D -it of

The World Bank

FOR OMCLAL USE ONLY

epwt No. 12130

PROJECT COHPLETION REPORr

uGAA

DUSTRAL IILITATION PROJECT(CREDIT 1248-UG)

JUNE 30, 1993

HICROGRAPHICS

Report No: 12130Type: PCR

Public and Private Enterprise DivisionEastern Africa DepartmentAfrica Regional Office

Tbis document has a resticted distribon and may be used by recipients only in the performance oftdeir offica duies. Its conten may not otwise be disclosed wout Word Bank adtorizat

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CURRENCY EQUIVALENIS

FrAED PARATLL MARI=

Septeber 1983 USS1 = Ush 180Ocftber 1984 US$1 = Ush 402June 1985 US$1 = Ush 650 USS1 = Ush 1,400October 1986 US$1 = Ush 1,400 US$1 = Ush 8,000June 1987 USSI = New Ush 60June 1989 US$1 = Now Ush 200Jun 1992 USSI = Now Ush 1,000

ABBREVIATIONS

UCB Ugnda Commercial Bank

UDB Uganda Development Bank

UNDP United Nations Development Prog- m

FISCAL YEAR

Govemen July I - June 30

UCB October 1 - September 30

UDB Jamnary 1 - December 31

FOR OFFICIAL USE'1AE WORLD BANK

Wsbtum DX. 20433U. S A.

Office of Djr.cor-G.nrl

June 30, 1993

ME1ORANDUM TO THE EXECUI DIRECMTU S AND THE PRESIDENT

SUBJEC: Project Completion Report on UgandaIndustrial Rehabilitation Project (Credit 18UG)

Attached is the Project Completion Report on Uganda - Industrial Rehabilitation Project(Credit 1248-UG) prepaed by the Africa Regional Office. Part II was prepared by the Borrower.

Thiu project was designed to (i) rehabilitate industial projects to restore domestic capacityfor the production of essential goods and services; and (ii) strengthen two development institutions - theUganda Development Bank (UDB) and Uganda Commerci Bank (UCB) - to provide industri loansfor rehabilitation and development. The capital injection for the two financial institutions that wasrequired under the credit was not undertaken upfront as expected; instead, the equity was met as part ofsub-loan repayments through acceptance of debt for enuity. Institutional weaknesses were aggravated bysevere political, security and macroeconomic problems. The performance of UCB was relatively betterthan that of UDB. However at credit closing, both institutions were in serious financial difficultiesbecause of serious arreirs and the poor quality of the overall portfolio.

The PCR provides a candid assessment of these problems. Overall, the operation is ratedunsatisfactory and its sustainability as uncertain. The project was partially successful in its institutionaldevelopment objectve of improving project analysis capacity in the two financial insttutions. No auditis planned.

Atachment

This docment has a restricted distribution and may be used by redpiets only in the performance of the !official dUtie. Its contens may not othewise be disdosed without World Bank authoriation.

FOR OMCIL USE ONLY

PROJECT COMFLETION REPURT

UGANDA

NDUSTJUAL REHABLiTATION PROJECT(CREDIT 1248-UG)

Tab Of Contents

Ples

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

EVALUATION SUMMARY .......................... .,

PART1: PROuECTREVIEWFROM BAN1S PERSPECrIVE . I

PwojecIdentity ......... ,., I

Backcground 1........................

ProjecAObfjectives and Dceiptic 2

PrQject Design and Organbatio...... ............. 3ProjectI. .. . .. ..ation 3

PrqjectResults ......................... Sustaimbility 6

Bowwe Perfornmnce...................... 7ProjectRationsip.. 8

Conaungservices ... 8 Proje Dct tacan Deat.................... 9LA ssos Learnl... 9

PART I: PROJECr REVIEW FROM THE BORROWER'S PRSPECTIVETHEPROJECT OEBECTIVS AND DESCRPIMON . .11

Objctives .. 11Desription .. 11

Project Desigp and Orgnatic . .. 11ProjectI....e....t.....n.............. 1Disburseients .. 12Perfrmance .. 13

Sustainability .. 13Fdinpsand Lessons .earned............. 14

Findings .. 14Lessons Leamned .. 14

PART III: PROJECr' PRISIE...15ReaWd BakLoans/Credits .15ProjeatTietble.I 1S

This document has a rticted distribution and may be ud by r ints only in the performanceof thei offic dutis Its contents my not othewis b dislosed without Wodd lank authorization.

PROJECT COMPLETION REPORT

UGANDA

INDUSTRIAL REHABLTATION PROJECT(CREDITM1248-UG)

Table of Contns (ConL)

Pagp

Credit Disburseme~nts ...................... 16PICO i DEsut ................. ,,,.......................... 16ProetImplemnaion . 16

ProjectCotsand Fincing ......... ....... ...................... 16

Status ofCovnats .............. 17

UseofBankResources .............. 18

ANNEXES

I. Uganda Develqmet Buk: Chareristics ofSub-Proecs Ficed Unr Creit 12-UG .......... 19

H. Uganda Deveopment Bank: Pefrmane ofSub-Projects Fianed Under Credit 124-UG .. 20

II. Ugands Development Bank: Sctora Disiton of Sub-ProjwecsFinanced Undet Crit 1248-UG .21

IV. Uganda Development Bank Investmnt CostDistuibuion of Sub-Projects Under Credit 1248-UG .22

V. Uganda Development BanL: Sim Distrlbut fofSub-LoamUnder Credit1248-UG .23

VI. UgandDevklpment Bank Rqpaynt Peormanceof Sub-Projects FnaLced Under Credt 124-.UG .24

VII. Uganda Development Bank: Porfio Amars of Over Six Months .2VM. Uganda Development Bwk: Comparative Income Stame .27IX. Ugnda Development Bank: Comparnive Balane Sbhet. 28

X. Uganda Commcial Bank Ch And Perfomanceof Sub-Projects Financed Under Credit 1248-UG .29

Xi. Uganda Commemial Bank Size Distributionof Sub-Loans Financed Under Credit 1248-UG .......................... 30

XU. Uganda Comm_er Bank Portfolio A ars of Over Six Months .... ......... 31

XII. Uganda Commeri Banik Comparative nome Stemnts ................. 32XIV. Uganda Commercial Bank CompmtiveBalanceShet .................... 33

PROJECT COMIPlEON REPORT

UGANDA

INDUSTRIAL REHAILIATION PROJECT(CREDIT 1248-UG)

PREFACE

This is a Prolect Completion Report (PCR) for the bndust ReWabilitation Projectin Uganda, for which Credit 1248-UG In the amount of SDR 31.5 million was approved on May 18,1982. Te USS equivaent wS.O million at the time of approva, but incased to $38.8 millionby the closing date. The Credit was losed on June 30, 1992, treeo year behind schedule. It wasdisbursed folly and the last disburseme was made in October 1992.

The PCR waS prepared by the Publc and Prvate Enterprise Divisn, Easten fricaDement of the Africa Regional Office (Pefae, Evaluation Summary, Pars I and III). A draftwas sem for comment to the Uganda Development Bank (UDB) and the Uganda Commercial Bank(UCB), the two f ci i who were responsible for the execution of the project.PI n of this PCR was started in July 1992 and is based, inter Al on the StaffAppraisal Rehort the Credit and Project Agreeme; superiion repons; correspondece tweenIDA and ) the Borrower and (O) the two financial Itediaies; and internal IDA m e

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PROJECT COmPLEnON REPORT

UGANDA

INDUSTRIJ,AL REABILTATON PROJECT

(CREDIT 1248-UG)

EVALUATION SUMMARY

I. Following the cation of the 1979 war, the Govarment of Uganda iiiated neconomic recovery program Involving the rehabilitation of the productive sedors of the ecoomywbich wo terally in rins as a result of the depedatons of the mfiitary regime (1971-79). In

pportof theseffbus, IDA inily proided two Recontu credits and a Technical Assisacecreit lhe credt under rewiew cciaplements thes6 credits.

Objective

Bi. The objectves of the credt were to: (i) rehabilitate a nunber of iustri prjecsto reoe some of the domesdtc cpcity for producing essntial goods and services; and (H)sregthen UDB and UCB to mor effctively underak the Inmedio function for industrreabiitation and devlopment

Imleento Exprence

i. ' Ie Imple g agencies were: (a) UDJI for financing rehabit of medium-a lan W scale industries; and (b) UCB for fiacing small scale indwsres (SSi;). The originalalloctin of US$30.0 million to UDB and US$5.0 to UCB were revised in the course of projectIrplementation to US$28.0 million and US$7.0 million respectvely, to enable UCB to fnamce morSSJ becms of its apid commiment of the orginal locaon The Government was to conribuleUS$10.0 million and US$6.5 milion from the allocations of UDB and UCB respectivdy to theirpaid-I capital and te balance to be on-lent to them The Goverment decided to m&ae thes equitycotition out of loan rpayment by b-projects.

Iv. Ibe record of project implentatlon was mixd. While UCB implem theproctd latively ily, UDB w hped itimy projectI by Istioal

and by political, security nd sevec problem (Pa 5.01). Crit_omadmam and closing daes wero extended tuice from June 30, 1984 and June 30, 1989, to

Decmber 31, 1989 and June 30, 1992 re tvdy.

v. UDB S _.pts. The cdit provided finaicing of US$28 million to 15 sub-prjet. Abowt 73% of t mon (US20.5 miion) wet to 10 b-proet in a4

)~~~~ ~ ~~~~~~~ > ' '....,I . 4 ,'

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food and beverages, and engineeing sub-sectors. About 50% of the sub-projects were based onimported aw matrials, receiving 36% of the amount. Most projects took firm 24 to 7S mouhs toImplement and two are still under construction. Capacity utilization ragd between 7-90 percen,the averg being 44%. Becuse of the contining economic difficulties, pardiulady the shotageof foreigl exchange for import of raw mat s, and the long start-up perod needed for pr foj togo into commrcial production, it Is premaure to pass judgment at this stage on the success or filureof the beneficiay enrpries (Para 6.01).

vi. UCI SubWo-pjecs. UCB provided finacing of US$10 mfllion under the credi to80 smail-scale enterprises, mosdy in agoprocessing, building, and clothing sub-sectou. Since mostof the sub-projects were based on local raw matrials, their performac was t affced by theshorte of foeign exchange an their capacity utlization was than that of UCB subpoects. Es thecase of UCB sub-projects, project reshould be considered to be satsfacty (Pam 6A.

vii. St hin of UDB and UCI. 'TM objecdve of strengthening the capabilities of UDB and UCB to undertake rore efectively the _ fun fti was notachieved in the case of UDB. While the technical assistance provided under the credi did hdpimprove UDB staff capabilitlcs to some extent, the political and economic situation and suspensionsof credit lines by the donors due to Govenment defaults in itlment aments adveeldy affecedUDB portfolio. Lack of autonomy from Government in the matOer of project 1prval, indetermation of interest rates together with interfrence from Board in management fucutionsimpaie emangme effectiveness. UCB, on the other hand, was able to develop a betterorganition, by sengeg its Development Finae Group, which bandled fminaig of small-scale industry. Because the capital injection into UDB and UCB, provided under the aedk, wasdone out of sub-oan repayments, financial strengthening of these institutions was accomplshed onlypaily and too late. Mainly because of are and the poor quality of the overall portfolio, bothntitutions are in serous financial difficulties (Paras 6.03, 9.02 and 9.03).

viii. Since rehabiliaton took place during a period of econmic and political dfficulties,and since most entises are not yet able to realize their fill potental due to shortage of foreignexchange and other operational problems, it is prematu to make a judgment on the modium- andlong-term sustainability of their econmic benft. Under improved operatig conditio, ecoomicbeMfits of most of the assisted pris are likely tD be suaable. Regri the finncial

intermediars, UCB, although presenty in a poor finial codion, has the potendal of improvingits position with the return of more stable economi conditons. UDB, however, has been vrtulyan am of the Govaement, limitng its ability to operate as an autonomous intui Its survivalwilhout enorm Goven subsidies (Para 9.02), and Its susanab are qustonbe (Pr7.01).

uldiap and bm= larnd

iL The rous of the project a mixe L While the objectine of rehablitating a numberof Industrial proects was achieved by providing resources for import of plant and machinery andnt woking capital, the suW-pojects con to fce opeatoa polem due to conmicdifficulties, pacully t shortage of fori echang to Impor raw materials asa spar. pa.Maiy becagse of masive curren depreciaon, both UDB and UCB are under-apitalized and, due

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to large portfolio arrears, are in precaious flanmcial poridoti. The main lesos learned from thisexperienCe are as follows:

(a) wito political and economic stabilty, thaee is littls chance of success for aneneprise rehabiitation project like this which does not target specific invesing

wies;

(b) in a situion of svere and dronic foreign exchange shonage, while providingresou to indusial project for capitalmivestment snd six months requremeof impored raw maWials, the Govenmnet shoudd have also ensured adequatecodtuity of complementary resources in foreign exchange for import of rawmterias and spare part to enure opation at a reasonable capacity for longerperiods, wiot which invesm in capital stck was not able to genate funds torey loans, thus creatng liquidity problems for the financog institutions;

(c) development finace istiions should be give autonoy in day to day managementand held accoutable for reslts. Excessive Govenment control and BoardInefaence demoralized UDB managemt and caused loss of focus on priorities;

(d) a def. ed procedure and deadline(s) for capital injection out of IDA resourcesshouldhave cmen spelled out in IDA's project documents; for lack of this, financialstrengthing of the two f'na in iares could not tke place in dme; and

(e) without a longer term strategy for the financial sector, such fincional ivesmenare unlikely to achieve much. (This is now being done under a proposed FinncialSector Adjusuen Credit).

PROJECr COMIFION REPORT

UGANDA

IUSTRIAL REABILIrATION PROJECT

(CREDir 1248-UG)

PA.qT I: PROJECr REVIEW FROM VDA'S PERSIECTIV

1. Ptejd Idenity

Name ndtr Rdabilitaion ProjectCedit No. 1248UGVP Unit Aftica RegionCMy Ugansector :

2. Badcgod

2.01 Ugan acideved in 1962 with a number of important advantages: afavorable climate fertile soils, a well-esablished indienous smdUalhdr sector producing coffee,comtn, tea and tobacco and an mple domec food supply; a small ndstil sector contributgept of ttile and copper; a weldeveloped tansport uaturan exportable suplus ofhydroelecrIcity; one of the most advanced educadon systems in East Afiica; and a complemnt ofskilld nd urained anpower, r d that of Kemy or Tanzania Th favorable conditons,combined with competen economic mna ent, contute to a steady 2% per year growth dudngthe sxti an aver savg rt of 13%, whic e ed a hilevel of investme, and budgety

piluses which contributed to a signiflant amount of development outlays.

2.02 Uada's polia situation, howevet, wa less ficitou; intea conflicts andrvalres amon t o aios ngdoms and the rest of the couty gd t at my bO to stag a coupin 1971. ike depredations of th mitay eim (1971-79), wih unprecedene loot of moveablegoods and dama to every sector of the ecoomy (crops, lvestock, facres and buidings), duigand aftr the war (197946), vitally redued Ugans economy to ns. During this period, GDP_god and per capha Lcoms fell. Sao and 10V8=01 aXnI d GovICM11 mV

declined real terms. Only agriculurW e cond gwwing i usPows to bod seuineeds and lack of opporaunin the monetied sco.

2.03 Te new Govesme which took ove aft the 1979 wr placed the ighest prrtesto oratin of law and orde ad _ t of the direy produe sectors. ln 1981, it

_ odwda _ Smptdwwi"f cial prog to sailizth o eonomy. k abo prepad an ooictowvay wgram wlchav2 top priorit to rehabilitaon of agriculture which had distinct

possibiltis for expots and for supplying some domesi _iudui needs.

2.04 in th 196s, Ugnas Idustrial t accoued for about 11% of P, supplyingthe domesti marke with basic: goods lik edibl oil, soap, pape and Cemen and producin smal

able surpluses of texts and pper Incomm with o scs, k w o tet oftragesfthesvo ni. By 1980, InduI valueaddedhad ntoabout%ofDP. Manyndstrae pris cdod down and most ote were The conequent mass odus

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of expariate entrepnurs, mosly Asivs, deprived the sectr of its managers, techni adprvate investrs. The rehabilitation of the industial sector was considered by the Govem tobe an impora eleme of its economic recovey progrm he most obvious and geneally bindiconstraint on recovery was foreigik exchge for raw mateials, spare parts and capital goods toreplace outdated and damaged plants.

2.05 Ugana's financial sector comprises the Bank of Uganda, seven conmnercial bank.,four other crodit instituions, two development banku, a post office sings bank and several ins_urcompanies. The Uganda Commerci Bank (UCB), wholly govermentuowned, is the leuscomme bank ad the Uganda Developme ak (DB), also whlly governmeneowned, Is domain development fiacing Iintto. Durig the early 1980s, the fnacl systm wasunsuccessfl In rapidly expading the doit basoe pemt needed inas in lending. Need waalso felt to strngte selected banks to more effectively undertak the em diaon fimon friustrial rehabilitation and development.

2.06 In support of the Gcvent's economic noovery effr, parculaly d1rehabilitation of tbe protuctive sectors, the Bank Group povided a Recostcion Credit of US72million, which was followed by a Technical istance Credit (to fInance studies to build up a projectpipeline) and a Second Recocon Credit (to finance import of inpu for the iultue andindustry sectors). The credit under review complemented the last two credi.

3. Project Objectves and Descripdon

3.01 Objecftives. The objectives of the project we to: () rehabilitate a number ofindustrialentr to restore some of the domesdc capacity for producing esst goods andservices; and 01) stregen UDB and UCB to more effectively undertba the Itermedia functionfor industrial ehabilitation and development

3.02 Descripdon. The project had two component: (i) US$30 million for 1DB, of whichUS$20 milion would be on-lent by thae Governent as a line of credit for relending to rehailiselected medim- and large-scoe industr enterpis in Uganda, and US$10 million conibuted asequity to UDB's capital; and (f) US$5 million for UCB, of which US$3.75 million would be on-lentby the Goverment as a line of credit for re-lending to rehailitate small-scale industri eneprsin Uganda, and US$1.25 million conbuted as equity to UCB's capital. Wihin the overal crediamount of US$35 million equivalent, the amounts under the two components were modfied in hecourse of project ImplemeItaon (Pars 5.02). Among other th , the UDB cmonent alsopwvided for a techical assistance sub-component to impove UDB's project appraisal capabilites.(Technical asistae funding was also provided to UDB from a Technical Assin Credit and fromUNDP fanig for which IDA was the executing agency).

3.03 rA amounts for credit line were onlent by the Govenmet to UDI and UCB at6.5% p,a. for a maximum of 15 years and 10 yeas rectively. UDB and UCB were to relend dieproceeds of the creditto derbonrowers at 14% p.., wih maturities of up to 1S years and 10 yearsrespctively. (is rate was subject to anual revws and was actually revised a few dmes in viewof the hih ra of inlaon and currecy dep im durig proect mmiGo"mmed would cary the exchange risk agait a choge of 1% (revsed to 10% in 1988) to bepldbyd h . Ihocrdit would fico (i) caphipl ex_e for the r _ ofobsolete or e down plant, machiney, tools and other aqipmt of industril in thepublic joint and private sectors (II) cost of intlainand comsinn;(ill upto two year

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stock of spar pam for plant and machinery; (iv) trucks and other transport equipment: (v) repaisof exisdg structures and civil workss; (vi) costs of key expatriate management staff Pr projectoperation for up to two years after rehabilitation; and (vii) up to six months requirem of Wn.portedraw matris for filly utilizing rehlbilltated equipmen.

4. Project Deign and Orgization

4.01 Following the cessation of war and the installation of a civilian Govenmnt, therewa an immediate need fo ,roviding foreign exchage rources to rehabflitte the productive sectorof the economy. h project was designed and ftmuated to redress the constrait on the iustrisector in Uganda and at the same time to establish quicldy an effective framewor for technical andfnanci assistance to industry. While shortages of imported aw maewis and sparo pars were themajor constraints to indus production i the shorterm, the enterprises also needed replacemenof obsolee and damaged plan, machinery, tools and otier equipment, repairs to civil works andassistance i installation, commissioning and opemion of the plants. While the needs forrehabition of the sector were extensive, the Wain objective in designing the major componet ofthe project (assistance dtugh UDB to medium- and large-scale enteprises) was to provide asitnto a limited nber of priority industrial enteprises, pre-lccted by the Govanment, IDA and UDB,on the basis of potentdal for (i) saving foreign excdhnge direcdy trough producing esal conumergoods and conuctionmaterials and (i) contbutig to foreign exchange egs indirecdy throghproducing emnal inputs for agricultural actiities. For re abilt of small-scale industries,based on a indicative sample in three priority sub-sectors (food prceing, farm implemens andengineing workshops) it was estimated that the allocation of US$S milion would be adequate tofinance, on a fairly selectiva basis, 40-50 sub-projecs over a time frame of 3 years. For re-lendingfknds to i-Ausial enteprie, the two financial inrdes selected were appropriate. Theypoessed the basic capabilkies although some shening was needed.

4.02 The project was well-prepared and its timing was approprate. The scope and scaleof the project were appropriate In light of its objectives and the imple n capability in thecountry. The two financial intemediaries, which were responsible for project implemetion, wereassociated right from the outset in project preparadon and formulation and were well aware of theirreponsibilies in project imlemention.

S. Project Implementton

5.01 Ihe credit became effective on September 16, 1982, about four months after Boardapproval and three months after credit signature. The record of project implemenation is checkerd.While UCB implemented its portion of the investment component involving financing of small-scaleindusties qudte efficieny, UDB was reatvely slow in implementig its portion, involving fianingof medium and large industries. Apart from institutional w esses, the maintors adverelyaffectingrwjet imp were: the frequ breakdown of law and order and political umoil,hih rami, of iion, massive depcia of the curency, negative intert rates, shorage offoreign exchange and local credit, reversal of the Govenment policy, for about 18 months, of theGovernnt assuming exchange risk on foreig edits subloaned to idutri entpren, andssesion of lies of credi by donors maily due to defaus of repayments by the Govement(IDA suseded commimen under the investment componen of the credit between October 28,1986 and August 10, 1987 becase of the disttins resulting from highly negtive imerest tes andthe over-valod xchange rate, which were adversely affecting UDB's pfitability and ne worth,subsidizinimport substitutio companies and creaig disincenties f export idustry). Ih credi

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suspensions and the chage i forep chango isk policy furer compounded the problems fcedby industial enteprpes due to the mac-onomic conditions meandoned above, partdularly thowhich had already received partial di affecting their implemetaton schedules, viablitynd debt rpaym capacty. Repaymt ddeful adversely df the flnanci position of the twobank.

5.02 ln the couse of proJect implementation, the credit allocations were revised as follows:

O1*d lt -Revisa 20d RevbiooMM ID.E .E .D .EI

(Amovat in Million)

UDB 30 27 30 27 25 25

Ctet lm ( (15) ( (17.5) (17.5) (15.5)

Bquity 'ouu (10) (9) (10) (9) (10) (9)

Teclmuimlusuiutanoe t(0-P* (0M A() (03)

UC9 5 43 5 43 7 63S

Cedit line (3.75) (3.4) (3.75) (3.4) (05) (S.4)

oqu_y eonulon (1.2) (1-1) (1.(1.1) (63) (1.

iM4Mg for Emplnymml of xpeus to imo UOSDB proet appma opaba.

5.03 Ote major variances btween planned and actua prjec 1m wer asfollows:

(a) Due to a quick commimnt of aocated funds and stwong demand for fidnacgnew project sponsored by experienced small-scao entreV p creu, UCB wasautorized in May 1986 to use IDA hnds for financing e small-cale industiadvelopt projecs, in addition to financing rehabilitation of existin SSI projec(para 3.02);

(b) Credi comcitment and losing dates wer extended thrice fom 6M30/84 and6(30/89, finlly to 12/31/89 and 6/30192 respectively; while progress ofmannwa genely saifctory, iwere laggig behind due to the ovaleconomic situation credit ndon and reversal (ntween May 1987 and November1988) of the excange risk policy by the Govme;

(c) the fee payable to the Goverme by UDB and UCB for assuming exd rskon ei sub-loans was Increased from 1% to 10% in Novmer 1988, folbwing theGom ent decsion to rvet back t the preos poliy of auming exchange riskon foreign creit for a fee; the inces was jusfed by frequn and masive

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devaluations and tho ce in the rates of intt ratzes chaged to ultieborowas to 35% p.a.; and

(d) UlDB fiaced under the credit three sub-oject in exces of USS4.0 millioneach, aIthough the original intendto (as statd in the MOP) was that such largepoject wold not be financed. However, It appears tha this matter was nOt finallyconsidered important enough to be included as a covan in the legal greeme.

5.04 h. revised allocati of funs, proviing fort: (a) a tehcal assitn compneof US$SO0,000 to UDB; ad (b) adjustmen of fids betwee UDB and UCB for sub-oans toenteprises, and otht varince were justified in tbe c prevailing at the time of

Theo issu of cWtzatio of UDB and UCB, for which over 47% of IDA crdit(US$165 million) wu earmarked, trmained a mat of conernto evey supevio mission. TGovermet did not give suient Importace even to hcasing th audhozed capital of the twoinstItutons, whkh coud have been done under a statutry order signed by the Mnister. 'Me easewas necessay to allow injecton of funds into UDB ad UCB as pa capitl, paruary afer theCrency Refm State of 1987, which eroded the value of heir alteady Insufficien authorizedand paid-in capital. (nhe Stu reed tat as from May 15, 1987, aU monetary u andobligations be converted 0 1 new shming = 100 old ddlli). It appes that the initia inusionOf funds into UDE's capital was done by way of 'capital contrlbutions"In Installments, which bydte end of Deember 1986 ammnted to Ush 7.847 bilion In old Ush. However, condtued massivedeauatio and cuncy depreciaon eroded the vilue of the capital contribut to UDB.Consequenly, UDB's debt equit ratio frequenty exceed the 4:1 rado which was a ivenant In dieProect Agrekem The Govemet made fluther ntritiond in 1987 ad 1989 to incra thecal conibution to L'sh 1.15 billion, which UDB consdered to be the equvent of USS10million. As regards UCB, the Govent contbutd a total of about Ush 268 million to UCB'spaid-in capital by to end of Juve 1992 out of rpaymens of UCB sub-loans under IDA Credit.

5.05 Since the _maer and dming of capital nfsion from the IDA credit into UDB andUCB was not spelled out in the legad ae t the Gov ent decided to do it out of mof subloans; dis kept the isue of capitalization open-ended. While in the case of UDB, this wasaccomplished witho undue delay, it has not yet been completd in the case of UCB and is awaing.repaymen of oas by sub-borower.

6. Ptoject Resuls

6.01 UDB su-rojects. rhe credi pwvided fincing of US$28.0 milion to 15 sub-prjec mosy in prity sectors, of which 5 were public p. Mum publicreceived about 50% of the fmancing. This is eo because of the dearth of privtiv r ollowing the exodus of Asian In the sevens and n ization of ammlber of Industrial entpises. About 73% of the amonmt (US$20.5 million) wen to 10 sub-

ptooe Insltaow_, focd and Uas, an niern su4co. About 50% of thasSbproects wer based on Impord taw mdials, receng 36% of th a _amL Most prets tookfrm 24 to 7S moths to Implement and two a sti under constucto Capaity utzaton rangedbetwme 7-90 percent, avea being 4496. Four sub-projcts, whch rceived finacg of US$9.2million or 37%, lolvd rehbiitatin of production capciy for ber, sprit so dr andto prodcts. Giv e cit preva iing Uganda, IDA c drd that ths sub-projects met th criteria pa ph 3.03) for project selecon viz prodon of enIa goods andservices. Bcau of the cotinug eommic diultie, particularly he dwhor of 1reg

-6-

exchange for import of raw materials, and the long start-up period needed for projects to go intocommercial production, It is premature to pass judgment at this stage on the success or failure of thebeneficiary enterprises. However, given the continued low rate of capacity utilization (only 5 sub-projects are operaing at 60% or higher capacity), it would still be fair to say that the project resultswere less satisfactory than those visualized at a4praisal. Annexes l-VII provide data on thepeformance ef the sub-projects.

6.02 UCB sub-projects. UCB provided financing of US$10 million under the credit to80 small-scale entprses, mosdy in the agr-processing, bulding, and clothing sub-sectors. About79% of the sub-project received financing for amounts below Ush 50 million (US$50,000 at thepresent exchange rate). Only scanty information on the performance of the sub-projects is available(Ae X and Xl). However, judging from their generally unsaisfctory repayment perfom(Ann XlI), it apa that these sub-projects were nevertheless perfoming better than UDB sub-projects. TbI was perhaps because most UCB were based on local raw mateuials and theirperfmace was not afected less adversely by the shortage of foreigm exchange. The sub-loans areestimatd to have created 1,964 jobs at a cost of Ush 2.1 million (US$2,100) per job. In the caseof UCB sub-projects, project results should be considered to be sasfactory.

6.03 Sreghenng of UDB and UCB. The second objective of the project, to stregtthe institutional capabilities of UDB and UCB to underae more effectively the intermediationfuncD, was not achieved in the case of UDB. While the technical assistance provided to UDB didhelp improe systems, procedures and staff capabilities to some extns, the political and economicsituation and suSpsions of credit lines from time to dme by the bilateral and iternaal donorsadverey afected staff morale. Further problems in the smooth functioning of UDB were createdby undue intree in its operational matters by the Govenment (which required prior consultationbeore submission of the sub-projects to Board for approval and by UDB Board members, many ofwhom were political appointees without appropriate professional background and were encroachingupon the management functions of the General Manager, affecting his autnomy and effecivens).UCB, on the other had, was able to develop a better organiaion, by strengthening its DevelopmenFinance Group, which handled financing of smal-scale industry. Because of the modaity adoptedfor capital injecdon, the project did not accomplish financial strengthening of these i

7. SustainabiHty

7.01 Since rehabilitation took place during a period of economic and political difutis,and since most enterprises were not able to realize their full potential due to shortage of foreignexchange and .VJier operonal problems, it is premau to make a judgment on the medium- andlong-tem susainabiity of their economic benefits. Under improved operating conditions, economicbenefs of most of the assise enterprises are likely to be sustainale. Regarding the finaciintermediaris the UCB, although presently in a poor financia condition, has the potential ofimprving is position with the retur of more stable economic condiionsThe UDB, howevr, hasbeen vituay an arm of the Government and unable to opere as an autonomous titiona It hassurvived so -far only with enormous Government subsidies (Pa 9.02), without which itssu8talnaity is questionable. In developing its lending program for the future, the Bank Group is

the refm of the public enteris and of the fiancial sector as a whole. A FinanalSector Adjusunn Credit being processed by lDA would have a tchnical assistan componet toimprove the capbilte of the key instuions in the sector.

-7 -

8. IDAs Performance

8.01 The Bank Group prvided considerable assisuce to the Governme and the twoflnancW intrmediries in idenifying, preparing and mlemenig the project. IDA, however, didQot take up with the Governm the issue of UDB's autnomy at cri appraisal nor did t pursueduring supevision the issue of undue intference by UDB's Board in maagemen mae. It wasalso deficient i not insiting strongly enough with Governmen to increase the authorized and paidincapital of the two bank right at the beginnng of project imlemetaton a in any case followingthe currnc refoms of 1987, whereby the value of thei capital was reduced by a factor of 100.IDA did not field supervision missions afr July 1989, ailthough d _ of subs a(US$10.0 millon) were yet to be oompleted. appws to be pardy due to the factbat, by July1989, 100% of the UCB component and 85% of the UDB compot bad been committed and it wasexpected that d would be completed by December 1990, and pardy because the techicalssisuce compo was completed.

9. Borrower'sPer

9.01 Govrat performance. he Govment was the borrower of the IDA credit,but the major portion was inme d through UDB and UCB to industrial entseris. TheGovnmen's perfomanc affected project Implemetatio to some exte Goverment was payresponsible for the delay in project implemention because its default in repaymet of cretistmen often triggered edit suspensos by donors, but this was due to c nces beyondis control viz. extreme shortage of foreign chage. Govement did not allow UDB sufficientautoom in project selecdon and setting of interest rates. It was also slow in incasiog theauthorized and paid-in capital of UDB and UCB; these delays have led to UDB vwiolating its 4:1 debt-equty ratio covenan and to UCB having an unacceptably low capital to risk assets ratio until 1989.Government also, for a period of 18 months, caused uncertainty in UDB and in the wub4brower,by chanfng its position on bearing the foreign exchange risk on the loan.

Uanda Develpmet Bk (IUDB)

9.02 UDB was the intemediary for channdling 80% of the credit. Although most of thesub-projects to be financed were pro-selected, it took UDB about 6 years to commit the amount and9 yeas to disburse it. This was due to project appisal, supervision, and other or ionaweakness in UDB, which were addressed through technical assite provided by IDA and UNDP.Other factrs responsible for delay in project imple ion were the macro economic and securitysituatios change in the foreig exchange risk policy by the Goveoment for about 18 months (Para5.01), and occasional suspension of wthrawals from the credit by donors, due to Govmentdefults in repayments of credit. These events. and the shortage of local currc reorcs with

lntrepreneus often disrupted project implemen Over the years, UDB's financial posiion wasadvesly affected by large ares and poor collction (Anmexes VI and VII). Under thlir extenlaudit' pressure, large provisios had to be made for loans in 1989 and 1990(Amuex VV . UDB nurred a loss of Ush 336 million in 1990, mainly due to a provision for loanlosses mounting to Ush 2.1 billion, or 93% of its total itert income. In recent years, UDB wassved from insolvency by exchange gain on a loan it made to an export-orend enterpriserepayments of which were to be made in foreign excne. UDB's extenal auditors have complainedof window-dressing by UDB by rscheduling some of Is loans, withut adequate analysis of recoveryprosects, in order to presen an improved finacial posiion at the dme of UDB's appial by adonor for a line of credit The auditors also pointed out that ceain idividu UDB los exceeded

-8-

UDB's equity, althoug, acording to its own policy stateme, its investment in any one projectshud not exceed 20% of UDB's equity. Despite enorous, subsdies provided by the Govemnein the form of low interestforegn credts, an unusually hih spread of 20% on its boowings,fequ replenshment of its paid-in capital, UDB i Presently facing a liquidity crisis and is in poorshape. As of December 31, 1990, the latest period for which audited accou are gavlable, UDB'scuet atio was less than one, loan collections we only 24% ot billiw, N prvisions a_mndto 19% of the portfolio whereas over 78% of the portfolio was affcted by ears of over 6 months(As of June 30, 1992, about 97% of the portflio was affected by aes of over 6 months).

Ugnda Commedal Bank (UCB)

9.03 UCB's role in this project was secondary. Its main fimction wascommerCial bankingbut it had orgnied a special uni caled the DevelOpmen Fin Groupw to handle its termfinancing opeati to small scale industries (SSIs). It was resosible for utizing only 20% of theCredit. Its perform in project mi I on was better tma dt of UDB. t had commined93% of its original allocation of SDR 4.5 milion (US$5.0 million) by Febuay 1986 and 100% oftho rvised allocation of SDR 6.5 million (US$7.0 million) by June 1988. While the repaymentpefoman of its IDA sub-loans was better than tht of UDB's sub-loans, its SSI portfolio wasbuildn up arrears due to repayment performance of its SSI bormro s. This bas alsoresulted in only small amounts of LDA sub-loans repaymen beg avalable for its caitalization.I receot years, UCB's overall portfo and financial pition have also deterora sharply(Amxes and XIV). It Incred huge lo durng FY89-91, many because of lare prvisionsfor loan losses. In FY89 it hadanegativ equity. It caried out a rauation of fixed se (Ush26.6 billion) in FY90 which accun for positv equity in FY9o-91, but the eroi of equyconnes. Unless immediat steps are taken by the Government to stengthen UCB financially andto reucture It, UC is very close to insolvency.

10. Project Relatonshp

10.01 IA'seatonbipwiththeGovementand twofin iamd remainedexcellent _togouwt Still, the course of project impl remained uneven. This was duemainly to politcal tmoil, security problems and the ma-economic difficulties faced by thecountry. Both UDB and UCB maunined good relationships with a number of multilateral andbilateral donors, who were inte d in assindg the rehabilitation of the economy and providedgrts and credits through them for the purpose.

11. Cong Swvices

11.01 The project inlduded a component for technical assisutce to UDB in an amount ofUS$500,000. Ibis componet fumded the services of cosubn to UDB in areas of projectappaisal, suevion and accountg. In addion, th Bank acted as the excuting agency for aUNDP proedt under which a firm of _ t wa re to provide an d autitiogasstac to UDB for a pedod of four months. The pefrmae of all the s wasatisfttry. 7bTey enabled UDB to develop oiat procedure in the respective areas andprovied traiing to loca sff.

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12. Project _ b and Data

12.01 The Development Credt Agreem (DCA), Project Agreems (PA) between IDAon the one band and U1DB and UCB on the other, and the Subidiay Loa Agreements between theGovernm and the two finaci nteediaries wer stadard documts conaining tem andconditions of the credit to the Govnmemn, the responsibilities and obligations of the two financialintermedaies in execung the project and the trn and conditions of on-lendig and relending.Mhe e coaned special provisions reqdring the Goveme to Increase the authrizedcapital of UDB and UCB, and to pay in certain amouns as paid-in capital, and requidag UDB andUCB to submit audited accon by certa dates. UDB was fiurer reqired to protec Itsef fromexchange riskl and to maintain a debt-equity ratio of 4:1. The leg agreement should have requireddt Goverment, as dth ody sh der, to pay in the agreed mos of equity conution toUDB and UCB out of the IDA credit by parcular dates and in a defined manmer. in a side leter,th Govemen shoud also have commtted itselfto allowing UDB to opera autonomouy, withouthaving to comult it inomally befre submitting the projec to its Board for approval.

12.02 Te Staff Appraisal Report did provide a usefl famework for IIDA and the financiinteediar in projet imp to but did not comment on the issue of UDB's automy orits subservienc to the Governent -in the m of fiacing projects. It also did not bring out inreitidc term the enormous difficulties the country and the fincial ons were likely to fcein implemenIng the projecL

12.03 Most of the data for PCR preparon was readily avaW le from IDA files. Thermainn was provided by UDB and UCB, but the data provided by them wetm not always

13. isos Learned

12.04 Ihe tesults of the project are mixed. WhUi the objewve of rhabilating a munberof indusa projects was achieved by provid resources for import of plant and machney andint workig capital, the sub-projects contin to face operaonl problems due to economicdifficultes, paclarly the shortage of foreign exchae to import raw materis and spare parts.Maily becas of massive cuncy depreciaton, bothi UDB and UCB are under-capitalized and, dueto arge portfolio ars, are in precaius fiancial positio he main lessons leaned from thisexperience are as folows:

(a) wit political and economic stabiity, there is lite chance of success for anentepe rehabilkation project like this which does not target specific investg

(b) in a situadon of sever and chron foreig excanse sbortge, while providigrourcs to Industrial proec for capital and si months requiementof Imported raw materias, te Goverme sboult have also eoud adequatecontinuity of lementary resources in foreig exc for import of tawmate and spare par to enr operao at a resonable capaciqt fr lonerpeiods, without which Ivestme in capia stock was not able to genert find torepay loans, thus creating liquidity pblems lbr te fing idoXs;

11

PART H. PROJECT REVIEW FtOM THE BORROWERS PERSPECIVE

THE PROJECT OBJECTVES AND DESCRIPTON

OBJECIVES

1. The objective of the Projeat was the achievement of a national revival ofagricultre and idutry though the provision of credit and odter loan facilies to prospecdve

epr . UDB', objective were to provide a channel for financial and technical assistanCeto promote industril rehabilitation and development The Project also focused on improving thecapacity of UDB to prepare and appraise development projec for financing by external donorswWle ning the Ban's own finance and management. IDA and UNDP put in placeinsutio b _ug technical asnce to help UDB execute its growing development bankingresponsibiity with a US$30 million IDA credit line in the pipeline. The Project objectives wexoverly opmc to assume that the revival of the economy could be achieved with a few yeam,with the provision of credi after ten years of ewnomic n en It also umed dhsaftaer the fall of Amin's Govermen in 1979, the era cterized by civil ste and insecurityhad ended in Uganda.

DESCRIPTlION

2. A line of credit of US$30.0 diHon was appwoved by the Bank againt guaranteeof Uganda Government to cover part of UDB's resource requireme for financng 25 selectedprojects for rehabilitation in the indal sector. Mhe loan was on IDA!s standard term forfFIS. Prior Word Bank approval was necesay for each sub-project. Tle aggafree limitper project was US$4.0 million. The sub4loans were to be made withn the frmework of UDB'soperang policies.

PROJECT DESIGN AND ORGANIZATION

3. Mme key element of the Project was the provision of six highy qualified expertsin strategic line positons in UDB, i.e. (AGM Projects, AGM Finnc and Admion, CA,Financial Analyst, ldustrial Economist and Industrial Engineer) ncetly for a two-yearpero during which the selected sub-projects were to be ap sed and UDB's finances andmanagement strengthened.

PROJECT IMPLEMENTATION

4. The Project became effective on 1 September, 1982. However the environmentin which the ptoject functioned frouated its efectvene. Political Instability made rcuitof the sx line consultants almost impossible. AU the six consultants were never in placeconcurrenty at any time durig the project's life. Two of the expertu died shortly after satigtheir . At one stage the reWainng expe wero evacuated for fi months due tocivil sti. I is only since 1986 ihat the project opeatd (five years aftr start) in a sableenioment.

S. Dldays in UDB hnp l of the project were maily duo to the foDlowg

(a) The iniial list of idusti selected by IDA for the Project conisted of mainlygOVe owned and Asian exproprid ndst whose leaown i could not be estisheM As per the terms of the project, t

Companies could not be appraised and financed Wot resolving the ownershipproblems.

(b) Out of the odginal list of 25 prese_cted projec, only ten qu6Iified for appraisalad finance. Accordinly, the Bank had to seek aroval from IDA to appraixsix other sub-projects which wert not on the original list. The approval of IDAto appraise the six sub-projec took a long time thus extending theimplementation period of the cet.

(c) The Implementation of the Technical Asssta component of the Project,patdclay the recument of the six key line eprt was rot smooth asindicated below:

Politcal itability made recruitment of the six line consulta almotmpossible; such that the six consultants wee never in ple concurently at any

point dudng the project's life, contray to what was envisaged in the ptoject.

The top two technical posts namely AGM (Finance & A sn) and AGM(Operati) were tever concurrently filled. There was lack of expate team-wotr Sbr these two posts.

(d) Similay in the apptaisal departm there were never a concurnt teamconwsing of expart such as: an economist, indusrangineer, fiaclanalyst from which the local staff could benefit as a tam They were enggdat differ times. ThI engineer and Chief Accntn died shordy after stingtheir assiments. The replacem engeer egapd In 1985, ran away in thesame year due to insecury. At one stage the remaiig expers were evacuaedfor five months due to civil strife. The enmi aed also did notcontriute much. Thus, overal UDB did not befit from dte apraisexpariat personnel.

(e) The conultig firm which was engaed to appraise a number of preseected sub-projects was iadequate in its work such dtat appraisals were not approved forfinancing by IDA. This and the iffeci ss of the apprais expatiatpeomel had a great bearing on the rate at which the sub-projects were

-ai and hence finds committed.

In sneam the apis was done by the local sta4 only takng advantage of theaining t of the techal sitance, both local and oveseas.

6. iD dzunde the la proceeded satisfactorily aft 1987. However, dmwa need frter exte_ion of dosing dates of the Project to allow UDB to comit firtherfia whko m ainly due to cq of prvous preselected subroJects and sving

on f&lly disbursd sub-projects.

7. Due to o _ by the Governmet of aars o glbal loans to IDA,ut_lbwton of exitng lines of credi was supended, threby i the ds of

13

pary disbursed loans to sub-project and affecting thir viability and loan repayment capaciqand in tum the financial situation of UDB.

8. mmbo nby the Govanen in May 1987 tat t wbuld nc longer benfeign excha risks on loan in foreig curncy contributed to the derioration of theporfolio Mhm decision of Governm on exchange risks affected the Bank's loan olectioneffo seriouy as the sub-loan contracts betwen th Bak and its sub-borowers were in disputheeby treening the Bas financi viability. m isue was finally resolved when theGovernmen agmed resume beaing UDB sub-loans povided d UDB imposd a lO% foeigexchange risk fee payable to Govrmen by its sub-borwe. The deay in solving the freigexcage risk e, thdfore, impded loan collections fom UDB sub-browers at a criicalperiod of the Projec

PERORMLANCE

9. Given the difficult politcal eonom ad secriy condiidons dat previ inth 1980s, UDD's peomance i imple the Project should be rated as mixed,conidering the shoromings of the Tecical sistance component of the Project

10. Out of the 16 sub-projects fimded, only, ten are operating sadsfcorily while fivear exeiencn opeatioa problems and one is not yet opeaional. Neariy all sub-proJectshmv arrears of principal and intt cawed by time and cost ovrns as a result of delayeImplemention and an envhrnme of etm austerity. The sub-rjects sufred finaciallydue to inflaton co _ntal devaluatio, shota of freig exchange and local cret Mmperstence of these problems oded the equity base of _ and in tu afftedeventa pefom of the subproects and hence the Ban

I1. Sit of th subrJets financed by UDB were publc enterpi which sufferdfrm delayed Ilementtion as a rut of Governmt bureaucatic prces.

12. Te Govwmnrqemo tthat UDB musobtaiMn sty of Fiancleaancefor sub-loas bedre submission t UDB Board for appwval also caused exe delas inthe impaon of the Project

13. The Managent and staff of UDB played a maJor role in the Istuio'ai e during the time of the Project, often making up shortfais n pthe project

14. The a _ of the financial system a other acdvite s on of thesuccess of the Project. The fcial support of the project facliad both equIme andtraing, hse strategy wa larggdy devloped by UDB local staff In coamdu

15. There was little con ton fom the first fo (4) advisor but the AGMOlinance =d4A I ' I - and the ead Pioct Opato conatrbd aay t saff

ad t tainng of countpa stff. The syst of financ ad u g arsufietl devd and manned by a ttaind cor of saf T_e are th argmets fwr-th projc's _ Ilt.

14

FINDINGS AND LESSONS LEARNED

Findings

16. UDB's performance under the loan has been mixed. During the implementationof the Project, Ugaida passed through serious economic difficulties in addition to politicalturmoil.

17. The imx ct of these problems on UDB's portolio has bee severe. Porfolioanes are bigh Fu, iemore, UDB has been epeiencing delays in capitalzadon byGovenment which is creating a liquidity crisi and could affect UDB's debt-seicing capaciy.

18. Prendy UDB is makn considerable contribution by fiacin iWdustri andagricultual development In common with other finacial iu s, it has serus portlioproblems, which have affcted its viability. In addion, it has to rely on Inernional Fnanes

ttutns and the Govenment to provite credits for on-lending to sub-projects. Given thissenr, there is rethink going on its opetional strategy and role in the more stable ecnomicsition in the country.

Lem= Larned

19. A few lessons can be drawn from the experience of impl ion of thisproject. Firsty, in view of the contry's foreig exchnge problems and heeon ausiysitutio, IDA dsud ave given highe pio to fincing projet which had potential forearing foreig exchange. Secondly, the Bank should have done a more thorough apprasal of

projects with a view to ensuring that the sponors had the necsary counepart funds to meutany cost escalations and maagemen capabi to implement the project. Thirdly, the projectshould have taken Into account the mobilization of local cumency resuc for the sub-projects.Fourthly, there was lack of quick iniiati to provide cncal and finana assistauce torestructure jects e ncing opeaiona prems long befre the problems becam

serious. Lasty, it should have been avoided to continue financing sub-projects in an environmentof severe poliical and economic insbility.

15

PROJECT COMPZLMON REPORT

UGANDA

INDUSW-U% REHABILITATION PROJECT

(CREDIT 1248.UG)

PART rm: PROJECT PROFILE

1. Rdated Bak LoanCredits

Year ofCredit Mle AOQ, 3=u

Second Reconstruction Rehabilitation of productive 1982 Fuly disusedProgram (1248) seces

Second Technical Assistance Preparaton of a pipeline of 1984 Fully disbredCredit projects and TA to financial

instiuions

Entwpdse Developmen Improve opeating environment 1991 On-oingProject for all project, public or private

2. Projec Thnetable

IlM Date lanned D. Revind Dat Al

IdentIfication 7/9 7/79 7179

Preparation 4/80 4/80

Appraisal 9181 9/81

Credit Negodation 4/82 4/82

Board Aprova 05/1882 05/18/82

Credi Signature 06/29/ 06/2/82

Cdit Effectves 09116/82 09/16/82

Credit Ckl g 6/30/89 6/3090 and 91 06/30/92

Crodit Coption 12131/89 12/31/90-91 3111292

16

3. Credit Dlsbursements

Cumulative Estimated and Actual Disbursmets(US '000)

FY 1984 1985 1986 1987 1988 1989 1990 1991 1992

Appraisl 10.0 21.2 29.2 33.4 35 3S

Estma

Actul 0.1 6.? 8.8 13.2 24.3 28.3 32.5 35.9 38.3

Actual as % of 1 29 30 40 69 81

Badmaw

4. Project Iuplementation

1nWa FsdmateAcua

Submission of sub-poject for Bank

approvalaorizatlc8a 06/30/84 12131/89

Loan Di 063089 06130J92

S. Project Costs and FPla_g

A. EWect Costs

(USS Id

Agom sthat ised Esfat AM

Loca F.E. Total Local F.E. Total Local F.E. Total

NA 35 35 NA 38 38 NA 39 39

B. 1![D3ect Finaing

Ptm=d

MDA 35 38 39

17

6. Stou of Covenants

UGANDA DEVELOPMENT BANK (UDB)

Compliancecmt Eubect Deadlbne StatL

Pffliect AgMentem UDB not to enter into Pardy in compliance.Section 2.08 new commitmene to UDB dissolved its

land to small Commerce Dqmentndutries and but esublished a SSE

ca knce. DepameSection 3.02 Audited accounts to be Sept.30 each In copliance.

funhhed nO later yearta 9 months afteend of Its fiscal yar

Section 3.03 Debt-equity ratio shall No. in compliancenot exceed 4:1

Section 3.05 UDB to proct itself In compliance_aint FE rik

Deopme CrWi Authorized Capital to 06/30/83 In compliance, butAnent be increased to Ush further incease needSecdon 4.01 1.5 bilion to capitalize (at currentexchange rate) thspecifled US$10 millionftm the IDA CreditUGANDA COMMERCIAL BANK (UJCB)

EcAgmMtiSet Audited accoun to be June 30 each In compli.3.02 submIted withidn 9 months year

of fiscal yearDevelopmet Credit (1) Authorized capital to be In compliance, butAgreee Secdon 4.01 creased to Ush 1 billion fiurher increa

and (2) Governmen topa needed to capitalieat least Ush 180 million (at hecurent

extchange rae)US$65 million from

0630/83 the IDA credi

18

7. Use of Bank Resources

A. Staff LnuM (Not Available)

B. Missions

Stage of erojl Month/ No.of Days in Specia- Performa TypesCXaz... Persons field lization ce Rating of

represented Status proble

r U S~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~i

-Identification 7n9 NA NA NA

-Preparation 4/80 2 16 1 FA M,F,P,0

-Appraisal 8/81 4 17 1 ENG. M,Y3 FA

Appraisal throughBoard ApUXW

Board thirough

Suvision 11/82 1 8 1 FA 2 M,PO

5/83 3 17 2FA 2 M,F,P1 Engr.

10/83 2 8 1 FA 2 M,F,P1 Econ. ,0

5/84 2 9 2FA 3 M,F,P,0

11/84 2 10 2 FA 3 M,F,Pto

7/85 2 NA 2 PA 3 M,F,O

2/86 1 5 1 FA 3 F

6/86 2 2 2FA 3 F

5/87 1 11 I FA 3 F

9/87 1 4 1 FA 2 P,F

7/89 1 4 1 Engr. 2 F,Macro

F=Financial; M=Management; Mac=Macro-economic; O=Organizaflonal; P=Polltical;Pro=Procurement

19

ANt!lB) IPgep I of 1

UGANDA DEVELOPMNT BANK (UWD)

CRARACTERISIICS OF SUtIDPRW1ECTS FINANCED UNDER CREDIT 1243UG

Owerhip Sub- ilfi Sublo(PubIid co (CSS ml

No. Sub4%iM p P (rius Ush(ml

A.1 Seombul Stoel Sag Wio di" PVatb NA 0.91Work. preu

A2 Ugad Tea Ago-id Tea 51% Pubc 9,360 4.05Coip. 49%Private

A3 Bats shoe Leadthw Shoes Private NA 1.00

A.4 TUMPECO BnU naml Warn Publb 29 0.71

A.6 Ugnda Food and BeOr P d 2222 6.41RnwieJ Bovale

A.7 Asoclaed Cheical Batties Prvat 65 0.73

A.8 ULATI Lt TAe Leather Pube 463 0.85

A.9 NYM Textiles colson YAn PubEs 1,249 4.64

A.10 BAT (U) Lld. Agm.ndy Twoao Private 66 1.43Pdw

A.11 Kalira Sugar A duy Suga SIPubio 1,029 3.92Works 49%Pttvte

A.12 Kampala 1ote Food and soft Drinb Private 27 0.27

A.13 Unda Wood Wood Tiber Pvdae NA 0.37

A.14 Sa)utx AVondusry Surial coto Pivth NA 135

AA Weot Nilo Food and Spit Prvate 1,540 1.07Distilling Beveag

A.16 Nalay Eagg. Meal Fabra- Privat 424 037_giedog tUs

TOTAL 16,474 2L0S

Pag lofI

UGANDA DEVELOPMENT BANK (UD)

PEFORMANCE OF SUDROJECTS FINANCED UNDER CREDIT 124U8UG

Coa

EaUded te Compon Job CaymtROg 5G Coat (Ush m) (montal jObS (Ugh UI1idon

IDA Sub.L _ .El .I. AZ P Cd HE I

Snbtae Sel NA NA NA NA NA NA NA NA NA

(D)

UpsndiTT(A) 36 27 26M 9360 36 72 lo0 93 90

DBa Shoe (D) NA NA NA NA NA NA NA NA 20

MPE>CO (A) 35 NA NA 29 12 24 23 1.3 14

Uganza 36 19 166S 2722 NA 21 NIL NIL 75

Bewed. (C)

Asnsocd 40 52 NA 65 NA 36 20 3.2 45

Daed. C)

ULAIn (A) NA NA NA 463 NA 36 NIL NEL 10

NYllL (A) 36 50 344 1249 48 75 75 16.5 25

B.A.T.Ltd (A) NA NA NA 66 NA 24 NIL NIL 87

Kidm Sugr (A) NA NA NA 1029 48 NA 3000 03 so

ampIa BottIm NA NA NA 27 NA 24 NIL NA 10

(A)

Ugpnda Wood 37 29 NA NA 24 NA NA NA Under

I(B) c

Sanyuot (D,B) 51 100 477 NA NA NA NA NA underCOM.

Wst NlC 57 74 436 1540 6 10 63 24.4 7

Dihtig (A)

Nc4 yEng.(C) NA NA 78 424 NA 24 17 25 60

A. b opetiS. Underw onationC. Wini upD. 5 w which da not aible

21

ANNEXMpad I of I

UGANDA DEVELOPMIENT BANK (UDB)

SECTORAL DISllItUllON OF M-PROJECTS FINANCED UNDER CREDIT 124UG

TOTAL IDA Funning

P jetCost S by No. % by (USS % DASecw No. (Ush MilLion) Cost Minlion) Amount

ApoVomsulg 4 10.4S5 27 63 10.72 36

Te~~Pioam 1 1,249 7 a 4.64 14

Foodl Nd Svm 3 3,789 20 23 7.76 32

Luuthor 2 463 13 3 1.86 6

Ehgiasedag 3 453 20 3 2.00 8

Wood 1 NA 7 - 0.37 1

C _emicab 1 65 7 - 0.73 3

TOTAL 1S 16.474 100 100 28.08 100

.1. r

22

Pap I of I

UGANDA DEVELOIMNT BANK (UDI)

INVEMET COSO DSTtISRIUTON OF SU-PROJECTS UNDER CREDIT 12S-IUG

Colt Di ;tu on No. Pojet Cost % by % by IDA Fnancing % by(Ush million) (Ush milion) No. Amount (USS million) Amount

Up to SOO 6 1,074 40 7 4.36 16

5014,10W --

over 1,000 5 15,400 33 93 20.09 72

Not Avadib 4 - 27 - 3.63 12

TOTAL IS 16,474 100 100 28.06 100

23

AMYPig I of 1

UGANDA DEVELOPbENT BANK (UPS)

SIZE DISTRIBUTION OF SUBWLOANS UNDER CREDIT 124SUG

TOTAL IDA Frhwcing

Loansi. P.jat CostDiatibuo (Ushmillion) %byNo. 9 by Amount(USS %by(Ush mil) No. Amount silhlsa) Amount

LAsM..n500 3 451 20 3 1.01 4

501-1.000 5 2.097 33 13 4.27 15

Ovw 1,000 7 13,926 47 S4 22.80 81

TOTAL is 16,474 100 100 2.0 100

"4~~~~~~~~~~V

Pap I of 1

UGANDA DEVEWL IT BANK (UDI)

REPAYMT PERFOANCE OF SU15PROJECTS FNANCED UNDER CR 124UG(As of June 30, 1992)

(Amount in U Sb millon)

1 2 3 4

Armof pdaoipalIDA ad iaw of overSum No. houwe Tot IDA SubLoa 6 mos

A-1 Sembul Ste Mils Ld Nil NA

A-2 UpSd Tea Copoadmn 8,786 4,098

A-3 Bab Sho Nil Ni

AX4 TUMPECO 27 17

A4 Uganda _ia 2,182 3

A-7 Assoiaed B_ater Nil Nil

A- ULATI 4S9 132

A-9 NYML 1226 SS7

A-10 B.AT. (U) Ld. 64 Nil

A-11 KaimSuWork 890 Nil

A-12 Kqupaa Botds 23 21

A-13 U_and Wood tAil_ 337 202

A-14 Sun'1,1m0 474

A-15 Wee Nio Disng 1,105 174

A-16 Naby Bognoubg 414 Nil

TOTAL 16,6S2 67M

25

P&g 1of 2

UGANDA DRLOHRN BANK

O OLo UARREARS OF OVER SIX MONThS(Amovat i.k U Sh .1111c)

AsofDoe3mbm31 19S9 1990 1991 Aof9130192

AhL XmLIQ.hB33ADI Dat Inomphdo fr Put A.

i.La iaii nass

A -d huct

(1+2) dbil, by (2+4)

Pre ia of outudig amaffeced by sucars(2+3) dvdW by (Z+4)

Pdnslpsl Ia cs (U1.Sb mIllon)- Retweem642 moatsa S of tI due for

Ove 12 mouts as S of ldud forP,_n

26

ANN8X snPap2 of 2

UGANDA DEVELOfiNNT BANK

PORTFOUO ARREARS OF OVER SIX MONTIS

(Amount U S Miion)

An of 12M389 12131/90 1211/91 WM

D. DA(Ub m io)

1. Lowptin in anonu 661 130 3.35 5

2. bdumtd cgs in a 898 3,328 7,942 11,609

3. Pdoiu afhecod by auna 4,350 14,707 3,395 19,03

4. Tall p*dl outa_t 5,89 19,646 17,001 19,967'--SW8n c pbOd _or

An to loan ou _al q 23.1 21.1 45.5 S3.5(1+2) divded by (2+4)

Pmiotd= of outsta kn 77.7 78.5 4S.5 969affectd by -(2+3) diIded by (2+4)

w of aamws 88 9 7.5 6

PAO*d A WuMn 9.4 7.3 12.9 IS- etwm 6-12 mo_Aas % of totaldo for r1pyommnd*Ovw12 mootstbas % of totaldis for

27

ANNEX

Pap 1 of I

UGANDA DEVELPM4NT BANK

COMPARAIVE INCOME STATEM(U Sh uiiml)

Yea ended Densbe 13 1984 l9U 19 1987 1988 1989 1990e31 C

IQOOet fiol kou 176 477 2J16 4,074 15 411 601 184

imam boom ahrntm 11 72 207 6W8 30 54 161 417hirnvmaU

To.dtl kom o m 187 549 2,723 4,732 185 465 762 221

L.uu.lnauiuI Eimn 157 666 697 1,= 52 145 290 5A

Net QCmO Inome 30 (117) 2,026 3,480 133 320 472 1,685

Exobaa in 791 1.372 61 571 1,102 1,062

M - HN_ 84 30 98 260 5 16 223 9S

tdaIme 114 (87 2,915 5,112 1" 907 1,797 28

OTHMR EXPRN

Ssjdm and tld do 133 319 712 34 10 268 421

A di' expea 220 448 916 1,07S 6S 12 362 S90

3_lo.s 121 Z - - - - - -

482 873 1,235 1,787 89 242 630 1,011

Piofit beo prov (368) 960 X1,80 3,325 110 665 1,167 1,1forkoanlosms

Pfisoa for w bsan 105 964 766 755 85 355 1,014 2,112

PoJ(Low) br tax (473) (1,94 914 2,606 25 310 53 (81)

Tax 15 187 40 Ss

Not PWo(Lo) (473) (1,799) 914 19 10 12 113

*h.iwUamulboodaub

28

UGANDA DEVELOMENT BANK

COMPARATIVE SALANCE SHE S(U Sb minim)

Asof Dl.31 1983 1 98S 1996 1987 18 1A8 990

Ca em?Auas 2667 4S616 6,143 17,097 611 1,402 3,135 4.9

Lo _Om g 2,503 9,24 19.888 36.140 1.475 354 6. 12,0

:ZSL. 145 1,109 I.8M 2161 111 466 1,480 3.592

CMu 998 1,943 3,973 7,791 389 953 1,69 2,191

No Loam 1360 6,202 14,040 25.718 975 2.085 3.706 6.20

FPmd Asua S5 128 108 258 6 96 274 366

T--WAS 4.0, 106 20.91 4303 1 3.53 7,115 1ll2

CM 1297 1.507 2.194 6,979 231 1.048 2.2 4,71

LAg'_ 2,371 3.892 9.497 19, 986 2037 3,111 5sX

tal Liabti 38 S.9 11,01 26.W7 1.217 30 563 10.106

Rom~Shm CapIa 532 1,143 1,143 1.143 11 11 11 11

itoasma and (729) 52 (1.614) 37 14 137 30 5

Ib

CapM 611 6,932 9,071 14.02 350 350 1.150 1.150

Total alqt 414 5,547 8,600 16.166 375 4" 1,462 1.n6

Tdl Lbill d 4,082 10,946 20,291 4303 12 3X3 7,115 11X232

*oADA hw *0M C 15, 1M87, al mStl ofIumS @ 1 _ i 1Old_up ud bo Cmas b _P .D Sl_t df 1967.

29

ANNEX X

UGANDA BANK (UCI)

ARACTETCS AND PERFORMANCE OF SUI4OECS FINNCED UNDEIt CREDIT 1AWUG(Amou in U Sb milion)

1 2 3 4 S 6 7

Tutu No.of SUIFoj Jobs Cot prSedor b oa UCS Pumoing IMA Plusuiog C_u4 job

Apopossning 34 1,377.1 256.8 84.9 739 1.9

DUIMA 13 672 51.9 468A 415 1A

CloSn 8 1796 48 101.9 1S0 1.0

GraPu 7 4283 17.9 324.7 151 2.8

CUz " 4 101.1 465 31.3 141 0.7

Sowp 3 470.6 181.1 19A 72 6X

Mindg 2 431. .9 211.3 46 94

Kom 2 29.8 1.8 22.1 63 OS

survis 2 110.0 2.4 82 36 3.1

_da. s 219.8 17.6 15..3 121 1.8

TOTAL S0 4.6 714.7 2,437X 196 2.1

30

aExI2PFli 1 of 1

UGANDA COMMERCIAL BANK (UCI)

SZE DISTRIDUTION OF SW-LOANS FINANCED UNDER CREDIT 1248.UG(Amoh in U Sb mil'ion)

TOTAL UCB LOAN IDA SUB-LOAN

No.ofSub- P%j. %by % by %by by

Loa Si= lom Cot No. AML Amount Amot Amount Amount

Up to o 63 1,136 36 41 15 22 981 40

51-1-o 12 1.24 39 34 398 54 834 34

ova 10 5 792 25 25 170 24 23 26

7TOAL SO 3,152 100 100 723 100 t438 100

3L

ANNEX XltPage 1 of I

UGANDA COMMERCIAL BANK

PORTFOUO ARREAtS OF OVER 6 MONTHS

As of 12131/89 123190 12/31/91 6130192

IDA iUB4LOANS (U.Sh milion)

1. Low prinolplinnan 1l 103 154 247

X. JntsuzsagdObargeiuianat 27 170 487 585

3. ncipal a- dby amu 95 433 403 597

4. To l prin loutstading 411 1,034 2,063 2,438iuinRg capk_Hzod inst

M~%

Anwazw ton outsading 8.5 22.6 25 28(1+2) dvided by (2+4)

P;op!imn of ou-ading loan 27.9 SO 34.6 39.1datd by (2+3) dvided by (2+4)

A" of am

PtIn*pa inaus-Btwum 6-12 moads s % of totd. fo psymm 3.5 12.2 7.1 4.1Oer 12 modas % of toal u for

-PyM 1.7 S.5 15.4 11.7

32

6NNI!X XMPap I of 1

UGANDA COMMERCLAL BANK

COPWARATIVE INCOME SFrAITENNTS(U Sh wa)

PY e -Sqtpmbr 30 1983 1984 1985 1986* 1987 1988 1989 1990 1991

INOMP,

hnsa and 2,122 3,180 9,422 242 658 1,788 5,736 10,048 15,175DiuaounA

Other income 346 1,204 5,636 91 322 872 2,402 3,345 6,036

Totbl income 2,46R 4,384 15,OS7 333 980 2,660 8,N18 13,403 21,211

bltuon 409 814 2,059 50 123 373 2,392 3,652 6,052

Sabuus and 719 1,158 2,714 57 172 683 1,989 3,828 4.538Aflowance

Adma.and Odher 550 1,017 5,179 67 294 1.268 3,112 5,390 7,050

Depresiados NA 475 585 5 8 27 88 217 1,016

Proviosm 55 556 3,723 41 44 8 4,535 3,895 4,972

Told xpme 2,236 4,020 14,260 220 641 2,359 12,116 16,982 23,628

Chwtifisl homnS 262 364 798 113 339 301 (3,978) (3,579) (2.417)

lAs TaXation 131 - - 172 29 - -

131 364 798 113 167 272 (3,978 (3579) (2,417)

EbDz2aaa~iusry ite 256 (393) (524) (19)

Net Produ(LoAW) 131 364 798 113 167 15 (4,371) (4,103) (2,436)

* N FlgtW for FY86 have bean s_d i. n am shilnsp o foolte conMpuailc wth figmes for .wbssqnmt Yau=;the Cwunuy Returns StRtote of 1987 rqd convasnio of al monotazy buactions 6 1 nCw sV h100 old iseffusv May 15, 1987.

33

Pgplofl

UGANDA COMERCIAL BANK (UC3)

COMPARAWM BALNCE SHEETS(U b Mio)

As of Sept.30 1983 1984 198 1986 198? 1988 1989 1990 1991

Cush ad Bak 5,584 155 31,700 820 1524 2,461 2,605 8,715 13,499

hwasumn 916 829 2,541 63 87 278 418 715 1,276Advane and 18,460 20,842 58,367 1,195 3,486 9,955 23,865 32,8 52,600Qlhs Accor s

Total Curent 24,960 37,216 92,608 2,078 5,097 12,694 26,888 41,9 67,375Acw

Net Fnwd Ass 12,238 12.0S6 12,500 139 224 696 1,831 29,651 29,563Totl Auet 37,199 49,272 105,108 2,217 5,321 13,390 28,719 71,649 96,938LMNLfflFB

Cune Depot 16,551 26,745 64,27S 2,00 5,028 11,821 27,865 49,023 65,732aN Other A/Cm

Bs Paab 8,200 9,864 27,771

Bank Ovoa*n 824 703 87Cumet Lib. 24,751 3660A9 92,046 2,065 5,028 11,821 28,69 44,726 66,602TWO l ides lH 126 3,711 7,079 12,590ToWa Labiitis 24,751 36,609 92.046 2,065 5,028 13,086 32,400 s1,805 79,192Share aital S00 500 S0 5 91 91 199 199 199Reserves 11,826 11,981 12,214 147 201 177 203 26,975 26,975Rtained 78 137 302 35 (4,531) (8J34) (11J070)Pm&/(lous)

GOvL Funds 44 45 47 1 448 1,304 1,642Totd Equity 12,448 12,663 13,063 152 292 304 (3,681) 19,844 17.746

Toa bilities 37,199 49,272 105,108 2,217 5,321 13,390 28,719 71,49 96,938and Equity

Gousas entc 6,193 21,269 16,212 282 159 2j,85 3,564 6,199

* Now Figu hr FY86 bho be std in shllins to hd_ o_mpwismw pth sr sw_*.apintymto Cuneq Rans Staw of 1987 requird tha al mosetayr utisa and eob_lalo be _ot 0 gm _shillg br 100 oM ahilup wkb elfet ft. May 15, 198?.