Independent since 1964, Zambia has experienced five successful multiparty elections from 1991. It is a peaceful, democratic country with enormous economic potential grounded in its rich endowment of natural resources.

Zambia’s Vision 2030 envisages the country attaining prosperous middle income status by the year 2030. For this to happen, the economy needs to grow at an annual average rate of about 6-7 percent, slightly higher than the rates of five percent plus, attained during the past five years. In 2010, the country   attained the growth rate of 7.6 percent.  If this growth rate and above is sustained, then Zambia will able to achieve its goal.

After reaching the Highly Indebted Poor Country (HIPC) and Multi-donor Debt Reduction Initiative (MDRI) in 2005 and 2006 respectively, Zambia has turned around its image from a country performing considerably below its potential, to a country with good economic management and several years of strong economic growth. Strong macro-economic performance, coupled with fast pace growth in mining, construction, telecommunications and tourism, helped spur GDP growth of 5.6 percent on average in 2001-2010, which peaked at 7.6 percent in 2010. A number of policy reforms such as acceleration of the budget preparation process, increase of electricity tariffs and privatization of remnant parastatals have been put in place to enhance economic growth.

However, Zambia’s economic growth has not translated into significant poverty reduction, with 59 percent of the population living below the poverty line and 37 percent considered in extreme poverty. Accelerating growth and reducing poverty will necessitate increasing the competitiveness of the Zambian economy by reducing the cost of doing business and ensuring that the rural economy, upon which much of the population depends for its livelihood, contributes meaningfully to overall growth. Despite vast potential and stated commitments to diversification, the mining sector continues to dominate the economy.

Historical Perspective

Well before attaining its independence, Zambia began to receive World Bank support in 1955, amounting to US$ 4.6 billion for a total of 250 projects. As of November 30, 2010,  IDA’s net commitments in Zambia totaled US$406.4 million for ten active projects and two Global Environment Facilities (GEFs), supporting programs in infrastructure, the environment, agriculture, finance and private sector development, the public sector, and human development.

After Zambia reached the HIPC completion point in 2005, financial support was increased. The World Bank, under MDRI and HIPC, provided a total of US$2.7 billion in debt relief to Zambia. As a result of these initiatives, Zambia saved US$233 million in debt service obligations between 2000 and 2007. This has resulted in a reduction of debt service obligations as a percentage of GDP from 4.2 in 2000 to 0.8 in 2006.

The World Bank is one of nine cooperating partners to provide direct budget support to the Government of Zambia to help fund the government’s Poverty Reduction Strategy through the Fifth and now the Sixth National Development Plan. Since 2005 the Bank has provided two budget support credits worth US$100 million supporting government reforms, namely: The financial Sector Development Plan (FSDP), civil service pension system, sale of Zambia National Commercial Bank, public sector reform, pension reform and macroeconomic management particularly the creation of credit reference bureau.

The Bank also provides analytical and advisory services designed to help Zambia improve its policy environment and accelerate its development efforts. This non-lending technical assistance program has helped augment the government’s capacity to provide quick support to implement policy reforms.

The bank has also helped in the legislation on agricultural marketing, strengthening government capacity and reducing the cost of doing business in Zambia.

 

World Bank Assistance Strategy to Zambia

The World Bank’s Country Assistance strategy (CAS) for Zambia for fiscal 2008-2011 is closely aligned with the Zambian government’s Vision 2030 and Zambia’s National Development Plans (ZNDP). The plans are 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 CAS has two areas of special emphasis. First, because of the potential fiscal windfall coming from the boom in copper export prices, the CAS supports improved expenditure management and effective use of revenue in collaboration and monitoring with the government and local stakeholders, to benefit as many households as possible.

Second, because of the significant gaps between urban and rural areas, and the need for increased access to regional markets, the CAS supports a program of investments in infrastructure that will increase economic opportunities for all Zambians through improved connectivity and integration, resulting in increased competitiveness.

Currently, infrastructure (roads, water and electricity), accounts for about 60 percent of the Bank’s portfolio, and the average life of a project is 3.8 years. The other sectors have continued to decline and their shares are currently as follows:  environment (11percent), agriculture (10 percent), finance and private sector development (eight percent), the public sector (eight percent), and Human Development (five percent).  (See chart). Grants now account for about 18 percent of the current total net commitments while credits are at 82 percent. 

 

As mentioned above, Zambia has now established a decade-long track record of five percent plus economic growth and the economy grew by 6.3 percent in 2009, notwithstanding the global financial crisis. Inflation has come down to single digits and international reserves are in excess of US$2 billion, sufficient to finance more than four months of imports. Prospects for 2010 look encouraging and the economy is expected to register another year of six percent plus growth. To sustain these growth rates and to make a dent in poverty, particularly rural poverty that continues to remain high, Zambia needs to press ahead and implement a series of reforms aimed at making the economy more competitive and productive. This will require reducing the high cost of doing business. Some of the major reform areas that the Government is implementing are briefly discussed below.

Agriculture Sector Reforms

The Zambian Government has agreed to pilot a fertilizer voucher program in order to increase the involvement of the private sector in fertilizer distribution, while gradually reducing the 50 percent expenditures on fertilizer and increase allocations for research, extension, irrigation and rural roads. Bank interventions include Tracking Study of the Fertilizer Support Program (FSP), Public Expenditure Review, Agriculture Development Services Project, Irrigation Development Project and Livestock Development Project to improve productivity in the smallholder agriculture sector which has been stagnant for the past decade.

Energy Sector Reforms

Due to the interventions which include: Increased Access to Electricity Project and IFC Transaction Advice for the Kafue Gorge Lower Project, investor interest has increased significantly in the energy sector, with possibility to increase installed capacity from 1600 MWs to slightly under 3000 MWs over the next 5-6 years.  Government has also increased tariffs by 35 percent recently, initializing a move to cost reflective tariffs. In addition, there are measures to improve the efficiency of the publicly owned utility ZESCO. Less than 3 percent of the rural population has access to energy despite the country’s significant hydro potential.

Finance and Private Sector Reforms

As a result of Support for Economic Expansion and Diversification Project, alongside technical assistance for Non-lending Financial Sector and Non-lending Competitiveness and the Doing Business Reform Team, Doing Business rankings have improved from 99 in 2009 to 90 in 2010, but the investment climate remains challenging. The poor productivity of Zambian firms undermines their ability to generate income and jobs. Government therefore has two programs underway to improve the business environment: The Financial Sector Development Program, now in its second phase, to address market infrastructure, competition, and broaden financial inclusion. The Private Sector Development Reform Program to streamline business registration, licensing, cross border trade, labor reforms and facilitate MSMEs and increase competition in tourism, agriculture and manufacturing. 

Transport Sector Reforms

Road Sector restructuring remains the most prominent reform in the sector. The Road Sector Investment Program (ROADSIP II) has been well received by donors including IDA. There is substantial improvement in the condition of the paved road network, which has risen from 58 percent to over 90 percent in good or fair condition. However, further reform work in capacity enhancement is required in the Local Road Authorities.

The performance of the railways sub-sector has also been sub-optimal despite the initial reforms that brought about the ongoing concession. Bank interventions, which include RRMP II Project and Railways Diagnostic Study, will enhance efficiency gains in the sector.

Telecommunications Sector Reforms

Limited access and the high cost of telecommunications have resulted in Government’s recent decision to sell a majority stake in ZAMTEL to the private sector.

Efforts are underway to attract a foreign partner in order to further increase competition and to pave the way for ICT development. The Bank has been exploring the possibility of Zambia joining the Regional Communications Infrastructure Program (RCIP) for support in building the fiber backbone and linking Zambia to submarine cables on the East Coast. Non lending TA would also be provided to get Zambia to an Open Access policy environment. Bank Interventions include: RCIP, Non-lending technical assistance to the telecommunications sector.

Mining Sector Reforms

Government is in the process of increasing accountability and transparency in the management of mining sector revenues. Zambia is a candidate country for the Extractive Industries Transparency Initiative (EITI) and is also implementing a series of upstream and downstream reforms, including mining taxation, establishing a mining cadastre and strengthening mining audit. Bank interventions include: Grant to support EITI certification; value chain diagnostic of the mining sector; Copperbelt Environment Project; Support for Economic Expansion and Diversification Project and Jobs and Prosperity ESW.

Public Sector Reforms

Cabinet has recently approved a new Payroll Policy for civil servants and a Decentralization Policy. Both of these initiatives will need to be gradually phased in over the next three years. Financial management reforms that have been introduced into the Ministry of Finance will be extended to other Ministries to ensure that the new procurement guidelines and laws are implemented throughout Government and will remain urgent priorities. Bank interventions include: Public Expenditure Review and Public Sector Reform Project.

Governance Reforms

Government has initiated numerous actions to improve governance including a new Anti Corruption Policy,  new Procurement Act, a multi-year program aimed at strengthening integrated financial management through a process of computerization, introducing a single treasury account, strengthening institutions of accountability, and drafting and passing the  Freedom of Information legislation. However, numerous implementation challenges remain. Bank interventions include: Public Sector Reform Project; GPF Trust Fund to improve Governance; EITI Grant.

Strengthened Climate Resilience 

Frequent floods and droughts have cost Zambia an estimated US$13.8 billion over the past three decades.  In its Sixth National Development Plan, the Government is aware of the need to strengthen climate resilience. It is one of the two pilot countries, with Nepal to qualify for the first phase of the Pilot Program for Climate Resilience, under the new Climate Investment Funds. Approval of the National Water Policy further consolidates the long standing reforms. The pending Water Resources Development Bill will provide much needed updates to the existing 1948 legislation and improve the platform for investments in infrastructure that will increase climatic resilience, support economic productivity and enhance competitiveness. Bank interventions include Country Water Resources Assistance Strategy and Water resources Development Project, PPCR.

The World Bank Group’s strategy adheres to the principles agreed with other Cooperating Partners supporting Zambia development efforts as articulated in the Joint Assistance Strategy for Zambia (JASZ) and comprises highly selective targeted interventions that maximize the impact of government’s development efforts.

Malaria Booster Project

IDA is supporting the government’s national malaria strategy (2006-2011) through the Zambia Malaria Booster project. Malaria is the leading cause of morbidity and the second highest cause of mortality in Zambia, particularly for women and children. The disease accounts for 50,000 deaths a year and almost half of all in- and out-patient hospital visits. A decline of 29 percent in malaria cases for children under the age of five and a decline by 33 percent in malaria-related under-five deaths have been recorded as a result of Malaria booster activities.  A decline for all age groups was 31 percent in malaria cases and 37 percent in malaria-related deaths. Key activities included Indoor Residual Spraying which increased from 27 percent to 43 percent, the percentage of children under five years of age who sleep under a treated bed net from 30 percent to 41 percent and the percentage of pregnant women who receive a complete course of intermittent presumptive treatment for malaria from 45 percent to 66 percent. Overall, the project contributed substantially to the 30 percent reduction in child mortality in Zambia.

Thanks to this success, an additional US$6.85 million was donated from the Russian Federation  and  the Government of Norway awarded Zambia an additional US$11 million for MDG four and five through results-based financing (RBF) in 2008.  The remarkable performance of the National Malaria Control Program was key to obtaining this additional financing.

Regional Trade Facilitation

Zambia has committed to implementing policy reforms to enhance trade along the North-South Corridor and other corridors. It is important that implementation of trade facilitation and administrative reforms, especially at border crossings, be accelerated in order to achieve goals of the North-South Corridor Conference in Lusaka in April 2009.