Country Brief

Zambia attained independence in 1964 under the leadership of Kenneth Kaunda, who became the country’s first president. He was re-elected in 1968, and in 1973, outlawed all parties. After opposition parties were legalized again in 1990, Frederick Chiluba, leader of the Movement for Multiparty Democracy (MMD), defeated Kaunda in the 1991 elections.

Under President Kaunda, Zambia’s economy deteriorated. An over-staffed civil service, nationalization of the copper mines and low international prices and generally poor economic management turned Zambia into one of the poorest countries in Africa. President Chiluba introduced sweeping economic reforms, including privatization of the copper industry that drove the improvement of economic conditions and also strengthened relations with cooperating partners. Unfortunately, President Chiluba’s regime was marred by unprecedented levels of corruption. His immunity was removed after public outcry. He is now in court facing corruption charges.

Rupiah Banda, the Republican Vice President, is Zambia’s current acting president after the demise of President Levy Patrick Mwanawasa who died in office on August 19, 2008.

Politics

Zambia is a multiparty republic with an executive president and parliament consisting of 150 members. The president and members of Parliament are elected by universal suffrage and serve a term of five years. Currently, the Movement for Multiparty Democracy (MMD) holds the majority of seats in Parliament..

Zambia has benefited from 16 years of peaceful, democratic governance. The country has held four national multiparty elections: 1991, 1996, 2001, and 2006. In the 2006 poll, the late president Mr. Levy Mwanawasa was re-elected and his MMD party retained its parliamentary majority, albeit narrowly. In contrast to 2001, international and domestic observers reported that the elections were substantially free of irregularities.

On October 30, 2008, the country will hold its first presidential by-election as demanded by the current constitution; the winner will govern for only three years to complete the term of the deceased president, followed by general elections in 2011.

Three major political parties will contest the forth-coming presidential by-election,including the ruling Movement for Multiparty Development (MMD) which will field Vice President Rupiah Banda. The other two front-runners, Michael Sata of the Patriotic Front (PF) and Hakainde Hichilima of the United Party for National Development (UPND), promise to largely continue with the “Mwanawasa legacy” of the current policies and economic program focusing more on diversification, growth and investment, budgetary reform, HIV/AIDS and anticorruption measures.

Zambia has continued to achieve a number of political milestones to enhance its young democracy. She will adopt its new Constitution through the National Constitution Conference (NCC) within the next calendar year. The function of the NCC is to examine debate and adopt proposals from the draft constitution prepared by the Willa Mun’gomba Constitution Review Commission. Among the new laws to included in the new constitution will be: for the president to adopt a running mate who would take over in the event of the demise of the incumbent President; and for a presidential candidate to attain 50 + 1 percent to win the election. The new constitution will likely also decentralize presidential powers. It is hoped that the new political landscape will not only decentralize decision making but also move away from the politics of centralized discretion

As a self-monitoring mechanism, the Government has put in place national governing council for the African Peer Review Mechanism (APRM) to ensure efficient participation by the public in the review process. The APRM is an instrument voluntarily acceded to by member states of the African Union to ensure that policies and practices of participating states conform to the agreed political, economic and corporate governance values.

However, despite Zambia being a stable and peaceful multi-party democratic system with a free press and an active civil society, it is characterized by high levels of poverty, insufficient economic diversification, and devastating levels of HIV/AIDS and Malaria. Although the economy has improved in recent years, thereby reducing the poverty levels in urban areas by 30 percent, rural poverty has risen to 60 per cent.

Economy

Zambia attained HI PC and MDRI status in 2005 and 2006, respectively, which resulted in debt reduction from $7.2bn to $0.5bn, thereby creating fiscal space for development. Strong macro economic performance continues. The average annual real GDP growth rate is 4.9 per cent over the past 7 years, in contrast with the early period of reform in 1991-1998 when GDP growth averaged 0.1 percent annually. Growth remains strong though inflation is now rising after being single digit in 2007? For the first time in more than 20 years, Real GDP growth reached 6.3% in 2007 and is expected to be slightly higher this year. Average growth over the past 5 years was 5.7%, aided by the fast pace in construction, telecommunications and tourism. The fast output growth in the mining sector has recently slowed down due to electricity supply problems. On the other hand, consumer price inflation rose to 13.2% in the 12-month period ending in August, compared to 8.9% in 2007, largely to due increases in food and fuel prices. Government will not likely meet its annual inflation target of 7%.

• The fiscal stance remains tight, but spending pressures have increased. The overall fiscal deficit fell to 0.2% of GDP in 2007 and is expected to increase slightly in 2008, in line with the IMF arrangement. The fiscal stance has been weakened over the medium term by a higher than budgeted 15% increase in civil service wages, a substantial increase in the fertilizer support program, and a recent proposal to grant substantial salary and benefits increases to high ranking officials.
•  The external current account remains healthy.The current account deficit, registered a 3 percent surplus in 2006, led by copper prices and output. It has since moved into deficit in 2007 (2.5% of GDP) due to higher oil prices. The exchange rate has shown some volatility, mostly due to fluctuations in the copper price and portfolio inflows.
•  The exchange rate has shown some volatility, mostly due to fluctuations in the copper price and portfolio inflows. The kwacha depreciated in 2006 (in real terms) after having appreciated in strongly in 2005. The currency was relatively stable in 2007, and after appreciating in the first half of 2008 it has depreciated in nominal and real terms in the last three months following the political developments and recent falling copper prices.

Social Developments

Given the strong economic growth, Zambia’s poverty levels still remain very high. Zambia’s economic growth has not translated into significant poverty reduction, with 64 percent of the population living below the poverty line, and 51 percent considered in extreme poverty according to 2006 data. This is, however, a small improvement from 1998 data where 73 percent of the population was estimated to be below the poverty line and 58 percent in extreme poverty.

• Most MDG on target to be met. According to the 2007 MDG progress report, only one target is unlikely to be met: integrating the principles of sustainable development to reverse the loss of environmental resources. However further efforts are needed in areas where targets are potentially going to be met such as the MDG targets on extreme poverty, child mortality, maternal mortality, malaria and other major diseases, and water and sanitation

World Bank Role

The World Bank’s Country Assistance Strategy (CAS) for Zambia for the FY08 - FY11 period is closely aligned with the Zambian Government's Vision 2030 and the Fifth National Development Plan (FNDP) and adheres to the principles agreed with the other Cooperating Partners supporting Zambia’s development efforts as articulated in the Joint Assistance Strategy for Zambia (JASZ). The FNDP, which covers the period 2006-2010 , was approved by the Government of the Republic of Zambia (GRZ) in December 2006 and is guided by the National Vision 2030, whose goal is to transform Zambia into “a prosperous middle income country by the year 2030.” The FNDP is organized around the theme of “broad-based wealth and job creation through citizenry participation and technological advancement.” Specific development goals are to foster a competitive and outward-oriented economy in order to significantly reduce hunger and poverty and reach middle-income status. The principal focus of the FNDP is on “economic infrastructure and human resources development.”

• The Country Assistance Strategy (CAS), whose theme is Accelerating and Sharing Growth through Improved Competitiveness, is focusing on interventions designed to accelerate and better share the benefits of growth by improving Zambia’s competitiveness.
• The IDA portfolio has 10 projects (and two GEFs) with total net commitments of US$330 million. Infrastructure is the largest sector and now has a share of 44% of total net commitments. HD is the second largest sector at 14%. Total disbursements are about $160 million (or 50% of total net commitments) and the total undisbursed amount is $189 million. The portfolio has one actual problem project, Public Service Management Program - Support Project and therefore, about 10% of total net commitments are at risk.
• MIGA’s portfolio does not contain any projects in Zambia, but, in the past, the Agency has provided a total of $37.8 million in coverage for investments in the manufacturing, services, and agribusiness sectors. Pipeline: MIGA is currently reviewing several requests for guarantees from clients interested in investing in the country’s general banking and financial services sector.
• IFC continues to increase its engagement in Zambia. It has engaged in an advisory project to assist the government in structuring a concession for the Kafue Gorge Lower Hydropower (KGLH) project, and is also examining other power generation projects for financing. IFC continues to pursue opportunities in tourism, commercial real estate development and financial markets. With six projects, IFC’s portfolio currently sits at $19.85 million. The IFC extended lines of credit to several regional banks with an emphasis on the underserved SME and consumer finance sector. PEP Africa's Zambia Copperbelt SME Supplier Development Program (CSSDP), has provided training to about 140 entrepreneurs resulting in SMEs accessing finance of approximately US$1 million from local banks. TheFIAS/PEP Africa Investment Climate Team continues to work with Government and the private sector on improving the investment climate.
• WBI: There are currently no WBI activities planned for Zambia. However, FY09 Regional Activities are open and available to interested participants.

Partnerships

The World Bank CAS for FY08-11 is based on the Joint Assistance Strategy for Zambia (JASZ) and agreed with cooperating partners in support of the Fifth National Development Plan (FNDP) and the Vision 2030. The Joint Assistance Strategy for Zambia (JASZ) was prepared and signed by sixteen cooperating partners in April, 2007. The Bank will continue to support efforts by the Zambian government to achieve accelerated and broad based growth. As a result, collaboration with cooperating partners will be crucial to improving aid effectiveness and attaining desired results, as articulated by the Paris Declaration. Already, there are encouraging sings on coordination and Bank missions are increasingly done jointly with cooperating partners. The Bank has also, once again, accepted to be a member of the harmonization troika along with Germany and Sweden from July, 2008 to December, 2009; and will become the chair in January, 2009.

Regional Developments

Zambia is a member of the Southern Africa Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA), and the Southern Africa Power Pool. As a landlocked country with eight neighboring countries, Zambia faces challenges typical of landlocked countries including high transport costs that also impact trade patterns. At the same time, Zambia's strategic location at the crossroads between major transit corridors, energy transmission lines and within the Zambezi basin provides the country with significant opportunities to demonstrate strong leadership that will enable it to benefit from the infrastructure development plans and trade policies in Southern Africa. Zambia's railways could benefit from potential traffic volumes and pass-through revenues from neighboring countries.

Zambia's transmission lines are also a source of revenue for facilitating power trade among Southern Africa Power Pool members. Similarly, Zambia's leadership and vision in the Zambezi basin is critical for sustainable development. Zambia should leverage these strategic advantages by taking the lead in development of regional integration opportunities with neighboring states. IDA has scaled up support to regional integration in SSA significantly and the World Bank is available to support the Government of Zambia in pursuing its regional integration agenda.