Document of The World Bank Report No: ICR 2073 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-39750) ON A CREDIT IN THE AMOUNT OF US$70 MILLION EQUIVALENT TO THE GOVERNMENT OF UGANDA FOR A SECOND PRIVATE SECTOR COMPETITIVENESS PROJECT August 28, 2013 Finance and Private Sector Development Country Department AFCE1 Africa Region     CURRENCY EQUIVALENTS (Exchange Rate Effective February 28, 2013) Currency Unit = Uganda Shilling UGS 2,653 = US$1.00 US$1.00 = 0.66 SDR FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS   BUDS Business Uganda Development Scheme CAS Country Assistance Strategy CISC Competitiveness and Investment Climate Strategy CRB Credit Reference Bureau DANIDA Danish Development Assistance Authority DCA Development Credit Agreement DFID Department for International Development (United Kingdom) ESL Enterprise Skills and Linkages program EU European Union FIAS Foreign Investment Advisory Services FDI Foreign Direct Investment ICR Implementation Completion and Results Report IDA International Development Association (World Bank Group) IFC International Finance Corporation (World Bank Group) INT Integrity Vice Presidency (World Bank Group) IRR Internal Rate of Return ISR Implementation Status Results Report KIBP Kampala Industrial Business Park LIS Land Information System M&E Monitoring and Evaluation MSMEs Micro, small, and medium enterprises NPV Net Present Value PAD Project Appraisal Document PDO Project Development Objective PFSU Private Sector Foundation Uganda PSC Project Steering Committee PSCP II Second Private Sector Competitiveness Project QALP Quality Assessment of Lending Portfolio SCD Securities Central Depository UIA Uganda Investment Agency ULRC Uganda Law Reform Commission UNBS Uganda National Bureau of Standards URSB Uganda Registration Services Bureau USAID United States Agency for International Development Vice President: Makhtar Diop Country Director: Philippe Dongier Sector Manager: Irina Astrakhan Project Team Leader: Moses Kibirige ICR Team Leader: Susan Hume     GOVERNMENT OF UGANDA SECOND PRIVATE SECTOR COMPETITIVENESS PROJECT CONTENTS A. Basic Information ........................................................................................................................ i B. Key Dates .................................................................................................................................... i C. Ratings Summary ........................................................................................................................ i D. Sector and Theme Codes............................................................................................................ ii E. Bank Staff ................................................................................................................................... ii F. Results Framework Analysis ..................................................................................................... iii G. Ratings of Project Performance in ISRs ................................................................................. viii H. Restructuring ............................................................................................................................. ix I. Disbursement Profile .................................................................................................................. ix 1. Project Context, Development Objectives, and Design ............................................................ 1 2. Key Factors Affecting Implementation and Outcomes ............................................................ 7 3. Assessment of Outcomes ........................................................................................................ 18 4. Assessment of Risk to Development Outcome ....................................................................... 28 5. Assessment of Bank and Borrower Performance ................................................................... 29 6. Lessons Learned...................................................................................................................... 31 7. Comments on Issues Raised by Borrower .............................................................................. 32 Annex 1 Project Costs and Financing ........................................................................................... 33 Annex 2 Outputs by Components ................................................................................................. 34 Annex 3 Economic and Financial Analysis .................................................................................. 48 Annex 4 Bank Lending and Implementation Support / Supervision Processes............................ 57 Annex 5 Borrower’s ICR .............................................................................................................. 60 Annex 6 List of Supporting Documents ....................................................................................... 65 MAP     A. Basic Information Private Sector Country: Uganda Project Name: Competitiveness II (PSCP II) Project ID: P083809 L/C/TF Number(s): IDA-39750 ICR Date: 08/28/2013 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: UGANDA Original Total XDR 47.90 million Disbursed Amount: XDR 33.03 million Commitment: Revised Amount: XDR 33.03 million Environmental Category: B Implementing Agency: Private Sector Foundation Uganda (PSFU) B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/08/2003 Effectiveness: 02/01/2005 06/22/2005 Appraisal: 04/26/2004 Restructuring(s): 02/03/2009 Restructuring 2 01/26/2012 Approval: 09/02/2004 Mid-term Review: 12/2008 11/05/2008 Closing: 07/31/2010 02/28/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Unsatisfactory Risk to Development Outcome: Moderate Bank Performance: Unsatisfactory Borrower Performance: Unsatisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Unsatisfactory Unsatisfactory Implementing Quality of Supervision: Unsatisfactory Unsatisfactory Agency/Agencies: Overall Bank Overall Borrower Unsatisfactory Unsatisfactory Performance: Performance: i     C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Indicators Rating Performance Assessments Potential Problem Project Quality at Entry April 28, 2008 Yes at any time (Yes/No): (QEA): Quality Assessment of Lending Portfolio The likelihood of achieving development outcomes was rated as 3 (moderately Quality of unlikely), before Problem Project at any Yes Supervision implementation of the review’s time (Yes/No): (QSA): recommendations, and 2 (moderately likely) after recommendations were to be taken on board. DO rating before Moderately Closing/Inactive status: Unsatisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agro-industry 30 30 Law and justice 20 20 Micro- and SME finance 30 30 Other domestic and international trade 10 10 Other industry 10 10 Theme Code (as % of total Bank financing) Infrastructure services for private sector development 13 5 Export development and competitiveness 25 30 Micro, Small and Medium Enterprise support 25 30 Rural Markets 24 20 Legal Institutions for a market economy 13 15 E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Callisto Madavo Country Director: Philippe Dongier Judy O'Connor Sector Manager: Irina Astrakhan Demba Ba Project Team Leader: Moses Kibirige Michael Wong ICR Team Leader: Susan Hume     ii     F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document)   The project's development objective is to create sustainable conditions for enterprise creation and growth that responds to local and export markets. The project, which will reduce the cost of doing business and encourage investment, will enable the private sector to be better positioned to respond to opportunities in specific categories of the market. The project will increase the number of formal enterprises, the number of people employed and the number of skilled employees leading to an increase in output per worker.     Project Development Objectives (as noted in the Development Credit Agreement) The objective of the Project is to support the Borrower's efforts for creation of sustainable conditions conducive to enterprise development and growth, encouraging investment, facilitating private sector development, increasing micro, small and medium enterprises, increasing competitiveness in local and export market, and employment opportunities in its territory, through: (a) reduction of the cost of doing business; and (b) improvement of business environment and public-private dialogue. (a) PDO Indicators Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years 1 Direct project beneficiaries (core indicator) Not original; Number Not provided Not provided 3,010 indicator added Date achieved Dec. 31, 2012 Comments Target considered not achieved; no target was indicated. 2 Female beneficiaries (core indicator) Percentage / Not original; Not provided Not provided 43% breakdown indicator added Date achieved Dec. 31, 2012 Comments Target considered not achieved; no target was indicated. 3 Investments licensed (Component 3) Not original; Number (annual) Not provided Not provided 344 indicator added Date achieved Dec. 31, 2012 Comments Target considered not achieved; no target was indicated. 4 Number of individual investors in the stock market (Component 1) Not original; Number 37,603 60,000 48,114 indicator added Date achieved Dec. 31, 2012 Comments Target partially achieved. iii     Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years 5 Number of days to access land records (Component 3) Days 435 instantaneous N/A instantaneous Date achieved Feb. 28, 2013 Comments Target achieved. 6 Time taken to register a business (Component 3) Days 135 2 N/A 2 Date achieved Feb. 28, 2013 Comments Target achieved. 7 Number of skilled employees in supported projects (Component 2) Not original; Number 0 Not provided 2,996 indicator added Date achieved Dec. 31, 2012 Comments Target considered not achieved; no target was indicated. 8 Total output per worker (Component 2) Annual amount 1,085 1,630 N/A Not available (US$) Date achieved Comments Target considered not achieved; no end-project result indicated. 9 Exports of traditional commodities (Component 2, 3) Annual amount Not original; 288,000 760,000 678,000 (US$) indicator added Date achieved Dec. 31, 2012 Target largely achieved. However, indicator is poor given inability to attribute to Comments project activities. 10 Credit extended to private sector as percentage of GDP (Component 1) Percentage Not original; 8.1 22 16.9 breakdown indicator added Date achieved Dec. 31, 2012 Target partially achieved. However, indicator is poor given inability to attribute Comments to project activities. 11 Exports of non-traditional commodities (Component 2, 3) Annual amount 674,000 2,500,000 N/A 1,832,860 (US$) Date achieved Dec. 31, 2012 Target partially achieved. However, indicator is poor given inability to attribute Comments to project activities. 12 Number of enterprises registering new formal businesses (Component 3) Number 10,689 15,000 N/A 22,869 Date achieved Dec. 31, 2012 Comments Target achieved. iv     Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years 13 10,000 new jobs created in the formal sector by project end (Component 2) Not measured Number 15,534 (annual) 10,000 N/A correctly Date achieved Dec. 31, 2012 Target considered not achieved; no end-project result indicated. However, other Comments results indicate that this objective was likely to have been achieved. (b) Intermediate Outcome Indicators Number of additional firms that have obtained proper certification of their 14 local products (Component 3) 100 firms 236 firms Number Not provided N/A 350 products 596 products Date achieved Feb. 28, 2013 Comments Target achieved. 15 Time to register a property (land and buildings) (Component 3) Days 225 less than 3 N/A 52 Date achieved Feb. 28, 2013 Comments Target partially achieved. 16 Total number of additional titles issued annually (Component 3) Not original; Number 44,750 3,500 7,616 indicator added Date achieved Dec. 31, 2012 Comments Target achieved. 17 Volume of sales revenue of firms supported by the project (Component 2) Amount Not original; 40 60 Not available (US$ million) indicator added Date achieved Comments Target considered not achieved; no end-project result indicated. 18 Value of dollars disbursed, BUDS (Component 2) Amount Not original; 0 3,000,000 3,700,000 (US$ million) indicator added Date achieved Dec. 31, 2012 Comments Target achieved.     v     Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years 19 Value of dollars allocated, BUDS (Component 2) Amount Not original; 0 3,000,000 5,800,000 (US$) indicator added Date achieved Feb 28, 2013 Comments Target achieved. 20 Number of BUDS grants issued to firms, BUDS (Component 2) Not original; Number 0 1,383 1,312 indicator added Date achieved Dec. 31, 2012 Comments Target achieved. 21 Mortgage lending as a percentage of total portfolio (Component 1) Not original; Percentage 0 20 15 indicator added Date achieved Dec. 31, 2012 Comments Target partially achieved. Number of financial and non-financial matching grants approved 22 (Component 1) Not original; Number 0 120 170 indicator added Date achieved Dec. 31, 2012 Comments Target achieved. 23 Volume of Bank Support: Institutional Development – SME (Component 1) Not original; 3,692,100 Amount (US$) 0 3,500,000 indicator added (cumulative) Date achieved Dec. 31, 2012 Comments Target achieved. Number of savings accounts in financial institutions supervised by BOU 24 (Component 1) Not original; Number 2,011,104 3,500,000 4,977,342 indicator added Date achieved Feb. 28, 2013 Comments Target achieved. 25 Value of dollars disbursed, Matching Grants (Component 2) Not original; Amount (US$) 0 4,400,000 4,452,696 indicator added Date achieved May 31, 2013 Comments Target achieved.     vi     Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years 26 Number of new laws/regulations/amendments/codes enacted (Component 3) Not original; Text 0 21 18 indicator added Date achieved May 31, 2013 Comments Target partially achieved. 27 Number of commercial laws revised (Component 3) Not original; Text 42 21 21 indicator added Date achieved Feb. 28, 2013 Comments Target achieved. Core function of PSFU is financially sustainable, as measured by own 28 income coverage over core costs (Component 3) Percentage 125 400 N/A 235 Date achieved Dec. 31, 2012 Comments Target not achieved. 29 Percentage of government land surveyed (Component 3) Percentage 0 100 N/A 5 Date achieved Feb. 28, 2013 Comments Target not achieved. Percentage of land titles, cadastral sheets indexed and scanned (Component 30 3) Percentage 0 100 N/A 100 Date achieved Feb. 28, 2013 Comments Target achieved. Number of BBL sub-projects (number of Ugandan brands created) 31 (Component 2) Number 0 3 10 10 Date achieved Feb. 28, 2012 Comments Target achieved. Percentage of women participated in the two pilot programs of ESL 32 (Component 2) Not original; Percentage 0 30 57 indicator added Date achieved Feb. 28, 2013 Comments Target achieved.     vii     Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Percentage of ESL participants that have passed the competency tests after 33 the trainings (Component 2) Not original; Percentage 0 30 96 indicator added Date achieved Feb. 28, 2013 Comments Target achieved. 34 Value of dollars allocated, Matching Grants (Component 2) Not original; Amount (US$) 0 4,400,000 4,084,533 indicator added Date achieved Feb. 28, 2013 Comments Target largely achieved. 35 Number of firms located in the industrial areas (KIBP) (Component 1) Number 0 25 N/A 5 Date achieved Feb. 28, 2013 Comments Target not achieved. 36 Leasing lending as a percentage of total portfolio (Component 1) Not original; Amount (US$) N/A Not monitored indicator added Date achieved Comments Target considered not achieved; not monitored. G. Ratings of Project Performance in ISRs Date ISR Actual Disbursements No. DO IP Archived (US$ millions) 1 11/19/2004 Satisfactory Satisfactory 0.00 2 06/24/2005 Moderately Unsatisfactory Satisfactory 0.00 3 12/20/2005 Satisfactory Satisfactory 1.14 4 06/22/2006 Satisfactory Satisfactory 3.83 5 12/07/2006 Satisfactory Satisfactory 6.19 6 12/18/2006 Satisfactory Satisfactory 6.19 7 06/28/2007 Satisfactory Satisfactory 6.19 8 12/27/2007 Moderately Satisfactory Moderately Satisfactory 10.64 9 06/13/2008 Satisfactory Satisfactory 12.64 10 12/18/2008 Satisfactory Satisfactory 17.53 11 06/28/2009 Satisfactory Satisfactory 21.69 12 12/27/2009 Moderately Satisfactory Moderately Satisfactory 27.45 13 06/30/2010 Moderately Unsatisfactory Moderately Unsatisfactory 31.42 14 03/26/2011 Moderately Unsatisfactory Moderately Satisfactory 33.60 15 10/01/2011 Moderately Satisfactory Moderately Satisfactory 36.36 16 07/02/2012 Moderately Satisfactory Moderately Satisfactory 43.54 17 01/06/2013 Moderately Satisfactory Moderately Satisfactory 46.99 18 02/26/2013 Moderately Unsatisfactory Moderately Unsatisfactory 47.76 viii     H. Restructuring ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP (in US$ millions) Extend project closing date; reallocate funds within disbursement categories; 02/03/2009 N/A S S 17.53 expand scope of financial services component; increase amount for operating costs Extend project closing date; modify indicators; reallocate among disbursement 01/26/2012 N/A MS MS 39.3 categories; cancel Component 1.1; formalize changes in project indicators made at time of Mid-Term Review I. Disbursement Profile       ix     1. Project Context, Development Objectives, and Design 1.1 Context at Appraisal Country and Macroeconomic Context 1. Over the decade proceeding preparation of the Second Private Sector Competitiveness Project (PSCP II) in 2003, sound overall macroeconomic management, improvements in the regulatory environment, and financial sector restructuring along with relative political stability provided a sound basis for private sector growth and led to an improvement in Uganda’s standing in the Africa’s Business Competitiveness Index (ranked 13th in Africa in the 2003-2004 Global Competitiveness Report). The Ugandan private sector was characterized by a large degree of informality and poor competitiveness. A 2004 Investment Climate Assessment underlined key constraints to private sector growth, specifically high interest rates and the cost of financing. The increases in interest rates were caused by public sector deficits and the high costs of operating in the financial sector. Although the main factor leading to high interest rates was explained by the Government’s monetary policy to control inflation, financial institutions reported a wide range of issues. These included: insecure collateral, low payment morale, and a lack of appropriate instruments to fit small-client needs, all of which contributed to the high cost of administering loans, in particular to micro, small, and medium enterprises (MSMEs). 2. The Government’s poverty strategy emphasized the need to transform the economy through private investment, industrialization, and exports. The Government’s Poverty Eradication Action Plan focused on two keys areas to enhance incomes: (i) MSMEs engaged in off-farm manufacturing and service provision; and (ii) small-holder agriculture. Consistent with this objective, the Government’s Medium-Term Competitiveness Strategy detailed key reform priorities and policies. Reform priorities included: commercial law and its application; the regulatory and administrative framework governing business transactions; land registration; and improvements in infrastructure services, including the regulatory framework for utilities. 3. In order to achieve the objectives of the Poverty Eradication Action Plan, the aim was to increase exports by 10 percent per year. Lack of export growth had been considered a fundamental weakness of the Ugandan economy; fluctuations in export revenues reflected the vulnerability of the Ugandan export economy caused by a lack of diversification and a dependency on commodity markets (primarily coffee, tea, and cotton). Supporting the growth of other commodity exports (such as vanilla and horticulture) was meant to increase revenue in the short term. In the medium term, however, diversification was considered a priority especially related to higher value added manufactured goods and services. This, in turn, entailed developing exports for specialized markets, such as certified organic products and prepackaged fruits and flowers. Sector Background 4. While the prevailing Medium Term Competitiveness Strategy supported some improvements in the investment climate, they only led to growth in traditional agricultural and manufacturing sectors. Uganda’s private sector, particularly MSMEs, was slower to respond to market opportunities relative to other countries in Africa or Asia. The private sector, including agriculture, was the major source of employment. In the formal sector non-farm enterprises 1      (estimated at 160,000 firms) employed over 444,000 workers with the majority of workers employed in MSMEs. Although it was acknowledged that employment figures were inaccurate, an estimated 300,000 new job seekers per year were needed to be absorbed by the informal sector, which together with MSMEs accounted for an estimated 1.5 million workers. The accelerated growth of MSMEs, together with greater mobility from informal to formal status, was considered important to poverty reduction. The formalization of MSMEs would, among other benefits, increase their access to financial and technical services. 5. At the time of project design the key constraints affecting the business environment were: the inadequate provision of services in the land and business registry; an outdated legal framework in selected areas; and inefficiencies in trade-related support institutions, including customs and standards. In addition, there were numerous firm-level constraints facing the private sector, especially labor productivity and capacity utilization rates which were lower in small firms. This reflected under-investment in training and limited supply of management skills in MSMEs. Moreover, larger firms were excessively dependent on vertical integration caused by the need to develop in-house capacity, even when not the most efficient producer, due to lack supplier reliability. 6. Access to land and infrastructure were also major impediments to enterprise growth. Enterprises surveyed indicated that limited access to land was a key constraint and impeded expansion in original locations. Existing industrial areas were congested, prone to flooding, and poorly located from an urban planning perspective. Only 20 percent of the available land was registered because acquiring clear title was difficult. At the time of project design, access to telecommunications services and reliability of electricity were also serious issues. 7. These business development challenges were compounded by the high cost of and limited access to financing. Although it is noteworthy that reforms had greatly improved the soundness of the banking sector, these improvements had not yet reduced the cost of financing or increased lending to the private sector. Commercial banks financed only 13.5 percent of new investments, mostly to established clients. In addition, the level of risk to lend to MSMEs was perceived as high, as was the high cost of administering such loans. 8. Despite these constraints, there were a number of investment opportunities in Uganda that were producing higher returns compared to other investment locations in Africa. Analysis had identified a comparative advantage in the production of some grain products and horticulture. Exports in fish, vanilla, and floriculture were also emerging as major non-traditional exports. And, opportunities for production of high value-added semi-processed and packaged agricultural products were also identified. Rationale for Bank Assistance 9. As the PSCP II went to the World Bank Executive Board for approval in September 2004, the Uganda Joint Assistance Strategy was under final preparation and was closely aligned with the Government’s new Poverty Eradication Action Plan. Although PSCP II had not been explicitly mentioned in the 2000-2003 Country Assistance Strategy (CAS), its objectives were entirely consistent with that CAS as well as the forthcoming Joint Strategy. Specifically, PSCP II intended to address a core objective of the Poverty Eradication Action Plan -- increase employment by increasing non-farm and farm-level income opportunities. While poverty 2      assessments confirmed a reduction in non-income poverty and increasing access to education and health services, income poverty was actually rising. The PSCP II also complemented the ongoing IDA-financed Poverty Reduction Support Credit which focused mainly on non-income poverty and strengthening of public institutions that provide services to the private sector. 10. PSCP II built upon the institutional and policy reforms initiated under the first project PSCP I1, which sought to improve the business environment by: reducing policy constraints; strengthening institutions that provide services to the private sector, specifically the Private Sector Foundation Uganda (PSFU) and the Uganda Investment Agency (UIA); and enhancing the private-public dialogue. PSCP II also sought to continue support to firms to alleviate problems associated with inadequate know-how. This would be done through the Business Uganda Development Scheme (BUDS), considered one of the most successful matching grants program in Sub-Saharan Africa and which had been established under the PSCP I under the management of the PSFU. Based on the Implementation Completion Report for PSCP I (June 26, 2003; No 2621) the activities of that project were considered genuinely private sector-driven and the project met or exceeded all expected outcomes, contributing to a significant increase in FDI. PSCP I had also supported the establishment of what was considered to be one of the most dynamic public-private dialogues in Africa. 1.2 Original Project Development Objectives (PDO) and Key Indicators 11. PSCP II was intended to create sustainable conditions for enterprise creation and growth that would respond to local and export markets. As stated in the Project Appraisal Document (PAD): “The overall objective of the project is to create sustainable conditions for enterprise creation and growth that responds to local and export markets. The project, which will reduce the cost of doing business and encourage investment, will enable the private sector to be better positioned to respond to opportunities in specific categories of the market. The project will increase the number of formal enterprises, the number of people employed and the number of skilled employees leading to an increase in output per worker.� 12. The PDO was worded, however, differently in the legal Development Credit Agreement (DCA): “The objective of the Project is to support the Borrower's efforts for creation of sustainable conditions conducive to enterprise development and growth, encouraging investment, facilitating private sector development, increasing micro, small and medium enterprises, increasing competitiveness in local and export market, and employment opportunities in its territory, through: (a) reduction of the cost of doing business; and (b) improvement of business environment and public-private dialogue.� 13. Despite being worded differently, both versions of the PDO emphasize creating sustainable conditions for enterprise development and growth, reduction in cost of doing business, and increasing competitiveness in local and export markets. Notwithstanding the fact                                                              1 Private Sector Competitiveness Project; PSCP I; US$12.3 million; Cr. 27980; closed December 2002. 3      that the PAD version of the PDO was the one that was consistently monitored, this Implementation Completion and Results Report (ICR) is obliged to evaluate the PDO as it appears in the legal agreement.2 In either case, however, the PDO was too high-level. As a consequence, in many instances it is difficult to attribute the project activities to intermediate results (discussed in Sections 2.3 and 3.2). 14. Unfortunately, the key PDO indicators and intermediate outcome indicators were inconsistently noted and reported. In the PAD there were four key PDO indicators (the original four are noted with “*� below) and 14 intermediate indicators.3 The final Implementation Status Results Report (ISR), however, reflected 13 PDO indicators and 22 intermediate indicators, in part reflecting changes in the indicators formalized during the second restructuring (January 2012). Of the 9 PDO indicators added, a few were core indicators (e.g., female beneficiaries) that reflected the Bank’s evolving approach to M&E. In addition, one indicator was included in the second restructuring but was not monitored or noted in the final ISR. For the purposes of this ICR (including the Data Sheet), the list below of 36 indicators are assessed.                                                              2 Until 2012, all ISRs noted the PDO as it appeared in the PAD. After the second project restructuring in January 2012, the ISRs used the PDO as it appeared in the DCA. In any case, the PDO had not been revised. 3 The DCA did not make any specific reference to the results framework. However, the Project Agreement between the Bank and PSFU (dated February 23, 2005) did include performance indicators (generally consistent with the PAD’s intermediate result indicators) but did not include the PDO outcome indicators.  4      Indicators in final ISR (reflecting revised results framework when project was restructured in January 2012) * Indicator noted in PAD # Indicator noted in PAD but revised in restructuring PDO indicators 1 Direct project beneficiaries 8 Total output per worker * 2 Female beneficiaries 9 Exports of traditional commodities 3 Investments licensed 10 Credit extended to the private sector as % of GDP 4 No. of individual investors in the stock 11 Exports of non-traditional commodities * market 12 No. of enterprises registering new formal 5 No. of days to access land records businesses * 6 Time taken to register a business 13 10,000 new jobs created in the formal sector * 7 No. of skilled employees in supported projects Intermediate outcome indicators 14 No. of additional firms that have obtained 25 Value of dollars disbursed, Matching Grants proper certification of their local products * 26 No. of new laws/regulations/amendments/codes 15 Time to register a property (land and enacted buildings) * 27 No. of commercial laws revised 16 Total no. of additional titles issued annually 28 Core function of PSFU financially sustainable* 17 Volume of sales revenue of firms supported 29 % of government land surveyed * by project 30 % of land titles, cadastral sheets indexed and 18 Value of dollars disbursed, BUDS scanned # 19 Value of dollars allocated, BUDS 31 No. of BBL sub projects (no. of Ugandan brands 20 No. of BUDS grants issued to firms created # 21 Mortgage lending as a % of total portfolio 32 % of women participated in two pilots of ESL 22 No. of financial and non-financial matching 33 % of ESL participants that have passed the grants approved competency tests after the trainings # 23 Volume of Bank Support: Institutional 34 Value of dollars allocated (matching grants) Development - SME 35 No. of firms located in industrial areas (KIBP)* 24 No. of savings accounts in financial institutions supervised by BOU Intermediate indicators included in revised results framework but not in final ISR 36 Leasing lending as a percentage of total portfolio Intermediate indicators dropped or revised in revised results framework 1 Land access and site development reduced from 435 days to 70 days Dropped 2 Debt/equity ratio of MSME on avg reduced from 92/8 to 90/10 by MTR and to 80/20 Dropped 3 % of investment loans to MSMEs increased from 15% of total investment to 17% by MTR, and to 25% Dropped 4 No. of skill training graduates increased steadily Revised 5 Firm-level investment on labor increased by $2 million by MTR and by $5 million (US$) Dropped 6 90,000 titles, 2,500 cadastral and index maps, 1,500 valuation rolls, and 350 property registries updated in the corresponding number of parishes and districts Revised 7 Records completed in at least 150 districts (10% in yr 1, 35% in yr 2, 70% in yr 3, and 100% in yr 4) Revised 5      1.3 Revised Components and Key Indicators, and Reasons/Justification 15. The project was restructured twice, in February 2009 and January 2012. The first project restructuring involved extending the closing date from January 31, 2010 to January 30, 2012 and made some adjustments (e.g., reallocated funds from “unallocated� category and other reallocations within the disbursement categories; expanded scope of financial services component; increased the amount for operating costs by about 27 percent). 16. For the second restructuring, the project was extended to February 28, 2013. This second restructuring also reallocated credit proceeds among different disbursement categories. In addition, it cancelled the Infrastructure Services Component 1.1 due to procurement, environmental, and management concerns in the construction of the Kampala Industrial Business Park (KIBP). This reduced the credit amount by US$21.5 million, thus from US$70 million to US$48.5 million. As a result, only the land development sub-component remained active, which aimed to complete the high priority Land Information System (LIS) contract of US$11 million. All the other components were closed on January 30, 2012. 17. The January 2012 restructuring also sought to formalize changes in project indicators which were adjusted at the time of the Mid-Term Review in 2008. (See Section 2.3) The PDO was not revised during the project. As previously noted, however, there were many changes to the indicators. It is noteworthy that these changes were not formalized until the second restructuring when all components were closed except the land sub-component. In terms of the two result indicators associated with the dropped Infrastructure Services sub-component 1.1, one was maintained (number of firms located in the industrial park) and the other was dropped (land access and site development reduced from 435 days to 70 days by project end). Overall, however, it is unclear which indicator changes were actually agreed upon during the Mid-Term Review versus those introduced later at the time of the second restructuring, since the indicators in the respective documents do not align. 1.4 Main Beneficiaries 18. The primary target group for this project, as identified in the PAD, was private enterprises especially MSMEs. This group was targeted in order to have better access to business development services and finance and to benefit from an improved investment climate. In addition, owners of land that were to be registered by the project were also a target beneficiary group; they would have improved land security and be able to transfer land more quickly. Women were specifically targeted to benefit from the infrastructure facilities planned for the industrial zone (sub-component 1.1); this sub-component, however, was cancelled. In addition, women were targeted by the Enhancing Enterprise Competitiveness (Component 2) and Land Registration (Component 3) activities. 19. The other beneficiaries included the implementing agencies and their respective stakeholders: Ministry of Finance; PSFU; UIA; Ministry of Lands, Housing and Urban Development; Ministry of Justice; Uganda Law Reform Commission; Bank of Uganda; Uganda Bureau of Standards; Uganda Registration Services Bureau; and Uganda Securities Exchange. 6      1.5 Original Components (as approved) The project funded three components. 20. Component 1: Developing Infrastructure and Financial Services (US$30 million): The objective of this first component was to provide priority infrastructure and related facilities to support the growth of the industrial and business sector, particularly through enhancing the availability of serviced industrial land in a modern, well-planned industrial park. The project included the development of serviced industrial land and improvements in the provision of financial services. This was to be achieved by: (i) providing infrastructure facilities in the form of serviced land for primarily industrial and business activities at a new industrial park at Namanve located 11 kilometers east of Kampala (KIBP); and (ii) supporting financial institutions with institutional building grants to develop and introduce products suitable for MSMEs. 21. Component 2: Enhancing Enterprise Competitiveness (US$14 million): This component aimed to improve enterprise creation and growth, particularly in MSMEs, by changing enterprise behavior toward investment in skills (especially for women), raising productivity and improving the quality, standards, and reliability of MSME producers participating in export value chains. This was to be achieved by scaling-up the ongoing matching grant scheme implemented successfully under the PSCP I. In addition, new schemes were to be developed to target: (i) improving technology; (ii) improving skills; (iii) supporting creation innovative products and new lines of business by providing grants through a business plan competition scheme; and (iv) improving financial management of MSMEs to help increase their access to finance. 22. Component 3: Improving the Business Environment (US$26 million): This project component sought to strengthen the underlying legal, regulatory, and institutional structures. It addressed critical issues in the business environment, including: (i) the land registry; (ii) the business registry; (iii) the Uganda Bureau of Standards; and (iv) the commercial legal reform process. In addition, it sought to strengthen the public-private sector partnership and dialogue started under the PSCP I. This was also to encompass the transformation of the privatization unit within the Ministry of Finance and the preparation of PPP legislative and regulatory framework. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design, and Quality at Entry Note: A Quality Assessment of Lending Portfolio (QALP) review on this project was prepared, dated April 28, 2008. The likelihood of achieving development outcomes was rated as 3 (moderately unlikely), before implementation of the review’s recommendations, and 2 (moderately likely) after recommendations were to be taken on board. 23. When the project was prepared there was limited available space in the country’s lending program. Hence, Bank country and sector management needed to decide whether to focus on just a few private sector-related constraints – a Specific Investment Loan, or take a more comprehensive approach by addressing a broader set of issues – a programmatic lending 7      instrument and sector wide approach. A programmatic support program was rejected since the government had not yet prioritized the various reforms, policies, and activities. Given the focus on technical assistance, training, and physical investment needed at that time, the SIL instrument was considered a better option. Moreover, there was also a desire by Bank management at the time to consolidate activities into larger projects in order to achieve administrative efficiencies. This dilemma was a factor in the design of other projects in the Africa private sector development portfolio. The SIL approach, adopted by PSCP II, carried less leverage for policy reform than a programmatic approach. Notwithstanding this fact or perhaps because of it, the project design proved to be complex. The three components encompassed a broad range of activities -- infrastructure, enterprise reforms, land reform, legal framework, and advocacy -- any of which could have been a project in its own right. 24. During project preparation attention was given to ensuring that the design reflected the lessons learned from the Bank’s experience in Uganda and other Sub-Saharan African countries, as well as global practices. For the infrastructure sub-component 1.1 encompassing an industrial zone and export processing zone, the project design sought to incorporate best practice principles based on the experience in Africa. In this regard, the design reflected the global trend towards privately developed and managed zones with the role of the public sector clearly defined as regulator and facilitator. It also recognized the importance of sufficient demand for such zones in line with the market for industrial land, the macroeconomic environment, and the investment climate. The need for a clear strategy for promotion and development of such zones was also emphasized. But seeking to emulate the successful experience in other regions, specifically in East Asia, also proved to be a double-edged sword. Following a study-tour relatively early on in project implementation, the UIA changed its vision for the KIBP based on experience in East Asia which reflected the ‘gold standard’ for fast growing economies, yet not necessarily appropriate for the Uganda context. 25. Irrespective of whether the change in design made sense for the Uganda context, the change in the construction site expanded the scope beyond the availability of project financing. (The new design was quite different than what had been originally envisaged and consequently was estimated at nearly four times the original amount of US$400,000.) It also led to serious implementation problems including environmental safeguard issues as a result in change of the site. (See Sections 2.2 and 2.4) In designing the project, environmental impacts were considered and it was determined that the project should be classified as Category B. Section 2.4 below discusses whether it may have been more appropriate for the project to have received a Category A rating instead, which would have involved greater scrutiny at the outset and during implementation. 26. In designing the MSMEs-related components (Component 2), the project drew on the experience, instruments, and partnerships that underpinned the Joint IDA-IFC MSME Program for Africa, a collaborative initiative between the World Bank (IDA), the International Finance Corporation (IFC), and bilateral donors. In particular, in cases where the private sector contributes to the cost of the technical assistance (at least a 50-50 basis), it was shown that programs tend to encourage the continued use of technical support and the development of local consulting firms. The importance of demand-driven vocational and skills development oriented toward practical needs of enterprises was also incorporated. 8      27. For the Component 3 activities aimed to improve the business environment, the project design was informed by FIAS reports which emphasized the need for reforms to be underpinned by surveys and quantitative methods to be closely monitored by the public and private sectors. Unfortunately, despite the intention this lesson was not actually appreciated (no doubt made more difficult by a weak results framework). One lesson associated with the business environment that actually was integrated during project implementation was the importance of improving service delivery, specifically for services related to land and business registration. 28. The Government had pushed hard to include the land registration activities (sub- component 3.1) despite the Bank’s initial concern that the land issue was too complicated and susceptible to corruption. But this risk paid off; the land component was among the most successful of the project. (See Section 3.2) While not all the necessary aspects were fully prepared prior to approval, not unusual for many projects, the land components were generally sufficiently developed by the time of effectiveness. 29. The PAD identified three key fiduciary risks as: corruption; shortfall in Government funding obligations; and inadequate internal audit function. The other risks that were identified included: sustained adequate commitment to policy reforms and institutions’ willingness to change; Parliament passing necessary reforms to reduce administrative and regulatory barriers; continued evolution of the private sector development agenda; sufficient cooperation amongst donors; private associations continuing to work with PSFU as the “apex� institution; MSMEs being responsive to incentives and willing to seek external assistance; and, adequate power generation capacity for the planned industrial park. The project design sought to mitigate most of these risks. But several of these risks did manifest and had serious implications for the implementation and outcome of the project as discussed in this ICR. 30. But while most of the beneficiary agencies had been consulted about the design (but not fully in the case with sub- component 1.2, however), their ownership of the project was never assured. This was because these agencies were restricted to just the basic implementation of the activities and had very limited role in procurement and the selection of consultants. While this was the preferred model by the Ministry of Finance at that time, it resulted in these agencies never really owning the design or feeling responsible for the outputs particularly when the quality of the consultant’s output was considered poor. Also emerging as a challenge was the fact that the implementing agency – in charge of managing the delivery of the public sector entities – was a private sector organization. While this may generally be a good model, the associated risk mitigation measure -- a strong overall project governance function – failed to transpire. 31. From the beginning Government leadership was strongly committed to the project, referring to it as its ‘pet project’. Indeed, at several points pressure was put on the various implementing agencies to get things moving. But the flip side of this was the risk of political capture. This may have been evident in the behavior of the original project management as well as the controversial land pricing policy for KIBP. 9      2.2 Implementation (See Annex 2 for detailed list of outputs) Overall Implementation 32. The project was approved in September 2004 and became effective in June 2005. Similar to PSCP I, the implementation arrangements followed prevailing practice whereby beneficiaries were expected to substantially manage their own sub-component. Financial management, procurement, monitoring and evaluation capacity were provided by a centralized project management unit, the PSFU, which was formally delegated responsibility by the Ministry of Finance, Planning and Economic Development (the Borrower). 33. In addition to its overall project coordination role, the PSFU was also directly responsible for implementing sub-component 1.2 (Financial Services to MSMEs) and Component 2 (Enhancing Enterprise Competitiveness) under its Business Uganda Development Services (BUDS) program which had previously been established with support of PSCP I. The UIA was responsible for sub-component 1.1 (infrastructure services component related to KIBP). The relevant beneficiary institutions provided the technical supervision of activities under Component 3 (the business environment), including the Uganda National Bureau of Standards (UNBS), Uganda Registration Services Bureau (URSB), Uganda Law Reform Commission (ULRC), and the Ministry of Lands, Housing and Urban Development. To provide policy guidance and oversight a Project Steering Committee (PSC) was established led by the Ministry of Finance, Planning and Economic Development and composed of the Permanent Secretaries responsible for the respective project components and private sector representatives. The responsibilities of the PSC were to approve the annual work and procurement plans and to regularly assess project performance, including ensuring that any recommendations from financial and operational audits were adopted. 34. Notwithstanding these arrangements, project implementation got off to a very slow start. This was caused, in part, to the significant delay in Parliament’s approval of the project which did not happen until May 2005. This delayed project effectiveness by several months to June 2005. Even though these delays provided more time for PSFU and UIA to gear up, they still lacked readiness for implementation. Although the PSFU did have experience with the PSCP I and the institutional capacity for financial management was judged sufficient initially, the delayed recruitment of an internal auditor significantly impacted its capacity. For procurement, the lack of capacity in both PSFU and UIA was identified at the outset and was rated as high risk in the PAD. It was only during the third year of the project that full-scale project implementation started to happen. The initial delay was never made up and the closing date of the project was extended twice, eventually to February 2013. Also as a consequence of the delays, project costs increased beyond design estimates which impacted efficiency. 35. The lack of implementation readiness was compounded by a weak governance structure for the project. Inadequate management and weak oversight by PSFU allowed improper behavior by the procurement specialist to go unchecked. (See Section 2.4) In 2011 the PSFU project coordinator and procurement specialist were relieved of their duties. Notwithstanding its coordinating role, PSFU was also somewhat lax about overseeing the activities of the implementing agencies which, as a result, got late starts. Nor did the Project Steering Committee, chaired by the Ministry of Finance, fulfill its role as envisaged. Up until 2011 the PSC had only met twice, even though it was required to meet at least two times each year. The Government 10      eventually committed to hold regular PSC meetings to keep implementation firmly on track. This resulted in about a dozen PSC meetings over the final two year implementation period. 36. The project was downgraded to problem status in June 2010, where it remained until October 2011. This downgrade was attributed to the delays and problems especially related to the KIBP (sub-component 1.1) and land reform activities (sub-component 3.1), discussed below. Component 1: Developing Infrastructure and Financial Services 37. Sub-component 1.1 (KIBP): There were several issues that plagued the implementation of this activity. Foremost was the weak capacity of UIA to effectively manage the component, especially related to civil works. A senior technical advisor was put in place to assist UIA but that was not sufficient. The first phase involved the construction of the UIA office and completion of earthworks (a second phase would procure the construction of the roads within KIBP). During this period, UIA undertook investment promotion efforts and succeeded in attracting a substantial number of businesses in multiple sectors; over 300 projects had been proposed and screened, even in the absence of a marketing effort abroad. 38. Despite this marketing accomplishment, serious problems emerged when the location of the UIA-KIBP office block, resident engineer’s office, and a laboratory was changed on the KIBP site. This reflected the enhanced design following the East Asia study tour. Although the study tour was meant to focus on the “soft� aspects of industrial park management, it nonetheless served as the genesis for expanding the design. However, the more ambitious design significantly increased costs and had environmental implications. (See Section 2.4) Not only was the contract subject to prior review, the Bank’s no-objection was not sought until the building was nearly complete. In February 2010, the Bank declined to give its no-objection based on these problems. 39. In addition to the “hard� aspects, there were several issues related to the “soft� aspects of developing KIBP, specifically the controversial land pricing policy. Contrary to what had been envisaged in the design – that land sales in the first phase would finance the next phase – the Government indicated its desire to give free land for priority sectors. The pricing policy continued to evolve by selling the non-priority industrial plots at a uniform price but this still created a shortfall in KIBP revenue. Government agreed to finance the shortfalls (approximately US$20 million). 40. Remedial measures were identified to address the problems related to KIBP which led to the restructuring all staff in the UIA. However, implementing all the recommendations would have taken about three years, which was well beyond a reasonable project extension period. Accordingly, through discussions with the Bank, the Government decided to cancel the KIBP activity in November 2011. There has been some criticism directed at the Bank that it should have been engaged earlier and more assertively on the emerging problems, such as the issue of land pricing and procurement of civil works. Indeed, the final Task Team Leader expressed the view that if the project had been appropriately restructured right when these problems emerged, the outcome would have been more positive. (The February 2009 restructuring did not address the KIBP issues.) 11      41. Sub-component 1.2 (Deepening Financial Sector Services): The financial sector deepening program experienced a late start due to the eligibility criteria that restricted public or quasi-public agencies from benefitting (regulated financial institutions, non-bank financier service providers, and industry financial associations). This was eventually addressed. Nonetheless, there was an initial lack of coordination and collaboration amongst the various stakeholders in the financial sector. In this respect, the project design had not been sufficiently participatory. Moreover, because the component originally envisaged building and leveraging on other donor funded programs (EU, DANIDA, DFID, and USAID) and these programs closed, there was excessive demand on the sub-component that had not been anticipated. In response, during Mid-Term Review in 2008 the scope of the financial services sub-component was expanded. Component 2: Enhancing Enterprise Competitiveness 42. Sub-components 2.1 - 2.4 (Matching Grant Scheme, Technology Acquisition Fund, Enterprise Skills Linkage, Business Brand Linkages Program, Better Business Behavior Award Scheme): The various activities under this Component generally performed well throughout the project. Component 2 was actually rated highly satisfactory in December 2007 in view of the fact that the matching grant component was almost fully disbursed and that the number of beneficiaries had already exceeded the target. For the Better Business Behavior Award Scheme sub-component (awarding subsidies to bank clients who pay on time), there was such a strong interest on behalf of the banks that they took over the program without further project support. Thus that activity was eventually cancelled. Component 3: Improving the Business Environment 43. Sub-component 3.1 (Land Registration): Although the land component was appropriately developed by project effectiveness, the first two years of project implementation were dedicated to detailed preparation and refinement of methodologies, baseline studies, and putting in place other arrangements. Nevertheless, the late start for this sub-component can largely be attributed to the unpreparedness of the Ministry of Lands. Because of the delay, a two-year project extension (to February 2013) was ultimately required in order to complete the land information system, which was itself delayed due to the need to rebid given the low level of initial interest. Implementation was also negatively impacted by the determination (based on an INT investigation) of fraudulent procurement practices related to the construction of two land offices. In addition, mis-procurement remains under consideration, related to the firm selected to survey government land, based on non-responsiveness to the bid submitted. (See Section 2.4) 44. Sub-component 3.2 (Business Registration): Activities related to improving business registration in the Uganda Registration Services Bureau (URSB) performed unsatisfactorily until late in the project. Significant progress began following the appointment of a new URSB Board in 2011. With a new governance structure in place, PSCP II was able to effectively support change management and institutional modernization in URSB. 45. Sub-component 3.3 (Standards): The activities related to reform of the Uganda National Bureau of Standards also performed unsatisfactorily until 2011, primarily attributed to lengthy procurement delays. Unfortunately, because of the compressed time frame, the scope of activities was curtailed. 12      46. Sub-component 3.4 (Legal Framework): The legal framework for business and financial services sub-component was designed to support the drafting of commercial legislation. Notwithstanding solid support through the Uganda Law Reform Commission to accelerate the process, as mid-2010 none of them had become operational because the accompanying regulations had not been completed and issued by the respective ministries. In large measure, the delays were attributed to the slow process of debate and approval of bills tabled in Parliament. 47. Sub-component 3.5 (Public-Private Partnership): This sub-component generally proceeded as planned. 2.3 Monitoring and Evaluation (M&E) Design, Implementation, and Utilization 48. At the outset, the project suffered from very weak arrangements for results monitoring. (It should be noted, however, that at the time the approach to M&E was an evolving. Hence, an initially weak M&E framework was not unusual for projects of that era.) There appears to have been a lot of confusion on the role of the stakeholders in developing the framework. The working assumption was that each implementing agency was to have developed its own, but clearly this was not tenable. As a result, no coherent framework emerged until the Mid-Term Review, and even after it was inconsistently reported and monitored. Moreover, many of the results that were specified were difficult to attribute to project activities. For example, it is not clear whether some result indicators like “Exports of traditional [non-traditional] commodities increased� were because of the project or due to broader conditions (economy, stability of government, trade legislation, and other exogenous conditions). Similarly, it would not be possible to link project activities to outcomes like an increase in the credit extended to the private sector as a percentage of GDP since such an indicator is the result of multiple macroeconomic and public sector policies, as well as to evolving structural changes in the economy. 49. Some indicators were difficult to accurately evaluate because the tracking methodology was incorrect. For instance, the monitoring method for “10,000 new jobs created in the formal sector� was the incremental number of job advertisements. However, based on the tally from Component 2 alone, it would seem that this objective was nonetheless met. Several indicators measured processes, such as “Value of dollars disbursed, BUDS� and “Number of financial and non-financial matching grants approved�. But these are actually useful intermediate indicators since they measure the evolving demand and need for services and the willingness of businesses to pay for them. Nonetheless, it would have been helpful to also focus on more specific and measurable indicators on firm competitiveness, such as related to firm-level performance (e.g., skills, productivity). Overall, the weak results framework made it difficult to effectively monitor actual progress towards the project’s objectives. 50. This problem was never corrected during implementation and, in fact, was compounded by poor monitoring and inconsistent reporting. The outcome indicators reported and monitored in the ISRs were not fully aligned with the PAD nor with the performance framework in the legal Project Agreement between the Bank and PSFU, included errors, and lacked explanations for changes. As noted, some effort was made at the Mid-Term Review in 2008 to improve the results framework, including providing baseline data for several indicators. However, the net effect was an expansion of the intermediate indicators to an excessive number (from 14 to 23) and changing three of the four PDO-level indicators (two of the indicators were removed and replaced by two 13      indicators that had previously been intermediate indicators). The Aide Memoire of the Mid-Term Review did not elaborate on the changes and there continued to be inconsistencies between the revised results framework and the subsequent ISRs in terms of the specific indicators monitored. 51. The Bank’s sector management noted the ISRs’ “highly deficient� discussion on the performance indicators (in June 2010; ISR #13) and questioned the consistently satisfactory ratings for M&E. Although the M&E rating was subsequently downgraded to moderately satisfactory, tracking and updating the indicators continued to be inadequate and the presentation of the indicators in the ISRs continued to be inconsistent (e.g., intermediate indicators vacillated between 19 – 23; indicators were randomly listed, not sorted by component, which made it difficult to understand). The January 2012 restructuring provided an opportunity to rationalize the framework, albeit with only one year remaining and all but one component closed. But even after this ISR reporting of indicators appeared unreliable all the way to project closure. 52. In addition to problems with the results framework, there was a serious deficit in candor in reporting. This was most apparent in the absence of any discussion in the ISRs of the UIA- KIBP office construction at a different site, and constructed using larger specifications. The lack of candor in reporting was noted in the QALP Review which observed that “the ISRs have not presented in detail all of the issues that have slowed down implementation. More realistic reporting, both in ISRs and Aid Memoires, would help the task team, Bank management, and the Borrower address implementation problems.� In terms of the final ISR rating of MU after previous MS ratings, it appears that the team struggled with the final rating. Although project performance had really improved over the past two years (as reflected by the relevant MS ratings), based on a careful review of the outcome for the entire project period the team’s view was that there wasn’t enough evidence to justify a moderately satisfactory. The final ISR, however, did leave open the possibility that post-project closing data collection and a pending enterprise survey could lead to a different conclusion in the ICR; unfortunately, the relevant data that was available for the ICR exercise did not reverse the final ISR conclusion. 53. Despite the expectation (noted in the PAD) that there would be an independent operational audit every two years to provide impact assessment (including firm-level data related to the matching grants) and thus identify ways to improve project implementation, there was only one operational audit conducted over the eight year implementation period. The October 2008 operational audit report was produced just prior to the November 2008 Mid-Term Review mission. No doubt the report provided useful information and recommendations to inform the Mid-Term Review. It also highlighted the problem of the lack of an integrated M&E framework. 54. To address the muddling performance regarding M&E, an M&E specialist was recruited for the PSFU but not until 2009. This resulted in the production of a thorough completion report on Component 2 in January 2012 which provided useful data and survey responses of MSMEs that had benefitted from the various interventions. But since the report was produced after all but one component was closed, it did not inform implementation in any way. Further compounding the inadequate M&E structure was the fact that the Project Steering Committee was not performing its oversight function until 2011 when most of the components were ready to close within the year. 14      2.4 Safeguard and Fiduciary Compliance Safeguard Issues 55. The project was classified as a Category B and an environmental and social impact assessment was conducted as part of the project design process. There is some question as to why a Category A rating was not applied instead given that: the project financed greenfield investments with a heavy infrastructure component; the site was to be constructed near the capital for which urban planning had not been managed well; the site was also a wet land near Lake Victoria which supplied the drinking water to Kampala; the land had been previously classified as a forest reserve; and the industrial park tenants were to include environmentally- sensitive industries such as pharmaceuticals.4 On top of these challenges, the implementing agency (UIA) had extremely limited capacity with environmental and social safeguard issues. 56. The results of the assessment noted these concerns and indicated that they could be mitigated. Accordingly, the focus was on ensuring that the industrial planning of KIBP incorporated and mitigated environmental and social impact, to be part of the KIBP Master Plan. The KIBP Master Plan was prepared in 2008 and included an environmental and social management framework based on various impact assessments. To oversee this work, UIA employed a full-time environmental officer and eventually recruited another officer to be responsible for the social aspects (although the recruitment took one year). Nonetheless, UIA capacity remained strained in these areas and there were significant delays and repeated problems regarding environmental and social safeguards. 57. The most serious problem became apparent in 2009 when the UIA office block and an early KIBP tenant structure were both found to be inconsistent with the KIBP Master Plan. The UIA office block, which had been relocated without consultation with the Bank, occupied a location designated as green space in a wetland area. It also involved significant landfill of up to five meters in some places. (To ensure proper settlement, normally a landfill is allowed to settle for a period of up to nine months before construction begins.) This issue was also raised by the Bank team. In fact, the Bank’s environment-related supervision significantly improved after 2009. Although the relocation of the UIA building had been approved by the National Industrial Park Planning Commission and may have been based on some degree of justification, the Bank expressed concern that KIBP was developing inconsistently with its own plans and procedures for land allocation. 58. Eventually there was some progress in resolving the outstanding environmental and safeguard issues and modifying the Master Plan. But it is unfortunate that it took such a long time to effectively address, which contributed to the decision to cancel the sub-component in November 2011. It is not clear whether this outcome would have happened even if the project had been rated a Category A instead of a Category B. However, it is certain that the project would have been subject to greater scrutiny regarding environmental matters if it had been rated a Category A (not to mention additional supervision budget). The two project restructurings provided opportunities to re-classify the project to a Category A. The environmental team                                                              4 The Bank’s approach to assessing a project’s potential environmental impact has evolved significantly since the project was designed. Currently, projects that include industrial parks generally receive a Category A rating. 15      acknowledged that it was a “tough call� and ultimately it was a judgment call to maintain it as a Category B. 59. Although the KIBP sub-component was cancelled there were some notable developments. These included the successful provision of piped water to communities adjacent to the industrial park, improvements in sanitation, and a new soccer field. Also the plan resulted in the relocation of grave sites to alternative burial grounds in consultation with the communities. Fiduciary Compliance 60. Serious procurement and contract management problems arose during project implementation. Based on an alert from the Bank’s project team, the World Bank’s Integrity Vice Presidency (INT) investigated allegations of fraud and corruption related to the procurement of several land-related contracts (sub-component 3.1) and found evidence that several firms engaged in fraudulent practices while bidding for the contracts. This involved submission of forged advance payment and performance security guarantees by one firm, M/s Ayemo, which also abandoned the site, submitted forged “audited� financial statements, and forged bid securities among others. The investigation also found evidence that the procurement specialist engaged by PSFU received bribes from some of the firms awarded contracts under the project. The investigation resulted in the debarment of eight firms and six individuals.5 The PSFU procurement specialist’s contract was not renewed and the project manager was also relieved of her duties. In addition, a case of potential mis-procurement continues to be under review for a contract involving the survey of Government land, based on the incorrect awarding of the contract. Likewise, the contract involved excessive payment amount for the inception report and incomplete work. (A reimbursement of IDA funds by the Government was pending at the time of the preparation of this ICR.) 61. The procurement-related corruption issues that emerged can be partially attributed to lack of effective oversight and accountability structures within PSFU. This was aggravated by the departure of the internal auditor and other staff (reflecting regular turn-over as well as more attractive opportunities for high caliber staff). The fraud and corruption uncovered in the project stemmed not only from the failure to follow established procedures and the lack of appropriate oversight of procurement processes, but also from weak supervision of contract implementation. The mismanagement of the construction of the UIA office in KIBP and the poor contract management related to the survey of government land are prime examples. As discussed, there were significant cost over-runs -- primarily due to the change in design -- in the construction of the UIA-KIBP office block, resident engineer’s office, and laboratory. Although a supervision consultant was responsible for overseeing the work, as the implementing agency for that component UIA did not adequately supervise the consultant nor the contractor. This was because UIA lacked adequate technical and contract management skills to do so. The Uganda Auditor General carried out a ‘value for money audit’ in 2011 (at the prompting of the Bank project team) to determine whether the funds were used properly. The findings indicate that the building cost was three-and-a-half times the original estimate. (The annual external financial audits were otherwise all clean.)                                                              5 For full list of those debarred firms/individuals, refer to World Bank Group website: http://www.worldbank.org/debarr 16      62. While UIA acknowledges its failure to have sought the Bank’s prior review and no- objection to the office block changes, there were also missed opportunities for the Bank task team to have done site inspections. If more careful and technical supervision had been performed by the Bank between missions, the issue would have been uncovered earlier instead of when construction was finished and the final finishes were underway. Indeed, the building was not very large and was actually built in-between two missions. 63. Criticism has also been targeted to the Bank for taking considerable time to review procurement and for being abstruse in the process, particularly related to the no-objection sought for the KIBP major works (phase two, which followed the preliminary earth works). The Task Team acknowledged that consideration was lengthy, in part because it required a higher level of institutional review (by Regional Procurement Management) and also because it was awaiting the results of the ‘value for money’ audit of the UIA-KIBP office block. In addition, because of the ongoing fraud and corruption investigation related to the land component, fiduciary concerns were heightened around the bidding process of the major works contract in sub-component 1.1. In June 2011 the Bank informed the Borrower that it could not provide its no-objection until the mitigating measures identified in the audit were put in place. Since this would have required more time than what remained for the project the Government decided to cancel the KIBP sub- component. 64. In response to the fiduciary problems a new PSFU project manager was hired in 2011 and stronger governance mechanisms were put in place in PSFU, including a board projects subcommittee and an audit committee. Shortly thereafter the Project Steering Committee also began to meet and exerted more oversight on activities. Together these measures seemed to have improved fiduciary oversight and project implementation during the final two years. Based on the experience of PSCP II, fiduciary-related lessons have been incorporated into a follow-on project, the Competitiveness and Enterprise Development Project (discussed below). 2.5 Post-completion Operation / Next Phase 65. Shortly after PSCP II closed a follow-on project was approved by the Bank Board in April 2013. The Competitiveness and Enterprise Development Project (FY13; US$100 million) seeks a similar development objective: to improve the competitiveness of enterprises in Uganda by providing support for the implementation of business environment reforms, including land administration reform. It also supports the development of priority productive and service sectors. 66. The new project will support the continuation and scaling up of the land reforms carried out under the PSCP II and will help increase land tenure security and reduce the time taken to transfer land. A number of lessons were drawn from the piloting of innovations and the implementation of land administration reforms under PSCP II, including: the need for a thorough review of the legal, policy, and institutional framework as the basis for land reform; success and sustainability of land administration reforms require a long-term perspective, political commitment, and concerted support from development partners; and computerization of re- engineered land administration systems and work flows has proven effective in increasing efficiency and transparency in land administration. Similarly, the new project will continue PSCP II-supported reforms aimed at simplification of business registration and business 17      licensing procedures. A matching grants facility in priority sectors (tourism and exports of non- traditional products) will be established to help increase exports and create new jobs. 67. Like PSCP II, the PSFU will be responsible for overall coordination and management of activities for the new project. But unlike for PSCP II, the Ministry of Lands will now have direct responsibility for related activities. To strengthen its capacity, both PSFU and the Ministry of Lands will benefit from technical advisory services, training, and sufficient operating costs. The new project also incorporates several measures to manage fraud and corruption risks. The Government’s oversight function will also be significantly strengthened. This involves a Project Technical Team whose members include the accounting officers of the beneficiary agencies. This group will meet on a monthly basis and will report to a Project Steering Committee that is intended to be much more active, engaged, and accountable. Moreover, the Project Coordinating Unit (within PSFU) will report to the PSFU management and board. In addition, to address governance challenges encountered during implementation of the PSCP II, the project will build in prevention, deterrent, and detection measures through collaboration with the Ugandan Inspector General. A communications campaign to inform beneficiaries will also help prevent fraud and corruption. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design, and Implementation Rating: Substantial 68. The PSCP II objectives were quite relevant when the project was designed. It sought to support the Government’s poverty reduction and reform strategy to transform the economy through private investment, industrialization, and exports. In addition to building on the success of PSCP I, the project complemented the Poverty Reduction Support Credit which focused mainly on non-income poverty. In particular, PSCP II aimed to create sustainable conditions for enterprise creation and growth that would respond to local and export markets. It focused on interventions that were considered the key constraints to that goal: lack of access to credit; infrastructure constraints; low levels of labor and management skills; and other investment climate constraints including insecure property rights. 69. The approach continues to remain relevant to Uganda’s development priorities, as confirmed by the current Country Assistance Strategy of 2010-2015 which emphasizes improved conditions for private sector growth and increased productivity and commercialization of agriculture. Similarly, the PSCP II objectives are consistent with current World Bank Africa Strategy to enhance competitiveness and employment. The PSCP II objectives also resonate in the new Competitiveness and Enterprise Development Project, which continues the focus on land reform and improving the business environment. 70. The design of PSCP II was underpinned by a considerable amount of analysis conducted by the Bank, such as the Africa Trade Standards Report (2003) that identified the need for establishing and complying with agreed standards to successfully enter EU and US markets, a FIAS study on administrative barriers to investment (2003), the Report on Export Competitiveness, and the Investment Climate Assessment (2004). It also built upon best 18      practices related to industrial parks and export processing zones and land reform, as well as the successful experience of PSCP I. 71. Generally PSCP II’s components and implementation arrangements were aligned with the project’s objectives. The exception to this was the enhanced design of KIBP following a study tour to East Asia. The change may not have been practical and was not financially feasible given the project scope. Another relevancy issue was the design of the financial sector deepening program, which did not adequately consider the eligibility criteria that restricted public or quasi- public agencies from benefitting from the program. 72. Furthermore, the ambitiousness and range of components made implementation complex, which was a major factor in the project’s performance. As noted, UIA did not have the requisite technical skills to oversee major civil works, especially related to environmental issues. More broadly, weak oversight by PFSU and the Project Steering Committee was only addressed when much damage had already been done (e.g., fraud and corruption in the procurement process). 3.2 Achievement of Project Development Objectives Rating: Modest 73. As noted in the Development Credit Agreement, “The objective of the Project is to support the Borrower's efforts for creation of sustainable conditions conducive to enterprise development and growth, encouraging investment, facilitating private sector development, increasing micro, small and medium enterprises, increasing competitiveness in local and export market, and employment opportunities in its territory, through: (a) reduction of the cost of doing business; and (b) improvement of business environment and public-private dialogue.� 74. In evaluating whether the intended outcome was achieved, several aspects are assessed. Strictly considering the indicators, the table below shows that of the 13 PDO indicators, 7 PDO indicators can be considered achieved (partially or totally). Of these 7, however, 3 are poor indicators because it is difficult to attribute the results to the project. For the other 4 PDO indicators the results reveal that that there were significant strides in lowering business costs as reflected by the tremendous improvement in the number of days to register a business, number of formally registered new enterprises, and number of days to access land records. These significant improvements can be largely attributed to the project. And, while the number of new jobs created in the formal sector was not accurately tracked, there is evidence that the target was actually achieved. Of the 23 intermediate indicators, 3 were not achieved and an additional 2 were also considered not achieved because there no end-project result was indicated. Overall, of the 36 PDO and intermediate indicators, 25 can be considered totally or partially achieved. 19      Summary of PDO Indicators (see Datasheet for details) PDO Indicator (* in PAD) Baseline Target Actual Achievement/Comment Direct project beneficiaries core NA NA 3,010 Not Achieved; no target Female beneficiaries core NA NA 43% Not Achieved; no target Investments licensed NA NA 344 Not Achieved; no target Individual investors in stock market 37,603 60,000 48,114 Partial Number of days to access land records 435 Instant Instant Achieved Time to register a business (days) 135 2 2 Achieved No. skilled employees in projects 0 NA 2,996 Not Achieved; no target Total output per worker* 1,085 1,630 NA Not Achieved Exports of Traditional Commodities 288,000 760,000 678,000 Largely/poor attribution Credit extended to the Private Sector 8.1 22 16.9 Partial/poor attribution Exports non-traditional commodities* 674,000 2,500,000 1,832,860 Partial/poor attribution Enterprises registering formal businesses* 10,689 15,000 22,869 Achieved Not achieved; poorly 10,000 new jobs created formal sector* 15,534 10,000 NA measured but evidence indicates achieved Full Achievement of Result Partial Achievement of Result 75. Nevertheless, overall project performance is considered somewhat disappointing due to the failure of sub-component 1.1, the KIBP, which represented about one-third of total project financing, of which about 40 percent of the allocated amount had been disbursed or committed by the time of the January 2012 restructuring when the sub-component was cancelled. By that time the project had supported the development of the Master Plan and the base for the KIBP road network. By project end, KIBP had five tenants employing about 500 people. The construction of the industrial park was expected to create access to modern industrial facilities with reliable infrastructure. Even the few investors who ventured to invest, the time taken to establish the industries was very long with high costs. Moreover, the export processing zone envisaged during project design was never realized; this was partly attributed to the Parliamentary delay in passing the related law. Unfortunately, partial implementation of works under KIBP poses reputational risks including unresolved environmental and social issues. The incompleteness of the KIBP represents a missed opportunity for Uganda, especially since potential investors are likely to look elsewhere. 76. But it would be a mistake to judge the performance of PSCP II based solely on the disappointing outcome the KIBP sub-component. Despite problems, the PSCP II had notable outcomes that encouraged investment and facilitated private sector development. 77. From an overall perspective Uganda’s relative ranking in the Global Competitiveness Index actually declined over the project period (from 13th among its African peer countries in 2003-2004 to 24th in 2012-2013). This decline, however, is primarily due to other African countries significantly improving their competitiveness indicators relative to Uganda’s competitiveness, which reflects numerous factors (e.g., infrastructure, skills) not just the business environment. In fact, sustained improvement in Uganda’s business environment is borne out by 20      the Doing Business indicator “distance to frontier�. Figure 1 shows that overtime Uganda actually improved its performance over the 2006 to 2013 period. Figure 1: Uganda Doing Business Indicator Distance to Frontier 56 54 52 50 48 46 44 2006 2007 2008 2009 2010 2011 2012 2013 Note: This measure shows the distance of each economy to the “frontier,� which represents the highest performance observed on each of the indicators across all economies. An economy’s distance to frontier is indicated on a scale from 0 to 100, where 0 represents the lowest performance and 100 the frontier. For example, a score of 48 in 2006 means the Uganda economy was 52 percentage points away from the frontier constructed from the best performances across all economies. A higher score of 55 in 2013 would indicate that the economy is improving and its distance to frontier is now only 45 percentage points from the frontier. 78. In respect to creating sustainable conditions for enterprise development and growth, the activities supported by Component 2 (Enhancing Enterprise Expansion) had many good results, including the following highlights:  Matching grants (under BUDS) to over 800 MSMEs provided a wide range of support, from business plan development to staff training to financial management systems to international marketing and sales promotion. The scheme also reached its goal of disbursing at least one-third of the grants to sub-regions outside Kampala. Based on ex post assessment, 92 percent of the companies surveyed indicated that their business competitiveness had increased as a result. Based on the survey group, the average sales volume and average profits each more than doubled in the year after the BUDS intervention. For the companies sampled (10 percent of the BUDS recipients) 1,300 jobs were created which implies that a significant amount of jobs were likely to have been created for the entire group. Of the total 7,500 individual beneficiaries nearly 40 percent were women.  Six MSMEs benefitted from the Technology Acquisition Fund and were able to improve their technology adaption and usage, such as fruit drying technologies for export, pasteurization, and packaging for the dairy sector. Together, this resulted in four-fold increase in the number of products produced by these firms. In terms of new markets created due to this support, 80 percent were international markets. In addition, about 60 jobs were created as a direct result. 21       The Enterprise Skills Linkage Program benefitted over 63 enterprises, encompassing over five thousand people, supporting training in apprenticeship, skills up-grading, internship, and enterprise-to-enterprise training. Women represented over 40 percent of the business owners receiving training, and were largely concentrated in tailoring, catering, and hair salons. The skills program was innovative in that it combined on-site technical training with development of business skills such as book-keeping and marketing.6 Many beneficiaries cited this aspect of the training as especially useful.  The Business Plan Competition attracted over 10,000 applicants of whom 500 budding entrepreneurs received initial training and mentorship to formalize their business. Of these, 27 were winners and received seed money and started their businesses. This particular initiative resulted in the creation of about 300 jobs. For the winners, the average volume of sales increased substantially following the intervention and average profits doubled. Of the winning firms, 18 percent of the beneficiary companies were owned by women and 23 percent were jointly owned by women and men.  Under the Business Brand Linkages Program, at least eight brands were developed and have been able to penetrate international markets. Support was also extended to two exporting associations. This intervention resulted in an estimated 600 jobs created. As an example of results, one recipient company interviewed during the ICR mission (Star Café) is now exporting one container a month of newly-branded coffee to China. 79. The project sought to increase employment opportunities and micro, small and medium enterprises. As discussed, the project indicators were either inappropriate because the outcomes cannot necessarily be linked to project activities or there were no target values or final end- project data available. But based on the sample surveyed for the impact assessment of Component 2, noted above, there is a strong indication that the number of jobs created by the project exceeded 10,000. 80. In addition to these activities, the project also improved the financial services to MSMEs and introduced several financial innovations under Component 1.2. A noteworthy outcome was the establishment and operationalization of the Credit Reference Bureau. While this creates a strong foundation for facilitating access to credit – and credit extended to the private sector as a percentage of GDP more than doubled during the project period – the existence of the new Credit Reference Bureau by itself did not necessarily lead to increased credit. The increase may have been attributable to more fundamental macroeconomic conditions and evolving sector policies. A direct link would have to be substantiated by whether lenders used the data provided and whether the quality of that data was accurate. 81. Uganda significantly improved its Doing Business ranking for getting credit; Uganda was ranked 48th in 2012 (out of 183 countries) compared to 109th in 2009, and also compared favorably with the regional average ranking for Sub-Saharan African countries of 110th . PSCP II                                                              6 A Development Impact Evaluation was conducted on the skills training program. The preliminary results reveal some short- term positive effects of the training on financial literacy and technical knowledge, optimism, and adherence to standards and procedures. However, the impact evaluation finds no effects after 12 months on core business outcomes. These include innovation (number of new products or new designs), business development (investment, access to finance), and business performance (revenues and profits). More broadly, this is important feedback to development practitioners as they consider the utility and impact of specific interventions, based on rigorous analysis. 22      support to the Financial Market Development Plan implemented by the Bank of Uganda, increased capacity, developed new products in leasing and mortgage finance, and improved financial literacy and consumer protection. Facilitation of trade insurance was achieved through Uganda’s participation in the African Trade Insurance Facility. PSCP II also financed the establishment of the Securities Central Depository (SCD) which led to the increase in the number of trading days on the stock exchange from three to five. During the period, both the listings and volumes traded also increased. 82. There were also important achievements and impact related to reducing the cost of doing business and improving the business environment. The most successful business environment improvement was related to the project’s support to modernize land administration and management (sub-component 3.1). The project supported the design, installation, and operationalization of a national land information system. This also involved: the construction and renovation of 13 district land offices and national land information centers; inventory of government land in five districts; scanning of all leasehold and freeholds, majority of maps and part of mailo land records; and the elimination of backlog of unprocessed land registrations. Another achievement was the revival and rehabilitation of the school of surveying and land management. These activities led to tremendous impact as reflected by: a reduction in the number of days to access land records from over 435 days to being instantaneous; a reduction in the time to register a property from 225 days to 52 days (2013); and over 3,500 additional titles being issued annually.7 In addition, efficiency in processing mortgages improved to the extent that the days required to do so were reduced from more than 2 weeks to 3 days. The impact on improving the business climate has been considerable but is most significant for businesses dealing with land in urban areas, where more land is registered, compared to only 5 percent in rural areas. 83. PSCP II also supported considerable land-related policy and legislative work, such as the National Land Policy, approved by the Cabinet in February 2013; the National Land Use Policy, adopted in 2007 and followed by enactment of the Physical Planning Act 2010; the Mortgage Act 2009; and the Land (Amendment) Act 2010 to reduce illegal evictions. In addition, the project supported the piloting of: systematic titling of high-value rural land using best practice, low-cost, and transparent approaches; average registration costs were reduced from more than US$200 to about US$23 per land parcel (compared to US$25 in Thailand, which is known as best practice). The follow-on project will build on these achievements and scale-up activities to improve land services. This has the potential to be truly transformational for Uganda’s economy. Sound land policies are known to be a catalyst for commercialization of agriculture and are essential for facilitating flows of private investment into industries, creating new jobs, and stimulating mobility and structural change, as well as ensuring well-functioning cities and sustainable resource use. 84. Successes were also achieved in the area of business registration regime in Uganda (sub- component 3.2). Despite not starting up until the final year of implementation, operational and governance reforms were undertaken at the Uganda Registration Services Bureau to improve services and reduce corruption. In addition, the project financed computers and equipment to support data entry. The impact was rapid and substantial: the time taken to register a business                                                              7 ICR interviews with sector specialists revealed that the original baselines were likely to be inaccurate and overstated. Hence, while these outcomes are nevertheless impressive, the magnitude of change is not as great as it may appear. 23      declined from 135 days to just 2 days. In addition, the number of enterprises registering new formal businesses exceeded 22,000 in 2012, well over its end-project target. And the ease of starting a business in terms of percentage of income per capita (Doing Business indicator) dropped significantly from 123 percent in 2004 to 77 percent in 2013. An improved business registration process that is simple, secure, transparent can stimulate formalization of MSMEs and job creation, as well as increase access to financial/ technical services. More broadly, this will support poverty reduction, employment creation, and expand the tax base. The new Competitiveness and Enterprise Development Project will continue to support further streamlining of the business registration process through the establishment of a one-stop-shop for business registration. 85. PSCP II also supported improvements in the legal framework for business, financial services, exports, and intellectual property. Specifically, the project supported the review of 18 (of 21 targeted) key business legislations. But the operationalization of these laws has been seriously delayed (only 5 were operationalized by project-end). 86. Another project objective was to increase competitiveness in local and export markets. The project sought to encourage Ugandan firms and farmers to invest in systems and product certification that would be acceptable to export markets was supported. The development of a strategic plan for this was prepared and included an interim platform for implementation of “Global Gap� (an agricultural certification program especially for European markets) (sub- component 3.3). Unfortunately, because of the significant delay in starting this work, related training and certification process was not achieved and thus limited the impact. 87. While it may not be possible to attribute export trends to the project (given the nature of such an indicator) it is still noteworthy that non-coffee exports increased relative to traditional coffee exports over the project period (See Figure 2). And, in terms of achieving the Government’s objective of average annual growth of exports of 10 percent, as articulated in its Poverty Eradication Action Plan, the average annual growth rate during the 2005-2012 period was actually 20 percent. Nonetheless, specific non-traditional exports that were highlighted during project design such as vanilla, maize, and fruits/vegetables increased in volume terms during the 2005-2006 period, but then declined or vacillated; flowers experienced no real growth in volume terms over the entire project period (See Figure 3). 88. PSCP II financed several activities to enhance public-private sector dialogue and partnerships (sub-component 3.5). As a result, PSFU and other business associations strengthened their capacity to participate in policy dialogue with government including preparing advocacy and trade policy papers and briefs. In addition, the semi-annual Presidential Investors Round Table meetings provided important opportunities to engage with the Government at the highest levels. Hence the explicit project goal to strengthen the private sector capacity for effective policy advocacy can be considered achieved. For its part, the Government articulated its own Medium-Term Competitiveness Strategy including analyzing ways to improve the cost effectiveness of public service delivery organizations (done through the Competitiveness Investment Climate Strategy Secretariat which was set up through PSCP II). The transformation of the privatization unit within the Ministry of Finance and the preparation of PPP legislative and regulatory framework were only partially achieved, however. 24      Figure 2: Figure 3: Traditional & Non-Traditional Exports Maize and Flowers Exports (tons) (US$ mil)  350,000  300,000  250,000  200,000  150,000  100,000  50,000  � 2004 2005 2006 2008 2008 2009 2010 2011 2012 Fruits/Vegetables Maize Flowers Vanilla 3.3 Efficiency Rating: Modest 89. Annex 3 discusses the original analysis done at design stage in comparison with actual results demonstrated by the project. The analysis prepared at appraisal estimated an internal rate of return (IRR) of 43 percent for the overall project, along with valuation estimates for several of the major sub-components. The methodology used for the design stage analysis, however, exhibits numerous methodological concerns and an incomplete sensitivity analysis. Ex post valuations of project activities are extremely difficult to calculate due to the nature of activities, difficulties in attribution of specific activities, and the extent of the data gathered. As such, an ex post valuation was only possible for the activities under Component 2. The ex post valuations for the matching grant activities (sub-components 2.1 and 2.2) and branding support activities (sub- component 2.3) indicate positive valuations for these activities. The actual net present value (NPV) for the matching grant activities (sub-components 2.1 and 2.2) was lower than the estimated value, while the NPV valuation for branding support activities (sub-component 2.3) was considerably higher than the design estimate. These positive valuations indicate good value for money for activities under these sub-components. 90. The second restructuring in January 2012 cancelled US$21.5 million (related to sub- component 1.1) and allowed for a reallocation amongst the components (specifically to the land sub-component). This reallocation reflected, in part, higher costs for the district land offices which had increased during the lengthy implementation delays. When the project closed in February 2013, the project had disbursed US$50.7 million of US$70 million or approximately 72 percent of the original IDA credit amount. After the January 2012 cancellation the final project amount was reduced to US$49.63 million; accordingly the final disbursement percentage was 102 percent (exchange fluctuations account for exceeding 100 percent). 91. At the time of the January 2012 restructuring, US$9.6 million had been spent on sub- component 1.1, financing the earthworks (usable dirt roads) and other UIA “soft� improvements. 25      But since the construction (reflecting changed scope and location) of the UIA-KIBP office block, resident engineer’s office, and a laboratory had not received the Bank’s no objection, no corresponding disbursements were made for these structures. The roads and structures are of questionable use until plans and financing to complete the park are resolved. Moreover, the ‘value for money audit’ not only indicated that the building cost was three-and-a-half times the original estimate, but also noted that compared to similar projects in the region, the per square meter cost was about 40 percent more. Notwithstanding the significant design change, it did not help that such a lengthy period had passed since the initial project costs had been estimated during project design, during which time prices increased for all activities and thus affected efficiency. 92. The project design sought to effectively leverage development partner resources, specifically related to the financial services to MSMEs under sub-component 1.2. However, by 2008 the development partners had cut their support for MSME credit programs. Accordingly, at the time of the first restructuring in February 2009, US$1 million was reallocated within PSCP II to the Financial Sector Deepening Program, sub-component 1.2. 93. The cost effectiveness of the PSFU is judged to be adequate. The estimated operating costs for the PSFU was US$3.47 million at the time of project design, and was subsequently increased (at each of the two restructurings) to approximate total of US$6.0 million, which was slightly overspent by project close. To a great extent, this was due to the fact that the project was extended from five to eight years. 94. Bank administrative costs for supervision (not including ICR preparation) over the eight year implementation period averaged about US$127,000 per year. This is high compared to the Africa regional annual average allocation to projects of US$112,000 during the same period. In 2008 and 2009 the actual administrative costs were one-and-half to two times the regional average. This was accounted for by the extra time required to get the land-related sub-component fully operational, given its late start. 95. Notwithstanding these observations, the achievements obtained from Components 2 and 3, and the generally reasonable Bank and Borrower operational costs, efficiency for this project is nonetheless rated modest. This is due to the serious value for money issues surrounding the outcome of sub-component 1.1 prior to its cancellation. 3.4 Justification of Overall Outcome Rating Rating: Moderately Unsatisfactory 96. The overall rating of the outcome of this project is moderately unsatisfactory.8 This rating takes into account the substantial relevance of the project at the time of design as well as at completion, and the modest achievement of project development objectives, and the modest efficiency in use of resources. It is unfortunate that the problem related to the KIBP sub-                                                              8 Normally, given the change in the indicators as a result of the second restructuring, a split evaluation of the project’s performance would be conducted. This would essentially weigh (by share of disbursements) the performance both before and after the revision. However, since this change took place when all but one component had closed and the PDO outcome is judged to be moderately unsatisfactory both before and after, no such evaluation has been prepared for this ICR. 26      component had not been dealt with in a timely manner; otherwise, the project would have merited an overall outcome in the satisfactory range. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspect, and Social Development 97. There was no mechanism in place to measure the project’s impact on poverty. Nonetheless, the creation of jobs from the various interventions under Component 2 is likely to have a positive impact on poverty reduction for the beneficiaries. In terms of the gender aspect, no specific goals were articulated but the ex post assessment does show that women were able to benefit significantly from many interventions, including 40 percent of the beneficiaries of the matching grants scheme. Although KIBP was not fully completed, the adjacent communities did gain from new water connections, sanitation, and a community soccer field. (b) Institutional Change / Strengthening 98. The project strengthened several implementing and beneficiary agencies. This is most noteworthy in the case of land-related interventions. The Ministry of Lands is now equipped to manage a land information system as well as manage the new scaled-up project. PSCP II also supported the revival and rehabilitation of the school of surveying and land management. 99. In addition, the project financed part of the Bank of Uganda’s Financial Markets Development Plan which led to important institutional improvements such as linking of the Real Time Gross Settlement systems (under auspices of the Bank of Uganda) to the Securities Central Depository (overseen by the Uganda Securities Exchange). The project supported change management, institutional modernization, and improvement of service provision in the Uganda Registration Services Bureau. The other beneficiary agencies and units – Uganda Law Reform Commission, Uganda National Bureau of Standards, and Competitiveness Investment Climate Strategy Secretariat – were also strengthened through project activities. 100. Finally, PSCP II led to improvements in the capacity of both UIA and PSFU. UIA restructured its management, strengthened internal controls, and increased governance oversight; improvements responding, in large part, to problems raised by the ‘value for money’ audit. Similar management improvements were made at PSFU. PSFU increased its membership significantly over the project period (from 71 in 2005 to 175 by 2013) and became recognized as an effective proponent for the private sector. And, the explicit project goal to strengthen the private sector capacity for effective policy advocacy can be considered achieved. Finally, an incidental but important outcome of the Enterprise Skills and Linkages Program was the forging of strong collaboration between the public and private sectors in terms of skills development -- the private sector is actively engaged in the Government’s new “Skilling Uganda� initiative. (c) Other Unintended Outcomes and Impacts 101. There is evidence from other countries that show with the applied techniques related to land registration – specifically digitization of land records – corruption goes down. Therefore, given that this was done well under the PSCP II, it is anticipated that this will lead to greater 27      transparency and a reduction in corruption related to land registration. This is also likely to apply to the business registry. 102. Another unintended outcome was a spin-off study of the Development Impact Evaluation (noted in footnote 6). The study found that women working in male-dominated sectors, like metal fabrication and foundry, earn nearly double those working in traditional industries and also work fewer hours per week. At the same time, large informational gaps exist among women operating in traditional industries about the returns available in male-dominated sectors. The impact study conducted an analysis on the mechanisms to become a crossover to a male- dominated industry and advocated that informational campaigns combined with mentorship interventions can facilitate the growth of female entrepreneurship in non-traditional industries. 4. Assessment of Risk to Development Outcome Rating: Moderate 103. The risk that development outcomes from this project will not be maintained is moderate. The primary risk is associated with the partial completion of the KIBP, which poses a serious danger of it becoming a ‘white elephant’. The basic infrastructure that was put in place will soon begin to deteriorate unless the earthworks are built up with roads and the buildings are occupied and maintained. Moreover, the lack of fully supportive infrastructure makes it difficult to attract more occupants (as of project close there were only five). Going forward, the Master Plan will also need to be reconsidered especially related to defining wet and dry lands areas. Although there is strong Government commitment to identify financing to complete the industrial park, there is concern about negative perceptions given that the Bank’s financing of this component was cancelled. 104. There is also a risk to ensuring that improvements in the business environment are maintained. Specifically, this concerns the operationalization of only five of the new 18 laws that were supported by the project. However, this risk is considered moderate since the legal framework is now well established and the operationalization of the laws is more a timing issue than anything else. (The new Competitiveness and Enterprise Development Project will also support their operationalization.) And, notwithstanding that the training received by MSMEs will continue to be put to good use, the training program under Component 2 is unlikely to be continued. Fortunately, however, the Government’s new “Skilling Uganda� initiative will be rolled out. 105. Despite these risks, most project achievements are likely to be sustained. Related to the KIBP under sub-component 1.1 for instance: the water points and improved sanitation provided to the communities adjacent to the KIBP site will continue to have a strong impact; UIA’s streamlined investment processes will likely continue; and UIA’s investment promotion activities have gained traction and will likely to remain strong, especially reaching the Uganda diaspora abroad. 106. A significant result from the project that will probably endure is the critical change in attitude of key public service agencies and their staff who are now performing new roles, moving from gatekeeper to service provider or facilitator. This is especially evident in the improvement in service standards related to land and business registration. Also, the new system of land 28      management that was supported by PSCP II has created a solid basis for the development of a land market. These outcomes will be reinforced by activities financed by the new Competitiveness and Enterprise Development Project. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality of Entry Rating: Moderately Unsatisfactory 107. The design was substantially relevant when the project was prepared and remains so today. Moreover, there was logic to how the components fit together which laid a strong foundation for the follow-on project. Nonetheless, quality of entry is judged moderately unsatisfactory for several reasons. First, the project design was complex, seeking to cover many areas when implementation readiness was weak. In particular, project preparation did not sufficiently assess the technical capacity of the implementing agency to handle civil works. If the institutional capacity had been better at the outset – for all components -- it is likely that the project wouldn’t have experienced the significant delays or other problems. In respect to delays, the Bank may not have sufficiently taken into account the political reality of obtaining Parliamentary approval during a period prior to national elections. 108. Second, although the PAD identified corruption and internal audit weaknesses as risks, albeit modest, the risk mitigation measures were clearly inadequate. It is apparent that the Bank did not fully appreciate the implementing agencies’ weak governance structures. Third, even though it was not unusual in that era, the project design did not include a suitable results framework. Fourth, while the stakeholder agencies may have been consulted, because their role was generally designed to be narrow this resulted in lack of ownership in several cases. This was complicated by the arrangement to have a private sector organization manage the project-related activities of public sector agencies. Finally, if the project had received a Category A rating for environmental impact, these issues would no doubt have been subject to greater scrutiny, possibly averting the environment-related problems that contributed to the cancellation of sub- component 1.1. (b) Quality of Bank Supervision Rating: Unsatisfactory 109. In evaluating the Bank’s performance during supervision there are many factors to consider. The quality of design certainly had profound implications on the quality of implementation and, in turn, the Bank team’s ability to effectively address them. The multi- sector nature of the project was certainly a challenge. Over the past decade the Bank has acquired lessons on how to better supervise this type of multi-sector project, and the experience with PSCP II will no doubt contribute to that knowledge. More fundamentally, however, if PSFU and UIA had had strong governance and management systems from the outset, many of the problems may not have emerged, or at the least would have been effectively addressed earlier. 29      110. Nonetheless, the Bank holds responsibility for not being sufficiently proactive on several fronts. This is especially apparent with respect to: the lack of regular on-site supervision of the UIA office block site until after much of the work had been completed. In part, this reflects the fact that the Task Team Leader was not based in-country during that period which would have allowed day-to-day contact with the counterpart, and also perhaps because of an inappropriate (technical) composition of the supervision team which did not actively engage a civil engineer until problems emerged. Other criticisms of the Bank’s performance are: its ambiguity related to UIA’s change in scope of KIBP and the related long delay in considering the no-objection for the major works contracts in sub-component 1.1; the failure to effectively address the fact that the Project Steering Committee was not performing its role; the poor reporting and serious lack of candor in implementation reports; and the persistently deficient results framework despite being highlighted by the QALP Review and noted in management reviews. The Bank team should be commended, however, for proactively raising concerns to INT about fraud and corruption and requesting that the Government conduct the ‘value-for-money’ audit of the KIBP building structures. Similarly, the acceleration of project implementation during the final two years can be partly attributed to the Bank team’s concerted efforts. (c) Justification of Rating for Overall Bank Performance Rating: Unsatisfactory 111. Over the eight year implementation period the project was supervised by three different Task Team Leaders, two of which were based in a neighboring country, and the final Task Team Leader was based in Uganda. The turn-over of the Task Team Leaders and their location outside of the country for much of the project period no doubt contributed to weak supervision. Based on the interviews conducted for this ICR, assessments of the Bank team were mixed. INT did praise the third Task Team Leader and current procurement specialist for being highly competent and alerting INT of potential fraud and corruption. The client also expressed strong appreciation for the support provided by the Bank’s land expert. 112. Unfortunately, however, collectively the Bank performed unsatisfactorily. This critique is also addressed to the Bank’s country and sector management which did not take advantage of opportunities to ensure that the project design was sufficiently robust, that supervision teams were appropriately staffed, and that corrective and timely actions were taken during implementation. Failure to be proactive was most acute when potentially course-correcting actions were not taken during two restructuring opportunities. Indeed, if the Bank had been more proactive and timely in addressing administrative mismanagement related to KIBP, the project outcome rating would have likely been in the satisfactory range. 5.2 Borrower Performance (a) Government Performance Rating: Unsatisfactory 113. Over the project period, senior Government leadership repeatedly voiced its strong commitment to the project. This was reflected in fully allocating its committed counterpart funds. Notwithstanding this affirmation, the Government’s performance is rated as unsatisfactory. This rating is primarily attributed to the fact that for most of the project period the 30      Project Steering Committee did not adequately perform its oversight function. Project performance was also negatively affected by the change in land pricing policy that jeopardized the financial viability of the industrial park. In addition, the long delay of Parliamentary approval of the project impeded a strong start. And the lengthy process to review and operationalize new laws makes tenuous any achievements in the legal framework for business and financial services. Many of these problems were eventually addressed, including more intensive Project Steering Committee oversight during the final two years of implementation. Unfortunately, however, the corrective measures were not sufficient to reverse the negative impact these problems had on project outcome. (b) Implementing Agencies (PSFU and UIA) Rating: Unsatisfactory 114. The rating of the implementing agency is considered unsatisfactory. Regrettably, the weak capacity of PSFU and UIA at the start of the project was the underlying reason that allowed many serious problems to emerge. Most notably, this related to the inadequate management by UIA of the construction of the KIBP / UIA office block, as well as the lack of appropriate PSFU oversight of procurement which resulted in fraud and corruption in the bidding process. It is commendable that strong remedial measures were put in place by both PSFU and UIA, which led to improved project performance from 2011 onwards. But coming so late in the project period, this didn’t allow enough time to fully achieve the project’s objectives. While the role of the beneficiary agencies was more limited in terms of implementation, they generally performed satisfactorily.   (c) Justification of Rating for Overall Borrower Performance Rating: Unsatisfactory 115. Based on an unsatisfactory rating for the performance of the Government and an unsatisfactory rating for the performance of the implementing agencies, the overall rating for Borrower performance is unsatisfactory. 6. Lessons Learned 116. Key lessons for the Bank are:  The desire to realize efficiencies and comprehensiveness with a larger project should not over-ride the risks inherent in a complex project design. Moreover, the implementing agencies’ institutional preparedness and strong governance framework should be considered paramount, especially the capacity to handle complex civil works.  The importance of getting the monitoring and evaluation framework right, from the beginning, cannot be overstated. This proved to be the ‘Achilles heel’ of PSCP II.  Proactivity is critical. When fiduciary problems do emerge, Bank management and INT need to be consulted promptly to ensure timely and decisive actions (as was the case in this project). Similarly, if the Bank had been more timely in addressing the KIBP problem, the project outcome would have been better. Moreover, many project 31      stakeholders expressed their frustration with ambiguous and drawn out interactions with the Bank on procurement matters.  Frequent supervision missions (beyond the norm) are necessary when problems emerge. In this respect, it is highly beneficial that the Task Team Leader is based in the country to allow for continuous engagement and informal updates that may not happen otherwise. Furthermore, the Bank’s own team should sufficiently involve the right technical expertise to identify potential problems (e.g., civil engineer to conduct on-site supervision).  Monitoring documents should not only be candid, but ratings need to be consistent with disbursement lags. It is a clear red flag to management when large and persistent disbursement lags are accompanied by consistently satisfactory ratings. 117. Key lessons that were emphasized by the implementing and beneficiary agencies are:  Strong Borrower oversight (e.g., Project Steering Committee) of the project must be taken seriously from the beginning, rather than only activated once problems emerge.  Having the private sector (PSFU) manage the delivery of the public sector agencies may achieve some objectives, but it can risk reducing ownership by the beneficiary agencies. Likewise, problems can easily emerge when one agency is responsible for procurement while another agency is responsible for contract management. This is aggravated in the absence of strong oversight by the Borrower.  As noted above, the importance of getting the monitoring and evaluation framework right, from the beginning, cannot be overstated. An M&E specialist should be part of the Borrower’s project preparation team and continue to be actively engaged throughout project implementation.  For high profile projects like industrial parks, an economically rational and financially viable land pricing policy needs to be applied consistently and transparently. Attracting investment to such endeavors may backfire without infrastructure and serviceable land in place. Similarly, the country risks losing out on potential investments when important pieces of business-related legislation are not pass or fully operationalized. 118. To a great extent, the above lessons have been reflected in the new World Bank-financed Competitiveness and Enterprise Development Project (discussed in detail in Section 2.5). 7. Comments on Issues Raised by Borrower 119. As this ICR was being prepared, the Borrower (specifically its implementing agency PSFU) provided clarification and additional information and documentation which underpinned the key findings. Several of the issues raised in this ICR also align with the Borrower’s own ICR (Annex 5). Accordingly, no specific comments from the Borrower were provided on the final version, although it was noted that the ICR was generally viewed to be objective, factual, and provided important lessons.   32      Annex 1 Project Costs and Financing Uganda PSCP II (P083809) (a) Project Cost by Component Appraisal Estimate Percentage Percentage of Estimate Legal Actual / Latest Estimate of Amendment Components (US$ Amendment (US$ million) Appraisal Estimate million) Feb. 2012 (US$ million) A B IDA Gov’t C=TOTAL (C/A) (C/B) 1. Developing 30 14 12.70 0.70 13 43% 93% Infrastructure and Financial Services 2. Enhancing 14 11 9.95 0.44 10 71% 91% Enterprise Competitiveness 3. Improving 28 29 28.10 1.20 30 107% 103% Business Environment Total Project Costs 72 54 50.75 2.34 53 74% 98% (b) Financing Type of Appraisal Estimate DCA Actual / Percentage Percentage Cofinan- Estimate Amendment Feb. Latest of of Source of Funds cing (US$ million) 2012 Estimate Appraisal Amendment (US$ million) (US$ million) Estimate IDA Credit 70 51.0 50.7 72% 99% Private Sector In-kind 13.5 6.0 6.0 44% 100% Government of In-kind 2.5 2.8 2.8 112% 100% Uganda Total Project Costs 86 59.8 60 69% 99% Notes: Project budget at appraisal was actually US$72m. The amount comprised funding from both IDA and Government. Private Sector contribution of US$13.5 million included physical and price contingencies worth US$6 million. Per ICR guidelines this table is presented by component in US dollars and it was prepared by the Borrower. The Bank monitors disbursements by disbursement category and SDR. Hence due to exchange rate fluctuations and the timing of reporting there may be differences in the final Bank disbursement figures and those presented in this table. 33      Annex 2 Outputs by Components Uganda PSCP II (P083809) 1. The project development objective of PSCP II was to support the Borrower's efforts for creation of sustainable conditions conducive to enterprise development and growth, encouraging investment, facilitating private sector development, increasing micro, small and medium enterprises, increasing competitiveness in local and export market, and employment opportunities in its territory. To this end, the project financed activities included in three components. The related outputs and outcomes are discussed in this annex. Component 1: Developing Infrastructure and Financial Services (UIA and PSFU) 2. The objective of this component was to provide priority infrastructure and related facilities to support the growth of the industrial and business sector, particularly through enhancing the availability of serviced industrial land in a modern, well-planned industrial park. The project also aimed to improve the provision of financial services to MSMEs. 3. There were two sub-components for Component 1. The first, related to infrastructure for the industrial park, was managed by the Uganda Investment Agency (UIA). The second related to financial services and was managed by the Private Sector Foundation Uganda (PSFU). Of the two PDO indicators related to Component 1 (actually sub-component 1.2), both were partially achieved. Of the six intermediate indicators for this component, four were achieved (of which one partially). (See Data Sheet) Sub-component 1.1 related to KIBP was cancelled in November 2011. All other Component 1 activities were closed on January 30, 2012. Sub-component 1.1: Providing Basic Infrastructure Services for the Private Sector (UIA) 4. The project design envisaged the provision of infrastructure facilities in the form of serviced land for primarily industrial and business activities at a new Industrial Park at Namanve located 11 kilometers east of Kampala (Kampala Industrial and Business Park (KIBP)). Specific activities were to include: (i) development of primary external or off-site infrastructure (access roads, intersections, water and electricity supply facilities, sewerage and wastewater treatment); (ii) capacity building of UIA in investment promotion and facilitation as well as industrial planning; (iii) develop an environmental and social monitoring framework and system which will serve as a model for industrial park management and operation; (iv) provision of technical assistance to support the implementation of the new legislation, conduct regional planning, develop social and environmental impacts mitigation plans, develop an implementation plan for the KIBP, and assist in the rolling out of the plan; and (v) investment promotion functions and activities of the UIA. 5. The project did not achieve the planned outputs for this sub-component, which was cancelled in November 2011 due to delays in implementation and procurement and environmental concerns related to KIBP. However, several outputs and outcomes were attained including: 34       Finalization of the KIBP Master Plan.  The earthworks that involved opening up of the roads network (approximately 6.18 km) were completed.  Capacity of UIA was enhanced.  Major environmental and social safeguards were addressed (although will still require further attention going forward).  Investment promotion was successful.  Five companies are located in KIBP, employing 500 people (as of project-end). Sub-component 1.2: Financial Services to MSMEs (PSFU) 6. This sub-component aimed to support the development of financial products suitable for MSMEs. Specifically, the project was to provide grants to financial institutions -- regulated financial institutions, non-bank financial service providers, and industry financial associations -- for activities intended to expand the range of products and institutions serving MSMEs and to assist in financial institution and system development. In addition, private financial institutions had access to performance-based matching grants to cover 50 percent of the costs for implementing and piloting new products and services. The focus was on financial sector infrastructure, capacity building, market information, financial literacy, product development, financial sector regulation and supervision, trade insurance, non-bank financial services, and financial transparency. 7. The related activities experienced a late start largely attributed to the eligibility criteria that restricted public or quasi-public agency from benefiting. The component was envisaged to build and leverage on other donor funded programs by DANIDA, DFID, EU, and USAID. But all of these complementary programs had closed by the time this sub-component was gearing up. As a result, there was an excessive demand for financing activities through this component. 8. While PSFU had overall responsibility for coordinating this sub-component, there was a lack of collaboration amongst the various stakeholders in the financial sector since there is no single regulatory financial institution. This was aggravated by fact that the design for this sub- component had not been fully participatory. The regulated financial institutions were hesitant to deal and relate with the private sector, specifically PSFU which was responsible for the sub- component. It took time to build and sustain confidence with key financial institutions. Moreover, the bigger institutions wanted financial support for establishment of rural branches in the form of equipment and operating costs, which were not eligible for project financing. 9. Project outputs and outcomes of this sub-component included:  Establishment and operationalization of the Credit Reference Bureau (CRB) for Uganda, which marked a significant step towards the improvement of credit risk management in the financial sector. In particular, Uganda ranked 48th in the 2012 Doing Business Report, in terms of ease of getting credit against 183 countries, compared to 109th position in 2009. By September 2011 a total of 518 branches outlets were live on the Financial Card System and 515 outlets were connected to the CRB. 1,225 users were trained and over 630,000 clients have already been registered on the CRB. 35       Establishment and operationalization (including awareness campaign) of the Securities Central Depository (SCD) at the Uganda Securities Exchange. This supported the expansion of trading to five days a week from three days. Efficiency in terms of effecting settlements improved from t+5 to t+3. During the period there were increases in both the listings (by several fold) and volumes traded (nearly double over the 2010 – 2013 period). By project close, linkage of CDS to Real Time Gross Settlement was at an advanced stage to allow for instant settlement. The CDS will eventually be linked regionally.  Establishment of the African Trade Insurance (ATI) underwriting office in Uganda.  Capacity building for private financial institutions involved training of staff in leasing, mortgage finance. In total, 2,120 people were trained.  Support for the five-year Financial Markets Development Plan, implemented by the Bank of Uganda. This has contributed to further deepening of the financial sector mainly through increased capacity, development of new products in leasing and mortgage finance, review of the legal framework, and financial literacy and consumer protection.  FINSCOPE II was prepared. Component 2: Enhancing Enterprise Competitiveness (PSFU) (Examples of how specific MSMEs benefitted from this sub-component are included in attachment to this annex) 10. This component aimed to increase enterprise creation and growth, particularly in MSMEs, by changing enterprise behavior toward investment in skills (especially for women), raising productivity, and improving the quality, standards, and reliability of MSME producers participating in export value chains. This was to be achieved by scaling-up the ongoing matching grant scheme implemented successfully under the first Private Sector Competitiveness Project (PSCP I). In addition, new schemes were to be developed to target: (i) improving technology; (ii) improving skills; (iii) supporting creation of innovative products and new lines of business by providing grants through a business plan competition scheme; and (iv) improving financial management of MSMEs to help increase their access to finance. 11. There were five sub-components in Component 2, all of which were managed by PSFU. Of the five PDO indicators related to this component only one was (largely) achieved; of the nine intermediate indicators eight were achieved. (See Data Sheet) Activities under Component 2 closed on January 30, 2012. Sub-component 2.1: Matching Grants for Productivity Enhancement, Financial Management, and Export Growth Sector 12. The sub-component was implemented through the auspices of PSFU’s Business Uganda Development Schemes (BUDS), created under the PSCP I. The sub-component provided matching grant (50 percent) to MSMEs on approved criteria for undertaking various activities as highlighted above. Each eligible firm had opportunity to benefit up to US$100,000 depending on the availability of the funds. The grants were demand driven and first-come-first-serve. 36      13. Project outputs and outcomes related to this sub-component included:  Grants extended to 839 MSMEs (excluding repeats), reaching over 7,500 beneficiaries including nearly 3,000 women. Overall, the number of MSMEs beneficiaries was double the initial target. Thirty-six percent of grants were to sub-regions outside Kampala (exceeding target disbursement of at least 30 percent).  Support for 1,319 projects/activities including 480 repeat clients. The highest percentage of support given was for firms in the services sector (39 percent), followed by commercial agriculture (25 percent), manufacturing (20 percent), commerce (7 percent), farming cooperatives and associations (4 percent), consultancy and business support (3 percent), and business associations (2 percent).  Financing for a range of activities including: company diagnostic and planning (18 percent of total), domestic marketing and sales (8 percent), feasibility and market research (11 percent), international marketing and sales promotion (12 percent), management systems (19 percent), production related (7 percent), and training (25 percent).  Support for 374 training related activities including workshops, seminars, conferences, and study tours. Assistance to 80 business development services providers to undertake capacity building courses.  Of the companies supported, 92 percent reported an increase in their business competitiveness after receiving support. This was reflected in more than doubling of sales, on average, after the intervention.  A total of 26,009 new jobs were attributed to this intervention.  Of the new markets penetrated based on support provide, 49 percent were domestic markets and 26 percent regional markets (or beyond). 14. In addition to the above activities under BUDS, the other intervention managed by PSFU under this sub-component was the Technology Acquisition Fund, designed to improve technology adaption and usage by MSMEs. Funds were provided to firms in the cotton, horticulture, floriculture, and handicrafts sectors, partly to increase production. The intervention contributed to acquisition and usage of new technology, improvement in efficiency, product quality, and introduction of new products at specific firm level, which in turn, contributed to increases in exports, employment, as well as to the firms’ competitiveness. 15. Some of the new technologies that have been supported using the Fund cost-sharing grants included:  Fruit drying technologies for export in European markets.  Commercial trials and production of chrysanthemums (summer flowers), a rare variety of flowers that is sold at premium markets to allow for market penetration and consolidation.  Vanilla curing technology to meet export standards and quality expectations. 37       Value addition along the cotton value chain and production of absorbent cotton, a product used in the Uganda health sector but largely imported.  Meat packaging equipment to enable penetration of the premium markets.  Appropriate pasteurization and packaging technologies for the dairy sector. Subcomponent 2.2: Enterprise Skills and Linkages (ESL) Program 16. The overall goal of this sub-component was to increase innovation, product development, and entrepreneurship. This was to be achieved by: (i) establishing closer linkages between enterprises and technical, vocational education, and training institutions; (ii) upgrading the quality of training in the traditional apprenticeship system; and (iii) greater orientation of these systems toward trade qualification. 17. In terms of enterprise skills, the program focused on four pillars: apprenticeship, skills up-grading, internship, and enterprise-to-enterprise training. Under the apprenticeship pillar the focus was to train managers /owners of MSMEs to become ‘master craftsmen’, who in turn train apprentices. The skills of master craftsmen and apprentices were assessed and if they met required standards they earned a “PASS� certificate. 18. For the second pillar, skills upgrading, the group were mainly owners / managers / supervisors in those enterprise sectors for which technology had changed considerably since the beneficiaries had received their initial training. Skills upgrading was done in two stages: first the trainers of training organizations were trained then the direct beneficiaries were trained. Through the third pillar beneficiaries had the opportunity to gain practical work experience through internships in enterprises. 19. The fourth pillar, enterprise-to-enterprise training, proved to be more challenging since very few large enterprises (a small base in any case) were willing to partner with small enterprises for this training initiative. While nearly 700 employees did benefit from this training, the difference between those of the training company and those of the learning company was actually minimal. 20. Project outputs and outcomes of the training activities included:  A total of 63 enterprises received support which benefited a total of 5,343 people.  45 trainers participated in train-the-trainer courses and subsequently these trainers trained 2,242 owners/managers/supervisors of MSMEs.  Trade qualification program was developed for which workers earned PASS certificates; of the 2,143 apprentices about 96 percent earned a PASS certificate.  268 students gained practical work experience through internships.  690 employees of MSMEs (in the fish farming and hotel sub-sectors) benefitted from the enterprise-to-enterprise training. 38      21. An important benefit of the Enterprise Skills and Linkages Program was strong collaboration between public and private sectors in terms of skills development. It is noteworthy that the Government built on this experience to design a larger skills program “Skilling Uganda�. Based on the positive experience of PSCP II, the private sector is actively involved in this initiative and chairs its steering committee. 22. One important insight that emerged from these training initiatives was that while training is useful, it may not be sufficient to start a business. Lack of vital equipment tends to be the binding constraint. In the future, consideration should be given to incorporate some financial support to enable beneficiaries acquire some the critical equipment. Other lessons related to enterprise training are: need to improve the image of apprenticeship training; undertake initial market surveys to understand what types of skills are in demand; assist the poor in financing their apprenticeship training; improve basic education; upgrade the skills of master craftsmen; introduce supplementary training for apprentices; and arrange for post training support. In addition, the PASS certificate program needs to be carefully evaluated to determine the quality of the training. Moreover, for the PASS certification program to be fully effective it will need to be recognized by potential employers. This would require awareness-raising efforts. 23. It is noteworthy that the preliminary results of a Bank-prepared Development Impact Evaluation conducted on the skills training program reveal some short-term positive effects of the training on financial literacy and technical knowledge, optimism, and adherence to standards and procedures. However, the impact evaluation finds no effects after 12 months on core business outcomes. These include innovation (number of new products or new designs), business development (investment, access to finance), and business performance (revenues and profits). More broadly, this is important feedback to development practitioners as they consider the utility and impact of specific interventions, based on rigorous analysis. Sub-component 2.3: Enterprise Skills and Linkages (ESL) Program 24. This sub-component sought to catalyze a community of entrepreneurs, bankers, advisors, investors, and educators through a Business Plan Competition (two rounds were conducted). This offered grant prizes to winners of an open competition that would cover the costs of piloting an innovative business idea. Small projects were targeted to attract as many participants as possible, with a focus on young potential entrepreneurs. Technical support to prepare business plans was provided to candidates. In addition to grants, winners received training and mentoring. 25. Project outputs and outcomes related to this sub-component included:  The “Start Your Business Competition� attracted over 10,000 applicants who submitted business ideas.  500 budding entrepreneurs received training and mentorship to formalize their businesses.  An alumni network of trainees to track progress was established.  23 entrepreneurs received seed money totaling US$496,000 to started businesses.  80 percent of the established businesses have survived beyond their first birthday. 39      Subcomponent 2.4: Business Brand Linkages 26. The overall objective of the Business Brand Linkages program was to capture additional profits associated with branding and marketing initiatives, especially in export markets. Under this sub-component, support was provided to firms to create branded export products that would result in a premium in terms of sales revenues. 27. Project outputs and outcomes related to this sub-component included:  Support totaling US$340,000 provided to firms involved in coffee, tourism, and horticulture (dried fruits).  Supported activities included: brand diagnostic research; brand development such as labels, logos, manuals, etc.; product rebranding and packaging redesign; procurement of appropriate prototype packaging design suitable for international markets; development of point of sale/brand promotional materials; and brand promotion websites, sales and marketing exhibitions in international markets, road shows, and other venues.  Brands were developed for eight enterprises and two exporting associations, meeting the target of ten product brands created. 28. Notwithstanding these accomplishments, other objectives of this sub-component proved to be overly ambitious and were not achieved. These included: articulating a national branding strategy for the marketing of Uganda exports; establishment of wildlife national parks brand asset-building program; negotiation of joint marketing ventures with firms marketing “First World� brands; public relations marketing campaigns that stimulate press coverage of the brand, focusing on the stories and content associated with Uganda’s branding assets; and creation of mechanisms to assign brand equity to farmers either directly or through intermediary organizations. Subcomponent 2.5: Better Business Behavior Award Scheme 29. This sub-component was intended to promote “first mover� MSMEs by rewarding on- time repayment for new investment loans, as well as compliance with tax administration and business registration requirements and sound corporate governance that are necessary to become a favored corporate client. In particular, the Better Business Behavior Award Scheme would reward on-time repayment of new investment loans (accompanied by evidence of payment of taxes and compliance with business registration requirements). A late payment would automatically terminate a firm’s further eligibility under the program. The resulting high- performance track record was expected to lower the risk and cost of subsequent loans to successful firms and thereby demonstrate the potential for mutually profitable lending to MSMEs. 40      30. The scheme was launched in December 2006 and was followed by several marketing presentations made to chief executives of financial institutions. Many banks adapted the innovation by initiating similar (non-PSCP II funded) schemes. For example, in the case of Barclays if payments were made on time, 15 percent reduction on total payable interest due was given to the MSME. Similarly, URA introduced initiatives geared towards educating and supporting MSMEs to ensure tax compliance. Given that these schemes took off independent of PSCP II, project support was reoriented to recognizing associations and companies that exhibit good governance through the Association of the Year Award. 31. This sub-component is considered highly satisfactory since the impact was significant and sustainable. Banks have invested in financial literacy in order to improve knowledge and behavior of MSME’s and to make them better clients. At the same time, banks have gained a better understanding of the needs of MSMEs and adjusted their lending methods. An important outcome is that lending to MSME’s has significantly increased. Component 3: Improving Business Environment (various implementing agencies) 32. Component 3 sought to modernize the commercial legal environment, reduce the time and cost to register businesses, restore the integrity of the land registry, and improve the efficiency of trade-related services leading to a more efficient value chain. Activities involved close collaboration between PSFU, as the coordinating agency, and public sector agencies including the Uganda National Bureau of Standards, the Uganda Registration Services Bureau, the Ministry of Justice and Constitutional Affairs, and the Uganda Law Reform Commission. In addition, the component sought to strengthen the public-private sector partnership and dialogue started under PSCP I. These activities were supported by the Competitiveness and Investment Climate Strategy (CICS) unit, a secretariat within the Ministry of Finance. 33. There were five sub-components in Component 3, each of which had a separate implementing agency. Of the six PDO indicators related to this component four were achieved. Of the eight intermediate indicators six were achieved (of which one partially) and two were not achieved. (See Data Sheet) All activities under Component 3 closed on January 30, 2012, except for the land sub-component which closed February 28, 2013. Sub-component 3.1: Land Registration Sector (Ministry of Lands) 34. This sub-component aimed to increase the effectiveness of public land institutions so as to make it easier to obtain and transfer evidence of land ownership. This would improve tenure security, investment incentives, gender equity, and governance and facilitate the use of land titles as collateral for credit. This sub-component encompassed three types of activities: (i) rehabilitation of existing land records and upgrading of un-surveyed mailo titles; (ii) establishment of a land information system (LIS) and expanding the coverage of land information; and (iii) strengthening the capacity of public institutions. 41      35. Other activities included piloting of systematic titling of high-value rural land in Ntungamo, Iganga, and Mbale districts using best practice, low-cost, and transparent approaches. As a result of this pilot, the average registration costs were reduced from more than US$200 to about US$23 per land parcel (compared to US$25 in Thailand, which is known as best practice). Also, the project supported the piloting of the identification and surveying of Government- owned land with the view to improve its management. Unfortunately, mis-procurement is under review for this contract although 1,086 land parcels were surveyed. These pilots will be scaled up under the new World Bank-financed Competitiveness and Enterprise Development Project. 36. PSCP II also supported considerable policy and legislative work and the piloting of various initiatives including: the National Land Policy, approved by the Cabinet in February 2013; the National Land Use Policy, adopted in 2007 and followed by enactment of the Physical Planning Act 2010; the Mortgage Act 2009; the Land (Amendment) Act 2010 to reduce illegal evictions; and preparation and drafting of nine bills, including the Registration of Titles Bill, the Land Survey Bill, the Land Surveyors Registration (Amendment) Bill, the Real Estate Agents Bill, the Land Acquisition Bill, the Government Lands Bill, the Local Government Rating Bill, the Condominium Property (Amendment) Bill, and the Uganda Land Information Systems Bill. These bills are being finalized and processed for adoption; their implementation will be supported under the new Competitiveness and Enterprise Development Project. 37. Project outputs and outcomes of the sub-component included:  Development of a comprehensive national LIS. A public information and awareness campaign for the LIS was also implemented.  Revival and rehabilitation of the School of Surveying (renamed Institute of Surveying and Land Management) to train professionals for modern land administration. In addition, the development and approval of a new curriculum.  Construction or renovation of: 13 district land offices including basic furniture and computer and surveying equipment; the center for LIS; first phase of center for records and archival; and a resource center at the Institute of Surveying and Land Management.  Building a geodetic control and base mapping infrastructure to support LIS development in six zonal offices of the Ministry of Lands.  Rehabilitation and basic computerization of land records in the mailo land registry in Kampala for records of Kampala, Wakiso, and Mukono districts.  Scanned all leasehold and freeholds, majority of maps, and part of mailo land records.  Training of staff to run the systems and institutions.  Undertaking (on a pilot basis) an inventory of government land in five districts. 38. These activities, especially the basic computerization of land records, have had the following impacts:  Search reduced from more than one year to being instantaneous.  Mortgage reduced from more than one week to 3 days.  Backlog of unprocessed land registrations eliminated.  Property transfer reduced from over 200 days to 52 days. 42      Sub-component 3.2: Business Registration (URSB) 39. The objective of this subcomponent was to help the Uganda Registration Services Bureau (URSB) improve its business registration services and lessen the regulatory burden for private enterprises, create incentives for businesses that operate in the informal sector to graduate into the formal sector, and reduce opportunities for harassment due to the legalization of businesses and better legal protection and reduce corruption. Under this sub-component, implemented by URSB, a team of specialists were expected to deliver: (i) a detailed design of the URSB operational model, based on the new company law; (ii) statutes to govern URSB operations; (iii) a strategic plan; (iv) internal procedures and regulations; (v) information systems requirements (software and hardware); (vi) an operational manual; and (vii) staff training. In addition, the project would support an information and outreach campaign in Kampala and other major cities to inform entrepreneurs about the new simplified procedures of business registration and to provide them with booklets, flyers, or other printed information about how and where to register businesses, as well as a public outreach program through national and local media. 40. This component did not start until 2011 due to URSB governance issues which led to the appointment of a new URSB board. The appointment of the board was followed by a major restructuring of the institution with major changes in top management. While impressive progress was made in just one year of implementation, the significant delay meant that not all the objectives were achieved. 41. Project outputs and outcomes related to this sub-component included:  Equipping and furnishing of the URSB.  A systems administrator and ten data entry clerks recruited to support the computerization initiatives.  Significant improvements in terms of time taken to register a business, from 135 days to just 2 days.  URSB staff study tour to Zambia and Serbia and evaluate modern registries. This supported the preparation of the new Competitiveness and Enterprise Development Project. Subcomponent 3.3: Uganda National Bureau of Standards (UNBS) 42. This sub-component aimed to improve the competitiveness of Ugandan products in the international market by achieving world class quality and standards. The overall objective was to encourage Ugandan firms and farmers to invest in systems and product certification that are acceptable in their export markets. Funding was provided to the Uganda National Bureau of Standards (UNBS) to: (i) prepare a strategic plan for the development, implementation, service provision, and enforcement of domestic and international standards; (ii) design and implement an awareness program for exporters, civil society, and policy makers, to mainstream quality assurance into public, community, and business development planning; (iii) implement the Global Good Agriculture Practice (“Global GAP�); and (iv) establish the standards and quality coordination mechanism. 43      43. This sub-component got a late start due to lengthy procurement delays. Accordingly, the scope of activities was reduced. In particular, the awareness program was not undertaken, nor was implementation of the Global GAP rolled out. And although UNBS did coordinate relevant activities with the standardization strategy of the Quality Infrastructure and Standards Program under the Ministry of Trade, the standards and quality coordination mechanism was not completed. In terms of moving the agenda forward the challenge will be to find an appropriate private sector champion. There is little initiative and capacity to obtain and sustain support for this private sector-focused activity, outside the government framework. 44. Project outputs and outcomes related to this sub-component included:  Development of a national standardization strategy.  Uganda was accepted and registered as member of the Global GAP.  National interpretation guidelines for Global GAP were developed for the horticultural sub-sector and an interim platform for implementation of Global GAP was created.  Global GAP training and certification was conducted for 74 participants, of which about one-third passed the examination and received certificates. Going forward, a local certification body will need to be identified and capacitated to carry out Global GAP certification.  A benchmarking study tour for the horticulture sub-sector to Kenya was undertaken. Subcomponent 3.4: Legal Framework for Business and Financial Services (ULRC) 45. The objective of this sub-component was to support the Ministry of Justice and Constitutional Affairs to accelerate the process of legal reform. The particular focus was on improving laws relating to business, financial services, and exports and intellectual property so as to facilitate a competitive business environment. 46. The sub-component was implemented by the Uganda Law Reform Commission (ULRC). While the target indicator was met -- 21 commercial laws revised -- relatively few were fully operationalized because the accompanying regulations had not been completed. And even for those five that became operational, the private sector is not aware of them. 47. Project outputs and outcomes related to this sub-component included:  Key business-related legislation was prepared, including completion of work on intellectual property rights and preparation of legislation on appellation, e-commerce, and leasing law, among others.  21 laws were drafted or updated. Ten laws were assented to but only five are currently operational because the accompanying regulations have not yet been completed for the others.  Workshops with policy makers and public hearings involving the business community were conducted.  Support provided to the ULRC resource center, including computers and online journal subscriptions. 44      Subcomponent 3.5: Public-Private Partnership (PSFU / CICS / UIA) 48. This sub-component aimed to support the nascent private-public dialogue and focus the dialogue on increasing exports. Specifically, the main activities sought to: (i) strengthen business membership organizations (e.g., PSFU) to participate in policy dialogue with the Government in shaping private sector policy, programs, and projects; (ii) support the Government and private sector dialogue at different levels, including the Presidential Investors Round Table; and (iii) coordinate the strategic development of the Medium Term Competitiveness Strategy (now CICS), a secretariat within the Ministry of Finance. 49. This sub-component was implemented by PSFU in close collaboration with UIA and CICS. 50. Project outputs and outcomes related to this sub-component included:  Significant growth in PSFU membership over the project period (from 71 in 2005 to 175 by 2013). The increased membership contributions strengthened PSFU’s financial sustainability (although related indicator target was not fully met) and PSFU also became recognized as an effective proponent for the private sector.  UIA significantly strengthened its capacity for investment promotion, with the assistance of a technical advisor.  Greater number and range of member services, including such activities as PSFU mentorship of associations, outreach visits to rural districts, awareness campaign of PSFU, formal recognition events of members.  Numerous policy papers, briefs, and updates prepared which represented the membership and advocated positions on topics ranging from pensions reform, agricultural financing, national export strategy, non-tariff barriers, to tourism sector development.  Public private partnership approach was taken to implement the Financial Markets Development Plan (spearheaded by the Bank of Uganda).  Support to CICS in analyzing ways to improve the cost-effectiveness of public service delivery organizations, especially through innovative public-private partnerships.  Presidential Investors Round Table meetings held semi-annually (a total of 12) and follow-up public-private technical working groups have continued the dialogue. 45      Annex 2 Attachment Some Success Stories Enterprise Skills and Linkages Program The Katwe Small Scale Industries Development Association (KASSIDA) is a community-based umbrella organization for local artisans who provide a range of fabricated products for local regional markets. PSCP II supported a non-formal skills training for over 1,200 members at their work places. The aim of training was to impart modern skills and knowledge for quality production, test and certify the KASSIDA members with competency based qualification - workers’ PASS. Skills training encompassed:  Metal fabrication, producing classroom desks with metallic drawers.  Shoe making, for which shoes were sold at an exhibition.  Electrical and machining which led to the production of more efficient welding machines.  Tailoring which produced school sweaters, quality suits, and ladies wear.  Catering which used bio fuels (from banana leaves and stem products) to produce cakes. Business Brand Linkages Star Café Limited, a coffee processing and roasting company, benefitted from PSCP II financing to: undertake brand audits; redesign packaging; develop point of sale concepts for line brand promotion and advertising; and redesign the company website. As a result Star Café:  Develop six unique Star Café brands with 18 sub-brands that feature Uganda’s Arabica coffee from the Bugisu region; these products have been able to effectively compete in both domestic and international markets.  Penetrate markets in Kenya and conduct trials in Egypt, Seychelles, China, Eastern Africa and consolidating the classified UN market.  Increase sales from UGS 850 million in 2008 to UGS 5.5 billion in 2012, attributed to brand development and marketing.  46      Technology Acquisition Fund (TAF) Mutuma Commercial Agencies is a private company that is involved in ginning and exports of cotton lint; it also manufactures soap and cooking oil from the cotton seeds. A TAF grant helped the company procure absorbent cotton technology from China in order to produce absorbent cotton for Uganda’s medical sector, for which most was initially imported. The total cost of the equipment was US$240,800 and PSCP II provided a reimbursement grant of US$100,000; the Uganda Development Bank pre-financed the activity. This led to a new factory with the following results:  The company acquired two large orders from the leading supply chain agencies.  The plant increased its production capacity to 300 tons per month.  Net profit margins of about 27 percent are expected, of which 10 percentage points is passed back to farmers (about 3,400) in form of price increases.  Purchase of cotton from farmers increased from about 5,000 bales per season to 6,500.  45 jobs were created.  The company is planning to expand production capacity. Business Plan Competition Epitome Kindergarden was one of 17 new businesses to receive a grant for start-up costs covering school building renovations, furniture, computers, educational materials, and salaries. While the start-up money was critical, the training that was provided to develop the business plan and run a successful business was considered by Epitome’s (female) owner as extremely worthwhile by itself. The small business was started in 2011 and is well on schedule to become profitable. 47      Annex 3 Economic and Financial Analysis Uganda PSCP II (P083809) 1. This annex discusses the original economic and financial analysis done at design stage in comparison with actual results demonstrated by the project. The analysis prepared at appraisal estimated an internal rate of return of 43 percent for the overall project, along with valuation estimates for several of the major sub-components. The methodology used for the design stage analysis exhibits numerous methodological concerns and an incomplete sensitivity analysis. 2. Ex post valuations of project activities are extremely difficult to calculate due to the nature of activities, difficulties in attribution of specific activities, and the extent of the data gathered. As such, an ex post valuation was only possible for the activities under Component 2. The ex post valuations for the matching grant activities (sub-components 2.1 and 2.2) and branding support activities (sub-component 2.3) indicate positive valuations for these activities. The actual valuation for the matching grant activities (sub-components 2.1 and 2.2) was lower than the estimated value, while the valuation for branding support activities (sub-component 2.3) was considerably higher than the design estimate. These positive valuations indicate good value for money for activities under these sub-components. Component 1: Developing Infrastructure and Financial Services Sub-component 1.1: Providing Basic Infrastructure Services to the Private Sector 3. As part of the project design an economic and financial analysis assessed the economic and financial return of the KIBP, to be supported under sub-component 1.1, which yielded the following result: a net present value (NPV) of US$28.2 million (using a discount rate of 20 percent) and an internal rate of return (IRR) of 34 percent. This estimate was based on benefit calculations including direct employment of MSMEs operating in the KIBP, increased production in these MSMEs, and increased production and employment in service industries supplying materials to the park. While this approach is reasonably sound, the assumptions used to arrive at the valuation estimates proved to be far too optimistic. The analysis assumed that the KIBP would begin expanded operations during early project implementation. Unfortunately, however, the cancellation of this sub-component meant that KIBP was not able to reach its potential as envisaged during the project period. At the end of the project KIBP had only five tenants, employing 500 people. Moreover, a more accurate valuation at the outset would have used a considerably higher discount rate (higher than the 20 percent used) to reflect the risk adjusted opportunity cost of capital. Sub-component 1.2: Financial Services to MSMEs 4. An NPV and IRR valuation was not conducted for this sub-component at the time of project design. Financial analysis of reforms to improve access to finance, such as those supported under this sub-component, is generally not recommended because of difficulties in attribution of specific project activities to financial gains of direct beneficiaries. This challenge is further compounded by the deficient M&E framework that has been noted for this project. 48      However, the relationship between access to finance reform and the performance of firms is well supported in the literature. Greater business opportunities and better access to finance are generally related to a more robust private sector (Demirguc-Kunt and Klapper, 2012) which lends credence to the credit bureau, securities, and trade insurance investments supported by the project.1 The impact of activities under this sub-component is evaluated in other parts of this ICR. Component 2: Enhancing Enterprise Competitiveness Sub-components 2.1 and 2.2: Matching Grants for Productivity Enhancement, Financial Management, and Export Growth Sector; Enterprise Skills and Linkages (ESL) Program 5. MSMEs are the primary beneficiaries for both sub-components 2.1 and 2.2. Accordingly, the economic and financial analysis of these two sub-components has been combined. In the original analysis conducted at the design stage, it is unclear as to whether the component analysis for “matching grant� covered both of these sub-components. Both make use of a matching grant scheme, however, the information available does not provide clarity on whether the original analysis focused only on sub-component 2.1 or included both of these sub-components. A limited amount of data regarding these sub-components has been tracked during monitoring and evaluation of the project:  Matching grants: The total number of MSMEs supported was 839 with an average grant value of US$4,400. The amount of matched funding put forth by MSMEs was on average equal to the grant value. The average increase in revenues for supported businesses was 125 percent from UGS 314 million to UGS 708 million, with the average number of employees increasing from 40 to 48.  ESL Program: The total number of MSMEs supported was 63. The considerably smaller number of MSMEs supported under sub-component 2.2 provides further support for combining the analysis of these two sub-components. 6. At the design stage the economic and financial analysis used a multiplier effect. It was assumed that each dollar financed/spent through the sub-components would yield five dollars in benefits for businesses impacted by project activities. This was a critical assumption of the original design. 7. Multiplier approach: Using a multiplier approach for economic and financial analysis can be risky. The most important issue with this approach is the fact that it does not identify or specify any channels through which the impact of the project occurs. The dollar benefits for businesses can be incurred in terms of either revenues or profits, both of which yield vastly different results in terms of the economic rate of return and valuation of a project.                                                              1 Demirguc-Kunt, Asli and Klapper, Leora, 2012. "Financial Inclusion in Africa: An Overview," Policy Research Working Paper Series 6088, The World Bank. 49      8. Other design analysis assumptions: In addition to assuming a multiplier effect, the project design assumed that 700 MSMEs would participate in the matching grant program every year over the life of the project. This number is highly inflated, especially given that only 902 MSMEs were supported from sub-components 2.1 and 2.2 in total. 9. Multiplier value: The multiplier of 5 for the matching grant was generated based on a relative scale. The analysis states that the previous Uganda PSCP I project used a multiplier of 15. This was adjusted downward for the sake of being conservative. However, the analysis does not provide any background on how this number was selected in the previous project. This multiplier could be based on changes in profits or revenues, either of which yields different results in terms of component valuation. Additionally, there was no discussion on the timing associated with this increase in output amongst the beneficiaries. For the purposes of this ICR analysis, the assumption is that the increase in outputs occurs in the year immediately following the project activities. An increase in revenues for a particular MSME by 5 times in one year is a highly inflated assumption. If this multiplier applies to profits then the figure is even more inflated. 10. Sensitivity analysis: The original project assessment included a sensitivity analysis which tested variations in the component valuations and the economic rate of returns (ERRs) by modifying critical variables. This analysis did include modifications of the matching grant sub- component including changes to the multiplier being used. However, the lowest multiplier for which sensitivity testing occurs was 2. Even a 2 times increase in revenues for a particular MSME in one year is considered too high. 11. Actual impact: Given the data gathered through monitoring and evaluation of the project for these sub-components, the valuation of these sub-components has been recalculated as follows: Actual over project life (8 years) ERR 20% NPV (20% discount rate) US$27,729 Projected over 12 years ERR 41% NPV (20% discount rate) US$9,409,072 12. This analysis is based on the aforementioned data regarding these sub-components including the total number of MSMEs supported, average grant value, and increase in revenues for supported businesses. The assumptions used in deriving these valuations are:  Growth rate for MSMEs without the project activities of 3 percent and the percentage of revenues that is devoted to costs is 80 percent. These have been validated by regional experts and used in analyses for other projects in Uganda.  The 12 year valuations for sub-components are based on MSMEs returning to 3 percent growth rate after year 8.  Growth rate for MSMEs with the project activities is calculated as 12 percent based on the total average revenue growth of 125 percent documented in the project data. 50       Exchange rate from UGS to US$ has been set at the rate of 2,653 UGS = US$1.00 (as of project close: Feb 28, 2013).  The disbursement schedule specific to these two sub-components has been estimated as constant per year. The number of MSMEs supported per year ranges from 90-180, totaling at 900 for the life of the project.   13. The ERR and NPV figures calculated at the design stage (which assumed a project life of 5 years with benefits projected over 12 years) were 38 percent and US$39.9 million. These estimated figures vary considerably from the actual calculated above, particularly for the NPVs - - over US$39 million estimated versus the actual of about US$28,000. For the ERR, the actual was about half of what was projected – 20 percent versus 38 percent. The significantly actual lower returns, albeit still positive and may be better in four years’ time, can be attributed to the fact that there were less beneficiary businesses than anticipated. Moreover, there were fundamental differences in the methodology used to calculate the returns. Rather than using a multiplier approach which arbitrarily assigns a total output benefit to companies, the calculation provided for this ICR analysis uses the revenue and profit growth figures (at the average) for individual MSMEs to estimate a valuation. This approach does not attribute all revenue growth of these beneficiaries to the project. Rather, it attributes only that which is likely to be above what would have occurred even without the project-supported activities. In contrast, the multiplier approach that had been used at project design attributed all projected revenue growth in the beneficiary businesses to the project itself.   Sub-components 2.3: Business Brand Linkages 14. The objective of this sub-component was to capture more value from profit margins associated with existing branding and marketing initiatives especially in export markets. A limited amount of data regarding this sub-component was tracked:  8 enterprises and 2 exporting associations received support totaling US$340,000.  Sample beneficiary results: Star Cafe Limited showed an increase in sales from UGS 850 million in 2008 to UGS 5.5 billion in 2012. Good African Coffee showed an increase in sales from UGS 1.5 billion in 2008 to UGS 4.1 billion in 2010. 15. The economic and financial analysis of these sub-components used the same multiplier effect methodology that was used for sub-components 2.1 and 2.2.   16. Multiplier approach: The multiplier approach used in this analysis contains all of the previously discussed issues in methodology.   17. Multiplier value: The multiplier of 5 for this sub-component was based on a soya case study which showed that US$1 invested generated US$3 in overall income. The analysis does not provide adequate support for how this number was generated relative to the lower multiplier observed in the soya case. Additionally, the multiplier used does not account for timing which results in a highly inflated assumption as discussed for sub-components 2.1 and 2.2. 51      18. Sensitivity analysis: The sensitivity analysis is inadequate as discussed for sub- components 2.1 and 2.2 because the lowest multiplier used is 2. 19. Actual impact: Given the data gathered through monitoring and evaluation of the project for this sub-component, the valuation of these sub-components has been recalculated as follows: Actual over project life (8 years) ERR 129% NPV (20% discount rate) US$4,306,684 Projected over 12 years ERR 131% NPV (20% discount rate) US$7,157,143 20. This analysis is based on data from the two aforementioned sample case studies regarding this sub-component. The assumptions used in deriving these valuations are:  The two case studies for which detailed information is available have been extrapolated to cover all beneficiaries of this sub-component by doubling the associated cash flows. This is conservative relative to the fact that 8 enterprises and 2 associations were beneficiaries of this sub-component.  The 12 year valuations for sub-components are based on MSMEs returning to the 3 percent growth rate after the higher sales figured provided for each of the two cases. For Star Cafe Limited this was 2012 while for Good African Coffee this was 2010.  The growth rate between 2008 and 2012 is calculated at 59 percent for Star Cafe Limited based the total revenue growth documented in the project data over this period. The growth rate between 2008 and 2010 is calculated at 65 percent for Good African Coffee based the total revenue growth documented during the period.  The disbursement schedule specific to these two sub-components has been estimated as constant for the first two years of the project.  Assumptions for growth rate for MSMEs, percentage of revenues that is devoted to costs and exchange rate are the same as used for calculations for sub-components 2.1 and 2.2. 21. The ERR and NPV figures calculated at the design stage (which assumed a project life of 5 years with benefits projected over 12 years) were 35 percent and US$7.7 million. These estimated figures vary considerably from the actual shown above -- the actual ERR was 129 percent compared to the estimated 35 percent. The significantly higher actual returns can be attributed to the fact that there was much larger revenue growth in the beneficiary businesses for this activity than was projected. Moreover, the expenditure for this sub-component was also less than estimated – US$350,000 versus the projected amount of US$2.6 million. 52      Sub-components 2.4: Better Business Behavior Award Scheme 22. This sub-component was intended to promote “first mover� MSMEs by rewarding on- time repayment for new investment loans as well as compliance with tax administration and business registration requirements. The scheme was launched in 2006 and a number of commercial banks integrated it into their operations without PSCP II financing. Because project financing was not committed, calculating an actual valuation is not possible, nor was such an analysis done during the design stage. Component 3: Improving the Business Environment 23. Quantifying the impact of business environment reforms is particularly challenging due to the indirect relationship between the reforms supported under the project and the stream of benefits triggered. At project design, an attempt was made to quantify the impact of the reforms under this component, discussed below. Sub-component 3.1: Land Registration Sector 24. The overall goal of the land component of the PSCP II was to modernize land administration and management to ensure smooth, efficient, effective, and transparent delivery of land services and contribute to an improved business environment. Data regarding this sub- component was tracked during monitoring and evaluation:  Daily cost of operations of the land registry estimated at: - UGS 2,922,670, with UGS 1,441,000 (for HQs) and UGS 247,000 per regional office before the project activities - UGS 12,718,264, about UGS 1,413,140 per site including HQs and regional offices after the project activities  Number of and value of new transactions (mortgages, etc.) using land information system is estimated at about US$30,000  Computerization of land records along with other efficiency gains in search, mortgage processing, etc. 25. Cost benefit analysis of land administration reforms is often not done because of difficulties in attribution of specific project activities to financial gains of direct beneficiaries. In addition, many benefits are difficult to quantify. Consequently, cost effective analysis is the methodology that is more frequently used to appraise projects. In this case, government costs associated with land administration increased due to capacity building of land registry offices and computerization. Accordingly, the costs of the direct beneficiaries (i.e., the land registry) actually increased as a result of the project, rather than reducing. However, these capacity building efforts also included a number of jobs being created to support land administration, along with time (and thus opportunity cost) savings to the general population. 26. The monetary benefit of these savings so far is only quantified at US$30,000 in new transactions, primarily mortgages and searches. But the relationship between stronger property 53      rights and land administration and economic growth factors including labor supply, access to finance, and investment are generally supported in the literature (Field 2007,2 Johnson et al 2002,3 and Galiani and Schargrodsky 20074). The economic and financial analysis of this sub- component during project design assumed that 70 percent of the land titles would be sold within five years of the titles being cleaned and that the value of the land would increase as a result of the title cleaning process. The analysis also assumed that in the absence of project activities that a land registration program would have otherwise begun five years later. These were the central assumptions for analysis of this component. 27. Approach focusing on sale of newly cleaned titles: This approach does not match the focus of the project activities which targeted improvements in the land information system. Although project activities included rehabilitation of existing land records, this was not exclusively associated with cleaning titles and thus constituted only a portion of the activities. In addition, the number and/or percentage of land titles sold per year during the project were not tracked because of the focus on the information system. Key indicators included in the project results framework were: time to register a property, number of additional titles issued annually, percentage of government land surveyed, percentage of titles indexed, and number of days to access land records. However, none of these indicators coincide with the assumptions of the economic and financial analysis. As such, the analysis did not identify the appropriate channel by which the project activities would impact the direct beneficiaries (Government institutions) and indirect beneficiaries (general population accessing records and making land-based transactions). 28. Assumptions used in design analysis: The economic analysis of the land administration sub-component does not include any discussion on key assumptions such as the pricing of land titles, average size, and the total number of titles and plots impacted. Since the entire analysis is based around a percentage of titles being sold at a higher price, discussion on these assumptions is critical to the overall analysis. It is not clear whether these assumptions were generated based on local data, regional benchmarking, or discussions with subject matter experts. Such discussion is of critical importance to the overall analysis, especially given the budget of US $24 million was allocated to this sub-component (approximately one-third of the original overall project budget and about half after restructuring). 29. Sensitivity analysis: At project design a sensitivity analysis tested variations in the component valuations and ERRs, by modifying critical variables. However, the sensitivity analysis does not identify how changes to critical assumptions under this sub-component translate into changes in the sub-component ERR and that of the project as a whole. For example, reducing the number of total land titles by 30 percent, reduces the corresponding ERR by approximately the same percentage. In contrast, reducing the average size of each plot associated with a particular land title by 30 percent reduces the ERR by close to 50 percent. But increasing these factors by 30 percent leads to only an approximate 10 percent increase in the                                                              2 Field, Erica, 2007. “Urban Property Rights and Labor Supply in Peru,� The Quarterly Journal of Economics, Oxford Journals. 3 Johnson, Simon, McMillan, John and Woodruff, Christopher M., Property Rights and Finance (March 2002). NBER Working Paper No. w8852. 4 Galiani, Sebastian & Schargrodsky, Ernesto, 2010. "Property Rights for the Poor: Effects of Land Titling," Journal of Public Economics, Elsevier, vol. 94(9-10), pp. 700-729, October.  54      ERR in both cases.5 Without further justification of the assumptions used in the original sensitivity analysis, the economic analysis is incomplete. 30. Actual impact: Because of the aforementioned difficulties in quantifying the impact of land administration improvements and reforms, this ICR will not recalculate the NPV and ERR for this sub-component. Sub-components 3.2 - 3.5: Business Registration; Uganda National Bureau of Standards; Legal Framework for Business and Financial Services; Public Private Partnership 31. Because of the difficulties in attribution of business environment reforms, financial analysis of such components is generally not recommended. Any attempt at identifying specific impacts in this area can often lead to double-counting with other project interventions or simply over attribution of other economic factors as results of the project. For example, growth in the tourism sector in Uganda has been especially robust in the last decade. This could be an important driver in the number of new businesses registered rather than simplifications to the registration procedures. Additionally, the number of new businesses registered does not necessarily imply higher revenues and profits amongst these businesses or the broader economy as a whole. 32. However, the relationship between characteristics of the business regulatory environment and the performance of firms has been well documented (Djankov et a1 2002,6 Botero et al 2004,7 Acemoglu and Johnson 2005,8 Klapper and Richmond 2011,9 and Kaufmann et a1 200610). The impact of these sub-components has been evaluated in other areas of this ICR. 33. Multiplier approach: The multiplier approach used for this sub-component exhibits the problems previously discussed for Component 2. Additionally, this approach is extremely difficult to evaluate ex post. It would be impossible to measure the corresponding increases in cash flows of all businesses operating in Uganda associated with project activities that improve registration procedures, standards, and the legal framework. Finally, any multiplier approach requires usage of a time lag. There is very little analytical basis used in determining this time lag, which in the case of the project was assumed to be two years. 34. Multiplier value: The multiplier of 2.5 for these sub-components was generated based on a relative scale in comparison with Kenya and Tanzania. As discussed previously, the analysis does not provide adequate support for how this number was generated in any of the comparable                                                              5 The exact reduction is dependent on numerous factors in the details of the analysis. As part of this ICR, the original calculations have been reproduced. However because of limited available information on the original analysis, some variation in the exact numbers is possible. 6 Djankov, Simeon, La Porta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei, 2002. The Regulation of Entry, The Quarterly Journal of Economics, Oxford Journals. 7 Botero, Juan, Djankov, Simeon, La Porta, Rafael, Lopez-de-Silanes, Florencio, and Shleifer, Andrei, 2004. The Regulation of Labor, The Quarterly Journal of Economics, Oxford Journals. 8 Acemoglu, Daron and Johnson, Simon, 2005. Unbundling Institutions, The Journal of Political Economy, 113(5), October 2005: pp. 949-995. 9 Klapper, Leora & Richmond, Christine, 2011. "Patterns of Business Creation, Survival and Growth: Evidence from Africa," Labour Economics, Elsevier, vol. 18(S1), pp. S32-S44. 10 Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2006. "Governance Matters V: Aggregate and Individual Governance Indicators for 1996 - 2005," Policy Research Working Paper Series 4012, The World Bank.  55      cases, or why it was increased in the case of Uganda. Because of the limited data on the costs borne by firms in registration procedures, revenue improvements for firms meeting the publicized domestic and international standards, etc., calculating an actual multiplier for the business environment activities under these sub-components is not possible. 35. Sensitivity analysis: The project team included a sensitivity analysis which tested variations in the component valuations and ERRs by modifying critical variables. However, the sensitivity analysis of these sub-components does not include modification of the two most important driving variables: the value of the multiplier itself, and the time lag associated with it. Reducing the multiplier to 1.5 reduces the ERR by almost half11 and increasing it to 4 leads to an ERR of over 100 percent. Without including sensitivity analysis on this fundamental variable in addition to further justification on how the 2.5 multiple was generated, the original analysis is incomplete. 36. Actual impact: Because of the aforementioned difficulties in quantifying the impact of business environment reforms along with the flaws of the multiplier approach, this ICR does not recalculate the NPV and ERR for these sub-components.                                                              11 The exact reduction is dependent on numerous factors in the details of the analysis. As part of this ICR, the original calculations have been reproduced. However because of limited available information on the original analysis, some variation in the exact numbers is possible. 56      Annex 4 Bank Lending and Implementation Support / Supervision Processes Uganda PSCP II (P083809) (a) Task Team Members Lending Yashwant Bangani Senior Finance Assistant CTRLN Mary C. K. Bitekerezo Senior Social Development Specialist EASDE Rosemary Birungi Kyabukooli Program Assistant AFMUG Martin Fodor Senior Environmental Specialist AFTN3 Paul Kato Kamuchwezi Financial Management Specialist AFTME Agnes K. Kaye Program Assistant AFMUG Grace Munanura Senior Procurement Specialist AFTPE Labite Victorio Ocaya Senior Highway Engineer AFTU1 Juliet Ssembajjwe Team Assistant AFMUG Satish Kumar Shivakumar Finance Analyst CTRLN Lead Private Sector Development AFTFW Michael D Wong Specialist Team Leader #1 Nikolay Mandinga Junior Professional Associate AFTPS Iradj Alikhani Country Program Coordinator AFT14 William Steel Lead Advisor AFTPS Rona Cook Team Assistant AFTPS Ronald Kopicki Lead PSD Specialist AFTPS Edward Strawderman Principle Investment Officer CGFTG Andrei Mikhnev PSD Specialist CSMSE Rogati A. Kayani Lead Procurement Specialist SFTPS Patrick Labaste Senior Agriculture Economist AFTS4 Patrick Umah Tete Financial Management Specialist AFTFM Serigne Omar Fye Senior Environmental Specialist AFTS1 Herminia Martinez Consultant AFTPS Oluwatoyin Victor Abiola Consultant DECRG 57      Edith R. Mwenda Senior Counsel LEGAF Modupe A. Adebowale Senior Finance Officer LOAG2 Kristine Schwebach Operational Analyst AFTS1 Supervision / ICR Sherri Ellen Archondo Senior Operations Officer AFTFE Team Leader #2 Paul Baringanire Senior Energy Specialist AFTEG Mary C.K. Bitekerezo Senior Social Development Specialist AFTCS Frank Fulgence K. Byamugisha Operations Adviser / Land Specialist AFTAR Yeshareg Dagne Program Assistant AFTFE Martin Fodor Senior Environmental Specialist AFTEN Susan Hume Senior Operations Officer AFTFE Paul Kato Kamuchwezi Financial Management Specialist AFTFM Agnes Kaye Program Assistant AFMUG Moses K. Kibirige Senior Private Sector Development AFTFE Specialist Team Leader #3 Sarah Kitakule Economist CAFJ2 Noeline Kitonsa Program Assistant AFMUG Peter R. Kyle Consultant LEGPS Peace K. Lwanga Temporary AFMUG Grace Nakuya Musoke Munanura Procurement Specialist AFTPC Labite Victorio Ocaya Senior Highway Engineer AFTTR Richard Olowo Senior Procurement Specialist AFTPC Deborah Porte Consultant CSABI Ganesh Rasagam Lead Private Sector Development AFTFE Specialist Ravi Ruparel Senior Financial Sector Specialist AFTFE Dieter E. Schelling Consultant AFTTR Kristine Schwebach Operations Analyst AFTCS William F. Steel Consultant AFTP1 Patrick Piker Umah Tete Senior Financial Management Specialist AFTFM 58      (b) Staff Time and Cost Staff time and Cost (Bank Budget Only) US$ thousands Stage of project cycle Number of staff weeks (including travel and consultant costs)   Lending FY05 45.62 227. 6 FY06 17.64 119.6 Total: 119.6 Supervision FY07 15.96 87.2 FY08 37.98 186.5 FY09 49.65 211.9 FY10 29.94 133.6 FY11 32.83 125.6 FY12 22.93 65.9 FY13 (not including ICR) 23.38 87.8 Total:   898.5 59      Annex 5 Borrower’s ICR Uganda PSCP II (P083809) Overall Results 1. The Second Private Sector Competitiveness Project (PSCPII) supported reforms in land management and administration, specifically the design, supply and installation of a land information system, improved access to finance through establishment of the Credit Reference Bureau, enhancement of enterprise competitiveness and improving the business environment, all in all to support the development of a vibrant private sector. The overall progress towards Project Development Objectives and Implementation Progress are both rated moderately satisfactory despite the weak results framework (making measuring progress difficult to evaluate). Effectiveness of Component Results (as of February 2013) Component 1: Developing Infrastructure and Financial Services 2. Sub-component 1.1 - Infrastructure: Kampala Industrial Business Park (KIBP) Largely, the project did not achieve the planned developments. However, some outputs were achieved and include the following: (i) finalization of the KIBP Master Plan; (ii) completion of earthworks that involved opening up of the roads network (approximately 6.18 km); (iii) major environmental and social safeguards were addressed; (iv) capacity of UIA was enhanced; and (v) investment promotion was highly successful (e.g. Presidential Investment Round Table). Five companies have located in the park employing about 500. 3. Sub-component 1.2 - Financial Sector Deepening The component focused on ensuring increase in access to finance at an affordable cost. Among the key outputs of the component are: (i) the establishment and operationalization of the Credit Reference Bureau for Uganda. This significantly improved Uganda’s ranking in terms of ease of getting credit against its peers in 183 countries around the world from 109th to 46th in 2010; (ii) the establishment of Securities Central Depository at the Uganda Securities Exchange; trading increased from three days to 5 days a week; efficiency in terms of effecting settlements improved from t+5 to t+3; (iii) establishment of the African Trade Insurance underwriting office in Uganda; (iv) capacity building was undertaken for 2,120 people in the industry; and (v) implementation of three years of the five year Financial Markets Development Plan. Component 2: Enhancing Enterprise Competitiveness 4. The component aimed at improving enterprise capacity particularly for the MSMEs by increasing investment in skills for women and by raising productivity and improving the quality, standards, and reliability of MSME producers participating in export value chains. Most of the indicator targets were achieved namely: (i) overall 95 percent (US$3.9 million) of the sub- component budget (US$4.1million) was disbursed by project end date and the number of beneficiaries was 7,528 of which 2,966 (39 percent) were women; (ii) number of target versus actual ad hoc monitored activities went up by twice the planned margin (over the project 60      duration); (iii) cumulatively, 90 percent of reimbursements were successfully completed; (iv) grants disbursed to sub-regions outside Kampala reached 36 percent compared to original 30 percent by project closure; and (v) the scheme supported a range of activities including; company diagnostic and planning (18 percent of total reimbursed), domestic marketing and sales (8 percent), feasibility and market research (11 percent), international marketing and sales promotion (12 percent), management systems (19 percent), production related (7 percent), and training (25 percent). Other innovative products provided under this component performed well and these include the Enterprises Skills Linkages where over 4,000 people were trained in various skills; eight new brands were created under the Business Branding Linkages; over 500 budding entrepreneurs received training and mentorship to formalize their businesses; under the Technology Acquisition Fund firms received funding to acquire and adopt new technology that significantly improved their productivity and output. Component 3 - Improving Business Environment 5. This project component was meant to strengthen the underlying legal, regulatory and institutional structures by building on ongoing experiences, in particular, by complementing activities funded by other development partners. With regard to the land sub-component the following significant achievements were attained: (i) revival and rehabilitation of the School of Surveying (renamed Institute of Surveying and Land Management – ISLM) to train professionals for modern land administration; (ii) development and approval of a new curriculum for ISLM; (iii) the construction/rehabilitation of 21 land offices to secure the land records; (iv) the decentralization of responsibilities to these offices; (v) capacity building; (vi) information campaign; (vii) review of the legal framework; and (viii) design, supply and installation of a land information system in six Ministry of Lands Zonal Offices. 6. In the business registry sub-component, basic computerization was undertaken to capture data and this has improved efficiency at URSB. 7. Under Uganda National Bureau of Standards sub-component, global good agriculture practice was supported and also established standards and quality coordination mechanism. UNBS was supported in preparation of the national standards strategy. 8. 21 business related laws were reviewed by ULRC and 8 were assented to. 9. PSFU has been strengthened and continues to play a leading role in advocacy. The project also supported the Presidential Investor Round Table which was established in 2009 and various meetings were held between the President and the business community semi-annually to promote private-public dialogue. All these initiatives under PSCPII helped to strengthen public- private partnerships. 61      10. Performance Rating of PSCP II Summary of Responsibilities of the Agencies and Performance Ratings* Com- Sub-Component (activity) Implementing Rating ponent Agency Providing Basic Infrastructure for Private UIA Moderately 1 Sector unsatisfactory Strengthening the Capacity of UIA UIA Satisfactory Financial Services for MSMEs PSFU-PCU Highly satisfactory Matching grants for skills, productivity and PSFU-PCU Highly 2 financial management satisfactory Enterprise Skills and Linkages PSFU-PCU Satisfactory Business Brand Linkages PSFU-PCU Highly satisfactory Business Plan Competition PSFU-PCU Highly satisfactory Better Business Behaviour Awards PSFU-PCU Highly satisfactory Rehabilitation of the Land Registry MLHUD Satisfactory Establishment of National LIS MLHUD Satisfactory Strengthening the Capacity of the Land Sector MLHUD Moderately 3 satisfactory Establishing the Government Land Inventory MLHUD Unsatisfactory Enhancing Business Registration Services URSB Moderately satisfactory Enhancing the Quality of Trade Related UNBS Moderately Services satisfactory Legal Framework for Business and Financial ULRC Moderately Services satisfactory Enhancing Public Private Sector Partnerships PSFU/CICS Satisfactory * Ratings are consistent with final Aide Memoire [World Bank ICR note: these ratings do not actually appear to align with the final ISR ratings.] 11. Lessons Learned:  Design: PSCPII was a multi-sectoral project with many implementing agencies and many activities. It was hard to attribute certain aspects of the projects to the whole. It had many implementing agencies and beneficiaries. The project should have been much leaner and certain components would deserve to be projects in their own right like the KIBP.  Non-delegatable Project Steering Committee (PSC): Membership affected organizing meetings and supervision of the project. The PSC membership comprised of Permanent Secretaries from the implementing ministries. In some instances the coordinating staff would represent the PSC members who are supposed to be supervising and formulating policies. The PSC should be properly constituted with membership that can provide 62      strategic guidance and not necessarily the Permanent Secretary. It may be the next level either Director or Commissioner.  Failure of the PSC to meet: The PSC meant twice in the first five years of the project. This implies the project lacked strategic guidance, direction and naturally went off course. The lesson learnt is that the committee needs to meet at least quarterly to receive reports, review progress, and provide direction. A technical project implementation team should be constituted to support the PSC.  Delayed effectiveness: The PSCPII was approved in 2004 but only became effective in 2005, losing one year. It had implications on the ability to achieve the PDOs in the planned five years when the project would only have been implemented in 4 years. Extension of the project did not improve matters due to the already changed circumstances. There is a need to ensure that key stakeholders like Parliament are kept in the loop when appraising projects to ensure timely approval.  Implementing agency capacity: Even when the project became effective, a number of implementing agencies’ capacity was wanting and were unready to start implementation. It is important that institutional capacity is assessed in good time and or developed prior to starting implementation.  Absence of technical capacity in PSFU and UIA: The project activities involved a lot of civil works but PSFU did not have in-house capacity to take charge of civil works activities. The project coordinating units needs to be constituted in light of the components of the project and desist from over-reliance on consultants.  M&E framework: The M&E framework was deficient and not well thought out. PSCP II did not capture baselines and the results indicators kept changing during implementation. Despite the fact that a lot has been achieved under the project it may not be attributable due to a poor results framework. The M&E staff was also only recruited in year four of the project. During restructuring of the project, the PDO which was already too broad was left the same.  Procurement and contract management: Whereas PSFU was responsible for procurement; the respective agencies were responsible for contract management. The agencies for most of the time did not provide dedicated staff to undertake contract management. There was limited ownership of the beneficiaries. In the future, ministry staff should be seconded to the project on full-time basis.  Project governance: There were lapses in governance especially in terms of the PSC. Changes in the project design and restructuring were never approved by PSC.  Institutional collaboration: Overall, although the project outcomes were generally satisfactory there was lack of key institutional collaboration between all the stakeholders. Some components experienced a late start largely attributed to the eligibility criteria that restricted public or quasi-public agency from benefiting. Interventions of this kind would be difficult in absence of involvement of the agencies. Some components were expected to build and leverage on other donor funded programs by EU, DANIDA, DFID, and USAID all of which closed due to the delayed start of the project. This created excessive demand that had not been anticipated. 63       Public sector participation: The opportunity for having a well serviced functioning industrial park could be lost given the impatience of the industrialists and sluggishness of the public sector to deliver the service. Whereas the investment promotions were well undertaken by UIA, its benefits were lost largely due to failure of the investors to readily access industrial serviced land. There is neither an export processing zone act nor an industrial park policy. There is no legal instrument to operationalize the KIBP. Environmental concerns were not taken into account when UIA changed location of the office block to another site.  Partnership and alliance with other institutions: Banks have invested in financial literacy geared towards improving knowledge and behavior of MSME’s and to make them better clients. Partnership and collaboration with other institutions is essential in adaptation and implementation for project but also ensuring sustainability of initiatives.  Legislative review: It was noted that law review cycle is a lengthy and expensive process and involves many actors some of whom are beyond the control of the implementer. A number of these bills have either not been approved by cabinet or are lying in Parliament. Even those accented to lack regulations and remain non-operational. For those that are operational the private sector is not aware of them nor have they been sensitized about these new acts. Government stands a risk of losing out on the investment made given that because of the lengthy cycle of the review process, the bills stand a risk of becoming stale prior to their enactment. The media either newspapers, radio, workshops, TV, electronic and other social platforms could enhance dissemination of these policies.  Sustainability: Several of the PSCPII initiatives stand a risk of failure in the event that Government does not allocate funding. Future projects need to ensure that mechanism are put in place to ensure sustainability of activities and benefits after closure. 64      Annex 6 List of Supporting Documents Uganda PSCP II (P083809) Project File Project Appraisal Document; July 7, 2004 Development Credit Agreement; February 23, 2005 Project Agreement between the World Bank (IDA) and PSFU; dated February 23, 2005 Aide Memoires, Implementation Status Reports, various correspondences; June 2005 – February 2013 Project Restructuring Paper; January 26, 2012 Value for Money Audit; Uganda Auditor General; March 2011 INT Referral Report; November 8, 2011 Other Competitiveness and Enterprise Development Project; Project Appraisal Document; April 13, 2013 World Bank; Country Assistance Strategy for the Period FY 2011 – 2015; April 27, 2010 World Bank; Doing Business reports; 2006 - 2013 65    IBRD 33504R6 U GA N DA DISTRICT CAPITALS* DISTRICT BOUNDARIES UGANDA NATIONAL CAPITAL INTERNATIONAL BOUNDARIES RIVERS MAIN ROADS RAILROADS This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information *District names are identical to District Capitals, shown on this map do not imply, on the part of The World Bank and are, therefore, not named on the map, except Group, any judgment on the legal status of any territory, or any in six exceptions, e.g. “KABAROLE�. endorsement or acceptance of such boundaries. 30°E 32°E 34°E 0 25 50 75 100 Kilometers SU SODA UNTH 0 25 50 75 Miles To SUDAN Juba To Faradje 4°N 4°N Moyo Lamwo Kaabong K E N YA Yumbe Adjumani Koboko Kitgum Maracha le Ni Arua Amuru Kotido To t Ac r Lodwar Albe hw Pader Agago Ok o k a Gulu Abim Ora Nwoya Zombo Moroto an DE D M. EM . RE R EP. P. Nebbi Nile Kole Otuke Lo ch om Victoria OF O CO F C ON O N NGO GO GO Oyam Lira Alebtong Napak Bulisa Amuria 2°N Kiryandongo Apac Katakwi Amudat 2°N To Dokolo Nakapiripirit Beni Lake Lake Kwania Kaberamaido Lake Salisbury Opeta r t Masindi be Soroti Siti Amolatar Ngora Kumi KWEEN Al Hoima Lake Kyoga Serere Bulambuli Binyiny Kafu Nakasongola Kapchorwa ke Bukedea Bukwo La Buyende Pallisa Sironko i Kyankwanzi Nkus Budaka Mbale Ntoroko Kibuku Mt. Elgon (4321 m) To Kamuli Bududa Bunia Kiboga Kaliro Butaleja Luwero Busiki Manafwa Kibale Luuka Bundibugyo Kayunga Fort Portal Nakaseke Tororo Kyenjojo Iganga To Mubende Bugiri Nakuru KABAROLE Kyegegwa Wakiso Busia Mityana Margherita Peak Mukono Jinja Mayuge (5110 m) KAMPALA Buikwe Namayingo Kamwenge Kasese Kanoni Mpigi To Katonga A Kitamilo GOMBA BAL Gombe Kisumu Lake AM 0° Sembabule BUT 0° George Kalungu Ibanda Bukomansimbi BUVUMA Rubirizi Lake Kiruhura Masaka Edward Buhweju Lyantonde Kalangala Lwengo To Beni Mtooma Bushenyi Kibingo K E N YA Mbarara SHEEMA Rakai Rukungiri Isingiro Kanungu Ntungamo Kisoro Kabale Lak e Vic toria To Goma TAN TANZZAN Z AN I A ANI To Kigali To Nyakanazi TANZA TA NZA NI NIAA RWA N DA R WAN DA 32°E 34°E MAY 2012