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zambia2013.txt
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Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 75089-ZM
INTERNATIONAL DEVELOPMENT ASSOCIATION
INTERNATIONAL FINANCE CORPORATION
AND
MULTILATERAL INVESTMENT GUARANTEE AGENCY
COUNTRY PARTNERSHIP STRATEGY
FOR THE
REPUBLIC OF ZAMBIA
FOR THE PERIOD FY13-FY16
February 15, 2013
Zambia Country Management Unit
Africa Region
The International Finance Corporation
Africa Region
The Multilateral Investment Guarantee Agency
This document has a restricted distribution and may be used by recipients only in the
performance of their duties. Its contents may not otherwise be disclosed without World Bank
Authorization
CURRENCY EQUIVALENTS
(Exchange Rate as of February 13, 2013)
Currency Unit = Kwacha (ZMW)
US$ 1 = ZMW 5.33
FISCAL YEAR
July 1 – June 30
ABBREVIATIONS AND ACRONYMS
AAA Analytical and Advisory Activities CPFL Consumer Protection and Financial
Literacy
ACET Africa Center for Economic
CPS Country Partnership Strategy
Transformation
CSO Civil Society Organization
ADSP Agriculture Development Support
DDCC District Development Coordinating
Project
Committee
AfDB African Development Bank
DEC Development Economics
AFR Africa region
DFGG Demand for Good Governance
APL Adaptable Program Loan
DFID United Kingdom Department for
APPSA Agricultural Productivity Program for
International Development
Southern Africa
EITI Extractive Industries Transparency
ARDE Annual Review of Development
Initiative
Effectiveness
ESSD Environmental and Socially Sustainable
ARPP Annual Report on Portfolio
Development network
Performance
ESW Economic and Sector Work
BDS Business Development Services
FBD Farm Block Development
BW Business Warehouse
FDI Foreign Direct Investment
CAADP Comprehensive Africa Agriculture
FISP Farmer Input Support Program
Development Program
FM Financial Management
CAE Country Assistance Evaluation
FMD Foot and mouth disease
CARDESA Center for Coordination of Agricultural
FNDP Fifth National Development Plan
Research for Southern Africa
FPD Financial and Private Sector
CAS Country Assistance Strategy
Development network
CASCR Country Assistance Strategy
FRA Food Reserve Agency
Completion Report
GAC Governance and Anti-corruption
CBPP Contagious bovine pleuropneumonia
GAFSP Global Agriculture and Food Security
CD Country Director
Program
CFR Corporate Finance and Risk
GEF Global Environment Facility
Management
GDP Gross Domestic Product
CIWA Cooperation in International Waters in
GRZ Government of the Republic Zambia
Africa
GPF Global Partnership Facility
CMU Country Management Unit
HDN Human Development network
CODE Committee on Development
HDI Human Development Index
Effectiveness
HIPC Heavily Indebted Poor Countries
COMESA Common Market for Eastern and
HR Human Resources
Southern Africa
HRITF Health Results Innovation Trust Fund
CP Cooperating Partner
IBRD International Bank for Reconstruction
CPI Corruption Perception Index
and Development
i
ICR Implementation Completion and Results OPCS Operations Policy and Country Services
Report PAF Performance Assessment Framework
ICRR Implementation Completion and Results PDCC Provincial Development Coordinating
Report Review Committee
ICT Information Communication PDO Project Development Objective
Technology PEFA Public Expenditure and Financial
IDA International Development Association Accountability
IDSP Irrigation Development Support Project PETS Public Expenditure Tracking Survey
IEG Independent Evaluation Group PF Patriotic Front
IFC International Finance Corporation PFM Public Financial Management
IFMIS Integrated Financial Management PIU Project Implementation Unit
Information System PRBS Poverty Reduction Budget Support
IFPRI International Food Policy Research PREM Poverty Reduction and Economic
Institute Management network
IL Investment Loan PRSC Poverty Reduction Support Credit
ILO International Labor Organization PPAR Project Performance Assessment Report
IMF International Monetary Fund PPCR Pilot Program for Climate Resilience
INF Infrastructure network PPIAF Public-Private Infrastructure Advisory
ISF Investment Support Fund Facility
ISR Implementation Status and Results PPP Public Private Partnership
Report PSDRP Public Sector Development Reform
JASZII Second Joint Assistance Strategy for Program
Zambia PSRP Public Sector Reform Program
KfW Kreditanstalt Für Wiederaufbau P4R Program for Results
KLC Knowledge and Learning Council QAG Quality Assurance Group
LEAP Liquidity Enhanced Asset Program RDA Road Development Agency
LCMS Living Conditions Monitoring Survey REC-TCC Regional Economic Communities
LCR Latin America and the Caribbean region Transport Coordinating Committee
LDAHP Livestock Development and Animal ROSC-A&A Report on Observance of Standards and
Health Project Codes-Accounting and Auditing
LIC Low Income Country RRMP Road Rehabilitation Maintenance
LWSC Lusaka Water and Sewerage Company Project
MAG Mutual Accountability Group SACMEQ Southern and Eastern Africa
MCA Millennium Challenge Account Consortium for Monitoring Educational
MD Managing Director Quality
MDG Millennium Development Goals SADC South African Development
MDR Multilateral Debt Relieve Community
MIC Middle-income country SAG Sector Advisory Groups
MIGA Multilateral Investment Guarantee SAR South Asia Region
Agency SB Sector Board
MLGH Ministry of Local Government and SD Sector Director
Housing SDN Sustainable Development network
MLT Matrix Leadership Team SDR Special Drawing Rights
MMD Movement for Multi-Party Democracy SEED Support for Economic Expansion
MNA Middle East and North Africa region Diversification
MOF Ministry of Finance SM Sector Manager
MSME Medium, Small and Micro Enterprises SME Small and Medium Enterprise
MTEF Medium Team Expenditure Framework SMS Short Message Service
ND Newcastle disease SMU Sector Management Unit
NFNC National Food and Nutrition SNDP Sixth National Development Plan
Commission SSATP Sub-Saharan Africa Transport Policy
NGO Non-Governmental Organization Program
NHSP National Health Strategic Plan TA Technical Assistance
NWASCO National Water Regulator National TB Tuberculosis
Water Supply and Sanitation Council TF Trust Fund
ODA Official Development Assistance UNDP United Nation Development Program
ii
UNICEF United Nations Children’s Fund ZANACO Zambia National Commercial Bank
UNWTO United Nations World Tourism ZDHS Zambia Demographic and Health
Organization Survey
UPND United Party for National Development ZEITI Zambia Extractive Industries
USAID United States Agency for International Transparency Initiative
Development ZICA Zambia Institute of Chartered
US United States Accountants
VP Vice President ZMLCI Zambian Mining Local Content
VPU Vice Presidential Unit Initiative
WBG World Bank Group
WBI World Bank Institute
WGI World Governance Indicators
WDR World Development Report
WHO World Health Organization
WSP Water and Sanitation Program
WSPIP Water Sector Performance
Improvement project
IDA IFC MIGA
Vice President: Makhtar Diop Bernard Sheahan (Acting) Michel Wormser
Director: Kundhavi Kadiresan Cheikh Oumar Seydi Ravi Vish
Task Team Leaders: Nalini Kumar Sylvain Kakou Stephan Dreyhaupt
iii
REPUBLIC OF ZAMBIA
COUNTRY PARTNERSHIP STRATEGY
TABLE OF CONTENTS
EXECUTIVE SUMMARY .................................................................................................... vii
INTRODUCTION .................................................................................................................... 1
I. COUNTRY CONTEXT ........................................................................................................ 2
A. Institutional and Political Context ................................................................................ 2
B. Poverty and Social Context........................................................................................... 3
C. Economic Context......................................................................................................... 5
D. Key Development Challenges....................................................................................... 9
E. Zambia’s Development Strategy................................................................................. 16
F. Development Partner Support ..................................................................................... 17
II. LESSONS LEARNED FROM A REVIEW OF THE PAST WBG ASSISTANCE ......... 18
A. Implementation of the last Country Assistance Strategy (CAS) ................................ 18
B. IDA, Trust Funds and Analytical and Advisory Services........................................... 19
C. Multilateral Investment Guarantee Agency ................................................................ 19
D. International Finance Corporation .............................................................................. 20
E. Lessons Learned.......................................................................................................... 20
III. THE COUNTRY PARTNERSHIP STRATEGY IN ZAMBIA....................................... 21
A. The CPS and the WBG Strategies .............................................................................. 21
B. The Guiding Principles for WBG Engagement in Zambia ......................................... 22
C. WBG Financial Resources under the CPS .................................................................. 24
D. CPS Instruments.......................................................................................................... 25
IV. PROPOSED CPS OBJECTIVES AND EXPECTED RESULTS .................................... 25
A. Objective One: Reducing Poverty and the Vulnerability of the Poor ......................... 25
B. Objective Two: Improving Competitiveness and Infrastructure for Growth and
Employment ................................................................................................................ 30
C. Objective Three: Improving Governance and Strengthening Economic
Management ................................................................................................................ 35
V. RISKS AND MITIGATION .............................................................................................. 40
A. Political Risks ............................................................................................................. 40
B. Institutional Risks ....................................................................................................... 41
C. External Shocks .......................................................................................................... 42
EndNote .................................................................................................................................. 42
References ............................................................................................................................... 44
Annex 1: Zambia CPS Results Matrix .................................................................................... 48
Annex 2: Zambia at a Glance.................................................................................................. 58
iv
Annex 3: Key Social Indicators .............................................................................................. 60
Annex 4a: Millennium Development Goals ........................................................................... 61
Annex 4b: Progress on MDGs for Zambia ............................................................................. 62
Annex 5: Key Economic Indicators ........................................................................................ 64
Annex 6: Key Exposure Indicators ........................................................................................ 66
Annex 7: Selected Indicators* of Bank Portfolio Performance and Management ................. 67
Annex 8: Operations Portfolio (IBRD/IDA and Grants) ........................................................ 68
Annex 9: On-going IDA Projects Approved before CPS by Sector ....................................... 69
Annex 10: World Bank Indicative Lending and AAA Plan FY13-16 .................................... 70
Table 1: Summary Lending ................................................................................................ 70
Table 2: Details on the Indicative Lending noted in Table 1.............................................. 70
Table 3: World Bank Analytical and Advisory Activities under the Africa Strategy
by Fiscal Year ............................................................................................................. 72
Annex 11: Active Trust Fund Portfolio .................................................................................. 74
Annex 12: Zambia: IFC Investment Operations Program ...................................................... 76
Annex 13: Copper in Zambia.................................................................................................. 77
Annex 14: Regional Projects and Programs ........................................................................... 80
Annex 15: Client Survey and CPS consultations.................................................................... 84
Annex 16: Gender Integration in Projects .............................................................................. 86
Annex 17: Summary of Performance Indicator Ratings, 2008 and 2012 (draft) PEFA
Assessments ............................................................................................................................ 88
Annex 18: Connecting the Non-State Actors with the State to Contribute to Greater
Development Impact: Approach and Tools ............................................................................ 92
Annex 19: Zambia Cooperating Partners Division of Labor Matrix ...................................... 95
Annex 20: ZAMBIA CAS COMPLETION REPORT ........................................................... 96
v
This Country Partnership Strategy was prepared under the guidance of Kundhavi
Kadiresan, Country Director for Zambia, Malawi and Zimbabwe.
The CPS core team included: Nalini Kumar (task team leader, Senior Operations Officer),
Jumbe Ngoma, Ngao Mubanga and Patricia Palale. Major contributions to the report were
made by the following members of the Zambia Country Team: Asumani Guloba, Sylvain
Kakou (IFC), Praveen Kumar, Rosemary Musonda Sunkutu, Stephan Dreyhaupt (MIGA),
Pazhayannur K. Subramanian and Vijay Pillai. Support to this team was provided by Lucy
Mukuka, Cathleen Chuma Sosopi and Grace Soko.
In addition to the above, the following made important contributions to this strategy: John
Barham (IFC), Gunhild Berg, Sofia Bettencourt, Kate Bridges, Melissa Brown, Collins
Chansa, Frank Douamba (IFC), Bhadra Durgabakshi, Indira Ekanayake, David Evans, Ben
Gerike, Fareed Hassan, Conor Healy (MIGA), Wedex Ilunga, Martin Kachingwe, Daniel
Kirkwood, Rama Lakshminarayanan, Bryan Land, John Makumba, Patricio Marquez,
Ernest Matongo, John McIntire, Jean-Michel Pavy, Brian Mtonya, Alex Mwanakasale,
Cecil Nundwe, Kathrin Plangemann, Thomas Ramin, Anwar Ravat, Bobak Rezaian, Justin
Runji, Henry Schiembe (IFC), Barbara Mwila Kazimbaya-Senkwe, David Sislen, Cornelia
Tesliuc, Ivan Velev, Michael Webster, Marcus Wishart and Willem Zijp.
This CPS also acknowledges the significant contributions of the technical team from the
Government of the Republic of Zambia, in particular the Secretariat from the Ministry of
Finance.
vi
REPUBLIC OF ZAMBIA
COUNTRY PARTNERSHIP STRATEGY
EXECUTIVE SUMMARY
Background: Zambia has had a long period of political stability. With strong growth in the last
decade the country has reached lower middle income status. However, the economy remains
mainly dependent on copper and more than 60 percent of Zambians live below the poverty line.
Human development indicators lag the Sub-Saharan Africa average. Over the past decade the
Gini coefficient worsened from 0.47 to 0.52. The potential and the need to increase agricultural
productivity and develop the private sector remain huge.
Government development plan and CPS alignment: The Government that came to power in
September 2011 aims for a better Zambia for all and identified poverty reduction, jobs creation
and improving governance as its main priorities. The Sixth National Development Plan identifies
the following overarching objectives: to accelerate infrastructure development, economic growth
and diversification; promote rural investment and accelerate poverty reduction; and enhance
human development. The CPS is aligned with the Government’s development priorities. In a
country that displays both low income and middle income characteristics, the CPS will support
three objectives that speak to the dual nature of Zambia’s development challenges and
opportunities: (i) Reducing poverty and the vulnerability of the poor; (ii) Improving
competitiveness and infrastructure for growth and employment: (iii) Improving governance and
strengthening economic management. The specific activities supported have been identified
through the systematic application of several guiding principles to enhance relevance and
selectivity.
Aid flows to Zambia are declining and the Government is looking to the private market to raise
resources. The Bank’s contribution to Zambia’s needs for development finance during the CPS
period will be relatively small (IDA about US$100 million a year). Building on lessons of
experience from the last CAS and working with other cooperating partners, World Bank, IFC and
MIGA (WBG) will: (i) intervene pragmatically and selectively in areas where its limited
resources can play a catalytic role and support public goods that provide the basis for economic
development; (ii) increasingly leverage its global outreach and draw upon knowledge and
partnerships to bring technical expertise and knowledge to bear on Zambia’s development; (iii)
adopt an incremental approach to supporting reform that has proven effective in Zambia.
Reducing poverty and vulnerability of the poor: The WBG will provide support in areas such
as research, extension, irrigation, rural roads, agri-business development, to help unlock the
potential of the agriculture sector in which the majority of the poor, particularly women, are
engaged. Programs designed to protect vulnerable families and promote job opportunities among
them will be supported.
Improving competitiveness and infrastructure for growth and employment: IFC and World
Bank will together provide support for enhancing the enabling environment for private sector
development. Projects for improving supply and access to electricity, transport infrastructure,
access to finance and better access to water for hydro-power generation and industry will be
implemented. The CPS gives special attention to promoting greater regional integration and
cooperation in matters of trade, transport policy, agricultural research and water resource
management.
vii
Improving governance and strengthening economic management: Strengthening institutions
and capacity so that Zambia can use its growing domestic resources and non-concessional
borrowing effectively to support its development will be a priority. Other activities, such as
building statistical capacity, monitoring and evaluation and providing timely and credible
economic information to inform policy debate will also be supported.
The Bank will work with the Government to monitor portfolio performance and is taking several
steps to improve portfolio quality and disbursements. There are political, institutional and
external risks involved in achieving the results of the CPS but the WBG will take steps to
mitigate those risks. A CPS progress report in 2014 will provide an opportunity to update the
assessment of the country context and opportunities and risks.
viii
REPUBLIC OF ZAMBIA
COUNTRY PARTNERSHIP STRATEGY
INTRODUCTION
1. Zambia is riding on a number of successes. The economy has grown at 5.7 percent per
annum over the last decade and Zambia was among the 10 fastest growing economies of Sub-Saharan
Africa in 2012. Fast growth has enabled it to attain lower middle income country (MIC) status with a
nominal per capita income of US$1,299 (2011). Investor confidence has been high as evidenced in the
successful issue of the US$750 million Euro bond. In 2011 it successfully held national elections in
which the long standing ruling party was defeated by the opposition and there was a peaceful transfer of
power.
2. Zambia also presents difficult development challenges. The economy remains largely
undiversified and mainly dependent on copper with economic activity mostly concentrated in the
urban areas. Income distribution is highly unequal (0.52 Gini co-efficient) and on several development
dimensions the country is indistinguishable or worse than many low income countries (LIC) (Table 1).
Zambia is also lagging on a number of MDG targets—particularly those on extreme poverty and
maternal and child mortality (Annex 4). Institutional capacity remains weak and according to the recent
public sector governance surveys such as the World Governance Indicators (WGI) (see Annex 2) and
Transparency International’s Corruption Perception Index (CPI) where Zambia ranked 91st out of 153,
the country’s governance challenges need to be addressed. Recent Government actions (e.g. reversal of
the railway concession, interest rate cap) are perceived by some sections of stakeholders as having
created incoherence in the policy environment.
Table 1: Some development dimensions: Zambia, Lower middle income and Low income countries
Zambia Lower Middle Income Low Income
Zambia GNI per capita (Atlas) 2011 1,160 (1,299 1,026 or more (average 1,025 or less
against average cut-off for lower nominal per capita) cut off)* (average cut off)*
middle income and low income
countries(US$)
Poverty rates Comparator countries Comparator
PPP ($1.25 per day)/National Poverty 68.5/60.5 Cameroon 10/39.9 countries
line Ghana28.6/28.5 Ethiopia 39/38.9
Uganda 38/24.5
Under 5 mortality per 1000 live births 119 69 108
Maternal mortality per 100,000 live 591 300 590
births
Life expectancy 49 65 59
Source: WDI 2012, UNDP 2011a.
Note: Latest available data. *As per World Bank July 2012 classification of low-income and lower middle income countries.
Lower and upper middle income countries are separated at an average income of US $4,036.
3. The Government aims to reduce poverty, create jobs and make Zambia a prosperous
MIC by 2030. The Government aims for a better Zambia for all and build on the country’s rich
resources (land, water and minerals) and past achievements to make growth inclusive. The Vision 2030
document lays out the country’s aspirations and the challenges of achieving prosperous MIC status over
the next generation. The Sixth National Development Plan (SNDP) elaborates the medium-term
development objectives for the period 2011-2015 focusing on policies, strategies and programs that
contribute to addressing the challenges of realizing broad-based pro-poor growth. In this context,
though there is a mixed track record globally of converting mineral wealth into widely-shared
prosperity, Zambia’s mining sector, with strengthened institutions and sounder policies, could
1
potentially contribute to broader development in the country. The Government is however, keen to
diversify the economy and also effectively utilize Zambia’s other resources to promote inclusive
growth.
4. In a country that displays both low income and middle income characteristics, the World
Bank Group’s (WBG’s) role will be twofold i.e. contributing to poverty reduction and supporting
the transition to a prosperous MIC. There is an urgency to tackle the country’s poverty and diversify
the sources of growth. The overall resource needs to meet Zambia’s development goals are huge; but
traditional aid is declining and the IDA envelope for Zambia is also limited (about US$100 million a
year). However, the WBG’s global outreach to draw on partnerships and bring technical expertise and
knowledge to bear on Zambia’s development is large. The latter could be utilized more effectively to
strengthen institutions and improve economic management towards helping Zambia increase its own
capacity to use its resources and institutions effectively. During the next four years, the WBG will
position itself to transition from a lending institution to being a solutions one that, in the words of the
WBG President Dr. Kim, “connects and convenes multiple stakeholders from around the world
brokering knowledge exchange across institutional boundaries.�? The WBG will also draw on its
tremendous experience accumulated over decades of working with different countries to find the space
in the current policy environment to support programs and projects that can effectively support
Zambia’s development. The WBG’s strategic plan for support is laid out in this Country Partnership
Strategy (CPS).
5. The CPS covers FY13-FY16 and reflects the Government’s priorities. The last WBG
Country Assistance Strategy (CAS) (FY08-11) was discussed by the Board on April 8, 2008. In 2011, a
CAS Progress Report (CASPR) extended that strategy until December 2012 to provide an opportunity
to engage the newly elected Government in the preparation of the new strategy. The CPS reflects the
Government’s development priorities as reflected in the development plan and Vision 2030 and is a
“partnership�? strategy prepared collaboratively with the Government and in consultation with civil
society, cooperating partners (CPs), and other stakeholders. It puts forward an integrated World Bank,
IFC and MIGA strategy—a WBG strategic plan—for supporting Zambia’s development. It also reflects
the principles agreed upon by the CPs as articulated in the Second Joint Assistance Strategy for Zambia
(JASZII) 2011-2015.
6. Outline of the CPS. The CPS has five chapters. The first chapter provides a country context
followed by a description of the key development challenges, the country’s development plan and a
summary of CPs support. Chapter II reviews the WBG’s past support to the country, Chapters III and
IV lay out the key features of this CPS including objectives, guiding principles of engagement and
expected results. Chapter V notes the risks and the strategy for mitigation.
I. COUNTRY CONTEXT
A. Institutional and Political Context
7. The Zambian Government structure consists of three arms—the executive, the legislature
and the judiciary. According to the current Constitution the President, is the head of the State and is
also at the apex of the executive decision-making structure. The Presidential authority is exercised
through a Cabinet, comprising ministers who are drawn from among elected or nominated Members of
Parliament. Zambia has a centralized system of Government. A process to review the Constitution is
currently underway and is likely to result in devolution of some powers to the lower levels of
Government.
2
8. Zambia has relatively well designed systems, rules and laws 1 that allow for both internal
and external checks and balances, but they could be more effective. A process of reform over the
last two decades led to improvements in administrative systems and procedures, such as improved
service conditions and rationalized payroll, reforms in public financial management and the business
environment. However, inadequate institutional capacity has created implementation challenges and
made internal checks and balances difficult. Citizen oversight through social accountability is also
weak. The Auditor Generals’ reports continue to report misuse and misappropriation of public
resources with limited follow up of audit report issues and recommendations.
9. The peaceful transfer of power in the last elections from an incumbent party has solidified
Zambia’s democratic credentials. This is the second time power was transferred from a longstanding
incumbent to an opposition party (1991 and 2011). Zambia has held six successful and peaceful multi-
party elections. In the September 2011 elections, Patriotic Front (PF) defeated the long-ruling
Movement for Multi-Party Democracy (MMD).
10. The new Government also identified poverty reduction, jobs creation and improving
governance as its main priorities, however, the Government’s policies are still evolving and the
implementation strategy has yet to be concretized. There is also concern amongst some stakeholders
consulted during the preparation of the CPS about the negative impact of policy incoherence on
effective long-term planning and the environment for private sector development. While achieving
inclusive growth in Zambia is a long term agenda, the Government has found it difficult to undertake
much-needed policy reforms in sectors such as agriculture on which the vast majority of the very poor
are dependent. Strengthening public sector implementation capacity would help with implementation of
critical policy actions.
B. Poverty and Social Context
11. Zambia’s rank in the United Nations Table 2: Poverty Incidence by Province, 2010
Development Program (UNDP) Human Province Population Moderate Extreme
Development Index (HDI), a composite measure Share (%) Poverty Poverty
of life expectancy, education, and incomes, is Incidence Incidenc
below the Sub-Saharan Africa average. In 2011 (%) e (%)
Central 10.6 55.7 30.5
Zambia's HDI was 0.430, a rank of 164 out of 187
Copperbelt 14.0 39.7 18.3
countries with comparable data. Overtime, the HDI Eastern 13.7 74.9 55.1
for Sub-Saharan Africa increased from 0.365 in Luapula 8.2 80.2 61.8
1980 to 0.463 today, and Zambia falls below this Lusaka 13.5 34.4 13.8
regional average. Northern 12.7 72.5 50.2
North western 5.8 68.4 48.7
12. Despite robust annual growth in the last Southern 12.9 66.0 42.0
Western 7.6 74.1 56.0
decade, poverty, particularly in the rural areas
Source: World Bank 2012a
remains stubbornly high. The effect of economic Note: People living in moderate poverty are those whose
growth on overall poverty reduction has been small, total expenditures are below the national poverty line.
as much of the benefits of growth have accrued to People living in extreme poverty have total expenditures that
those already above the poverty line. Growth was are below the food-poverty line.
driven by industries such as mining, construction and financial services and did little to create jobs and
expand opportunities beyond the small labor force already employed in these industries. The urban-
centered growth also did not generate better incomes, health, nutrition and key services for the majority
of Zambians living in the rural areas and dependent on agriculture. Rural poverty at 74 percent is more
than double the urban poverty of 35 percent. Thirty nine percent of the population lives in extreme
poverty, with insufficient consumption to meet daily minimum food requirements. Almost 90 percent
3
of Zambians below the extreme poverty line are in rural areas, where the poverty gap ratio 2 is far higher
(20 versus 3.7 percent in urban areas) (World Bank 2012d).
13. Income inequality has been growing in Table 3. Progress in health related indicators
Zambia. Disparities between the rural and urban 2002 2007
areas increased overtime. Annual consumption Maternal mortality per 100, 000 live 729 591
growth was less than 1 percent for most of the rural births
population between 2006 and 2010, whereas growth Infant mortality per 1000 live births 95 70
in urban areas was about 2 percent for the first four Under five mortality per 100 live 168 119
quintiles and much higher for the wealthiest quintile births
(World Bank 2012d). Over the past decade the Gini Source: ZDHS 2007
coefficient worsened from 0.47 to 0.52. Interprovincial comparisons also show that rural provinces,
such as Western, Northern, Luapula and Eastern, have much higher poverty levels (Table 2). The recent
Economic Brief produced by the Bank also found that the distribution of opportunities for access to
basic education, health and infrastructure services in Zambia closely mirrors the spatial distribution of
poverty, implying that poorer regions have lower access to opportunities. 3
14. Women face particular challenges. In Figure 1. Proportion of 15 to 19 year olds who have
2010, poverty incidence among female-headed completed each grade
households was slightly higher than male –headed 1
households (62.5 versus 60 percent). Zambian
0.8
women’s opportunity to contribute to and benefit Proportion
0.6
from productive participation in the labor force 1992
appears to be less than that of men. In 2009, the 0.4 2003
2010
female labor force participation rate was 59.5 0.2
percent, compared to a rate of 79.2 percent for men. 0
Vocational courses present an opportunity for more 0 1 2 3 4 5
Grade
6 7 8 9
market-tailored education, but there are large gender
disparities in this area. Women make up less than 20 Source: Analysis of SDA 1992; LCMS 2003, 2010
percent of technical and vocational education programs and this negatively influences their productive
participation in the formal workforce. In addition, in rural areas, it is usually customary law that
determines land allocation and inheritance and the traditional rules regulating land allocation and
inheritance disadvantage women. Women are also more likely to be in lower productivity jobs than
men—for example more women work in agriculture and micro-enterprises while men are more likely
to work in mining and small and medium-sized enterprises.
15. Both deforestation and climate change, if left unaddressed, will exacerbate poverty and
curb economic growth and will make it more challenging for Zambia to achieve MDG 7 on
environmental sustainability. Nearly sixty six percent of Zambia's land area is classified as forests but
most of the resource is highly degraded and deforestation is occurring at 0.33 percent a year (WDI
2012). The poorest and most vulnerable tend to live in districts most exposed to frequent droughts and
floods. With livelihoods that are highly dependent on climate sensitive agriculture and natural
resources, they also have a low capacity to adapt. In the absence of adaptation, rainfall variability alone
could keep an additional 300,000 Zambians below the poverty line and cost Zambia at least US$4.3
billion in lost GDP over the next decade. This could reduce future annual growth by 0.9 percentage
points (World Bank 2009).
16. Progress has occurred on health indicators but Zambia may still not be able to meet the
health related MDGs. The 2007 Zambia Demographic and Health Survey (ZDHS 2007) show notable
reductions in maternal, infant and under five mortality rates between 2002 and 2007 (Table 3).
However, the annual rates of reduction of 2.1 percent for under-5 mortality and 2.5 percent for maternal
4
mortality for the period 1990–2011 are less than half the annual rates of reduction required to achieve
the MDGs targets.
17. Zambia has achieved high levels of access to basic education but challenges remain. The
primary completion rate (PCR) increased from 67 percent in 1998 to universal completion in 2010. The
proportion of children aged 15 to 19 that complete each grade has also increased substantially between
1992 and 2010 (Figure 1). Regionally benchmarked learning assessment results however, show that
Zambian students have severe learning deficits. 4 Learning outcomes are also an issue at institutions of
higher learning and the Government has commenced the review of education policy and the Education
Act of 2011. The Government is also working on legislation to put in place a framework to regulate and
improve education quality standards in private universities and tertiary institutions. Overcrowding in
classrooms and gender inequalities in secondary and tertiary education still remain major challenges.
C. Economic Context
18. Zambia’s land area of 753,000 square kilometers holds only about 13.5 million people, an
average density of 18 persons per square kilometer. The countryside particularly is very sparsely
populated, making service delivery a challenge. The country’s small population is however, growing at
a relatively fast rate of 2.7 percent (Annex 3). 5 The population is also young, with about half being
under the age of 15 years.
19. Zambia’s young population faces limited economic Table 4: Agriculture Productivity
opportunities mainly because of inadequate economic (value added per worker 2000$ in
diversification. Underemployment is the main issue in the rural 2010)
areas whereas open unemployment is more of an issue in the Zambia Lower middle Low
urban areas. Policy makers in Zambia are concerned about the income income
214 786 288
serious social and political implications of economic exclusion of
Source: WDI 2012
youth. Discussions with various youth groups as a part of the
CPS consultations brought out concerns about limited access to information and finance, inadequate
financial literacy, few jobs and limited opportunities for acquiring relevant technical skills as some of
the challenges that this group faces. 6
20. The agriculture sector employs more than 70 percent of the population but contributes
about 14 percent to real Gross Domestic Product (GDP) 7. Two-thirds of Zambians live in the rural
areas and mostly depend on rain-fed agriculture whose overall productivity remains low even in
comparison with LICs (Table 4). 8 The mean size of the land holding is 3.27 hectares and the small-
scale farming systems are overwhelmingly dominated by a single crop—maize. Nearly eighty three
percent of all households grow maize (LCMS 2010).
21. Copper mining and processing are the mainstay of the Zambian economy, the engine of
GDP growth in recent years and foreign exchange earnings (Annex 13). Mining and quarrying
contribute about 12 percent to real GDP and 80 percent to exports (World Bank 2012d). Manufacturing
and construction together contribute about 20 percent and services 54 percent. Part of the construction
and services are a result of the mining sector. The copper industry’s potential, to contribute to poverty
reduction remains under-utilized (Annex 13 Box 1).
22. Zambia has a dualistic private sector. About 200 large enterprises located mostly in urban
areas produce the bulk of industrial output. These large capital-intensive enterprises, mostly in mining,
and to a lesser extent manufacturing, have higher productivity but provide limited employment (7
percent). The medium, small and micro enterprises (MSMEs) are located mostly in rural areas (81
5
percent) (Zambia Business Survey 2010). They have much lower productivity and employ 88 percent
of the labor force.
23. Zambia’s land-locked position is a disadvantage in many ways, although its geographical
location within Southern Africa is potentially conducive to increased regional trade. As a
landlocked country Zambia confronts costs (both time and dollars) in accessing global markets. Delays
at intermediate borders, high fuel prices and the poor quality of roads compound the adverse impact of
the long distances from the ports (World Bank 2012c). The “land-linked�? position, however, is
advantageous for regional trade. Zambia has borders with eight countries and is the start, destination or
transit country for five of the 18 major transit corridors in Sub-Saharan Africa (World Bank 2008).9
However, the poor competitiveness of Zambian firms, among other factors, has prevented Zambia from
exploiting the potential of its strategic geographical location to further its own development.
RECENT ECONOMIC DEVELOPMENTS AND PROSPECTS
Economic Developments
Table 5. Zambia: Key Economic Indicators and Prospects
2008 2009 2010 2011 2012 2013 2014 2015
prelim proj proj proj
Real Output
GDP growth (%) 5.7 6.4 7.6 6.8 7.3 7.8 8.0 7.7
GDP per capita growth (%) 3.1 3.8 5.0 4.0 .. .. .. ..
Prices, Interest Rate, and Exchange Rates
Inflation Rate (end of period) 16.6 9.9 7.9 7.2 7.2 6.0 5.0 5.0
T-Bill Yield (91 days , annual average) 12.2 13.4 4.6 6.7 .. .. .. ..
Nominal Exchange Rate (K/US$ period average) 3,746 5,046 4,797 4,861 5,234 5,424 .. ..
Real Effective Exchange Rate (depreciation -) -15.2 14.2 -5.8 -2.6 .. .. .. ..
Copper Export Price (US$/tonne, average) 6,275 4,716 6,951 8,828 7,900 8,500 8,000 7,000
Central Government Accounts (% GDP)
Total Revenues and Grants 23.0 18.9 19.6 21.7 21.5 22.0 22.5 22.6
Domes tic revenue 18.9 16.0 17.8 20.9 19.9 20.7 20.9 21.1
o/w Mining revenue 1.9 1.0 1.9 5.5 3.8 4.5 4.6 4.8
Grants 4.1 2.9 1.8 0.8 1.6 1.3 1.6 1.4
Total Expenditure 23.9 21.3 22.6 23.9 25.8 26.9 26.4 26.9
Current 20.4 17.9 19.4 19.7 19.7 19.6 18.4 17.4
o/w wages & salaries 8.2 8.2 8.1 7.9 8.9 9.2 9.1 8.8
Capital 3.5 3.4 3.2 4.2 6.1 7.3 8.0 9.6
Overall Balance after grants (cas h bas is )a -1.5 -2.4 -3.1 -3.9 -4.3 -4.9 -3.9 -4.3
External Sector (in US$ millions)
Trade Balance 404 906 2,704 2,276 1,351 1,564 2,163 2,724
Merchandis e Exports 4,959 4,319 7,414 8,731 9,445 10,608 11,942 13,614
Copper Exports 3,684 3,179 5,768 6,663 6,461 7,205 8,112 9,319
Merchandis e Imports 4,554 3,413 4,710 6454 8,094 9,044 9,779 10,891
Current Account Balance, after grants (% of -7.2 4.2 7.1 1.5 -3.4 -3.1 -1.4 -0.2
GDP)
International Res erves (months of imports ) 2.1 3.7 3.0 2.8 3.0 3.2 3.2 3.3
National accounts
Nominal GDP (billions ZMK) 54,839 64,616 77,667 93,345 105,255 120,138 136,514 153,908
Nominal GDP (US$ Millions ) 14,641 12,805 16,190 19,204 20,112 22,148 24,590 27,196
Public debt (% GDP)
Net public debt 19.9 22.0 22.1 20.1 23.8 25.8 25.2 24.7
External 9.4 10.0 9.1 10.2 13.3 14.0 13.8 13.6
Domes tic 10.5 12.1 12.9 9.9 10.5 11.8 11.4 11.1
a. Reflects carryover budget releas es not included in expenditures
Source: Zambia Authorities and IMF Es timates
24. Zambia's rich natural endowments offer opportunities for growth from diverse economic
activities such as agriculture (including livestock and fisheries), tourism, and hydro-energy.
However, even with some exceptional natural tourism resources, such as Victoria Falls, Luangwa
6
National Park and the Lower Zambezi, tourism today contributes less than 3 percent to GDP. With the
favorable land and water resources both food and cash crop production could be significantly increased
and agro-processing developed to create jobs. Similarly, Zambia's outstanding natural grazing areas and
water resources in rivers, lakes and swamps could support a much larger livestock and fisheries
population and provide for substantially increased animal food production. Zambia could also better
exploit its strategic position within the Zambezi River Basin and improve energy production and
irrigation to contribute to diversification and growth.
25. A combination of prudent macroeconomic management, market liberalization and
privatization efforts have enabled Zambia to accelerate growth. Substantially increased copper
production in response to privatization and steep increase in world copper prices contributed to this
achievement. The Government consolidated macroeconomic stability under the International Monetary
Fund (IMF) programs (the last of which concluded in June 2011) and successfully navigated the shocks
connected with the 2008 global economic and financial crises. Annual inflation declined from about 30
percent in 2000 to 7.2 percent in 2011 (Table 5). The completion of the Heavily Indebted Poor
Countries (HIPC) and Multilateral Debt Relieve Initiative (MDRI) provided Zambia with about US$6.5
billion in debt relief, which provided the much-needed fiscal space by reducing debt service
obligations. In addition, debt relief improved Zambia's external position and enabled building up of
foreign-exchange reserves. This, in turn, has strengthened the country's ability to manage volatility in
its exchange rate and bolstered the financial system. This enduring stability has supported robust
growth, a marked turnaround from a decade ago.
26. With declining aid, the Table 6: Proposed Use of the Sovereign Bond Proceeds
Government has escalated domestic ZMK billions US$ millions % GDP
resource mobilization efforts. The level of Energy (Generation 1,275 255 1.2
aid to Zambia has sharply declined in the and Transmission)
Transport (Road 2,150 430 2.0
past five years. In 2012, grants, including and Rail)
both budget support and project grants, Rehabilitation of 145 29 0.1
amounted to about 6 percent of Government Central Hospitals
expenditure (1.6 percent of GDP) compared Access to Finance 100 20 0.1
to 22 percent in 2004 and a peak of 27 (DBZ-SME Credit
percent in 2002. The decline in aid line)
highlighted the importance of domestic Fee and 7 1.4 0.0
Transaction Cost
resource mobilization and the Government
(Actual)
is making attempts to increase domestic Discount Premium 73 14.6 0.1
revenues. Several changes were made to the (Actual)
mining fiscal regime in 2009. During the 3,750 750 3.6
period 2008-11, mining revenues averaged Source: World Bank 2012d drawing on Government’s 2013
around 2.6 percent of GDP, a sharp increase budget speech
from the previous range of 1-1.4 percent of GDP. In 2012 revenues are expected to come in at 3.8
percent of GDP despite a decline in mining output, partly due to an increase in royalty rates. The 2013
budget proposes further rationalization of the mining fiscal regime and measures to improve tax
compliance while keeping the regime predictable. A comprehensive review of tax policy is also
proposed in 2013 focusing on rationalizing of tax incentives and simplification of the tax system for
small and medium enterprises (SMEs).
27. To meet its needs for development finance, the Government has also accelerated
borrowing on non-concessional terms. Between July 2011 and September 2012, the Government
borrowed about $1.25 billion from non-concessional sources alone including the recent issue of a
sovereign bond for US $750 million. The Government is also relying on public-private partnerships in
infrastructure to meet the demands for infrastructure finance.
7
28. Zambia is using its growing central budget resources mostly to provide for ramping up of
public investments in infrastructure but the capacity to appraise and implement projects is weak.
The capital budget has risen from 3.2 percent of GDP in 2010 to 6.0 percent of GDP in 2012. The 2013
budget proposes a capital budget of a similar magnitude with bulk of the resources planned to be spent
on transport and energy infrastructure. Most of the proceeds of the sovereign bond are also proposed to
be used to finance infrastructure projects (Table 6). The Finance Minister’s 2013 budget speech also
acknowledged that project appraisal is weak and promises to “institutionalize a rigorous appraisal
system for screening investment projects in order to ensure that borrowed funds are only applied to
infrastructure projects that directly and demonstrably contribute to the nation’s economic growth.�?
29. Foreign Direct Investment (FDI) is complementing public investment in a significant
manner but could be at risk. Zambia's FDI regime is one of the most open in Africa (see for example
OECD, 2012 Investment Policy Review Zambia 2012). Political stability is one of the major factors
explaining the country’s attractiveness for investments (para 9). FDI rose from approximately
US$164.9 million in 2003 to US$1.73 billion in 2010 with most investments going to mining,
manufacturing, wholesale and retail trade 10. However, the signals emanating from several policy
actions by the Government, such as abrupt reversals of Zamtel privatization and the railway concession,
are perceived by some stakeholders as creating an incoherent policy environment for private
investment. The mining companies have also complained about changes to the fiscal regime such as the
doubling of royalty in 2012 and treatment of capital expenditure for tax purposes. The adoption of
Statutory Instrument (SI) 33 which prohibits domestic transactions in any currency other than Kwachas
is also seen by some stakeholders to have increased uncertainty among investors.
MEDIUM TERM PROSPECTS AND DEBT SUSTAINABILITY
30. Overall, Zambia’s medium-term economic outlook remains steady but vulnerable to
downside risks from a global economic slowdown. Real GDP growth is projected to stay above 7
percent in the medium-term based on continued growth in the mining, construction, and tourism
sectors, and expansion in the manufacturing, transportation, and communications industries (Table 5).
In 2013 and 2014, mining and quarrying are projected to grow at 14.3 and 18 percent respectively
(World Bank 2012d). These projections however, face downside risks because of global economic
slowdown, particularly in China. An unexpectedly large drop in copper prices resulting from slowdown
in emerging economies could weaken the country’s prospects for growth and affect its fiscal and
external balances severely. In addition, the tourism sector is especially susceptible to adverse changes
in the external environment.
31. The macroeconomic framework will be put to test should the risks materialize but can
withstand the shocks with some adjustment. If risks materialize, Zambia will have some
maneuverability on the monetary side. The foreign reserve position covering three months of imports
should allow absorption of shocks to the overall balance of payments to some extent, beyond which, the
flexible exchange rate regime should keep external balance from swinging too far. However, unlike the
2008-09 crises, the Government does not have a fiscal cushion and adjustment will be needed. It is
expected that the Government should be willing to cut spending pro-cyclically, if needed given that
most of the recent increase in spending is on discretionary capital budget.
32. There are also perceived concerns emanating from recent policy actions. Several policy
actions such as the rebasing of the currency, adoption of Statutory Instrument (SI) 33, increase in
capital requirements for foreign banks and interest rate caps on lending by commercial banks have been
taken by the Government to strengthen economic management. However, a range of stakeholders have
been concerned about economic policy priorities of the Government and the process by which they are
8
arrived at. Unbudgeted fuel subsidies, significant overruns in the cost of maize marketing, and pension
arrears have also led to the weakening of fiscal discipline.
33. Zambia’s stock of external and public debt remains relatively low but needs careful
management. The Joint Fund-Bank Debt Sustainability Analysis for Low Income Countries (LIC
DSA) conducted in April 2012 suggests that Zambia’s risk of debt distress remains low. 11 The external
debt indicators remain well below their thresholds in the baseline scenario and bound tests. The public
debt DSA also suggests that Zambia’s overall public sector debt dynamics are sustainable in light of the
current size and the evolution of the domestic debt stock in the baseline scenario. The non-concessional
borrowing in 2011-12 is unlikely to worsen Zambia’ debt outlook if debt is managed carefully. 12
Besides sound macroeconomic policies, both strong debt management and project appraisal capacity
are needed to maintain debt sustainability in the face of increasing dependence on non-concessional
borrowing. An exception to IDA’s Non-concessional Borrowing Policy is being considered by Bank’s
Management and the country team is discussing non-zero limits on non-concessional borrowing for
2013 with the Government.
D. Key Development Challenges
34. Development challenges in four broad areas are discussed in this section —reducing poverty,
related vulnerabilities and accelerating human development; promoting agricultural growth and
diversification; improving competitiveness; and improving governance and strengthening economic
management. Chapter 3—paragraph 96 then notes what contribution the WBG will make in each area.
REDUCING POVERTY, RELATED VULNERABILITIES AND ACCELERATING HUMAN
DEVELOPMENT
35. Reducing poverty is the greatest development challenge for Zambia. The country’s low
rank on the HDI (para 11), indicates the vulnerabilities faced by the majority of Zambians:
malnourishment, limited education opportunities to improve their conditions, health and water supply
and sanitation services. According to 2010 LCMS, 46.7 percent of children under-five years are
stunted, close to the high levels of the early 1990s. There are two main reasons for under-nutrition in
children: inadequate dietary intake resulting from suboptimal maternal and infant feeding practices and
the heavy burden of malaria, diarrheal diseases, and acute respiratory infections (World Bank
2012m)—both factors associated with poverty. Chronic malnutrition in childhood has also negatively
influenced learning abilities among children from the poorest households.
36. There are several on-going safety net programs in Zambia that directly transfer either in-
kind resources or cash to poor households, but have limited effectiveness (World Bank 2012m).
Government is committed to addressing chronic under-nutrition and strengthening the country's
capacity for service delivery for vulnerable and at-risk populations. It requested the World Bank to
undertake a comprehensive review of existing safety nets that is expected to inform the policy makers'
work in this area. The Bank's analysis found that current Government transfers and safety net programs
are not targeted to the poor and that almost none of the very poor are currently benefitting from public
transfer programs. In addition, benefits from education and health spending have also not been
progressive.
37. For close to two decades, successive Zambian governments have supported health sector
reforms, to provide cost-effective and quality health services to the population. The reforms have
generally centered on the delivery of primary health care through a decentralized health system.
Multilateral and bilateral CPs, faith-based and for-profit private health providers have also provided
significant support to the health sector over the years.
9
38. But achieving the health- Table 7. Improvements in Malaria Control (%)
related MDGs by 2015 remains a 2006 2010
key development challenge. At the Malaria parasitemia in children aged 0-59 months 22 16
Households owning at least one insecticide-treated net 38 64
current pace, (1990-2011 level),
Source: Zambia Malaria Indicator Survey, 2010
Zambia will only be able to meet the
MDG targets for under-5 mortality and maternal mortality after the year 2040. 13 Zambia is also one of
the reproductive health priority countries because of both high maternal mortality and high fertility rate
of 6.26 (World Bank 2010b). The recent WDR 2012 on Gender notes that average fertility among
women in the poorest quintile in Zambia is 8.5 children (the highest in the world) but for women in the
richest fifth it is just over 3.
39. External aid has contributed to increased access to essential services but most of it has
been targeted for specific diseases. Malaria control has been impressive (Table 7). The TB treatment
success rate increased from 79 percent in 2005 to 86 percent in 2010, slightly above the WHO target of
85 percent. HIV/TB collaborative activities are being implemented in all the provinces and districts and
this increased the rate of HIV testing among TB patients from 23 percent in 2006 to 72 percent in 2009.
The number of centers administering services to prevent mother to child transmission of HIV increased
to 1,100 in 2010 from 936 in 2009. However, Zambia continues to have a very high HIV prevalence of
about 14.3 percent for the 15-49 year-old cohort. Most of the external assistance has been targeted for
HIV/AIDS, malaria, and tuberculosis and not for overall health system strengthening. As highlighted in
the 2009 Zambia health public expenditure review, much of the donor funding is off-budget while the
priorities of the global vertical sponsors often supersede national priorities and needs.
40. The joint work by the Government, Bank and other partners identifies severe shortages in
human resources for health, weak drug and medical supplies logistic management, poor health
infrastructure, among others 14,15,16 There is a 59 percent gap in the total number of staff positions for
clinical health workers (doctors, clinical officers, nurses, midwives and other paramedics). Severe
understaffing and low morale among health workers, as highlighted in the 2007 Public Expenditure
Tracking Survey (PETS), adds to the challenge. Weak drug and medical supplies logistic systems, poor
health infrastructure, low quality monitoring and evaluation systems, cultural and community barriers,
and the overall mixed record of the country on service delivery are other critical constraints to
improving health and nutrition outcomes.
41. Inadequate access to clean and safe Table 8: Access to Clean Water and Sanitation
water and sanitation also increases the risks MDG
of diseases. Despite improvements over time, 1990 2008 2015
Zambia is behind schedule in meeting the clean Target
water and sanitation MDG targets (Table 8). In Population with access to an 49 60 75
improved drinking source (%)
addition, the quality of service is poor, Population with access to
particularly in the rural and peri-urban areas. improved sanitation facilities 46 49 73
The lack of adequate water supply and sanitation (%)
result in annual outbreaks of cholera and Source: AMCOW: CSO2 2012
dysentery and overall poor environmental
conditions. The economic burden of poor sanitation falls disproportionally on the poor. 17 There has
been significant progress on many of the reforms laid down in the 1994 National Water Policy, such as
the separation of water resources management from water supply and sanitation, the separation of
regulatory and executive functions and the devolution of authorities from central to local governments.
However, much more needs to be done to strengthen local capacity to deliver on these services.
10
42. With the new Government there is renewed commitment to decentralization and the
Government is reviewing the decentralization policy to take into account latest developments on
the ground. Devolution has been articulated as formal Government policy since 2005, and the
Decentralization Implementation Plan (DIP) was adopted in 2009, and implementation is at different
stages in the various sectors. The functional and fiscal devolution of responsibility is so far limited with
local government expenditures constituting about 1.5 percent of total budgetary expenditure. Inter-
governmental transfers represent less than 1 percent of the national budget. Some progress has been
made on the decentralization agenda over the past year: total allocation of inter-governmental transfers
to local governments increased by 98 percent between 2011 and 2012, however, intergovernmental
transfers remain low; the draft Constitution provides a broad framework for decentralization; a
consensus has been reached in the Government on implementing a phased approach, i.e., devolving a
limited number of sectors; and the Government has progressed with the design and costing of the new
organizational structures for the devolved functions. However, in order to implement a program of this
magnitude, strong leadership and technical capacity will be needed.
PROMOTING AGRICULTURAL GROWTH AND DIVERSIFICATION
43. The vast majority of the very poor derive their livelihoods from subsistence smallholder
agriculture, whose productivity remains low. The SNDP recognizes agriculture as a principle sector
for poverty reduction and for promoting economic diversification. Increased agricultural productivity
will not only improve the income of women as the majority (68 percent) of those who are economically
active work in that sector, but also increase the nutritional intake of children as women have
consistently been found to be more likely than men to invest in their children’s health and well-being
(World Bank 2008b) when they have the means to do so.
44. Farmers face numerous constraints that keep productivity low. Inadequate rural
infrastructure, particularly feeder roads and irrigation systems, poor access to markets, inadequate
research and access to improved inputs, limited advice on their proper use are examples of constraints
faced. Women farmers tend to have even lower access than men to agricultural inputs. Government
expenditure on agriculture has risen consistently since 2000 but two main subsidy programs, Farmer
Input Support Program (FISP) and the Food Reserve Agency (FRA), have absorbed more than 60
percent of the sector's budget and have distorted incentives in favor of maize, and created
unpredictability that has hindered private investment in agriculture. Political economy constraints have
made reforms of these subsidy programs difficult, but they are critical for ensuring optimum
development benefits accrue from public expenditure. Recently the Government has proposed scaling
down and reforming FRA purchase activities and reforming the FISP and undertaking a reform of land
tenure system. The challenge, however, will be in defining the size of the strategic food reserve and
employing transparent and competitive processes for procuring the reserve stock and bringing closure
to land tenure reform issues in a timely manner. The 2013 Budget also increased allocations to non-
maize investment components, signaling steps towards diversification.
45. Since 2002 the Government has supported the development of farm blocks-one per
province, whose development has been limited by resource constraints and infrastructure
deficits. The Government proposes to provide the infrastructure (roads, electricity and irrigation) on a
farm block to attract investors who develop a core venture and/or any of the commercial farms into
centers of excellence for production, processing and management under an out-grower arrangement.
So far development is in an advanced stage in only Nansanga farm block. The Government faces
resource constraints for developing infrastructure and inadequate irrigation, the high cost of borrowing
and high production costs have kept away potential investors. There is a need to conduct a careful