Language: English Original: English

PROJECT: MARKETS AND AGRICULTURAL TRADE IMPROVEMENT PROJECT – I (MATIP-I) COUNTRY: UGANDA

PROJECT APPRAISAL REPORT

Date: 19 February 2009

Appraisal Team

Team Leader: : Justus Kabyemera, Senior Agricultural Economist, OSAN.1 Team Members: Yasser Ahmad, Senior Financial Analyst, OSAN.1, Hany Shalaby, Principal Environmentalist, OSAN.4, Ghada Abu-Zaid, Architect, OSAN.1, Asaph Nuwagira, Agriculture & Rural Development Specialist, UGFO, Miranda Jabati, Marketing Specialist, Consultant, Evaristus Kuatsinu, Civil Engineer, Consultant. Sector Manager: Chiji Ojukwu, OSAN.1 Sector Director: Aly Abou-Sabaa, OSAN Regional Director: Aloysius Ordu, OREA

Peer Reviewers

Mr. W. Muchenje, OSHD; Mr. M. Wa-Kyendo, OINF; Mr. H. Kandil, OSAN; Mr. J. Ribeiro, OSAN

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TABLE OF CONTENTS1 I – STRATEGIC THRUST & RATIONALE............................................................................1

1.1 Project Linkages with Country Strategy ....................................................................1 1.2 Rationale for Bank’s Involvement ............................................................................1 1.3 Donors Coordination..................................................................................................2

II – PROJECT DESCRIPTION.................................................................................................3 2.1 Project objective…………………………………………………………………….3 2.2 Project components...................................................................................................3 2.3 Technical Solutions Retained and Other Alternatives Explored ...............................4 2.4 Project Type ...............................................................................................................4 2.5 Project Cost and Financing Arrangements ...............................................................4 2.6 Project’s Target Area and Population ........................................................................6 2.7 Participatory Process for Project Identification, Design and Implementation...........6 2.8 Bank Group Experience, Lessons Reflected in Project Design.................................6 2.9 Key Performance Indicators ......................................................................................7

III – PROJECT FEASIBILITY .................................................................................................8 3.1 Economic and Financial Performance .......................................................................8 3.2 Environmental and Social Impacts ............................................................................8

IV – IMPLEMENTATION......................................................................................................10 4.1 Implementation Arrangements................................................................................10 4.2 Monitoring ..............................................................................................................12 4.3 Governance ..............................................................................................................12 4.4 Sustainability............................................................................................................12 4.5 Risk Management ....................................................................................................13 4.6 Knowledge Building ...............................................................................................13

V – LEGAL INSTRUMENTS AND AUTHORITY...............................................................13 5.1 Legal instrument ......................................................................................................13 5.2 Conditions Associated with Bank’s Intervention ...................................................13 5.3 Compliance with Bank Policies ..............................................................................14

VI – RECOMMENDATION...................................................................................................14 Appendix I: Map of the Project Area.......................................................................................15 Appendix II: Comparative Socio-Economic Indicators...........................................................15 Appendix IIIa: Table of ADB’s portfolio in Uganda...............................................................17 Appendix IIIb: Table of ADB’s portfolio in Uganda ..............................................................18 Appendix IV: Key related projects financed by the Bank and others in Uganda ....................19

List of Tables Table 2.1: Project Components…………………………………………………………. 3 Table 2.2: Project Alternatives Considered and Reasons for rejection ………………….. 4 Table 2.3: Project Cost Estimates by Component ……………………………………… 4 Table 2.4: Sources of Finance …………………………………………………………….. 5 Table 2.5: Project Cost by Category of Expenditure ……………………………………. 5 Table 2.6: Expenditure Schedule by Component ………………………………………… 5 Table 3.1: Key Economic And Financial Figures……………………………………….… 8 Table 4.1: Procurement Arrangements…………………………………………………... 11 1 Technical Annexes are contained in the Project Implementation Document (PID). These include the detailed cost tables, implementation modalities, disbursement and procurement processes, project feasibility, including economic and financial analysis. This report will be used jointly with the PID and the Project Preparation Report.

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Currency Equivalents As of January 2009

Currency Unit = Ugandan Shillings (UGX) UA 1 = UGX 3,015.38 UA 1 = USD 1.58

Fiscal Year July 1 – June 30

Weights and Measures

1 metric tonne = 2204 pounds (lbs) 1 kilogramme (kg) = 2.200 lbs 1 metre (m) = 3.28 feet (ft) 1 millimetre (mm) = 0.03937 inch (”) 1 kilometre (km) = 0.62 mile 1 hectare (ha) = 2.471 acres

Acronyms and Abbreviations AAMP Area-based Agricultural Modernization Programme ADB African Development Bank ADF African Development Fund BOU Bank of Uganda CAADP Comprehensive African Agriculture Development Programme CAIIP Community Agricultural Infrastructure Improvement Programme DP Development Partners EIRR Economic Internal Rate of Return ESMP Environmental and Social Management Plan FIRR Financial Internal Rate of Return GoU Government of Uganda ICB International Competitive Bidding IMSC Inter-Ministerial Steering Committee KPI Key Performance Indicator LCA Local Currency Account M&E Monitoring and Evaluations MA Market Account MC Municipal Council MIS Market Information System MMC Market Management Committee MOFPED Ministry of Finance, Planning and Economic Development MOLG Ministry of Local Government MOU Memorandum of Understanding MoWT Ministry of Works and Transport MTR Mid-Term Review MTTI Ministry of Tourism, Trade and Industries

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NAADS National Agricultural Advisory Services NCB National Competitive Bidding NEMA National Environmental Management Authority NPV Net Present value NSADP Northwest Smallholder Agricultural Development Project NWASDP North West Agricultural Sector Development Programme PCR Project Completion Report PEAP Poverty Eradication Action Plan PFT Project Facilitation Team PMA Plan for Modernisation of Agriculture PPP Public-Private-Partnership SDF Standard Deviation Factor SME Small and Medium Scale Enterprise TC Town Council TOT Training of Trainers UGFO Uganda Field Office of ADB UJAS Uganda Joint Assistance Strategy VA Vendor Association

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Loan Information

Client’s information BORROWER: Government of Uganda EXECUTING AGENCY: Ministry of Local Government Financing plan

Source Amount (UA) Instrument

ADF LOAN

UA 38.00 million

Project Loan

Government UA 4.22 million Equity Recipient Communities N/A N/A TOTAL COST UA 42.22 million

ADF’s key financing information

Loan currency

UA

Interest type* N/A Interest rate spread* N/A Commitment fee* 0.5% Other fees* 0.75% Service Charge Tenor 600 months Grace period 120 months FIRR, NPV (base case) B/C=1.45

NPV:US$16.94 million EIRR (base case) 14.4%

*if applicable

Timeframe - Main Milestones (expected)

Concept Note approval

December, 2008

Project approval March 2009

Effectiveness September, 2009 Completion September, 2014 Last Disbursement December, 2014 Last repayment 50 years; December,

2064

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Project Summary PROJECT OVERVIEW 1. The Markets and Agricultural Trade Improvement Project – I (MATIP-I) will be implemented in 19 Municipal/Town Councils in all the four regions of Uganda, namely the Municipal Councils (14) of Jinja, Entebbe, Masaka, Mbarara, Kabale, Fort Portal, Arua, Lira, Gulu, Moroto, Soroti, Mbale, Tororo, and Kampala (3 markets); and the Town Councils (5) of Hoima, Kasese, Busia, Kitgum and Lugazi. The components of the project are i) Market Infrastructure Development, ii) Market Management and Trade Enhancement (including Capacity Building); and iii) Project Management and Coordination. The project will be implemented over five years (2009-2014) and is estimated to cost UA 42.22 million. The Bank’s share is UA 38 million (90%) and that of GoU, including contributions from the Municipal/Town Councils, is UA 4.22 million (10%). 2. The primary beneficiaries of the project will be the 16,600 vendors whose numbers are expected to rise to over 22,000 after reconstruction of the markets. It is estimated that over 900,000 households (approximately 4.5 million people) within the catchment of the markets will benefit directly or indirectly from the project. According to the Socio-Economic Gender Disaggregated Profile conducted by the Project Feasibility Study, approximately 150,000 to 200,000 household will be headed by women. The reconstructed markets will provide increased trade opportunities between rural and urban markets, and serve as wholesaling centres for intra-urban and cross-border trade, especially for agricultural commodities. Vendors will benefit from improved marketing and trading capacity, in which additional volumes and sales of both agricultural commodities and merchandise will result in increased employment and income, leading to improved livelihoods. These beneficiaries have been consulted during preparation and appraisal and will participate in various market management, entrepreneurial, processing, food safety, quality control, hygiene, and green business development training programmes. Vendor Associations (VAs) and Market Management Committees (MMCs), will partner the respective Municipal/Town Councils (MC/TC) to manage the reconstructed markets. The markets when operational will benefit several other smallholder farmers with improved price margins. NEEDS ASSESSMENT 3. The need for the construction of the central and auxiliary markets in Uganda is predicated by the recommendations of the Feasibility Study that was commissioned by the Government of Uganda (GOU) through the Ministry of Local Government (MoLG) in March 2008 to review and assess the infrastructural and operational state of the markets across the country. The findings of the study were indicative of a poorly managed, dilapidated and overwhelmed market infrastructure, resulting in a poor working environment nationwide. All markets were found to be overpopulated with vendors well beyond their carrying capacities and lacking in many basic amenities, including toilets, drainage and sewage systems. This state of affairs in the markets was compelling to the GoU to make an affirmative decision to reconstruct them with support from a number of developing partners, including the Africa Development Bank. The project would also serve the need to link previous Bank interventions in Uganda, especially the Area-based Agricultural Modernisation Programme (AAMP), the Northwest Smallholder Agricultural Development Project (NSADP) and the Community Agricultural Infrastructure Improvement Project – Project 1 and 2 (CAIIP-I and CAIIP-II), which mainly

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serve the rural setting, with the larger urban markets. This would facilitate the promotion of increased marketing/trading, cross-border trade and regional integration on a wider scale. In Uganda about 80% of women are engaged in agriculture production and trading activities. Access to markets is a primary constraint to increasing their income and improving their livelihoods. The 19 markets listed above constitute Project-1. The rest of the markets will be improved as additional resources become available.

BANK’S ADDED VALUE 4. The Bank, through financing rural-based infrastructure initiatives, especially in constructing agricultural-based markets, has carved a niche through linking primary rural markets with secondary urban ones and strengthening the agriculture value chain in Uganda. Through the implementation of its large agricultural portfolio in Uganda, the Bank has created a well grounded leverage, with positive results and impacts, thus giving it a comparative advantage in implementing programmes/projects with an infrastructural orientation. The vast experience accumulated through the implementation of AAMP, NSADP and more recently CAIIP-I and CAIIP-2 will be instrumental and an added-value in the course of implementing MATIP-I. MATIP-1 will have vertical integration with CAIIP-1 and CAIIP-2 and together the operations will create huge multiplier effects in commercial agriculture in Uganda. KNOWLEDGE MANAGEMENT 5. A number of analytical studies/surveys are planned to be undertaken by the project, with a view to generating information that will inform the implementers as well as other stakeholders of the project in the course of decision making and thereafter. This work will mainly focus on areas that were not adequately covered by the Government Feasibility Study, especially in value addition and value chain analyses, linkages between the rural and urban markets; and cross border trade. Moreover, the project will develop a Market Information System (MIS) that will generate data pertaining to prices, sources and volumes of commodities to be shared with all stakeholders.

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RESULTS BASED LOGICAL FRAMEWORK UGANDA MARKETS AND AGRICULTURAL TRADE IMPROVEMENT PROJECT-I (MATIP-I)

INDICATIVE TARGETS TIMEFRAME/ Existence of Baseline

HIERARCHY OF OBJECTIVES EXPECTED RESULTS AND THEME

REACH (TARGET POPULATION)

PERFORMANCE INDICATORS

Baseline Target

ASSUMPTIONS AND RISKS

Goal 1. Contribute to poverty reduction and economic growth in Uganda through enhanced commercialization of agricultural produce and other merchandise.

Impacts 1.1 Marketing of Agricultural produce (and general merchandise) increased 1.2 Average household income increases

Urban and rural Communities as a whole Approximately 900,000 households (population of 4.5 million nation-wide - 50% of beneficiary district population). It is estimated that about 150,000 to 200,000 households will be headed by women.

Volume of agricultural produce and other related marketed products increased Better prices of farm produce obtained

Agricultural commodities account

for 50% of all marketed products

Volume of agricultural produce and merchandise marketed increased 20% by PY5 Average household income increased by 30% by PY5

i) GOU maintains political stability, maintains security and ensures constant adherence to policy. ii) District Councils may not have adequate resources for periodic maintenance of market structures Mitigation: Consultative/Advocacy process; capacity building and establishment of dedicated O&M account iii) The private sector may not be adequately motivated to participate in the proposed “public-private partnership Mitigation: Establishment of joint MC/TC-VA Market Management Committee

Project Purpose: Improve marketplace economic and social infrastructure for about 900,000 households in 19 districts

Project Outcomes 1. Improved marketing opportunities for farmers and vendors 2. Improved marketing conditions 3. Post harvest losses reduced and quality and prices increased 4. Increase in income of both urban and rural communities participating in project, especially women

1. Urban and rural communities in the project areas 2. Women groups in project area 3. Neighbouring countries

1) Increase of agricultural commodities and other merchandise marketed 2) Increase in revenue generated by Councils 3) % increase in women representation on VA management committees 4) % increase in new businesses at reconstructed markets 5) % increase in agro-processing and value addition businesses

1) US$ 1,500 per vendor p.a. 2) US$ 1.1 million p.a. 3) Women representation on VA Management Committees: 50% 4) 16,600 vendors 5) 200 value addition businesses at markets

1) Volume of agricultural trade increased US$300 per vendor p.a. in the project areas by PY5 2).Revenue generated by Councils increased by over US$0.65 million by PY5 3) Women form 50% of Vendor Association Management Committees 4) Employment levels in markets increased by 4,500 by PY5. About 2,500 to 3,000 will accrue to women. 5) 300 new agro-processing and value addition businesses by PY5. About 150 to 200 new agro-processing facilities will be headed by women.

a) GOU continues to follow its current PEAP, PMA and Decentralization policies and assures their adequate funding b) Vendors do afford the market charges

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INDICATIVE TARGETS TIMEFRAME/ Existence of Baseline

HIERARCHY OF OBJECTIVES EXPECTED RESULTS AND THEME

REACH (TARGET POPULATION)

PERFORMANCE INDICATORS

Baseline Target

ASSUMPTIONS AND RISKS

Activities A: Market Infrastructure Development Component Cost: UA 37.13 million 1. Construct 21 sets of economic market infrastructure 2. Construct 21 sets of Service infrastructure

Project Outputs 1) Markets reconstructed and maintained

1) 22,000 vendors in 19 Municipalities/districts 2) Staff/communities of 19 Municipalities/Districts

1) No. of markets re-constructed 2) No. of economic infrastructure constructed 3) No. of power supply units installed 4) No. of markets provide improved access roads and grounds 5) No. of markets provided water, sanitation, drainage and fire-fighting systems

0

15 (partial) 10

1) 3100 lockups/kiosks 2) 8200 stalls 3) 590 meat/fish units 4) 90 cold storage units installed 5) 7.0ha of paved open pitches/spaces 6) Power supply to all 21 markets 7) Water supply, sanitation, drainage & fire fighting systems provided all 21 markets

1) It is possible to phase constructionof at sites 2) GoU/VAs agree to sign MoUs formovement of vendors to temporarysites during construction andreinstatement to the reconstructedmarket 3) Management structures improved toensure O&M of reconstructedfacilities 4) Delays in implementation and costoverruns are minimised Mitigation: Effective and testedBidding process and Supervisionsystem

B. Market improvement and trade enhancement Component Cost: UA 3.78 million 1. Management Information Systems (MIS) and Market Information 2. Capacity building and development

1). Improved income to vendors and Councils 2) Market Information systems established and information management improved and in use at Municipal/Town Councils 3) Increased access to market information and new skills, especially for women groups but also for all vendors and market service providers

1) Market vendors/users 2) Municipal/Town Councils

1) Training Courses organized

N/A

1) MIS established by PY2 2) 42 person-sessions of TOT in PY3 & PY4 3) 216 person-sessions of Market management training by PY5 4) 420 person-sessions of entrepreneurship training by PY5 5) 48 environmental training courses conducted by PY5 6) 4280 person-sessions of specialized training by PY5

1) Districts’ and Sub-counties’commitment to the programmeactivities 2) Poor technical support to vendors byCouncils Mitigation: Capacity Building andestablishment of MIS 3) Council staff and vendors adoptskills imparted at training sessions 4) Vender Associations empowered totake on more of the support services tomembers

C. Project Management and Coordination Component Cost: UA 1.31 million Submission of good quality and timely Quarterly Progress and Audit Reports

1) Timely and problem free implementation 2. Maintain operations within budget

1) Contractors, consultants & suppliers 2) MoLG & Municipal/Town Councils 3) Market users

Project implemented on time N/A No slippage on project performance and timely audit report submissions

1) Staff of relevant calibre available,recruited & motivated 2) An efficient project management at both PFT HQ and participating Municipalities/Towns 3) Adherence to transparent procurement and fiduciary practices

Source of Funds (UA Million): ADF 38.00 GoU 4.22 Total 42.22

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PROJECT TIME FRAME (February 2009 – December 2014) ID Task Name 2009 2010 2011 2012 2013 2014

1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10 1 4 7 10

1 Internal processing of appraisal

2 Negotiation ↓

3 Loan Approval ↓

4 Loan signature ↓

5 Loan effectiveness/disbursement effectiveness

6 Project Launching and start-up ↓

7 Procure/recruit TA's/specialists consultants

8 Undertake designs of Infrastructure facilities

9 Preparation of works Bid Documents

10 Procurement of Contractors

11 Construction of Infrastructure facilities

12 Supply Electric Power

13 Develop reporting/M&E arrangements

14 Develop, finalise and submit training plans

15 Proj. Mgt. - Training & Capacity Building

PFT staff

Advocacy & Awareness

Municipal/Town Council Staff

16 Market management trainingInstitutional CounterpartsMun./Town Council StaffTraining of trainersVAs/Committee members/Private OperatorsTransporters

17 Entrepreneurship training

18 Specialised Training

19 Environmental Training

20 Establish MIS (review, set-up,, M&E, testing)

21 Traffic Flow Assessment

22 Market Surveys

23 Purchase of Goods & Equipment

Vehicles & Equipment PCU

Computers (commercial Off & Town Clerk)

Fridges (stainless steel-1.2m3)

Demonstration Tools/Equip (agro-processing)

24 Monitoring & reporting/Quarterly reports ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓ ↓

25 Baseline survey ((incl. environment)

26 NEMA monitoring exercise

27 Studies/Consultancies

28 Periodic Reviews workshop by Councils

29 Preparation of MATIP-II

30 Impact Study

31 Supervision

32 Audit

33 Mid-Term Review

34 Project Completion Report ↓

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REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO UGANDA

FOR THE MARKETS AND AGRICULTURAL TRADE IMPROVEMENT PROJECT - 1

(MATIP-I) Management submits the following Report and Recommendation on a proposed loan for UA 38 million on ADF terms to finance the Markets and Agricultural Trade Improvement Project – I (MATIP-I) in Uganda

I – STRATEGIC THRUST & RATIONALE

1.1 Project Linkages with Country Strategy MATIP-1 is consistent with the second Pillar of the third Poverty Eradication Action Plan2 (PEAP – 2005/2008 and extended to 2009) – “Enhancing production, competitiveness and incomes”. The project is also in line with following Pillars of the Plan for Modernization of Agriculture (PMA - 2000) – Pillar 2 (provision of agricultural extension services), Pillar 5 (provision of effective market management services) and Pillar 7 (building of physical infrastructure). The project is well aligned with the Uganda Joint Assistance Strategy (UJAS 2005/06 to 2008/09), the harmonized business plan of the Development Partners (DP’s) in Uganda, which is focused towards implementing the Pillars of the PEAP, and its derivative, the UJAS Cover Note 2005 – 2009, which is the Bank Group Business Plan in Uganda for the period. Among the priority areas for UJAS is the development of the private sector and growth, which is also consistent with the objective of MATIP-I. The UJAS has been drawn in full realization of the DPs’ comparative advantage in terms of choice of sectors and modality of delivering development support. Essentially, the UJAS is a derivative of the PEAP and therefore serves as a major conduit to its accomplishment. The goals of the project will be complementary to the objectives of the National Development Plan (NDP), which the Government is preparing to replace the PEAP. The project is also consistent with the National Trade Policy of August 2008, which advocates for effective and efficient institutions, a supportive legal framework, adequate and efficient trade facilitating infrastructure; cross border trade and regional integration; and appropriate human capital and skills in both the private and public sectors. The Government considers the markets as public goods and strategic components in its quest for poverty reduction and economic growth. Consequent to the findings of the Feasibility Study, which portrayed the market structures as being dilapidated, overwhelmed in terms of capacity and not well managed, the Government felt it compelling to reconstruct the markets across the country, in line with the felt needs of and requests from the users of the markets and the Councils.

1.2 Rationale for Bank’s Involvement The Bank has accumulated vast experience through the implementation of market infrastructure projects, predominantly in the rural setting, including Area-Based Agricultural Modernization Programme (AAMP), Northwest Smallholder Agricultural Development Project (NSADP) and more recently Community Agricultural Infrastructure Improvement Project I & II (CAIIP-I and CAIIP-2); with considerable impact on the livelihood of the beneficiary communities and the economy as a whole. Linking rural markets with those in the 2 The PEAP is the substantive PRSP for Uganda

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urban conurbations is an important step towards creating synergies, value addition and gainful employment. The rural road infrastructure that has been developed under various DP projects, including the ADB, will facilitate the supply chain. The reconstructed markets will improve hygiene conditions, reduce post-harvest losses, install facilities to meet demand, for example cold storage units for fish storage, provide increased trade opportunities between rural and urban areas, and serve as wholesaling centres for intra-urban and cross-border trade, especially for agricultural commodities. These commodities constitute 40% to 50% of products traded in the markets. In Uganda about 80% of women are engaged in agriculture production and trading activities. Access to markets is a primary constraint to increasing their income and improving their livelihoods. The overall objective is to ensure the smooth functioning and efficiency of the agricultural marketing system for a wide range of commodities produced in rural areas and sold at the markets. The project is also in line with the Memorandum of Understanding between the Bank and other development partners in Uganda, to undertake the financing of capital intensive hardware infrastructure related development initiatives, with other donor agencies undertaking the software services. It also fits well with the Bank’s Medium Term Strategy and the Africa Food Crisis Response (AFCR) initiative, which is geared towards increased food production, reduction in post-harvest losses and increased productivity in the short, medium and long terms. The significantly high impact and the prospects of synergy between the past/on-going Bank projects with MATIP-I has generated considerable confidence within the Government and an unrivalled comparative advantage in implementing the new initiative.

1.3 Donors Coordination

Size

Sector or sub-sector* GDP Exports Labour Force

Agricultural Sector 26.50% 90.00% 71.00%

Players - Public Annual Expenditure (average 2003/2004 to 2006/2007)**

Government Donors

UA m UA 22.70 m UA 25.90 m

ADB 19.90% % 46.70% 53.30% IDA 18.30%

IFAD 17.40% DANIDA 14.10% USAID 12.20% EC 6.30% DfID 5.20% Italy 3.10% FAO 2.00% JICA 1.50%

Level of Donor Coordination Existence of Thematic Working Groups Y

Existence of SWAPs or Integrated Sector Approaches Y

ADB's Involvement in donors coordination*** M**** * as most appropriate ** Years [yy1 to yy2] *** for this sector or sub-sector **** L: leader, M: member but not leader, none: no involvement

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The Bank is currently the major Development Partner (DP) in Uganda, providing about 19.9% of entire development assistance, particularly in the agriculture and transport sectors, with a share of 27% and 17% respectively. The Bank collaborates closely with other Development Partners, especially IFAD and the EU for agricultural related projects, within the framework of the Agriculture and Rural Development Donor Coordination Group. The Group has been greatly invigorated through the Bank’s field presence. In an effort to harmonize Development Partner intervention, the Bank has partnered with the other DPs under the umbrella of the UJAS to undertake development interventions in the choice of sectors and delivery performance where it has a comparative advantage. Within this framework, the MATIP-I project will be coordinated by the Decentralization Development Partners Group. The Group is well informed about the project through consultations with the Bank Teams both at preparation and appraisal phases. The Uganda Field Office is an active member of these groups.

II – PROJECT DESCRIPTION

2.1 Project Objective The overall sector goal is to contribute to poverty reduction and economic growth in Uganda through enhanced marketing of agricultural produce and other merchandise. The specific objective is to improve marketplace economic and social infrastructure thus inducing incremental production and marketing of agricultural commodities, enhancing the incomes of vendors, increasing employment and increasing customer satisfaction.

2.2 Project components The Project comprises three major components namely: i) Market Infrastructure Development, ii) Market Management and Agricultural Trade Enhancement (including Capacity Building); and iii) Project Management and Coordination, as described in Table 2.1.

Table 2.1: Project Components

No. Component name

Est. cost (UA)

million

Component description

1. Market Infrastructure Development

37.13 Re-construct 21 markets to include economic infrastructure - 3100 lockups/kiosks, 8200 stalls, 590 meat/fish units with 90 cold storage units, restaurants/eating kiosks; and Service Infrastructure - paved pitches/spaces (7.0ha), vehicular parking/loading areas, water supply, washrooms, solid waste bays, drainage, fire-fighting systems, day-care centres; Provide detailed design and construction supervision services.

2. Market Management and Agricultural Trade Enhancement

3.78 Establish Management and Market Information Systems in each council including market survey, traffic flow assessment; Undertake Training of Trainers (TOT) courses for 42 Commercial/Community Development Officers of which 50% are women; Provide market management training to Councils, MOLG/MTTI/MOWT staff, VAs, private operators and transporters, (216 person-sessions each of which will target at least 50% women participation) Provide Gender and Leadership training to Councils and VAs Train Vendors/VAs in entrepreneurship all of which will target at least 50% female participation (420 person-sessions); land-use, and environmental-green business (48 person-sessions); specialised training in improved slaughtering and hide processing, meat processing, /preparation, live chicken dressing, fresh fish, food processing including fresh fruit/vegetables handling including provision of

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No. Component name

Est. cost (UA)

million

Component description

agro-processing demonstration equipment; food safety, hygiene and quality control, (4280 person-sessions).

3. Programme Management and Coordination

1.31 Planning, management, coordination and implementation of project activities with a specific focus on addressing gender equality in accessing project benefits; Provide Technical Assistance; including gender training and mainstreaming; Monitoring and Evaluation including gender responsive reporting in quarterly progress and supervision reports; Procurement of relevant office equipment, vehicles.

2.3 Technical Solutions Retained and Other Alternatives Explored The selected technical design for the proposed project reflects critical success factors that contribute towards modern and efficient functioning markets. These include: i) providing a safe and secure place to conduct trade; ii) ensure a modern environmentally sustainable market is in place; iii) allow for commercial exchange of produce and encourage social interaction amongst the communities; iv) incorporate efficient management practices and v) create adequate space and functionality that is commensurate with the growth rate of the urban centres. The design of the markets will conform to international standards. The alternative that was considered and rejected is provided in Table 2.2.

Table 2.2: Project Alternatives Considered and Reasons for Rejection

Alternative name Brief description Reasons for rejection Construction of uniformly designed structures across the country

All Markets – Central and Auxiliary – to have similar designs as per proposed prototypes.

Budgetary Constraints as designs proved to require high initial capital investment Diversity of the Municipal and Town Councils in terms of site layouts, populations size, number of vendors and level of economic activity

2.4 Project Type This is an investment loan. 2.5 Project Cost and Financing Arrangements The total project cost, including price (6% domestic and 2.5% foreign) and physical contingencies (8%), but excluding duties and taxes, is estimated at UA 42.22 million of which UA 15.29 million (36%) is in foreign exchange and UA 26.93 million (64%) in local costs. These costs will be covered by an ADF loan of UA 38.00 million and GoU contribution of UA 4.22 million (including duties and taxes) for Operations and Management (O&M) of the markets in PY3-5, salaries of Council and other government experts involved in supervision and capacity building; and provision of training halls and office space. The overall project costs are summarised in Tables 2.3 – 2.6 below.

Table 2.3: Project cost Estimates by Component (UA’000)

Component GoU % ADB % Total % FE LC

A. Market Infrastructure Development 1,015.8 2.7 36,112.1 97.3 37,127.9 87.9 13,867.3 23,260.6B. Market Management & Trade Enhancement 3,146.4 83.2 635.8 16.8 3,782.2 9.0 427.6 3,354.7C. Project Management & Coordination 61.8 4.7 1,252.1 95.3 1,313.9 3.1 995.6 318.3

Total Project Costs 4,224.0 10.0 38,000.0 90.0 42,224.0 100.0 15,290.5 26,933.5

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Table 2.4: Sources of Finance (UA’000) Source Foreign Local Total Percent

Government of Uganda 0.0 4,224.0 4,224.0 10.0 African Development Fund 15,290.5 22,709.6 38,000.0 90.0 Total 15,290.5 26,933.5 42,224.0 100.0

Table 2.5: Project Cost by Category of Expenditure (UA’000) Category GoU % ADF % Total % FE. LC

A. Civil Works 0.0 - 34,991.1 100.0 34,991.1 82.9 13,034.1 21,957.0B. Goods

1. Vehicles - - 65.4 100.0 65.4 0.2 58.6 6.82. Equipment 0.0 - 83.5 100.0 83.5 0.2 75.1 8.5

Subtotal Goods 0.0 - 148.9 100.0 148.9 0.4 133.6 15.3C. Services

1. Technical Assistance & Consultancies Technical Assistance - - 535.1 100.0 535.1 1.3 535.1 -Studies & Supervision 0.0 - 902.4 100.0 902.4 2.1 708.5 193.9Subtotal Technical Assistance & Consultancies 0.0 - 1,437.5 100.0 1,437.5 3.4 1,243.6 193.92. Training & Capacity Building 894.2 79.8 227.0 20.2 1,121.2 2.7 129.5 991.73. Contractual Services - Specialist Services and Demonstrations -0.0 -0.0 310.7 100.0 310.7 0.7 212.7 98.0- Cross-Cutting Issues 0.0 - 21.9 100.0 21.9 0.1 17.0 4.9Subtotal Contractual Services -0.0 -0.0 332.6 100.0 332.6 0.8 229.7 103.04. Audit - - 103.7 100.0 103.7 0.2 103.7 -

Subtotal Services 894.2 29.9 2,100.8 70.1 2,995.0 7.1 1,706.4 1,288.5D. Personnel

Salaries & Allowances 641.3 94.8 35.1 5.2 676.4 1.6 - 676.4E. Operating Costs

Civil Works Maintenance 1,015.8 82.0 223.0 18.0 1,238.8 2.9 126.5 1,112.3Vehicles& Equipment Maintenance 0.0 - 18.7 100.0 18.7 - 10.7 8.0General Expenses 1,672.6 77.6 482.5 22.4 2,155.1 5.1 279.3 1,875.9

Subtotal Operating Costs 2,688.5 78.8 724.2 21.2 3,412.6 8.1 416.4 2,996.2Total Project Costs 4,224.0 10.0 38,000.0 90.0 42,224.0 100.0 15,290.5 26,933.5

Table 2.6: Expenditure Schedule by Component UA’000 Component 2010 2011 2012 2013 2014 Total

A. Market Infrastructure Development 207.3 8,464.8 13,954.2 6,490.2 381.8 29,498.3

B. Market Management & Trade Enhancement 3,234.5 0.7 38.1 38.1 3.4 3,314.8

C. Project Management & Coordination 287.2 179.5 195.4 182.7 295.2 1,139.9

Total Baseline Costs 3,729.0 8,644.9 14,187.6 6,711.0 680.5 33,953.0

Physical Contingencies 172.4 652.3 1,093.1 487.3 5.3 2,410.4

Price Contingencies 317.1 1,095.0 2,613.7 1,633.9 200.9 5,860.6

Total Project Costs 4,218.5 10,392.3 17,894.4 8,832.2 886.6 42,224.0

6

2.6 Project’s Target Area and Population Twenty One markets will be reconstructed in Municipal/Town Councils (including Kampala city) located in 19 districts of all four regions of Uganda. The Municipal Councils (14) are Jinja, Entebbe, Masaka, Mbarara, Kabale, Fort Portal, Arua, Lira, Gulu, Moroto, Soroti, Mbale, Tororo, and Kampala. The Town Councils (five) are Hoima, Kasese, Busia, Kitgum and Lugazi (See Map 1 in Annex IV). These 21 markets constitute what is now called Project-1 (MATIP-1). An additional 24 markets identified in the feasibility study will be constructed/improved as additional resources become available. The 21 markets were chosen based on the level of trading activity, potential for private-public partnership, scope for expansion and environment issues at the site, temporary relocation arrangements/agreements and ranking by the Councils. Those markets located in the Central Business District were built in the 1950s and 1960s, are in a dilapidated state, lack basic amenities, and generally overcrowded while those in the suburbs, although newer, mostly operate in temporary makeshift structures with few basic infrastructure. Management is generally poor. It is estimated that over 900,000 households (approximately 4.5 million people) within the catchment of the markets will benefit directly or indirectly from the project. According to the Socio-Economic Gender Disaggregated Profile conducted by the Project Feasibility Study, approximately 150,000 to 200,000 household will be headed by women. The project will also have positive multiplier effects for rural farmers.

2.7 Participatory Process for Project Identification, Design and Implementation The formulation of the project was largely participatory, with the relevant stakeholders fully involved in the process of project identification through design. The preparation of the Government Feasibility Study involved a rigorous participatory approach, whereby the relevant stakeholders, particularly Authorities of the respective Municipal/Town Councils were fully consulted. Likewise, at preparation and appraisal phases, the Bank team visited 18 of the identified MATIP-I beneficiary Councils, in the process of which it interacted with the Central and Local Government Authorities (Municipal/Town Councils) vendors and their associations; private sector agencies, including market Leasers; development partners and other relevant Government agencies. The objective of the consultations was to confirm the effective demand of the markets, the appropriate designs per area, confirmation of the proposed market management modalities, the willingness to pay for the market services and confirmation of the arrangements for movement of vendors to temporary sites and their reinstatement to the new markets. During consultations, more focus was given to women vendor, who constitute 70% to 80% in most markets. All stakeholders welcomed the project and expressed their readiness to cooperate to ensure its successful implementation. The management and administration of the reconstructed markets will also be undertaken with full involvement of stakeholders through their representative associations and committees. 2.8 Bank Group Experience, Lessons Reflected in Project Design The Bank has considerable experience in implementing rural market infrastructure projects in Uganda, including the Area-based Agricultural Modernization Programme (AAMP) and the Northwest Smallholder Agricultural Development Project (NSADP), Community Agricultural Infrastructure Improvement Programme I & II (CAIIP I & II). More specifically, the project draws extensively from lessons learned from AAMP, which are well documented in the Impact Study (August 2008). The most pertinent include (i) the need for enhancement of agricultural commodity trade, including linkages between rural and urban markets as well as

7

improvement of the commodity value chain; (ii) improved design of markets to address accessibility and security concerns of female traders; (iii) integration of the VAs, representing the private sector, in the management and O&M of the markets. Another lesson is the delay caused to the flow, justification, and consequent replenishment of the Special Account (SA) in a decentralised system of administration. The lessons from the erstwhile World Bank funded Market Infrastructure Development Project include the need: i) for appropriate layout and designs suited for different localities; ii) to ensure Government contribution without the need for extra-budgetary allocation; and iii) for a strong M&E system coupled with baseline data. Deficiencies/Inadequacies in past Bank interventions, especially those that pertain to delays in construction work experienced under AAMP and NSADP will be circumvented through more articulate procurement of contractors for designs and construction; and maintaining strict, but credible construction schedules; as well as systematic monitoring both at the Council and PFT levels. 2.9 Key Performance Indicators The M&E unit of the PFT will work closely with the PSO in each Council in the collection, analysis and dissemination of data on progress. Towards this end, the project will undertake a study, at project start-up, to fill gaps identified in the project feasibility study report; a mid-term review, a project completion report, annual audits, together with the Bank Groups supervision missions. Additionally a market management information system will be established at each Council to collect and analysis data for dissemination to vendors, customers and the PFT and as basis for the project quarterly reports. Progress will be reviewed at periodic review workshops. The KPIs, to be attained by the project and in the beneficiary Councils, include:

(i) Increased incomes of 900,000 households across the country; of which approximately 150,000 are female-headed; (16%)

(ii) Employment levels in the markets increased by 4,500 through new vendors. Of these between 2,500 and 3,000 vendors will be women; (about 55%)

(iii) Women make up approximately 50% of management positions in the Vendors’ Associations (VAs) and Market Management Committees (MMCs);

(iv) Volume of trade increased by US$300 per vendor per annum; (v) Revenue generated by Councils increased by over US$0.65 million per annum; (vi) 300 new agro-processing and value addition businesses created. Small-scale agro-

processing is mostly undertaken by women. Therefore, over 250 new agro-processing facilities will be headed by women;

(vii) 21 markets constructed, and equipped with the requisite economic and social amenities (3100 lockups/kiosks; 8200 stalls; 590 fish/meat units; 90 cold storage units installed; 7.0ha of paved open pitches/spaces; Power supply installed; Water supply, sanitation, drainage & fire fighting systems provided).

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III – PROJECT FEASIBILITY

3.1 Economic and Financial Performance

Table 3.1 Key Economic and Financial Figures

The analysis of the Economic Rate of Return (EIRR) has been undertaken over a 50 year span in line with the projected economic life of the market infrastructure. The main assumptions that featured in the calculation include the following: (i) 50-year design life of the Civil Works; and 15-year for Electrical/Mechanical works; (ii) 1% of initial investment costs as annual maintenance costs for civil works; and 5% for electrical/mechanical works; (iii) the net revenue to increase at 10% per year; (iv) market dues estimated to be 70% of market rentals; (v) 50% of the markets will be operating from PY3 and 100% from PY4; (vi) the analysis looks at the incremental number of vendors and revenue that is expected to be generated; (vii) the rent of the reconstructed markets (i.e. Incremental Revenue Factor) is estimated to be 25% higher than without project situation; (viii) investments in social services are excluded from the economic analysis due to the difficulty of quantifying them (It is assumed that the benefits will be equal or greater than the costs); and (ix) a shadow price using a Standard Deviation Factor (SDF) of 0.9 has been used (see Annexes B6/B7 for detailed calculations).

3.2 Environmental and Social Impacts Environment As per the Bank’s Environmental Guidelines, the project has been rated Category 2, thus requiring the preparation of an Environmental and Social Management Plan (ESMP). The draft ESMP has been prepared in collaboration with National Environmental Management Authority (NEMA). The key features of the project that qualify its rating for Category 2 include the following: project sites located in environmentally agreeable areas, project activities will not pose any hazard/risk on the environment, no toxic/poisonous effluent will be produced from the project. In general, the project will not affect the environment irreversibly. (See Technical Annex C3) The reconstruction of the markets will considerably improve environmental and hygienic sanitation, especially due to the improvement of the drainage system in the market. An improved garbage disposal system will be introduced to ensure effective garbage collection and disposal on a daily basis. Moreover, the vendors and members of the Vendors’ Associations will be given training on garbage disposal and general cleanliness of the markets. There will be limited negative environmental impacts. Site clearance for construction will generate waste soils and debris from demolished structures, which will require safe disposal. Climate Change Climate change adaptation measures of the project include use of energy efficient equipment/lighting units, provision for adequate natural ventilation and lighting, roof water harvesting facilities, and support for sorting and disposal of biodegradable wastes, manually

FIRR, NPV (base case): B/C = 1.45 NPV = US$ 16.94 million

EIRR (base case): 14.4%

9

and by the use of compost plants. There are already Cleaner Development Mechanisms (CDMs) compost plants in 11 project Municipalities. In addition wetlands adjacent to markets, as well as classified forests will not be obstructed or compromised. These measures will help reduce carbon dioxide emissions conserve water and energy resources and enhance effective waste management. Finally, the design of the market infrastructure will provide facilities to counteract the effects of climate change on the agricultural commodities, particularly in terms of increased product shelf life for perishable products and reduced post-harvest losses. In this regard, cold storage facilities, sheltered stalls, small-scale processing and clean environmentally-friendly technologies will be installed. . Gender The Project will have a positive impact on the income and livelihoods of female traders as well as female headed households. The socio-economic profile of the targeted markets for rehabilitation indicates that about 70% to 80% are female traders. Improved access, security and operational conditions of the markets will provide for a conducive business environment for female traders. Improved market infrastructure will provide greater trading space with the accompanying value chain provisions. As such, it is expected that the rehabilitated markets will allow for at least an increase by about 55% of new female traders using the markets. It is also expected that given the improved business environment female traders will on the average increase their trading by about 16% per week which would have an incremental impact on their disposable incomes. The social infrastructure within the new market structures will also have an added value to women vendors. Health clinics would assist in increasing reproductive and child health; while day-care centres would reduce the workload on women, thus enable them to spend more time on their businesses. The inclusion of women in the market management committees as well as the training opportunities will further provide greater opportunities for female traders to expand their businesses with increased sustainability.

Social The project will contribute significantly to poverty reduction mainly as a result of increased income generation through increased marketed agricultural commodities and traded merchandise. Besides, the project will facilitate gainful employment, especially with the increase in the number of stalls/locks as well as expansion of selling areas. The project will have far reaching social welfare benefits including better working conditions and facilities for a clean and hygienic environment leading to improved wellbeing. The markets will also contribute towards the development of sustainable food production, value addition and best practices in management, leading to improved food security, nutrition, and competitive commodity prices for consumers, improved quality of life for market traders and environmental management practices. Specifically, the project will encourage demand driven agricultural development in both rural and peri-urban areas for sustainable poverty reduction.

Involuntary Resettlement There will be no involuntary resettlement as a result of the project. However, since the construction of the new market structures will be undertaken on the current market sites, the movement of vendors to temporary sites will take place during the construction period (approximately one year). Approximately 200 to 800 vendors per market will be provided with alternative markets to continue operating in the course of construction of new structures.

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The identified temporary sites (some of which are substantive markets in sub-urban areas) will be provided with minimum amenities, including water and electricity to enable the continuation of the marketing activities with minimum disruption. The vendors will be moved systematically with assurance of no loss of assets or livelihood. The cost of this activity will be borne by the Government. In almost all project sites, vendors expressed their willingness to move to temporary sites during reconstruction of the markets, on condition that the incumbent vendors get first priority during reinstatement to the new markets. It was therefore agreed that Memoranda of Understanding (MOUs) would be signed between the legally registered Vendors Associations and the respective Municipal/Town Councils on the modalities of movement and reinstatement.

IV – IMPLEMENTATION

4.1 Implementation Arrangements The Ministry of Local Government will be the Executing Agency (EA) of the project. The coordination of the project will be undertaken by the existing Project Facilitation Team (PFT), which oversees all donor/development partner funded projects. The PFT, which has been in existence for more than 10 years, has considerable experience in implementing Bank projects with good performance; and is currently implementing the AAMP, CAIIP-1 and CAIIP-2. The Head of the PFT will therefore be the overall coordinator of the project, supported by already existing Engineers, a Financial Controller, Monitoring and Evaluation experts, and a MoLG Engineer who will play the role of an Infrastructure Advisor. To address the gaps in expertise under the current PFT establishment, the project will recruit full-time Procurement and Marketing Specialists. In addition an Environmentalist and Gender Expert will be hired for three months per year throughout the life of the project. The Terms of Reference of these experts are contained in the Technical Annexes (separate volume). The ADB Field Office in Uganda (UGFO) will be an important link between the PFT and the Bank on all issues that pertain to project implementation, especially those related to procurement and disbursement. Also the existing Inter-Ministerial Steering Committee (IMSC), chaired by the Permanent Secretary, MOLG, will provide policy and implementation oversight. Each Municipal/Town Council will appoint a Project Support Officer (PSO) as a link to the PFT responsible for the day to day implementation of the project. The PSO will oversee the implementation of the project, in terms of coordinating the supervision of construction works and capacity building programmes. Procurement and Disbursement Arrangements: As a general rule, all procurement will be in accordance with the Bank's governing Rules and Procedure for Procurement of Goods and Works or, as appropriate, Rules and Procedures for the Use of Consultants, using relevant Bank Standard Bidding Documents, and subject to Bank’s prior review. However, the procurement for contracts valued below UA 100,000 for works, and UA 50,000 for goods, will be done using the Country National Procurement Systems and Procedures (NPSP). The NPSP have been assessed and found acceptable to the Bank. The implementing Agencies, the PFT is very experienced in procurement matters. Twenty one (21) civil works contracts will be awarded under a mixture of International Competitive Bidding (ICB - with a domestic margin preference of 10%) and Shopping. Mains power supply would be provided through the Umeme (Power Company) Ltd using Direct Purchase procedures since it is the sole provider of electric power in Uganda. All civil works contracts will be paid using the Direct Payment procedure to minimize the volume of funds going to the SA. Contracts for office and

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related equipment will be procured through NCB, while food processing equipment will be through Shopping methods. The procurement of consulting services will be undertaken on the basis of shortlists. Capacity building and training totalling a maximum contract amount of UA 20,000 will be through direct negotiations with service providers located in the project areas. Items under operating costs will be procured using national systems. A comprehensive Procurement Plan will be prepared and agreed with the Government at Loan Negotiation. The procurement arrangements have been prepared in accordance with the agreed format in Table 4.1 below.

Table 4.1 Procurement Arrangements (UA'000)

Category ICB NCB SL Other NBF Total A. Civil Works 34,033.6 (34,033.6) - 957.5 (957.5) - 34,991.1 (34,991.1)B. Goods 1. Vehicles - 65.4 (65.4) - - - 65.4 (65.4)2. Equipment 2.1 Office & Other Equipment - 20.4 (20.4) - - - 20.4 (20.4)2.2 Food Processing Demo. Equipt. - - - 63.1 (63.1) - 63.1 (63.1)C. Services 1. Training & Capacity Building - - - 1,121.2 (227.0) 1,121.2 (227.0)2. Technical Assist. & Consultancies 2.1 Technical Assistance - - 535.1 (535.1) - - 535.1 (535.1)2.2 Studies And Supervision - - 902.4 (902.4) - - 902.4 (902.4)3. Contractual Services 3.1 Specialist Services - - 310.7 (310.7) - - 310.7 (310.7)3.2 Cross-Cutting Issues - - - 21.9 (21.9) - 21.9 (21.9)4. Audit Services - - 103.7 (103.7) - - 103.7 (103.7)5. Relocation & Land Acquisition - - - - 1,454.8 1,454.8 D. Personnel - - - 676.4 (35.1) 676.4 (35.1)E. Operating Costs 1. Civil Works Maintenance - - - 1,238.8 (223.0) 1,238.8 (223.0)2. Vehicles & Equipment Maintenance - - - 18.7 (18.7) - 18.7 (18.7)3. General Operating Charges - - 14.2 (14.2) 700.4 (468.3) 700.4 (482.5)Total 34,033.6 (34,033.6) 85.8 (85.8) 1,866.1 (1,866.1) 4,798.0 (2,014.5) 1,454.8 42,224.0 (38,000.0)Note: Figures in parenthesis are the respective amounts financed by African Development Fund * Other includes: National Shopping, Direct Purchase, Force Account and Community Participation ** Non-Bank Funded: Items financed by Beneficiaries and the Government The Special Account (SA) method and the Direct Payment methods will be used. The MoLG will open a Local Currency Account (LCA) and a SA in foreign currency at the Bank of Uganda (BoU) into which part of the loan resources will be deposited. Funds will be transferred from the SA to the LCA as and when required to finance project activities. The financial management and procurement capacity of the project has been assessed to be adequate. The fact that most of the procurement will be through ICB and thus direct payment method of disbursement, will reduce dependence on the SA and need for its frequent replenishment. The annual auditing of project accounts will be the responsibility of the PFT. The Audit reports will be prepared by an independent audit firm under the auspices of the Office of the Auditor General of Uganda and submitted to the Bank not more than six (6) months after the end of each Ugandan financial year. Additionally, the PFT will submit to the Bank quarterly progress reports in accordance to the official Bank Group reporting guidelines.

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4.2 Monitoring

Timeframe Milestone Monitoring process / feedback loop

Year 1 Baseline study PFT and Municipal/Town Councils to monitor

Year 1 – 5 Implementation Beneficiaries, Municipal/Town Councils, MoLG, MoWT & PFT

Year 1-5 Audit Reports Annually by PFT

Year 3 Mid-Term Review Bank and PFT to monitor

Year 4 Impact Study PFT and Municipal/Town Councils

Year 5 Project Completion Report MoLG and PFT to monitor; Bank to participate

4.3 Governance The Government has a well systemized procurement procedure, which has been successfully applied in other on-going Bank projects. Besides, the PFT and other implementation units of existing Bank projects have received training on procurement and financial management guidelines. Therefore, there is every assurance that project funds will be used for the intended purposes. However, to minimize risks to governance, the project will apply open and competitive bidding procedures that would facilitate quality assurance for most of the major contracts. In respect of adherence to the requisite construction standards and quality of materials, the contractors will be supervised by Supervising Consultants, supported by Engineers in the respective Councils and in collaboration with the PFT. A transparent, accountable and efficient management and administrative system will be adopted for the reconstructed markets, including establishment of an efficient Operations and Maintenance system. As a deterrent to potential incidence of corruption, misappropriation or embezzlement of funds, financial accountability will be undertaken through annual audits for all aspects of project implementation including procurement arrangements.

4.4 Sustainability The Government has portrayed its commitment to the project through its financing of the project Feasibility Study; taking prompt and appropriate measures to rid the project of any implementation bottlenecks and allocation of temporary sites and bearing the costs for moving the vendors to those sites, including the installation of minimal social and economic amenities. The project has considerable policy support through a number of policy frameworks, including the PEAP, PMA, the National Marketing Act and the National Trade Policy. A set of market management guidelines for the reconstructed markets, will ensure the participation of the beneficiaries, as the Councils gradually devolve the ownership of the structures to the vendors associations/market management committees, thus fostering Public-Private-Partnership (PPP).

In the one-year contractual defects liability (DFL) period after completion of the civil works, the contractor will still be responsible for deficiencies in the works that may not have been noticed at commissioning. Subsequently, the cost of routine maintenance (in PY3, PY4 and PY5) would be borne by the Municipal Councils/Town Councils and the project at 50:50, 75:25 and 100:0 bases respectively. After project closure, Operations and Maintenance (O&M) of the markets would be undertaken collaboratively between the Councils and the Vendors’ Associations, Market Management Committees. To facilitate this, the Councils would allocate a minimum of 15% of the collected revenue monthly to cater for O&M that

13

will be deposited in a dedicated account, called the Markets Account (MA), for which both the VA/MMCs and Councils, will be co-signatories. The running cost of equipment provided for under the Project would be borne by the users.

4.5 Risk Management The project faces the following potential risks: (i) the sustainability of the markets, particularly its O&M schedules. For this, a streamlined market management system will be established, including the establishment of a dedicated account for O&M; and (ii) the possibility of a prolonged construction of the markets compelling the vendors to stay longer at temporary market sites with potential loss of income by both the Vendors and Councils. Close monitoring of implementation by both the Government and the Bank will reduce time lag in implementation; (iii) land ownership status: with the exception of two sites in Kampala City, the other sites (19) belong to the Government. Title Deeds and/or a Letter of Comfort on the security of land for these two sites will be provided to the Bank prior to commencement of construction work. Assurance for this will be sought at Loan Negotiation. (iv) the private sector may not be adequately motivated to participate in the envisaged “public-private partnership”. A joint MC/TC and VA Market Management Committee will manage the markets and there will be increased scope for new businesses and income.

4.6 Knowledge Building A number of studies/surveys are planned to be undertaken through the project, with a view to generating information that will inform the implementers of the project as well as other stakeholders in the course of decision making. The analytical work will mainly focus on areas that were not adequately covered by the Feasibility Study, especially in value addition and value chain analysis; linkages between the urban and rural markets and cross border trade. Moreover, the project will develop a Market Information System (MIS) that will generate data pertaining to prices, sources and volumes of commodities to be shared with all stakeholders. All knowledge attributes generated from the project will be shared with the respective Government and Municipal/Town Council authorities, the Bank, Development Partner agencies and civic society at large as facilitation tools in future decision making processes.

V – LEGAL INSTRUMENTS AND AUTHORITY

5.1 Legal instrument ADF Loan to the Government of the Republic of Uganda

5.2 Conditions Associated with Bank’s Intervention • Conditions Precedent to Entry into Force: Force: The entry into force of the Loan

Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section 12.01 of the General Conditions of the Fund.

• Conditions Precedent to First Disbursement: The obligations of the Fund to make the

first disbursement shall be conditional upon the entry into force of the Loan Agreement in accordance with the immediately preceding paragraph and the fulfilment by the Borrower of the following conditions:

14

(i) Provided evidence of having opened one foreign currency special account (SA) for the deposit of the proceeds of the loan; and one local currency account (LCA) for transfer of funds from the special account, in the Bank of Uganda.

5.3 Compliance with Bank Policies (X) This project complies with all applicable Bank policies.

( ) The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies Non-standard conditions (if applicable): N/A

VI – RECOMMENDATION The proposed project satisfies the needs of the urban market users in particular and the broad Uganda farmers whose trade and incomes will be enhanced. Management therefore recommends that the Board of Directors approve the proposed loan of UA 38 million to the Government of Uganda for the purposes and subject to the conditions stipulated in this report.

15

Appendix I: Map of the Project Area

Markets and Trade Improvement Project 1 (MATIP-I)

This map has been drawn by the African Development Bank Group exclusively for the use of the readers of the report to which it is attached. The names used and the borders shown do not imply on the part of the Bank and its members any judgement concerning the legal status of a territory nor any approval or acceptance of these borders.

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Appendix II: Comparative Socio-Economic Indicators

Year Uganda AfricaDevelo-

pingCountries

Develo-ped

CountriesBasic Indicators Area ( '000 Km²) 241 30 307 80 976 54 658Total Population (millions) 2007 30.9 963.7 5 448.2 1 223.0Urban Population (% of Total) 2007 12.9 39.8 43.5 74.2Population Density (per Km²) 2007 128.1 31.8 65.7 23.0GNI per Capita (US $) 2006 300 1 071 2 000 36 487Labor Force Participation - Total (%) 2005 45.6 42.3 45.6 54.6Labor Force Participation - Female (%) 2005 47.6 41.1 39.7 44.9Gender -Related Development Index Value 2005 0.501 0.486 0.694 0.911Human Develop. Index (Rank among 174 countries) 2005 154 n.a. n.a. n.a.Popul. Living Below $ 1 a Day (% of Population) 2000 35.0 34.3 … …

Demographic IndicatorsPopulation Growth Rate - Total (%) 2007 3.2 2.3 1.4 0.3Population Growth Rate - Urban (%) 2007 4.6 3.5 2.6 0.5Population < 15 years (%) 2007 49.1 41.0 30.2 16.7Population >= 65 years (%) 2007 2.4 3.5 5.6 16.4Dependency Ratio (%) 2007 106.4 80.1 56.0 47.7Sex Ratio (per 100 female) 2007 100.1 99.3 103.2 94.3Female Population 15-49 years (% of total population) 2007 21.5 24.2 24.5 31.4Life Expectancy at Birth - Total (years) 2007 51.5 54.2 65.4 76.5Life Expectancy at Birth - Female (years) 2007 52.2 55.3 67.2 80.2Crude Birth Rate (per 1,000) 2007 46.6 36.1 22.4 11.1Crude Death Rate (per 1,000) 2007 13.4 13.2 8.3 10.4Infant Mortality Rate (per 1,000) 2007 76.9 85.3 57.3 7.4Child Mortality Rate (per 1,000) 2007 127.4 130.2 80.8 8.9Total Fertility Rate (per woman) 2007 6.5 4.7 2.8 1.6Maternal Mortality Rate (per 100,000) 2006 435.0 723.6 450 8Women Using Contraception (%) 2006 23.7 29.8 61.0 75.0

Health & Nutrition IndicatorsPhysicians (per 100,000 people) 2004 7.9 39.6 78.0 287.0Nurses (per 100,000 people) 2004 57.9 120.4 98.0 782.0Births attended by Trained Health Personnel (%) 2006 42.1 50.4 59.0 99.0Access to Safe Water (% of Population) 2006 67.1 62.3 80.0 100.0Access to Health Services (% of Population)* 2004 49.0 61.7 80.0 100.0Access to Sanitation (% of Population) 2006 10.7 45.8 50.0 100.0Percent. of Adults (aged 15-49) Living with HIV/AIDS 2005 6.7 4.7 1.3 0.3Incidence of Tuberculosis (per 100,000) 2005 368.8 300.7 275.0 18.0Child Immunization Against Tuberculosis (%) 2006 91.0 83.7 85.0 93.0Child Immunization Against Measles (%) 2006 89.0 75.4 78.0 93.2Underweight Children (% of children under 5 years) 2006 15.9 28.6 27.0 0.1Daily Calorie Supply per Capita 2004 2 348 2 436 2 675 3 285Public Expenditure on Health (as % of GDP) 2004 2.5 2.4 1.8 6.3

Education Indicators Gross Enrolment Ratio (%) Primary School - Total 2006 117.3 96.4 91.0 102.3 Primary School - Female 2006 114.6 92.1 105.0 102.0 Secondary School - Total 2006 22.3 44.5 88.0 99.5 Secondary School - Female 2006 19.9 41.8 45.8 100.8Primary School Female Teaching Staff (% of Total) 2005 38.7 47.5 51.0 82.0Adult Illiteracy Rate - Total (%) 2007 26.8 33.3 26.6 1.2Adult Illiteracy Rate - Male (%) 2007 18.3 25.6 19.0 0.8Adult Illiteracy Rate - Female (%) 2007 35.2 40.8 34.2 1.6Percentage of GDP Spent on Education 2004 5.1 4.7 3.9 5.9

Environmental IndicatorsLand Use (Arable Land as % of Total Land Area) 2005-07 25.3 6.0 9.9 11.6Annual Rate of Deforestation (%) 2000-07 2.0 0.7 0.4 -0.2Annual Rate of Reforestation (%) 2000-07 … 10.9 … …Per Capita CO2 Emissions (metric tons) 2005-07 0.1 1.0 1.9 12.3

Sources : ADB Statistics Department Databases; World Bank: World Development Indicators; last update :UNAIDS; UNSD; WHO, UNICEF, WRI, UNDP; Country Reports

Note : n.a. : Not Applicable ; … : Data Not Available;

COMPARATIVE SOCIO-ECONOMIC INDICATORSUganda

April 2008

Infant Mortality Rate ( Per 1000 )

65

70

75

80

85

90

95

2002

2003

2004

2005

2006

2007

Uganda Africa

GNI per capita US $

0200400600800

10001200

2001

2002

2003

2004

2005

2006

Uganda Africa

Population Growth Rate (%)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2002

2003

2004

2005

2006

2007

Uganda Africa

Life Expectancy at Birth (years)

111213141516171

2002

2003

2004

2005

2006

2007

Uganda Africa

17

Appendix IIIa: Table of ADB’s portfolio in Uganda List of active projects (loans and grants) by Sector:

ADB ADF Loan

ADF Grant NTF ADB ADF ADF

Grant NTF

1 Northwest Smallholder Agricultural Development Project 15/12/99 20/11/00 18/05/01 nil 17.60 nil nil nil nil nil 17.60 15.56 88.4% 30/06/09 effective

2 Area-based Agricultural Modernization Programme 13/09/00 30/05/01 14/11/03 nil 9.67 nil nil nil nil nil nil 9.67 8.03 83.0% 31/03/09 effective

3 Fisheries Development Project 12/06/02 14/11/02 9/05/03 nil 22.00 nil nil nil nil nil nil 22.00 10.14 46.1% 31/01/10 effective

4 National Livestock Productivity Improvement Project 04/12/02 02/06/03 12/04/04 nil 23.74 2.80 nil nil nil nil nil 26.54 16.70 62.9% 31/12/09 effective

5 Farm Income Enhancement& Forestry Conservation project 29/09/04 18/01/05 17/05/06 nil 31.57 9.85 41.42 11.49 27.7% 31/12/10 effective

6 Community Agricultural Infrustructure Improvement Programme- Project II 31/01/07 17/05/2007 21/09/07 nil 30.00 nil nil nil nil nil nil 30.00 1.94 6.5% 31/12/13 effective

7 Community Agricultural Infrustructure Improvement Programme- Project II 17/09/08 non non nil 45.00 nil nil nil nil nil nil 45.00 nil nill n/a not effective

192.23 63.86 33.2%

8 Road Sector Support Project 1 (Kabale Kisoro Bunagana Rd) 27/04/05 19/05/05 15/09/05 nil 27.01 1.49 nil nil nil nil nil 28.50 23.73 83.3% 31/12/10 effective

9 Road Sector Support Project 2 (Fort portal Bundibugyo Rd) 17/2/07 non 29/07/08 nil 56.65 1.35 nil nil nil nil nil 58.00 nil 0.0% n/a effective

10 Road Sector Support Project 1 supplementary Loan 20/12/2006 22/01/2007 18/02/2008 nil 32.99 nil nil nil nil nil nil 32.99 nil 0.0% 31/12/10 effective

119.49 23.73 19.9%

11 Small Towns Water Supply & Sanitation Project 24/11/04 18/01/05 13/06/05 12.26 6.15 18.41 16.09 87.4% 30/06/09 effective

12 Kampala Water Sanitation Project 16/12/2008 non non 35.00 nil 35.00 nil nil n/a not effective

13 Rural Water Supply & Sanitation Programme 19/12/05 23/01/06 9/05/06 40.00 40.00 27.34 68.4% 31/12/10 effective

93.41 43.43 46.5%

14 Rural Microfinance Support Project 24/11/99 29/05/00 23/02/01 nil 13.10 1.84 nil nil nil nil nil 14.94 14.87 99.5% 30/04/08 effective

15 Support to the Health Sector Strategic Plan II 08/11/2006 22/01/2007 04/06/07 nil 20.00 nil nil nil nil nil nil 20.00 3.05 15.3% 31/12/12 effective

16 Support to ESIP (Education II) 21/12/00 30/05/01 18/06/01 nil 20.00 2.38 nil nil nil nil nil 22.38 22.05 98.5% 30/04/07 effective

17 Support to Post Primary Education and Training Project (Education IV) 25/11/08 non non 52.00 nil nil nil nil nil nil 52.00 nil nil n/a not effective

18 Support to Post Primary Education and Training Project (Education III) 19/12/05 23/01/06 25/04/06 20.00 20.00 8.07 40.3% 31/12/11 effective

B. TRANSPORT

Transport - Sub Total

Water and Sanitation - Sub total

D. SOCIAL

A. AGRICULTURE

Approval Date Signature Date EffectivenessDate

Agriculture - Sub Total

Approved Amount UA million Amount Cancelled (UA million)

Serial No. Project Description Status (completed, on-going, etc)

Net Commitments (UA million)

Amount Disbursed (UA

million)Disbursed (%) Deadline for Last

Disbursement

18

Appendix IIIb: Table of ADB’s portfolio in Uganda List of active projects (loans and grants) by Sector

ADB ADF Loan

ADF Grant NTF ADB ADF ADF

Grant NTF

19 Institutional Support Project for Good Governance 17/11/04 18/01/05 14/03/05 9.00 9.00 6.19 68.8% 31/12/08 effective

9.00 6.19 68.8%

20 Mineral Resources Management & Capacity Building Project 29/09/04 18/01/05 18/01/05 5.35 5.35 2.30 43.0% 31/12/10 effective

5.35 2.30 43.0%

21 Bujagali Transmission Interconnection Project 26/06/07 26/10/07 non 19.21 nil nil nil nil nil nil 19.21 3.13 16.3% 23/04/08 effective

22 Transmission Lines Project 15/12/08 non non 52.50 nil nil nil nil nil nil 52.50 nil nil n/a not effective

620.51 184.50 29.7%

23 Lakes Edward and Albert Fisheries Pilot Project 22/10/03 04/03/04 04/03/04 1.65 1.65 1.63 98.8% 31/12/08 effective

24 Creation of Sustainable Tsetse and Trypanosomiasis Free Areas 08/12/04 19/05/05 30/12/05 6.55 0.24 6.79 0.39 5.8% 31/12/11 effective

8.44 2.02 0.24

25 Bujagali Hydro Power Project 29/06/07 non 21/12/2007 72.17 nill nil nil nil nil nil nil 72.17 17.08 23.7% n/a effective

26 Buseruka Hydropower Project 29/07/08 non non 5.84 nill nil nil nil nil nil nil 5.84 nil nil n/a not effective

27 Sheraton Kampala Hotel 18/09/02 20/11/2002 06/05/03 6.02 6.02 6.02 100.00 31/12/03 fully disbursed

84.03 23.10 27.49

712.98 209.62 29.40

G. ENERGY

E. MULTI SECTOR

GRAND TOTAL FOR PUBLIC SECTOR OPERATIONS

Multi National Projects- Subtotal

GRAND TOTAL INCLUDING MULTI NATIONAL AND PRIVATE SECTOR PROJECTS

H. PRIVATE SECTOR OPERATION

F. MULTI NATIONAL PROJECT

Multi Sector - Sub total

F. INDUSTRY

Industry - Sub total

Private Sector Operation - subtotal

Serial No. Project Description Approval Date Signature Date EffectivenessDate

Approved Amount UA million Amount Cancelled (UA million)Net

Commitments (UA million)

Amount Disbursed (UA

million)Disbursed (%) Deadline for Last

DisbursementStatus (completed, on-

going, etc)

19

Appendix IV: Key related projects financed by the Bank and other development partners in Uganda PROJECT NAME COVERAGE SOURCE%

FUNDS AMOUNT (millions)

STARTING ENDING PLANNED OUTPUTS

A. DISTRICT ROADS 1. District Roads Regravelling Project (Northern Roads Corridor) (STABEX)

District of Toronto, Bigiri, Jinja, Mukono, Wakiso, Mpigi, Masaka

EU EUR11.4 July 2003 Dec 2007 1315km Rehabilitation; 3000km Maintenance

2. DANIDA RSPS-2 District Roads Component.

15 Districts Of North and North Eastern Uganda

DANIDA DKK 120 June 2003 Dec 2007 700km Rehabilitated; 3000km Maintenance

3. Area Based Agricultural Modernization Programme (AAMP)

13 Districts of Western and Southern Western Uganda

ADB US$ 13.6 June 2004 June 2008 1100km Rehabilitated

4. North West Region Small Holder Agricultural Development Project (NSADP)

Adjumani, Moyo,Yumbe, Nebbi, Arua, Koboko and Maracha and Terego Districts

ADB UA 17.6 2000 Dec 2008 205km Constructed

5. District Roads Maintenance (PAF) All Districts GOU UGX 18,000 1999 Continuous Routine Maintenance of 1800km 6. Roads All Uganda EU EUR15 2008 2011 7. Community Agricultural Infrastructure Improvement Project 1 (CAIIP-1)

26 District In Central and Eastern Uganda ADB UA30 July 2007 2012 Rehabilitation of 390km and Maintenance of 587km of District roads

B. COMMUNITY ACCESS ROADS 1. DANIDA RSP2 Community Access Roads Component

Mbale, Sironko, Kapchorwa, and Lira, Kumi, Soroti

DANIDA US$4.0 2003 Dec 2007 400km Rehabilitated

2. Area Based Modernization Programme (AAMP)

13 Districts of western and South Western Uganda

IFAD US$2.3 June 2004 December 2010

1438km Routine Manual Maintenance / Rehabilitation

3. North West Region Small Holder Agricultural Development Project (NSADP)

Adjumani, Moyo,Yumbe, Nebbi, Arua, Koboko and Maracha and Terego Districts

ADB UA 17.6 2000 Dec 2008 1600km Routine Manual Maintenance / Rehabilitation

4. Northern Uganda Social Action Fund(NUSAF)

Northern and North Eastern Uganda IDA US$2.3 2004 2008 410km

5. Local Government Development Programme (LGDP)

In Most Districts of the Country IDA US$1.4 2000 Continuing 250km Rehabilitated so far.

6. Community Agricultural Infrastructure Improvement Project 1 (CAIIP-1)

26 District In Central and Eastern Uganda ADB UA30 July 2007 2012 Rehabilitation of 3510Km and Maintenance of 5267km of Community Access Roads (CAR)

C. MARKETS 1. North West Agricultural Sector Development Programme(NWASDP)

North West Uganda ADB Part of B.3 above

May 2001 2008 22 Markets; 200km access road Rehabilitation; 340km of Maintenance

2. Agricultural Marketing & Agro-processing Support Programme

All Uganda (8 or 9 districts covered) IFAD US$30 Under preparation

Seeks to connect farmers to markets and enhance enabling environment

3. District Development Support Programme 5 Districts in Western Uganda IFAD US20.6 Dec. 2001 Dec. 2006 Agricultural extension services and physical infrastructure

6. Community Agricultural Infrastructure Improvement Project 1 (CAIIP-1)

26 District In Central and Eastern Uganda ADB UA30 July 2007 2012 Construction of 78 functional markets in 78 sub-counties within 26 districts.

D. ENERGY 1. Energy for Rural Transformation Project (ERT)

All Uganda WB US$123 2007 2008 Facilitates investments in commercially oriented rural electrification projects

2. Energy All Uganda EU EUR10 2008 2011