for all major contracts for the first year's program (para. 2.49). E. Conditions of Credit Effectiveness 3.5 The following are the conditions of credit effectiveness: (a) GOU depositing the Uganda Shilling equivalent of US$50,000 into the project accounts (para. 2.36); and (b) GOU providing to IDA the final satisfactory Implementation Manual for the project including Action Plans for all components for the first year of project implementation (para. 2.43). F. Conditions of Disbursement 3.6 The following are the conditions of disbursement: (a) for the entire legal sector component: GOU furnishing to IDA a statement defining its Policy on Legal Education (para. 2.18); (b) for the office of the Administrator-General: GOU furnishing to IDA a satisfactory business plan covering at least the first three years of operation (para. 2.23); (c) for the office of the Registrar-General: GOU furnishing to IDA a satisfactory business plan covering at least the first three years of operation (para. 2.23);  - 30 - (d) for the Training Funds component - agreement between GOU and IDA that: (i) the CBS staff have demonstrated capability to implement the Training Funds component through (1) participation in the preparation and implementation of at least two rounds of training under the Central or Local Government Capacity Building components; and (2) satisfactory management of at least one round of training under the Legal Sector Reform or Accountancy Strengthening components; and (ii) the detailed guidelines in the Implementation Manual pertaining to the implementation of the Training Fund component have been reviewed and, if warranted by the review, amended in the light of experience (para. 2.30); (e) for the Accountancy component: (i) appointment of the Secretary of the ICPAU; (ii) the Council of the ICPAU would have furnished to IDA a satisfactory business plan covering at least the first three years of operation; and (iii) GOU and the ICPAU have concluded the Subsidiary Grant Agreement (para. 2.25). G. Recommendation 3.7 Subject to the above conditions, the proposed project is suitable for a credit of SDR 25 million or US$36.4 million to the Republic of Uganda on standard IDA terms.  - 31 - Annex 1 Page 1 of 7 Telephones: Minister: Ministry of Finance and Kampala 243054 & 232370 Office: g<t ~~~~~~~~~~Economic Planning, 0O lice: Kampala 234700=9 (10 L.nes) P.O. Box 7086 Telex: 61170 Kampala Telegrams: 'FiNSEC.- Uganda. In any c_rrespondence on thissu/ie le * / t L THE REPUBLIC OF UGANDA January 24, 1995 Mr E.V.K. Jaycox 'n 30i5- Vice President D, t- Washington D.C., USA rn 53 Fax 202 477 6391 >r . Dear Mr Vice President _ Letter of Policy on Indigenous Capacity Buildct ( i=. I am writing on behalf of the Government of the Republic of Uganda to indicate Government's policy on indigenous institutional capacity building in support of developing and implementing public policy decisions and enhancing the growth of the private sector. This letter also describes the actions that Government will undertake to implement the proposed Institutional Capacity Building Project (ICBP). 2. I am very grateful for your initiative to bring both donors and Sub Saharan African (SSA) Governments to focus on the urgent need to address the issue of indigenous capacity building more seriously and with a new approach. I am also happy to note that in the spirit of your initiative, the process of preparing the ICBP has been used to develop capacity for project design, understanding of IDA's process for reviewing project design and significant project ownership among the implementing agencies. I believe the process has been extremely beneficial for us and look forward to other IDA projects in Uganda being developed in a similar participatory manner. Background 3. As you are aware, since May 1987, Uganda has been undertaking macro-economic reforms. Simultaneously, several key structural reforms with considerable synergy have also been undertake i.e constitutional reform, civil service reform, decentralization to local governments, public enterprise reform and private sector development. All these activities have required considerable local capacity. Consequently, activities aimed at improving the cerformance of key economic management agencies and as well as support to the main educational institutions in the country, were undertaken although they have been going on only with limited success. In many cases, resort to foreign experts to fill existing 1  - 32 - Annex 1 Page 2 of 7 manpower gaps did not provide for adequate sustainability to ensure future availability of indigenous human resources and promotion of local initiatives. The technical assistance provided by donors in the past has not generated sufficient capacity to further develop, manage and implement Government policies and push private sector growth. Indeed the private sector was not targeted for such assistance and only benefitted from public sector human and institutional resource development by attracting the best manpower on account of better remuneration. 4. Capacity building in the civil service first began through the Civil Service Reform (CSR) program. Recognizing that the lack of capacity in Uganda could as much be attributed to the lack of sufficient remuneration and proper incentives as to the absence of skilled staff, we began an aggressive effort to increase remuneration in the Civil Service. We were constrained by the lack of revenues collected by Government and, of necessity, increasing salaries meant reducing the total complement of staff through rationalizing Ministerial structures. Even as the CSR program was being implemented, Uganda began a systemic evaluation of its approach to Technical Assistance and also began determining, in addition to the overall CSR program, the priority areas upon which we would need to focus. Overall Policy 5. Our efforts culminated in Uganda's Policy on Technical Assistance issued in May 1993 and the Capacity Building Plan prepared in February 1994. The major objectives of technical assistance in Uganda, as stated in the Technical Assistance Policy, which constitute the principles on which the ICB project was designed include: (a) the establishment or strengthening of both public and private institutions capable of implementing or facilitating implementation of Government's economic and development policies and strategies; (b) the development of human resources to produce a skilled labor force, to staff and manage these institutions; (c) the efficient use of both domestic and external financial and human resources to enhance prospects for development; (d) the reversal of the brain drain by mobilizing and motivating available national manpower; (e) the transfer of appropriate technology (f) the national execution of projects supplemented by the use of local consultants and expatriates; and (g) the extension of technical assistance to the private sector, including Non-Governmental Organizations. 6. To achieve the objectives listed in the Policy, a strategic approach for the development of local expertise and institutions is required including (a) provision of incentives to mobilize and encourage the development of national expertise. Such incentives would need to include financial packages and working tools and facilities (b) promotion of employment of national experts and consultants; (c) strengthening of the role of counterpart 2  Annex 1 - 33~ - Page 3 of 7 personnel; (d) allowing for the management and execution of project activities by Government and under existing government structures; and (e) provision for local staff development and training at national (public or private) training institutions and utilizing as much as possible local expertise. 7. The Uganda Capacity Building Plan identified areas requiring attention in a longer term capacity building action program, developed an overall institutional framework that will help in the implementation of the program and provided a guide to donors in their contributions towards capacity building initiatives. The priority areas identified for capacity building activities include: (a) policy formation/analysis in government, starting with economic policy; (b) manpower planning function and linking manpower planning to the training function; (c) the legal and judicial system; (d) role and contribution of women to policy development and management; (e) local management training institutions; (f) policy analysis outside Government; (g) the accountancy profession; (h) the local consulting profession; (i) technical and vocational education and industrial training capacity; (j) Non-Government Organizations in their role as capacity builders for Community Based Groups; and (k) the return of skilled expatriate Ugandans. 8. As noted above, both the Technical Assistance and the Capacity Building Plan emphasize the need to invest in creation of more domestic managerial, technical and analytical human resources for effective management of economic development in Uganda. We have maintained this focus in the proposed project's emphasis on increasing the country's ability to build its indigenous resources base. Institutional Capacity Building Project 9. A number of the priority areas identified in the Plan are already receiving attention from IDA and other donors. In preparing this project, special attention has been taken to avoid duplication of efforts with other donors and to exploit complementarity. Further, the project builds on the successful accomplishments of previous and ongoing IDA Technical Assistance projects (i.e the Second and Third Technical Assistance Projects and the ongoing Economic and Financial Management Project). The proposed project would address the areas of improving the efficiency and effectiveness of Government operations under Central and Local Governments, legal education and reform, strengthening the accountancy profession and implementation skills training. Strengthening Public Administration 10. The ongoing Civil Service Reform has arrested further decline in the management of the Uganda Civil Service which was caused by the past years of conflict and the attendant general mismanagement of the economy. While significant progress has been recorded, 3  34 - Annex 1 Page 4 of 7 several issues are yet to be dealt and these include (a) insufficient pay and benefits; (b)inadequate, personnel management; (c)an inadequate code of conduct for public officers; and (d) inadequate facility management and maintenance culture. 11. The project will continue support to the management of the Civil Service Reform Program, through strengthening of the central personnel management, records management, facility and asset management and introduction of Results Oriented Management (ROM) and performance recognition system, to improve on service delivery. In line with our current approach which was discussed earlier, we are committed to increasing remuneration to civil Service staff by containing and reducing the total number of Civil Service staff. We have reached agreement with IDA staff on the process to be used for setting annual targets for Civil Service staff for each of the fiscal years of project implementation, as part of the standard process for consultations with IDA on public expenditure, including the annual wage bill. These figures would be closely monitored and would be updated annually on a three year rolling basis. 12. We are committed to using the assistance received through the proposed project to further streamline the Civil Service, improve transparency and accountability and promote effective and efficient service delivery. In this regard we plan to: (a) implement a revised salary structure commencing from July 1996; (b) issue a Code of Conduct for all Civil Servants by July 1996 and monitor its implementation thereafter; (c) undertake annual measurement of Central and local Government outputs and service delivery commencing from July 1996 and introduce Results Oriented Management into our budgeting procedures for use from the 1996/97 budget cycle; and (d) introduce Facility Management Policy into our budgeting procedures for use from the 1997/98 budget cycle. 13. With decentralization, the Local Governments (Resistance Councils) Statute of November 1993 gave the responsibility for provision of most services to the local governments. However, it is already clear that the state of physical facilities and the inadequacy of the required skills would impede a successful transition of service delivery from central to district management. 14. The project will assist us in defining and implementing an appropriate system of inter-governmental finance. We plan to complete a study of the decentralization of the development budget by June 1996 and commence implementation of the decentralization of the development budget in a phased manner by July 1997. We also plan to complete a study to determine establishment of the District Development Fund by June 1996 and issue a position statement on the findings of the study by December 1996. 15. The project will also strengthen local government financial and personnel management structures, systems and procedures; improve service delivery through introduction of ROM to local 4  - 35 - Annex 1 Page 5 of 7 government and provide basic tools and facilities for the district administration offices. Due to the assistance received under the project, our local government will be able to: (a) prepare and have audited local government accounts within the six months time limit prescribed in Local Governments (Resistance Councils) Statute, 1993. This will be phased over time with thirteen districts commencing in March 1995, twenty seven districts commencing in March 1996 and for all districts commencing in March 1997; and (b) computerize their payrolls including for staff formerly employed by the Central Government. Initially (i.e. by July 1995) this would be achieved using Uganda Computer Services as an agent and from July 1996 onwards, would be undertaken by local government themselves with a completely decentralized payroll planned for June 1997. Legal Sector Reform 16. This area of public administration has a critical impact on private sector development. The flow of assistance to this sector has been highly limited and lacked good co-ordination. Uganda's legal system has been underpinned by largely outdated legislation, especially for laws regarding commerce, traffic and taxation, which affect business, industry and private sector development. There is an urgent need for modernization and for tackling the problem of inherent weaknesses in the major legal institutions which increases the difficulty of enforcement of these Laws. We have recently taken two key steps in this regards. First, we have significantly increased the remuneration of professional legal sector staff. Second, we have established the Law Reform Commission to commence the process of law reform. However, the sector continues to be subject to the problems of insufficient staffing (for paralegal and support staff), outdated office equipment and technology, the absence of pre or in-service training, archaic legislation, out of date law documents and the lack of office supplies. 17. The proposed project will strengthen the legal framework for private sector development, ensure availability of laws and legal decisions, strengthen major institutions in the legal sector and introduce improvements in legal education and training. A key area which we intend to address is the system of legal education. We plan to undertake a legal education study and to provide our positions statement on the findings of the study by July 1995. Further, with the support received form the project, we plan to.(a) by July 1996, publish as Bills (i.e. present to the legislature for approval) the laws to be reformed to provide an impetus to private sector development; and (b) by July 1998, publish the Law Reports for the period 1958-1995. IDA and Government have agreed on the laws to be reformed and in line with this agreement a comprehensive listing has been forwarded to Washington. Finally, we plan to pilot the introduction of cost recovery into the legal sector by increasing the level of revenues as a percentage of costs for the Departments of the Res:strar General and the Administrator General and Public Trustee. 5  - 36 - Annex 1 Accountancy Development Page 6 of 7 18. Government's commitment to sound financial management, full accountability, improved business ethics and improved tax compliance for the growing private sector have resulted in a very high demand for accountants and accounting technicians. Considering the small size of the accounting profession in Uganda, accounting jobs have been filled by staff with no formal accounting qualifications. 19. The 1992 Accountants Statute established the Institute of Certified Accountants of Uganda (ICPAU) to regulate the profession and maintain standards and the Public Accountants Examination Board (PAEB) to conduct accounting examinations. However, the Institute and the Board did not become operational for almost two years. We have recently taken steps which have assisted the ICPA in holding its first Annual General meeting and electing its Governing Council to which I have also appointed a member. 20. The project would support the development of the ICPAU, the establishment of a local professional qualification and examining capability and the introduction of local accounting standards. As a consequence of the support received under the project, the ICPAU will be able to: (a) have its first intake of students for the local professional accountancy examinations commencing by September 1996 and hold the first examinations by June 1997; and (b) publish all local accounting and auditing standards by June 1998. Implementation Skills Training 21. Besides technical skills, general management and implementation skills continue to hinder growth and competitiveness of the private sector and the effective delivery of services by the public sector. It has also been noted that besides donor support and limited Government subsidies for a few public institutions, there has been no planned development of local institutions. A change from a supply driven to a demand driven approach is urgently required to ensure that the required skill needs are met. In addition, Government must plan for development of local training institutions to provide the required quantity and quality of the training services. 22. This project would pilot a method of acquiring the training needs of public and private sector institutions (which would share in the costs of training acquired) from local training suppliers through a transparent and competitive bidding process. Assistance will also be selectively given to identified weak training institutions with potential for improvement, through staff training and acquisition of study materials and equipment on a cost sharing basis: up to 40 institutions would be assisted in this manner. 6  37 - Annex I Conclusion Page 7 of 7 23. I would like to take this opportunity to reiterate Government's commitment to the implementation of the policies, programs and initiatives outlined in this Letter of Policy. In particular, I am referring to the strengthening and greater use of local experts and institutions, the demand driven approach to local and foreign training, the government execution of the project activities and the extension of assistance.to the private sector, all in line with the country's Technical Assistance Policy and the Capacity Building Plan. I must also emphasize that the consolidation of the successes of the country's reform programs is highly dependent on the progress in building greater indigenous institutional and human capacity to develop and implement public policy and support the growth of the private sector. 24. On behalf of the Ugandan Government, and on my own behalf, I wish to thank IDA for the assistance already provided in the field of capacity building and to hope that this request for additional assistance through the proposed UICB project will receive favourable consideration. Yours sincerely, Mathew N. Rukikaire Minister of State for Finance and Economic Planning 7  Annex 2 Page 1 of 6 UGANDA INSTITUTIONAL CAPACITY BUILDING PROJECT: Implementation Schedule for Central Government Capacity Building Component ?4 1995 1996 1997 1998 1999 Narne tr3 tr4 Qtr I Qtr 2 tr3 Qtr 4 Qtr I Qtr 2 Qtr 3 Qtr 4 Qtr I Qtr 2 Qtr3 | Qtr 4 Qtr I I Otr 2 | Qtr 3 | Qtr4 Qtr I I Qtr 2 | Qtr 3 Introduction of ROM into GOU budgeting Pilot FY95 Service Delivery Survey Setting FY97 ROM Targets . , FY96 Service Delivery Survey Review FY96 Results/Set FY98 Targets / FY97 Service Delivery Survey . Review FY97 Results/Set FY99 Targets . FY98 Service Delivery Survey