Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 95986-ZM

INTERNATIONAL DEVELOPMENT ASSOCIATION

INTERNATIONAL FINANCE CORPORATION

MULTILATERAL INVESTMENT GUARANTEE AGENCY

PERFORMANCE AND LEARNING REVIEW OF THE COUNTRY PARTNERSHIP STRATEGY

FOR

THE REPUBLIC OF ZAMBIA

FOR THE PERIOD FY13-FY16

July 30, 2015

Zambia Country Management Unit Africa Region 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 official duties. Its contents may not otherwise be disclosed without World Bank Group authorization.

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The date of the last CPS was March 14, 2013.

GOVERNMENT FISCAL YEAR [January 1-December 31]

CURRENCY EQUIVALENTS

(Exchange rate as of March 24, 2015 Currency Unit = Kwacha (ZMW)

US$1 = ZMW 7.61

ABBREVIATIONS AND ACRONYMS

ASA Advisory Services and Analytics ACET Africa Center for Economic

Transformation ADSP Agriculture Development Support

Project AfDB African Development Bank AFR Africa Region APEI Accelerated Program for Economic

Integration APPSA Agricultural Productivity Program for

Southern Africa AUSAID Australian Agency for International

Development BOZ Bank of Zambia BW Business Warehouse CA Chayton Africa CAADP Comprehensive Africa Agriculture

Development Program CBP Contagious Bovine Pleuropneumonia CD Country Director CMU Country Management Unit COMACO Community Markets for Conservation COMESA Common Market for Eastern and

Southern Africa CP Cooperating Partner CPG Cooperating Partners’ Group CPFL Consumer Protection and Financial

Literacy CPS Country Partnership Strategy CSO Central Statistical Office DBZ Development Bank of Zambia DFID United Kingdom Department for

International Development DHS Demographic and Health Survey DLI Disbursement Linked Indicators DPO Development Policy Operation DRC Democratic Republic of Congo DSA Debt Sustainability Analysis DTIS Diagnostic Trade Integration Study

EITI Extractive Industries Transparency Initiative

ESMAP Energy Sector Management Assistance Program

ESW Economic and Sector Work EU European Union FAO Food and Agriculture Organisation FDI Foreign Direct Investment FISP Farmer Input Support Program FMD Foot and Mouth Disease FRA Food Reserve Agency FSAP Financial Sector Assessment Program FY Fiscal Year GEF Global Environment Facility GDP Gross Domestic Product GNI Gross National Income GRZ Government Republic of Zambia GPF Global Partnership Facility GPOBA Global Partnership for Output Based

Aid HDI Human Development Index HES Hydro-Electric Scheme HIV/AIDS Human Immuno-deficiency

Virus/Acquired Immune Deficiency Syndrome

IBRD International Bank for Reconstruction and Development

ICT Information and Communication Technology IDA International Development Association IDSP Irrigation Development Support Project IFAD International Fund for Agricultural

Development IFC International Finance Corporation IFMIS Integrated Financial Management Information System IT Information Technology IMF International Monetary Fund JICA Japan International Cooperation Agency LCMS Living Conditions Monitoring Survey

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MDG Millennium Development Goals MDTF Multi-Donor Trust Fund M&E Monitoring and Evaluation MFI Micro Finance Institutions MIC Middle-Income Country MIGA Multilateral Investment Guarantee Agency MIS Management Information System MOF Ministry of Finance MSME Medium, Small and Micro Enterprises ND Newcastle Disease OPRC Output and Performance Based

Contracting PACRA Patents and Companies Registration Agency PDO Project Development Objective PER Public Expenditure Review PEMFA Public Expenditure Management and

Financial Accountability PETS Public Expenditure Tracking Survey QSDS Quantitative Service Delivery Survey PFM Public Financial Management PFMRP Public Financial Management Reform Program PLR Performance and Learning Review PRBS Poverty Reduction Budget Support PPCR Pilot Program for Climate Resilience PPIAF Public-Private Infrastructure Advisory Facility PPP Public-Private Partnership RBF Results Based Financing R-SNDP Revised Sixth National Development Plan SAIFI System Average Interruption

Frequency Index SCD Systematic Country Diagnostic SI Statutory Instrument SME Small and Medium Enterprise SNDP Sixth National Development Plan SSA Sub-Saharan Africa

SORT Systematic Operations Risk-rating Tool TA Technical Assistance TB Tuberculosis TF Trust Fund UK United Kingdom UN United Nations UNDP United Nation Development Program UPND United Party for National Development USAID United States Agency for International

Development US United States VAT Value Added Tax VP Vice President WB World Bank WBG World Bank Group WBI World Bank Institute WFP World Food Program WHO World Health Organization WRD Water Resources Development WSP Water and Sanitation Program ZANACO Zambia National Commercial Bank ZDHS Zambia Demographic and Health

Survey ZEITI Zambia Extractive Industries

Transparency Initiative ZICA Zambia Institute of Chartered

Accountants ZMLCI Zambian Mining Local Content

Initiative ZMW Zambian Kwacha ZPPA Zambia Public Procurement Agency ZRA Zambezi River Authority

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IDA IFC MIGA Regional Vice President: Director: Task Team Leader:

Makhtar Diop Kundhavi Kadiresan Nalini Kumar

Karin Finkelston Cheikh Oumar Seydi Saleem Karimjee

Keiko Honda Ravi Vish Stephan Dreyhaupt

Acknowledgements The PLR was prepared under the guidance of Kundhavi Kadiresan, the Country Director for Zambia, Malawi and Zimbabwe. The core team was led by Nalini Kumar, Senior Operations Officer and included Chiluba Mercy Munoni. Several World Bank Country Team members based in Lusaka and Washington D.C. made significant contributions including Kate Bridges, Lingson Chikoti, Collins Chansa, Indira J. Ekanayake, Raihan Elahi, Alejandro De la Fuente, Srinivas Gurazada, Ziauddin Hyder, Wedex IIunga, Joseph Mwelwa Kapika, Uzma Khalil, Praveen Kumar, Martin Lokanc, John Bosco Makumba, Helen Mbao, Robin Mearns, Zach Mills, Brian Mtonya, Ngoni R. Mudege, Alex Mwanakasale, Sophie Naudeau, Cecil Nundwe, Iretomiwa Olatunji, Vijay Pillai, Justin Runji, Phil Schuler, Musonda Rosemary Sunkutu, Cornelia Tesliuc, Marcus Wishart, Netsanet Workie. The IFC team was led by Saleem Karimjee and included Sylvain Kakou, Oksana Nagayets and Peter Nuamah. The MIGA team was led by Stephan Dreyhaupt and included Nkemjika Onwuamaegbu. Support to this team was provided by Ernest Matongo, Mofya Mwanalushi, Wisdom Mulenga, Grace Soko and Deliwe Ziyendammanja. The PLR benefited from discussions with stakeholders in the country. Special thanks are extended to officials of the Government of Zambia for their contributions.

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Table of Contents

I. INTRODUCTION………………………………………………………………… 1

II. MAIN CHANGES IN COUNTRY CONTEXT……………………………….... 2 2.1. Political Context………………………………………………………………. 2 2.2. Economic Development and Prospects………………………………………... 2 2.3. Poverty and Shared Prosperity……………………………………………….... 4

III. SUMMARY OF PROGRAM IMPLEMENTATION………………………….. 4 3.1 Portfolio Performance………………………………………………………… 4 3.2. Evolution of Partnerships and Leveraging……………………………………. 6

IV. PROGRESS ON CPS FOCUS AREAS…………………………………………. 7 4.1. Reduced Poverty and Vulnerability of the Poor……………………………… 7 4.2. Improving Competitiveness & Infrastructure for Growth & Employment…... 9 4.3 Improving Governance and Strengthening Economic Management………..... 10

V. EMERGING LESSONS………………………………………………………... .. 11 5.1. Main Lessons from Program Implementation and Performance……………… 11 5.2. Lessons from Experience in Other Countries/Regions………………………... 12

VI. ADJUSTMENTS TO CPS……………………………………………………….. 12

VII. RISKS TO CPS PROGRAM………………………………………………………16

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Annex 1: CPS Revised Results Matrix………………………………………………..... 17

Annex 2: Changes to the Results Matrix Compared to 2013 CPS Version………….. 25

Annex 3: Matrix Summarizing Progress Towards FY13-FY16 CPS Objectives……. 26

Annex 4: IFC Programs………………………………………………………………… 34

Annex 5: Portfolio Performance……………………………………………………….. 35 Tables and Boxes Table 1: Fiscal deficit has grown fast in recent years………………………………… 2 Table 2: Assessment of progress against CPS indicators………………………………..7 Table 3: IDA lending program for FY 15-17 in US$ million…………..……………. ...13 Table 4: Advisory services and analytics……………………………………………..…13 Table 5: Revised systematic operations risk-rating tool (SORT)……………………….16 Box 1: Strengthening public-private dialogue in Zambia…………………… ….…….6 Box 2: Within the WB: Strengthened partnerships to address chronic malnutrition & gender

inequity…………………………………………………………………………7 Figures Figure 1: Sovereign spreads in selected countries…………………………………… …….3

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I. INTRODUCTION

1. The Board of Executive Directors discussed the FY13-16 World Bank Group (WBG) Country Partnership Strategy (CPS) for Zambia on March 14, 2013 (Report No. 75089-ZM). The CPS supports the Government of the Republic of Zambia (GRZ) in implementing its development priorities. Its focus is on reducing poverty and vulnerability of the poor; improving competitiveness and infrastructure for growth and employment; and improving governance and strengthening economic management. While the CPS was formalized before the beginning of IDA 17, inclusive growth, gender equality and climate change, the special IDA 17 themes, are all central elements in it. This Performance and Learning Review (PLR) assesses progress in the CPS focus areas and extends it by one year, to cover FY17, so that the WBG can develop the next strategy in line with the political cycle as the country will have general elections in 2016. 2. Going into the CPS, there were favorable winds –the country’s macro-economic framework was stable, growth was strong, copper prices were high, and there was fiscal space to expand public investment. On the political front, the country had just successfully held peaceful national elections. At the PLR stage, the winds are less favorable. The external environment is less benign, partially due to a fall in copper prices. Policy changes and reversals have the potential of dampening the enthusiasm of the private sector. An expansionary fiscal policy in the past three years led to a sharp increase in non-concessional external debt, heightening the risk of debt distress, leaving little headroom for fiscal policy to counter the cyclical downturn. Overall, the macroeconomic framework shows vulnerabilities. These could get exacerbated with unbudgeted expenditures in the run-up to the 2016 general elections.

3. As of May 2015, the WBG had current commitments of about US$975 million in ongoing projects. The World Bank (WB) had a net commitment of US$800 million in 16 projects, IFC’s committed portfolio was US$74 million with five active clients and MIGA’s net exposure was for US$101 million. 4. The main findings of the PLR are the following:

(i) The CPS continues to reflect GRZ’s priorities and its focus areas remain broadly relevant for the remainder of the strategy period. However, in line with the WBG’s twin goals on poverty and shared prosperity, the country team has made adjustments to sharpen the strategy’s poverty focus.

(ii) Out of 18 CPS indicators 4 have been achieved and 7 are on track. Disbursements on the WB lending portfolio have faced challenges arising from, among other factors, the weak capacity of implementing agencies.

(iii) The CPS planned to give greater emphasis to the use of non-lending instruments in the WBG toolkit—policy dialogue, knowledge provision and convening—to move the development agenda forward. In the last two years, the WBG has used these tools effectively, strengthening its role in Zambia as a “solutions” institution.

(iv) For the remaining CPS years, in the difficult macro-economic and policy environment, the PLR makes the following adjustments: proposes new lending only in areas critical for poverty reduction but where the policy environment is conducive; while the IMF is expected to lead the dialogue on macro critical issues, the WB will work closely with it and strategically use non-lending to help manage the risk; continued strategic use of WB non-lending instruments particularly in areas where there is no opportunity for lending; stepped-up collaboration between the WBG institutions to maximize development impact; greater focus on regional interventions.

(v) Policy changes and reversals could also limit IFC’s ability to engage in certain areas where the private sector is not seeing a conducive space to operate. The focus on agribusiness and diversification is bearing some fruit and has generated a strong pipeline but IFC is uncertain about fully meeting its CPS commitments in the current environment.

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II. MAIN CHANGES IN COUNTRY CONTEXT

2.1 POLITICAL CONTEXT

5. Zambia went through another peaceful transfer of power in January 2015, solidifying its reputation for political stability. After the death of President Sata in October 2014, Edgar Lungu of the governing Patriotic Front (PF) emerged as the new leader in the by-elections narrowly defeating his closest rival, Hakainde Hichilema of the United Party for National Development (UPND). The elections were generally peaceful and fair, with Zambia living up to its image of a country with a long period of political stability.

6. However, it is a difficult time for the current President to have come to power with the upcoming 2016 general elections just around the corner. Maintaining strong economic growth with falling copper prices is going to be challenging. In addition, relations with the mining sector, and investors in general, are strained owing to the dialogue around the mining fiscal regime. The current President also inherits a much weakened fiscal situation, owing to recent expansionary fiscal policies at a time when there will be political pressures to expand unbudgeted expenditures. In the run-up to the elections, there are likely to be fewer incentives for major policy reforms. Particularly, long standing concerns about policies in sectors such as agriculture will likely not be addressed. Policy uncertainty that prevailed under the previous administration will also be difficult to overcome.1

2.2. ECONOMIC DEVELOPMENT AND PROSPECTS

7. Zambia’s growth continues to have momentum. The economy grew by 6.7% and 5.6% respectively in 2013 and 2014 (preliminary estimate), below the 7.8–8.0% anticipated when the CPS was prepared, but in line with the 6.5% average annual growth during 2010–12. Growth has been driven by mining, agriculture, construction, retail and transportation sectors. Investment expenditure has been strong, driven in part by FDI related to mining and retail activities; investments already in place are expected to sustain growth rates of around 6% in the medium-term. 8. Inflation has been moderate at 7-8% supported by tight monetary policy. Inflation averaged 7.0% in 2013 and 7.8% in 2014. Zambia has successfully maintained inflation at single digit levels largely through lowering of food prices and good use of monetary policy. To contain inflation and depreciation pressures, in 2014 the Bank of Zambia (BOZ) raised the policy rate, increased statutory reserve ratios, and intervened in foreign exchange markets. Continued energy subsidies have also helped keep prices low.

9. Expansionary fiscal policy of the government and the slowdown in concessional aid has led to faster accumulation of non-concessional debt. The average fiscal deficit during 2012-14 was 5.1% of GDP compared to 1.1% in the previous three years (Table 1). The 2015 fiscal deficit is projected to be

around 8% of GDP despite the recently announced mid-year budget adjustments. 2012-2014 deficits have been partially financed through domestic borrowing but largely through non-concessional borrowing from international capital markets. The government issued a Eurobond for $750 million in 2012, followed by another one for $1 billion in 2014. As a result of fiscal expansion, nominal public debt grew

1 The Government undertook several policy steps, such as Statutory Instrument (SI) 33 which restricted use of foreign currency for domestic transactions, SI 55 for monitoring foreign exchange transactions, reversing them subsequently.

Table 1: Fiscal deficit has grown fast in recent years 2010 2011 2012 2013 2014* Revenue 15.6 17.5 19.1 18.9 19.3 Expenditure 18.1 19.3 22.3 25.5 24.8 Overall balance -2.4 -1.8 -2.9 -6.5 -6.0 Note: All numbers are share of GDP. *including arrears and other liabilities Source: IMF, WB & Government Authorities

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sharply to 35.1% of GDP at the end of 2014, from 20.6% at the end of 2011; and the share of external debt owed to private banks/investors grew to 46% at the end of 2014 from zero at the end of 2011.

10. Based on the Joint Fund-Bank Debt Sustainability Analysis (DSA) carried out in April 2015, Zambia’s risk of external debt distress has gone up from ‘low’ in the last DSA (November 2013) to ‘moderate’ given deterioration in debt dynamics. Overall public debt dynamics is sustainable under the baseline but needs an improved fiscal position. Debt has also become more complex to manage due to non-concessional borrowing from international markets. The large bullet repayments of Eurobonds in 2022 and 2024 require more sophisticated budgetary planning and management than in the past.

11. Quality of government expenditures has been mixed. The fiscal expansion was driven, in part, by a strategy to improve infrastructure –mainly roads –by borrowing from international markets at low interest rates prevailing during this period. Besides infrastructure, several unproductive subsidies such as on maize and oil, and expenditure on public salaries have expanded considerably.

12. Increased Government borrowing from domestic markets has led to higher T-bill rates above 20%. It could also be affecting the already high cost of credit to the private sector and crowding out lending. The government is factoring in the impact of domestic borrowing on private sector credit in its medium-term debt management strategy being finalized. The country saw episodes of high volatility in exchange rate accompanied with sharp depreciation in the first half of 2014 and then in early 2015. In March 2015, Fitch Ratings affirmed Zambia's credit rating at 'B', but revised the outlook down from 'positive' to 'stable' owing largely to poor policy coherence and credibility. Zambia’s

sovereign spreads in comparison to selected countries is shown in Figure 1. 13. As a net oil importer, Zambia is likely to benefit from reduced global oil prices through lower import costs and lower inflation. The 2015 oil import bill is estimated to be 37% lower than what it would have been had prices remained at 2014 levels. This year’s oil price plunge offsets some of the effects of the recent decline in copper prices. However, oil prices are expected to recover more quickly than copper prices, and Zambia could experience deteriorating terms of trade in the coming years. Reduced oil input prices will not benefit the fiscal position should the government continue with the fuel subsidy. 14. Macro stability in the next two years will depend upon how the difficult fiscal situation is resolved. The outlook for the Zambian economy is underpinned by two main trends: First, the current low price of copper will put pressures on fiscal and current account balances; second, policy uncertainty could reduce investment and potential output of the mining sector. These developments will weigh on the export sector; a resultant weak Kwacha will put upward pressure on prices. The main macroeconomic challenge in the next two years is to strengthen the fiscal position. Ideally that would be done through a shift in expenditure priorities and cutting down on unproductive expenditure. However that appears to be politically difficult. 15. Although policy uncertainty and inconsistency may have reduced business confidence, the country continues to have a relatively impressive 2015 ease of doing business ranking of 9 out of 47

Figure 1: Sovereign spreads in selected countries

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countries measured in Sub-Saharan Africa (SSA). This reflects the continuing regulatory reforms that Zambia has been undertaking since 2009 despite a sometimes challenging policy environment. On Doing Business, Zambia is ranked ahead of Rwanda, Ghana and Botswana in ease of starting a business. Further, Zambia is ranked number two in SSA, after Rwanda, in getting credit. Zambia’s competiveness as measured by the Global Competiveness Index has improved slightly from 102 in 2013 to 93 in 2015.

2.3. POVERTY AND SHARED PROSPERITY

16. Zambia continues to face the challenge of high poverty and high inequality. Based on the 2010 Living Conditions Monitoring Survey (LCMS), the CPS had reported that more than 60% Zambians live below the poverty line. With a Gini coefficient of 0.52, Zambia is also counted amongst the ten most unequal countries in the world. A recently concluded poverty mapping exercise provides a more nuanced picture of the spatial distribution of poverty. Eight of the 10 provinces have more than 65 percent poverty rates, and over 40 percent of the country’s poor live in three provinces – Eastern, Southern and Central. The mapping exercise finds that there are pockets (wards) of deep poverty in many of the provinces with relatively lower levels of poverty. Those wards with the highest poverty rates are also those with lower rates of household education, higher numbers of individuals employed in the agricultural sector, farther average distances to primary and tertiary roads, and lowest concentrations of rainfall precipitation. 17. There are some signs that poverty could be going down2:

i) Most of the working poor are in agriculture and may have benefited from the improved agricultural

growth.3 Between 2005 and 2010 the sector grew at -2.0%. In the recent past, despite the much needed policy reforms, the sector has been growing at above 6% (except in 2013 when uneven rains and army worms reduced growth).4

ii) There are indications that the economy is diversifying suggesting more inclusive growth. The results of the 2012 Labor Force Survey show that employment in agriculture may have gone down since the last survey in 2008 from 71.3% of the working population to 52.2%. There is a corresponding increase in non-farm employment indicating an ongoing process of structural change. There has been a noticeable pick up in non-agriculture employment particularly in construction, transport, storage and wholesale and retail.

iii) Preliminary results from the 2013-14 Zambia Demographic and Health Survey (ZDHS) show substantial progress on several health-related indicators from 2007.

iv) Zambia has expanded social safety nets. In the 2014 budget the amount devoted to cash transfers increased by 177% (from Kwacha 72 million in the 2013 budget to 199.2 million in the 2014 budget) and GRZ is working on improving targeting. Both these measures will benefit the poorest.

III. SUMMARY OF PROGRAM IMPLEMENTATION

3.1 PORTFOLIO PERFORMANCE

18. The implementation of the WB portfolio has faced challenges but the IFC portfolio is in good standing. In the WB’s portfolio there are 9 national IDA, 3 trust-funded and 4 regional interventions. As

2 The next LCMS is due in 2015. 3 Higher agricultural growth could also lead to lower inequality. The Africa Chief Economist’s Office (Africa’s Pulse October 2013) has shown that if agriculture in Zambia were to continue at its historical growth rate of 2.1%, and the rest of the economy at 5.3%, inequality would in effect increase. Alternatively, were the country to attain the Comprehensive Africa Agriculture Development Program (CAADP) goal of 6% growth in agricultural GDP, poverty would decline. 4 Growth has also been comparatively lower in 2015 because of adverse weather conditions.

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part of the CPS implementation the portfolio is being consolidated and as far as possible, project size is being kept above US$50 million. Five of the 7 ongoing national IDA projects are rated moderately satisfactory on outcome and all are rated moderately satisfactory on implementation progress; two projects have not yet become effective. Disbursements have been below the Africa average, though slowly picking up pace in the last few years (Annex 5 Table 1). IFC’s portfolio is predominantly comprised of loans with equity accounting for about a quarter of investments. About 75% of IFC’s portfolio is disbursed; all projects are in good standing with no non-performing loans.

19. Several factors have contributed to weak WB project implementation. Capacity constraints, because of the insufficient number of lawyers, within the Ministry of Justice have led to significant delays in contract reviews and clearances. Rapid turnover of project staff, and the absence of an effective performance accountability mechanism have kept motivation low amongst implementing staff. Unforeseen changes in government policies have delayed planned interventions. For example, the effectiveness of some projects was delayed because a new policy was introduced requiring Cabinet approval of all external financing. The death of President Sata and the run-up to the presidential by-elections added to existing delays in decision making at various levels. Government officials have also expressed some concern about delays in clearances and inadequate staff continuity on the Bank side.

20. Several measures have been taken to address these factors. The country team has been working closely with the Ministry of Finance (MOF) to help strengthen their oversight on the portfolio and has followed up with the Attorney General to hire more lawyers in the Ministry of Justice. The WB and the MOF jointly chair regular portfolio review meetings with project coordinators. These meetings have helped identify and address resolvable issues, such as the problem of weak internet connectivity in government offices that delay submission of e-withdrawal applications. Specific trainings are organized for officials to address capacity issues, but the frequent transfers of trained incumbents means that there are always more people to train. Country management’s meetings with the Minister of Finance and the new President, to get their focused attention on the WB portfolio should help with some of these challenges. Internally, task teams have been asked to be more attentive in responding to clearance requests and Bank management has been taking steps to ensure staff continuity. Task teams have been encouraged to restructure projects to proactively cut off non-performing parts and give careful attention to incentives during design of new interventions—for example, new projects are being encouraged to build in Disbursement Linked Indicators (DLIs) where possible. Going forward, new interventions will be approved in sectors that are not only important for poverty reduction but where the policy environment is also conducive. 21. Non-lending activities are making a good contribution to the achievement of CPS objectives. The 2015 Country Opinion Survey findings suggest that the Bank is well-appreciated as a long term partner and for the way it collaborates with governments and donors. The WB’s twice yearly Economic Briefs, produced since 2012, have been successful in influencing public debate on several topical issues. Just-in-time knowledge products, such as the technical notes on interest rate caps and the mining fiscal regime, informed policies. Regular WB and IMF joint meetings with the BOZ have enabled discussion on financial sector and monetary policy issues in a timely manner. The WB has involved the country’s young population in discussions on the findings of major reports and disseminated relevant economic facts about Zambia and its neighbors in the media, contributing to increasing public awareness on these issues.

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22. The WB has used its convening role to advance CPS objectives. WB-supported south-south exchange events have provided exposure to government officials in new areas, such as low cost electrification options. The WB brought Zambia and Zimbabwe together to discuss the Batoka Hydro-Electric Scheme, a dialogue that had been held up for many years by the impasse between the two countries over a historical debt. It also worked with three women Ministers facilitating discussions in the government team that contributed to development of a multi-sector approach on girl’s education and women’s empowerment.

23. The WBG is giving special attention to private sector development through non-lending activities. IFC is providing support for trade and competitiveness through its Investment Climate project. It also contributes to the strengthening of the financial sector through several advisory engagements with individual financial institutions, as well as the BOZ, on areas related to financial infrastructure. The WBG has attempted to strengthen public-private dialogue through several activities (Box 1) though progress has been slow and continues to suffer setback with policy changes, such as the recent mining tax regime.

3.2. EVOLUTION OF PARTNERSHIPS AND LEVERAGING

24. Effective cross-sector cooperation is emerging within the WB to address socio-economic and gender equity issues. Collaboration between various sectors is informing policy dialogue and the design of new projects in a unique way (Box 2). 25. External partnerships are helping deliver on the CPS objectives. The Bank and several CPs are co-financing the rehabilitation of the 50 year old Kariba dam. The WB, CPs and the government also jointly organized a high level policy dialogue to develop a shared understanding of issues and policies for creating jobs in Zambia. The WB continues to work actively with the FAO and the WFP to advocate agriculture policy reform, where progress has been difficult to achieve. The partnership with the private sector is also being strengthened. For example, there is collaboration in a trust funded project with Community Markets for Conservation (COMACO), an emerging company that is pioneering an innovative way for making markets and conservation work together.

26. Regional projects are furthering opportunities for Zambia. One of the regional projects is supporting the development of collaborative partnerships between agricultural research systems in the region. The Kariba dam rehabilitation and the Kafue-Muzuma-Vic Falls Regional Transmission Line Reinforcement projects will both contribute to energy security in the region, improving the prospects for growth and development. If the macro economic framework is adequate, Zambia could also be part of the Accelerated Program for Economic Integration (APEI) operation that will increase collaboration between

WBG initiatives that have been providing the platform for increased collaboration between the public and private sectors include: • South-South Knowledge Exchange with Chile exposed GRZ officials to how the Chilean public and private

sectors work together. • The Zambia Mining Local Content Initiative (ZMLCI) launched in July 2012 as a collaborative, public-

private initiative to enhance local content and the use of locally manufactured inputs in the mining industry. The recently proposed Let’s Work Zambia initiative includes next steps in the ZMLCI.

• Discussions for finalization of the draft Tourism Policy and Legislation and promoting dialogue between public and private sector actors in the tourism sector.

• CPG/GRZ High Level Jobs Conference in November 2014 provided the private sector the opportunity to share their achievements and constraints with senior government officials.

• Annual joint BOZ/WBG events on small and medium enterprise financing and business linkages.

Box 1: Strengthening public-private dialogue in Zambia

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several countries in the Region for trade integration and private sector development. A regional program to support Eastern and Southern Africa higher education Centers of Excellence is also in the pipeline.

Box 2: Within the WB: Strengthened partnerships to address chronic malnutrition & gender inequity

The WB is taking a multipronged and multi-sectoral approach to support Zambia in reducing gender inequity and chronic malnutrition. The support includes institutional strengthening for multi-sector nutrition coordination; pilot projects to test innovative interventions to achieve accelerated nutrition outcomes; and scaling up of relevant high impact evidence-based nutrition interventions. With Zambia’s high proportion of young population, early childbearing, and gender inequality, reaching the underserved population of female youth and improving their nutritional status was deemed essential. However, country and global knowledge in this area is limited. The health, agriculture and social protection sectors worked collaboratively to design an innovative nutrition project aimed at improving access to livelihood opportunities and nutrition among female youths and to strengthen the country’s policies in reducing chronic malnutrition. In parallel, a programmatic ASA on adolescent girls covering education, health, and social protection sectors is underway to help inform the policy dialogue on how to reduce child marriage and teenage pregnancy - two issues that disproportionately affect the poorest girls. Some of the key findings complement the work being done under the Education Public Expenditure Review (PER) and Public Expenditure Tracking Survey (PETS) and Quantitative Service Delivery Survey (QSDS) and are already being integrated in the design of the Girls’ Education and Women’s Empowerment Project.

IV. PROGRESS ON CPS FOCUS AREAS

27. Despite project implementation challenges, some progress is being made overall on CPS focus areas and is summarized below. Table 2 and Annex 3 provide an assessment of progress against the CPS indicators and milestones respectively. Of the 18 CPS indicators, 22% have already been achieved and another 39% are on track.

Table 2: Assessment of progress against CPS indicators Strategic Focus Areas Indicators=18

Achieved On-track

Restructured Watch Total

Reducing Poverty & Vulnerability of the Poor Outcome 1.1: Improved crop and animal productivity in selected areas 2 2 Outcome 1.2: Improved access to resources for strengthening household resilience & health in targeted areas

2 1 1 4

Improving Competitiveness and Infrastructure Outcome 2.1: Improving key aspects of the regulatory environment for

business 2 2

Outcome 2.2: Selected infrastructure built and rehabilitated 3 3 Outcome 2.3: Improved access to finance for small enterprises 1 1

Improving Governance and Strengthening Economic Management Outcome 3.1: Strengthened systems and processes for public sector performance

1 1 1 3

Outcome 3.2: Citizen access to information increased 2 1 3 22% 39% 22% 17% 18

4.1. REDUCED POVERTY AND VULNERABILITY OF THE POOR

28. Outcome 1.1. Improved crop and animal productivity: Watch. The WB supported irrigation and livestock projects have had slow implementation requiring restructuring, but by CPS end are expected to contribute substantially to improving conditions for increasing agriculture and livestock productivity. Trust

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funds associated with the irrigation project are contributing to women’s equality, with among other things, using ICT to improve women’s access to information. In collaboration with FAO, IFC has undertaken in-depth research on Zambia’s irrigation market to provide high-quality market intelligence to private firms, help inform business expansion and the development of IFC advisory and investment projects in modern irrigation. A complementary study, focused on factors that enable smallholder farmers to access irrigation technology and on financing solutions for the provision of the irrigation equipment, was completed in July 2014. Both studies are linked to the Global Efficient Irrigation Program, an IFC investment program, intended to address the global challenge of irrigation inefficiency in agriculture through access to finance and technical knowledge, and are expected to contribute to future business development efforts in this sector. The WB regional agricultural productivity project is making good progress on the research and extension agenda. Trust fund operations under the BioCarbon Fund are addressing agricultural livelihood-related drivers of deforestation and supporting investments to underpin incentives for land-use behavior change.

29. Both WB and IFC are contributing to increasing smallholder productivity and agribusiness development. The WB Agriculture Development Support Program (ADSP), that closed recently, helped advance smallholder agriculture commercialization through supporting investments in feeder roads, market, technical and managerial knowledge of farmer groups and producer organizations. The operations of IFC’s existing client Zambeef are helping expand processing capacity, add new retail outlets and improve efficiency, providing opportunities for development of out-grower farmers.5 IFC’s new investments in agribusiness have been as part of larger multi-country projects with regional companies.6 IFC’s latest investment was a project with Chayton/Agrivision, an existing MIGA client, who has approached IFC for financing to expand storage capacity and sourcing from smallholder farmers. On the diagnostic front, the cashew nut value chain study was completed to inform WBG engagement in this strategic sub-sector and help identify medium to long-term opportunities. 30. MIGA guarantees are helping agriculture, livestock and aquaculture development. A MIGA guarantee for Chayton Africa (CA) is helping improve a large commercial farm in the Copperbelt Province with efficient agricultural practices providing substantial demonstration effect. A guarantee to Silverlands Ireland Holdings Limited of Ireland’s investment in Silverlands Ranching Limited is helping improve and develop a large cattle farm in Zimba, Southern Province. Silverlands Ranching Limited will also offer assistance to smallholder farmers on immunization strategies for cattle. The guarantee for Liongate Venture Fund of the Cayman Island’s investment in Yalelo Limited has contributed to aquaculture development. Finally, the guarantee for Agrivision Africa of Mauritius’s investment in Chobe Agrivision Company Ltd. is leading to improved existing wheat and maize mills in Kitwe and is having an important demonstration effect for other local producers and potential investors. 31. Outcome 1.2: Improved access to resources for strengthening household resilience and health in targeted areas: Broadly on track. Of the four indicators two have been achieved, one is on-track and one has faced challenges. The irrigation and water resource development projects have faced implementation delays that are being addressed. However, the Climate Change project is helping communities in vulnerable districts of Western Zambia use improved tools, information and instruments to respond to climate change and variability. IFC’s work on the Pilot Program for Climate Resilience (Phase II) is also gradually progressing. The indicators on the Malaria Booster and the Health Results Innovation

5 Zambeef is a good example of structuring agribusiness activities around a well-integrated value chain. In addition to directly employing 5,800 people, Zambeef’s value chain involves 70,000 smallholder suppliers of maize, close to 4,000 farmers involved in supplying other agricultural produce and livestock, and about 3,500 SMEs that supply fertilizers, agro-chemicals, and other services to the company. 6 In 2013, IFC provided a $25 million loan to a South African poultry producer, Country Bird Holdings, increasing its hatchery and feed mill capacity in Zambia. In 2014, IFC provided a $70 million loan for a regional expansion by the ETC Group for a capital investment program of an agribusiness trading company which included construction of two warehouses and a maize mill in Zambia.

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Trust fund were achieved. Another health project is further improving delivery systems and utilization of maternal and child health and nutrition services in poor underserved provinces.

32. IFC is also making concerted effort to pursue opportunities in the health and education sectors. A business development mission was conducted in FY15. Two IFC investee private equity funds, Emerging Capital Partners and the Abraaj Africa Health Fund, have invested in Cavendish University and Lusaka Trust hospital, respectively. Both sectors are showing strong growth in demand for private sector services. However, many opportunities are currently too small for IFC to invest in directly but may become more viable as companies grow in line with the market.

4.2. IMPROVING COMPETITIVENESS & INFRASTRUCTURE FOR GROWTH & EMPLOYMENT

33. Outcome 2.1: Improving key aspects of the regulatory environment for business: Achieved. The two indicators, one related to number of achieved reforms per year on ease of Doing Business and the other on number of days to provide business registration, were achieved. 34. The WBG provided technical assistance for the development of the new Business Regulation Act which seeks to bring predictability to the policy environment by making it a legal requirement for government to consult with key stakeholders, including the private sector, before a new regulation can be introduced. The WBG will support the implementation of the new legislation through capacity building support to the newly established Business Regulatory Agency. 35. Following the recommendations of the WB facilitated Diagnostic Trade Integration Study (DTIS), regulations and procedures are being streamlined to address high trade costs that undermine export competitiveness, particularly for small traders. The study, produced at the request of GRZ, identifies main constraints and challenges to expanding trade and regional integration. TA is being provided for the Zambia Bureau of Standards to streamline procedures for standards inspection. TA is also being provided to start the implementation of the Charter for Cross-Border Trade at Kasumbalesa.

36. The WBG has provided support for development of a new policy and legislation for tourism. In addition, a Tourism Market Study that identifies investment opportunities for investors in the tourism sector was supported. The WB is also supporting the KAZA VISA roll out through a pilot program between Zambia and Zimbabwe.

37. IFC’s initiatives are expected to continue contributing to improving competitiveness. IFC will continue its Investment Climate Program to help strengthen Zambia’s regulatory environment. The project has been scaled down and reoriented in response to evolving Government priorities and currently focuses on business regulation reform, trade logistics, e-Government, and industry-specific investment climate reform focusing on agriculture, tourism, telecoms and construction sectors. 38. A growing number of IFC projects are aiming to strengthen Zambia’s manufacturing base and promote diversification. There is a pipeline investment project with a metal recycling company that would manufacture and export aluminum products. The investment would strengthen a local company, promote implementation of new standards, encourage domestic value addition and import substitution. A series of business development efforts in the cement sector over the past few years have led to a Greenfield Buffalo Cement project near Lusaka, sponsored by China’s Jidong Development Group, which is expected to stimulate competitiveness of the construction materials sector and create jobs.

39. Outcome 2.2: Selected Infrastructure built and rehabilitated: On track. WB projects supported the construction of the Chiawa and the Mufuchani bridges and the rehabilitation of flood damaged river crossings in the provinces of Northern and Luapula. The rehabilitation of the Lusaka-Chirundu road has improved access and connectivity for national and international traffic benefitting local businesses,

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agriculture and tourism. Rehabilitation of electricity networks, including upgrading of transmission lines, is facilitating regional power trade and improving reliability of electricity supply for the private sector. Technical support is being provided to explore low-cost options for increasing access to electricity in the rural areas. ESMAP is also supporting renewable energy resource mapping, focusing on solar, wind and geothermal potential. Infrastructure construction under the water resource development project has however, faced delays but is expected to pick up. 40. Outcome 2.3: Improved access to finance for small enterprises: Restructured. The line of credit operation for small and medium enterprises did not materialize as planned in 2014 because an interest rate cap was introduced by GRZ in 2013 creating uncertainty and affecting significantly the business strategies of commercial banks and micro financial institutions. The WBG, however, continues to explore ways to contribute to this important goal and the possibility of undertaking the credit line within the CPS period. TA is also being provided for enhancing financial consumer protection and financial capability to improve consumer’s understanding of financial products.

41. IFC is implementing several advisory projects to promote access to finance for the private

sector companies and medium, small and micro enterprises (MSMEs) in particular:

• The Zambia Secured Transactions & Collateral Registry Advisory project is working with the BOZ to develop a legal and regulatory framework to support implementation of a modern system of financing secured by moveable assets; design and create a web-based centralized collateral registry for security interests in moveable property; and build local capacity to reap the benefits of the new secured transaction system.

• An advisory project with MicroEnsure Zambia, under the auspices of the Global Index Insurance Facility, supported the company in providing access to index insurance in Zambia through a capacity building grant. The project engaged financial institutions and agribusinesses to help increase insurance coverage and access to credit among smallholder farmers.

• An advisory project alongside IFC’s investment in AB Bank Zambia is designed to help increase access to finance for MSMEs and spur a demonstration effect. The project has evolved over time, adjusting to internal and external changes, including the trends in the bank’s performance.

42. IFC has also contributed to local capital market development in Zambia. The government invited IFC to issue a Zambian Kwacha denominated bond in the country’s domestic market. After extensive engagement with regulators and investors, IFC issued its first Kwacha “Zambezi” bond in September 2013 that created substantial awareness about Zambia’s capital market. Soon thereafter, IFC facilitated a first-time bond issuance by Bayport Financial Services, a Non-Bank Financial Intermediary in Zambia with loans to more than 70,000 employees with limited access to finance.

4.3 IMPROVING GOVERNANCE AND STRENGTHENING ECONOMIC MANAGEMENT

43. Outcome 3.1 Strengthened systems and processes for public sector performance: Overall-watch. The US$30 million MDTF funded Public Financial Management Reform Program (PFMRP), administered by the WB, is among other things, supporting enhancement of the internal audit system in GRZ, development of a new planning and budgeting legislation, and major reforms in the Zambia Revenue Authority to strengthen tax administration. PFMRP is also supporting rolling-out of the Integrated Financial Management Information System (IFMIS) to all central government ministries. Treasury Single Account is being piloted in MOF. The Zambia Public Procurement Authority (ZPPA) has evolved in its new role as a regulator and is rolling out a nation-wide electronic government procurement system. While progress is in the right direction, there is a need to accelerate the pace of PFM reforms. While the PFMRP provides the TA and associated financing, the process of budget support preparation has been used to provide focus and momentum to several elements of the PFMRP.

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44. Technical advice for strengthening economic management. The WB has produced technical notes in areas such as mining fiscal regime, interest rate caps, policy for VAT refunds to the mining sector, and on local council indebtedness in the context of decentralization policy reform. Apart from commenting on recent economic developments, the half-yearly Economic Briefs drew upon Bank’s analysis on issues such as opportunities for human development for children, the jobs challenge, improving Zambia’s trade and competitiveness, and financial inclusion for all Zambians. Building on the South-South exchange with Chile, GRZ is taking steps to improve the credibility of the budget process. A policy for Integrated Planning and Budgeting has already been put in place and a framework for output-based budgeting has been developed.

45. Technical assistance was provided for several public sector management reform priorities at the request of GRZ. A TA on wage bill has helped strengthen capacity for analysis of public wages and their structure. TA is being provided for developing a system in the MOF for appraising capital projects before inclusion in the annual budget. An active TA program is providing support to ZPPA on modernizing the procurement system, restructuring the agency, and improving transparency of public procurement and will help Zambia move to e-procurement. The Bank’s Treasury has been providing support to MOF in developing a medium-term debt management strategy. 46. Outcome 3.2: Citizen’s access to information increased: Overall on track. Governance indices such as the Mo Ibrahim Index show some improvement in Zambia. Some of the key factors that have contributed to these gains include increased participation of citizens through the growing number of private-owned community radio stations, TV stations, and print and online newspapers. Zambia’s most promising journalists have also been trained and mentored in investigative skills and on reporting on technical topics, among others, mining taxation and access to information. Separately, capacity building activities were undertaken for civil society. The trust fund that supported these demand for good governance activities has closed. However, citizen access to information is being supported through many innovative ways, among them, the visible and elaborate dissemination process around the half yearly Economic Briefs, the weekly data bites in the newspapers, and opinion pieces in major newspapers. There is also continued publication of Extractive Industry Transparency Initiative (EITI) reports in line with EITI International requirements. No progress however has been achieved on the Freedom of Information Act since 2012 when the draft legislation was finalized, mainly due to reluctance of the government to pass the bill.

V. EMERGING LESSONS

5.1. MAIN LESSONS FROM PROGRAM IMPLEMENTATION AND PERFORMANCE

47. In Zambia, non-lending instruments can play an important role in advancing the development agenda, when used alongside lending. The CPS intended to make greater use of policy dialogue, knowledge, and convening instruments. The WBG planned, financed and looked for opportunities to further the impact of its lending activities through strategic use of these instruments that came together to make progress, for example, on social protection. Strong policy dialogue, good analytical work, identifying and connecting with the right champions in the Government, while being patient as consensus built around the role of safety nets, led to the Government request for a project. The WBG will continue to use these instruments in a synergistic manner during the rest of the CPS period. 48. A realistic assessment of the client’s institutional and administrative systems and political economy context needs to be made at design and factored in the project implementation time-line. Most projects in Zambia have faced delays and have had to be extended, signifying the need to pay much closer attention to the human resource capacity and incentive system in the civil service and the influence of political economy factors during design. As part of quality at entry, institutional capacity is assessed and

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risk assessments are undertaken, but going forward it may be important to also assess the incentives and accountability framework in the civil service. Realistically building in the unavoidable delays in the project implementation cycle on one hand while taking proactive steps to get oversight from the senior most country officials on portfolio performance, on the other, will be important to improve project implementation.

49. Greater selectivity is needed to maximize development impact. The CPS emphasized selectivity and focused WBG engagement in the country in a few areas. During preparation of the CPS it was agreed that in some sectors, such as education, the WB will not provide lending. Given the difficult implementation experience with several of the Bank projects, going forward new interventions are being proposed only in those areas where the policy environment is conducive and there is a chance to reduce poverty.

50. Consistent with the IDA 17 commitment on climate change, Zambia is beginning to play a regional and global leadership role in leveraging international finance for strengthening climate resilience and low-carbon development. Through the strong convening role of its parent ministry, the MOF, the Inter-Ministerial Climate Change Secretariat has managed to leverage additional support for a growing portfolio of activities and looks likely to attract financing from the Green Climate Fund. Going forward, there may be lessons to learn from Zambia’s experience in this area.

51. There is potential for considerable benefits to flow to Zambia from regional initiatives in which it participates. There are several areas such as agricultural research or harnessing the potential of rivers that flow across national boundaries where cooperation among neighbors can offer considerable benefits to all. Under IDA 17 regional projects are a particular focus and with the increase in regional interventions in Zambia’s program, there is opportunity to leverage larger concessional financing while also addressing systemic issues and maximize benefits through complementary and coordinated investments. 52. The cooperation between various WBG institutions can be enhanced further. The World Bank, IFC and MIGA have worked closely together on a number of initiatives and this collaboration compares favorably with similar undertakings in other countries. There are several sectors, such as agriculture- agribusiness and energy, in which IFC, WB and MIGA are engaged jointly. Coordination between different WBG institutions could be further improved to have a greater impact but may prove challenging in the context of limited resources on all sides.

5.2. LESSONS FROM EXPERIENCE IN OTHER COUNTRIES/REGIONS

53. Disbursement linked indicators shift the focus of payments from inputs to results to create incentives to improve implementation and have been successfully used in the education and health sectors in several countries around the world. The Zambia Health Services Improvement Project, also includes output and process indicators against which funds will be disbursed to GRZ on an annual basis. Where feasible such approaches will be used in other new projects as well.

VI. ADJUSTMENTS TO CPS

54. The CPS focus areas remain relevant but some adjustments are required in the program and results framework due to the following:

i) The IDA envelope for Zambia has increased from SDR 196.6m (IDA16) to a notional SDR 267.8m (IDA17). At the current exchange rate this will mean about $125 million of IDA resources per year, compared to the $100 million per year budgeted during the CPS.7 During FY15-17 US$375 million is

7 IDA allocations are made in SDR terms and US$ figures vary based on exchange rates. While Zambia will continue to access IDA resources, blend terms will apply from FY16 when the country’s GNI per capita will have been above the IDA operational cut off continuously for three years. At the request of GRZ, IBRD carried out a credit worthiness assessment in 2013. The mission

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available for financing an IDA pipeline (Table 3). About US$105 million is also available in 40 active trust funds (Annex 5).

ii) The PLR proposes an extension of the CPS by one year to FY17 so that the WBG can develop the next strategy in line with the political cycle as the country will have general elections in 2016. The country team will also use the additional time to deepen the background work on the Systematic Country Diagnostic (SCD).

iii) While firming up the program for the outer years, the PLR emphasizes: (a) sharpening the focus on inclusive growth and poverty with new lending in areas where the policy environment is conducive; (b) using non-lending strategically to contribute to managing the macro risks and further the development agenda in other areas critical for poverty reduction but where there is no lending; (c) taking specific measures to step up collaboration within the WBG; (d) scaling up opportunities that allow land-locked Zambia to benefit from regional interventions.

Table 3: IDA lending program for FY 15-17 in US$ million FY15 IDA FY16 IDA FY17 IDA Girls’ Education and Women’s Empowerment Project

65 Zambia Environmental Remediation and Improvement

50 Trade & Competitiveness 50

Kariba Rehabilitation 25@ Eastern Region Inclusive Growth

65 Africa Higher Education Centers/Great Lakes Cohesion of Border Communities

10@

Lusaka Sanitation 65 Regional TB 10@ Access to Finance for SMEs 35 Total 155 125 95 Note: (i) In the CPS the line of credit for SMEs was programmed for FY14 but did not happen because of the policy change. If the policy environment becomes suitable in the coming months, the credit line will be supported in FY17. (ii) DPO support is contingent on having an adequate macro-economic framework. (iii) @ denotes the national IDA share of a regional project. (iv) The amounts shown in outer years are indicative only. Actual allocations will depend on: the total IDA resources available; the country’s performance rating, per capita GNI, and population; the terms of IDA assistance (grants/credits); the allocation deductions associated with MDRI annual debt service forgone as applicable; the performance, other allocation parameters, and IDA assistance terms for other IDA borrowers; and the number of IDA-eligible countries.

Table 4: Advisory Services and Analytics Status Zambia Education Public Expenditure Review Ongoing Adolescent Girls Diagnostic Ongoing Scaling Up Renewable Energy Investment Plan Ongoing Electricity Access for Low-income Households Technical Assistance Ongoing PPIAF Water & Sewerage Infrastructure and Peri Urban Sanitation Improvement Ongoing Financial Sector Advisory and Consumer Protection Technical Assistance Planned Governance Improvement in the Road Sector Ongoing Project Appraisal System Technical Assistance Ongoing Health Results Based Financing Impact Evaluation Ongoing Let's Work Program Planned Programmatic Poverty Analysis Planned Programmatic Support for Fiscal Management Ongoing/Planned Investment Climate Assessment Planned

55. Table 3 and 4 indicate IDA lending and ASA for FY15-17. While some initial results can be expected in FY17, the new lending in FY16-17 will only have an impact beyond the current CPS period and therefore does not figure in the updated results framework (Annex 1). The adjustments to the CPS focus areas are as outlined in the following paragraphs.

found that Zambia could be declared creditworthy once GRZ has taken concrete steps to implement corrective fiscal policy actions and boost external liquidity.

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56. A first adjustment is made to sharpen the focus on inclusive growth and poverty with new lending in areas where the policy environment is conducive. • Safety net and nutrition. Following the successful policy dialogue on expanding social safety, a multi-

sector Girls’ Education and Women’s Empowerment Program has been approved. The WB supported project is expected to also contribute to an overall better coordinated social protection sector in Zambia. TA support is being provided to establish a single registry of beneficiaries using ICTs and a management information system. The design of the empowerment project is being informed by a diagnostic on adolescent girls; an innovative trust funded project for improving access to livelihood opportunities and nutrition among female youths will also be supported (Box 2). All will contribute to the IDA 17 special theme on gender equality. The government has also shown interest in fisheries development that could help increase jobs while contributing to improvement in the nutritional status of the population. Discussions are underway to accommodate this request as a part of an existing agricultural operation.

• Sanitation. Together with four international financial institutions, the WB is supporting a comprehensive GRZ program to improve sanitation in Lusaka. The WB will focus on activities that benefit poor residents with improved on-site sanitation facilities, improved hygiene behaviors and better disposal and management of fecal waste and will contribute to the IDA 17 theme on inclusive growth. Support will also be provided for improving the commercial viability of the Lusaka Water & Sewage Company and for promoting innovative approaches to peri-urban sanitation.

• Mining and Environment Remediation and Improvement. The project will build on the earlier Copperbelt Environment Project (FY03) to address some of the public health issues associated with environmental legacies of past, present and future mining activities, including risks associated with the management of tailings in the Copperbelt region. It will help reduce the vulnerability of the poor most exposed to health hazards and provide support for building institutional capacities to monitor, enforce and implement relevant environmental legislation.

• Eastern Region Inclusive Growth. The project will support rural infrastructure investments, including feeder roads and low-cost electricity grid extensions, so that the poorer rural areas have access to markets and off-farm employment opportunities, such as in agro-processing. It will build on the findings of a growth pole study and lessons from the Output and Performance Based Road Contracting (OPRC) pilot under ADSP and contribute to the IDA 17 theme on inclusive growth.

• Integrated Forest Landscape Program. Building on the pilot project with COMACO, Zambia has been selected for the third tranche of the BioCarbon Fund which will scale up approaches to reducing carbon emissions from deforestation and forest degradation to the landscape level in the Eastern Region. The program will leverage investment financing from partners, including bilateral cooperating partners and the private sector, to support rural livelihoods while reducing deforestation through conservation agriculture and improvements in the efficiency of the charcoal value chain.

• Access to electricity. Global Partnership for Output Based Aid (GPOBA) trust fund resources are being tapped for an additional grant for increasing access to electricity in peri-urban areas. The WB will also support a South South exchange with Namibia and Ghana to expose Zambian officials to low cost electrification options for scarcely populated poorer rural areas where electricity access is at less than 5%. Zambia was recently approved for participation in the Scaling-Up Renewable Energy (SREP) program under the Climate Investment Funds (CIF) and work is ongoing to determine the focus of the program in the country.

57. A second set of adjustments are made to increase the strategic contribution of ASA and trust fund activities to manage the macro-risk. These include: • Just –in-time input: The IMF is expected to lead the advice on macro-policy, and the WB will support

the dialogue through just –in –time technical notes and TA as appropriate. • Technical support for improved fiscal management. In a possible second phase, the PFMRP is

expected to provide support: to the Auditor General’s office to improve external oversight over revenues and expenditures; to the Institute of Chartered Accountants to upgrade their professional curriculum; and

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to the Public Accounts Committee of the Parliament to enforce accountability through the parliamentary mechanism.

• Budget support. It will be contingent on an adequate macro- economic framework and will support the MOF on debt management, project appraisal, budget execution reporting, revenue administration and cash management.

• Transparency in the mining sector. Continued support for increasing transparency in the mining sector will be provided through EITI. In addition, a mining governance assessment will address key information needs of stakeholders in the sector. Among other things, it will provide a thorough country-level analysis of mining governance strengths and challenges and will summarize information required by investors and financial institutions to make informed decisions in the sector.

58. A third adjustment will involve using non-lending strategically to move the development agenda in areas critical for poverty reduction and promoting competitiveness but where there is no lending. This will include: • Advisory support for the telecoms and IT sector. While several of its pipeline investments in the

sector did not come to fruition due to a variety of issues, IFC is providing advisory services to Airtel Mobile Money, drawing on the lessons of Kenya’s M-Pesa, to design and implement sustainable and scalable mobile money operations that expand access to financial services in Zambia. Based on an ICT policy dialogue, the WB has also planned numerous activities in the areas of improving connectivity, digital identification, cyber security, e-governance, legal and regulatory reform in the telecommunication sector.

• Financial inclusion. In the years following the CPS, Zambia was included as one of the focus countries for achieving Universal Financial Access because of its large proportion of unbanked adults and its strong commitment for financial inclusion. The WBG is supporting GRZ in expanding financial inclusion, particularly in rural areas. A Financial Sector Assessment Program update is also planned. On the request of the BOZ, a diagnostic review of Consumer Protection and Financial Literacy (CPFL) was conducted and technical assistance is being provided to help implement key recommendations. The WB is supporting the preparation of the Financial Inclusion Support Framework which will help provide comprehensive multi-year support to Government in advancing its financial inclusion agenda. An Investment Climate Assessment based on the 2013 Enterprise Survey will inform a demand side analysis for SME finance. A FIRST Initiative trust fund is under preparation to strengthen supervisory capacity of BOZ in risk-based supervision.

59. A fourth adjustment is made to strengthen the collaboration within the WBG institutions

in the following areas:

• Agricultural productivity. WB, IFC and MIGA will attempt to deepen collaboration through joint missions, to contribute to improving agricultural productivity. • Public private partnerships (PPPs). WB, IFC and Public-Private Infrastructure Advisory Facility (PPIAF) dialogue with GRZ will be coordinated to facilitate policy, legal and regulatory framework discussions for PPPs. While PPP’s remain a priority for GRZ, actual progress has been limited. IFC’s proposals to take forward specific projects to promote “learning by doing” did not get traction, in part due to the absence of a coordinated approach and appointment of a clear GRZ counterpart. So far, IFC has explored leads in power, transport (roads, rail, airport), and agribusiness (grain silos). A PPIAF Sub-National technical assistance grant is being provided to the BOZ for capacity building. 60. A final adjustment will be made to scale up support for opportunities that allow land-locked Zambia to benefit from regional interventions. Many regional interventions such as on regional TB, Great Lakes Border Cohesion Communities and Eastern, and Southern Africa higher Education Centers of Excellence could allow Zambia to leverage concessional resources for development.

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VII. RISKS TO CPS PROGRAM

Table 5: Revised systematic operations risk-rating tool (SORT)

Risk Categories Rating Political and governance Substantial Macroeconomic Substantial Sector Strategies and policies Moderate Technical design of project or program Moderate Institutional capacity for implementation and sustainability Substantial Fiduciary Moderate Environment and social Moderate Stakeholders Moderate Other exogenous risks Substantial

Overall Substantial

61. The CPS identified several potential risks to the achievement of envisaged results. These included the political risks that lead to frequent administrative changes negatively affecting project implementation, institutional risks, including the weak implementation capacity, and fiduciary risks. Recently the risk to macro-economic stability has also emerged. The SORT analysis reaffirms the prevalence of these risks with an overall Substantial risk rating. 62. Political and governance: Though Zambia has successfully concluded the presidential by-elections, it is in a pre-election year and preparations for the 2016 national elections could distract high-level government attention from program implementation. This risk can to some extent be mitigated by getting attention to portfolio implementation from the highest levels in GRZ and also coordinating with other CPs.

63. Macroeconomic: The risk of external and internal imbalances occurring and undermining stability is substantial. The Zambian economy is highly vulnerable to copper prices and fluctuations in international financial markets. Space for policy response to exogenous shocks is low. If the fiscal position worsens it will impact counterpart funding on Bank projects. The Bank will coordinate with the IMF and strategically support non-lending to contribute to managing the fiscal situation. Attempts will also be made to keep the public informed on the latest issues through focused articles in the media.

64. Institutional capacity for implementation and sustainability: The Bank has been taking steps to work closely with MOF to address the institutional and other constraints that have handicapped project implementation. In February 2015, the WB Procurement and Financial Management teams held a joint disbursement and procurement status implementation review. Project specific issues were identified including remedial plans and are being monitored. Going forward, the WB is exploring the opportunity to partner with other multilaterals, such as the AfDB, to jointly address portfolio implementation issues. It is also exploring the possibility of testing out the findings of the recent WDR on behavioral economics of how to address the lack of incentive issue with managers of projects in the Government.

65. Other exogenous risks: Zambia has not suffered directly from the Ebola outbreak, but the experiences of Western Africa highlight the severity of macroeconomic disruptions that can result from contagious disease outbreaks in an environment of weak public service delivery. The WB is working with other CPs and the Ministry of Health to take steps to manage the risk.

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Annex 1: CPS Revised Results Matrix

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

Strategic Objective 1: REDUCING POVERTY AND THE VULNERABILITY OF THE POOR To reduce the high poverty levels in the rural areas the SNDP and the revised SNDP give priority to stimulating agricultural productivity and promotion of agro-businesses. Overall crop production increase is expected to come from expansion of areas under cultivation and irrigation as well as increased productivity through the use of improved seed varieties and linkages between research and extension services. Livestock production will be increased through prevention and control of livestock diseases, improving production and productivity of the various livestock species and promotion of public-private partnerships in value addition and processing of livestock products as well as in the provision of effective service delivery and marketing of products.

Zambia’s land and water resources could be used more effectively to promote agriculture sector development. Productivity is low because of inadequate use of fertilizers, weak research and extension systems, lack of irrigation and access to markets particularly for small-scale operators in remote areas, poor rural roads and limited or expensive finance.

The livestock sub-sector that accounts for about 35% of agriculture GDP suffers from inadequate disease control and other problems

Indicator 1.1.1 Reduction in diseases in the livestock project areas: Baseline (2012): CBPP prevalence in cattle %: 1 FMD outbreaks in cattle %: 1 Target (2017): CBPP in cattle %: 0.5 FMD in cattle %: 0 Indicator 1.1.2 Number of technologies that are being made available to farmers and other end users Baseline (2013): 0 Target (2017): 25

Milestones 1.1.1 • Vaccination coverage in

project risk areas against ND, CBPP and FMD

• Disease specimen samples tested in laboratories supported by the project of ND, CBPP and FMD

Milestones 1.1.2 • Number of collaborative

research or extension projects under implementation

• Percentage of collaborative research or extension projects completed

• Number of technologies generated

Financing: On-going IDA: Irrigation Development and Support Project (P102459) FY11 Livestock Development and Animal Health Project (P122123) FY12 Regional IDA project: Agriculture Productivity Program for Southern Africa-APPSA (P094183) FY13 Trust Fund: ICT Enhanced Services for Women Farmers in Irrigated Agriculture (P151201) Zambia Integrated Forest and Sustainable Land Management Program TA (P153071) COMACO Landscape Management (P144254) Pipeline IDA: Eastern Region Inclusive Growth (P149091) FY16 IFC: Agrivision investment Knowledge: On-going ASA Linking Women and the Private Sector (P132953) Planned ASA Land Policy Dialogue Partnership South-south learning, Collaborative partnerships between weak and strong systems in the region through APPSA Collaboration with Indaba Agriculture Policy Research Institute Other cooperating partner USAID, EU, Finland, AfDB, JICA, IFAD, FAO

Outcome 1.1 Improved crop and animal productivity in selected areas

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Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

Reducing the socio-economic impact of disasters by enhancing and building strong disaster risk management mechanisms at community, district and national level as well as building infrastructure that can withstand natural disasters is emphasized.. Improving the provision of basic services such as water and sanitation, health, education and skills development is emphasized. The government recognizes health as one of the priority sectors. Focus will be on promoting preventive, curative and rehabilitative health services.

The poor are vulnerable to climatic and financial shocks, food insecurity during the lean periods and high food prices.

Zambia’s climate is highly variable, with frequent and prolonged droughts, seasonal and flash floods, extreme temperatures and dry spells during the wet season. These trends are expected to intensify in the future. In the absence of adaptation, rainfall variability alone could keep an additional 300,000 people below the poverty line over the next decade, and affect annual GDP growth by 0.9 percent.

Maternal and child mortality continue to be at unacceptably high levels despite the progress made.

Zambia not only needs to invest more money into health (Abuja target of 15% still to be achieved), but also needs to examine whether current investments are efficient and cost- effective.

Indicator 1.2.1 Direct project beneficiaries from small water resources infrastructure developments Baseline (2013):0 Target (2017): 20,000 beneficiaries Indicator 1.2.2 Vulnerable districts, wards and communities use improved tools, information and instruments to respond to climate change and variability Baseline (2013): 0% Target (2017): 30% of targeted councils, wards and community groups assessed Indicator: 1.2.3 Increase in the percentage of children under five years of age who slept under an insecticide treated net last night (Reduced incidence of morbidity and mortality due to malaria in children under-5) . Baseline (2010): 50% Target (2013): 55% Indicator: 1.2.4 Increase in the percentage of women delivering in facilities by a skilled birth attendant in RBF

Milestones 1.2.1 • 2013: Approval of

dam/other infrastructure designs and user committees established

• 2014: construction works in progress

Milestones 1.2.2 • Number of relevant

climate information products/services made available for decision making at various levels

• Degree of mainstreaming of climate resilience in local area planning

Milestones 1.2.3. and 1.2.4 • Analytics on ICTs for

Health conducted and report produced (2013)

• Implementation Plan for the Scaling-up Nutrition (SUN): 1000 days strategy developed and costed

Financing: On-going IDA: Irrigation Development and Support Project (P102459) FY11 Water Resources Development (P114949) FY13 Health Services Improvement (P145335) FY14 Lusaka Sanitation (P149091) FY15 Girls Education and Women’s Empowerment and Livelihood (P151451) FY15 Trust Funds: GEF Extension of the Kasanka Management System to Lavushi Manda National Park (P108882) Sustainable Management of Nyika Transfrontier Conservation Project (P108879) HIV Efficiency Analyses and TA for HIV Delivery Solutions (P151945) Zambia Community RBF Impact Evaluation (P152482) Health Services Results Based Financing (P145764) Program to Improve the Commercial Viability of the Lusaka Water and Sewerage Company and to Strengthen Institutional Capacity (P150056) Zambia Strengthening Climate Resilience – PPCR Phase II (P127254) COMACO Landscape Management Project (P144254) Adolescent Girls in Zambia and Malawi (P152904) Pipeline IDA: Eastern Region Inclusive Growth (P149091) FY16 Zambia Environmental Remediation and Improvement (P154683) FY16 Knowledge: On-going ASA Zambia HRBF Impact Evaluation (P130495) Policy Dialogue on National Social Protection (P146858) Planned ASA Rural-urban linkages. Peri-Urban Poor (Sanitation Improvement and Condiminial Sewerage). Designing, Piloting and Evaluation of Community Based RBF Intervention. Assessment of ideal workload and optimal manpower for delivering an integrated package of high impact

Outcome: 1.2. Improved access to resources for strengthening household resilience and health in targeted areas

18

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

eligible districts (Improved maternal and child health outcomes in Results-based financing (RBF) intervention districts) Baseline (2010): 31 Target (2013): 36 Indicator 1.2.5 Deliveries attended by skilled health providers Baseline (2014): 27% Target (2017): 45%

• Capacity Building in Nutrition provided (targets to be decided during preparation of TA)

• Analytics (in 3-5 priority areas) for the Health Care Financing

• Strategy developed • Analytics on HIV

conducted and report produced

Milestones 1.2.5 • Percentage of trained

health workers deployed to facilities in five provinces

• Protocols and guidelines at community and primary care levels updated and disseminated

HIV/AIDS interventions at the Primary Health Level in Zambia. Partnership The World Bank will be working closely with IFC and the AfDB in strengthening community resilience to shocks and improving their asset and resource base in critical sub-basins of the Zambezi. The WB and USAID are also collaborating to improve results in the health sector by identifying and removing bottlenecks to increased collaboration at the country level. Other cooperating partner AfDB, Nordic Development Fund, UN, GEF, World Fish, Red Cross, Concern etc. Sweden, USAID, UK, European Union, WHO, UNICEF and other UN Organizations

Strategic Objective 2: IMPROVING COMPETITIVENESS AND INFRASTRUCTURE FOR GROWTH AND EMPLOYMENT The policy of the government is to accelerate private sector investment to achieve increased and diversified growth. The government will continue to reform the business environment in Zambia to improve its competitiveness and to attract and sustain private investment. Government is also encouraging public-private partnerships. Within the overall strategy and policy thrust of government to accelerate private sector-led diversification and industrialization, government has emphasized it will facilitate value-addition by putting in place industrial infrastructure to help SMEs to manufacture locally in a way that can substitute for manufactured inputs or be exported. Local content for mining operations, in Zambia and in the region, offers promise in this regard.

Considerable progress has been achieved but weaknesses in investment climate persist as shown by Doing Business 2013 & 2015 Diversification and industrialization are hampered by competiveness and productivity issues. Several outcomes related to competitiveness are linked to infrastructure, border controls and investment climate

Indicator 2.1.1 Number of achieved reforms per year on ease of Doing Business e.g. priorities include trading across borders and construction permit Baseline (2011): 3 Target (2017): 6 Indicator 2.1.2 Number of days to provide business registration Baseline (2012): 3 days Target (2014): 1 day

Milestones 2.1.1: • 2014: 3 • 2015: 4 • 2016: 4+ • 2017: 2 Milestones 2.1.2 • Stakeholder agencies

(NRA, NAPSA and PACRA) for one stop

Advisory work IFC: Investment Climate Program phase II Financing: Pipeline IDA: The support for institutional reforms and capacity development from the likely budget support credits will contribute towards improving the enabling environment for private sector development. IFC: Investment in manufacturing sector Knowledge: On-going ASA Zambia Economic Briefs (P148042) Fourth Economic Brief – Financial Inclusion (P149550) Fifth Economic Brief – Mining (P151208) Zambia Policy Notes on Managing Copper Resources (P151807)

Outcome 2.1: Improving key aspects of the regulatory environment for business

19

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

Poor trade logistic performance make Zambia less competitive

Indicator 2.1.3 Improvement in trade logistics performance (as measured by Logistics Performance Index) Baseline (2015): 2 (number) Target (2017): 3 (number)

shop in Lusaka connected

• One stop shop becomes operational

Milestones 2.1.3 • Support the rollout of

ASYCUDA World by providing implementation support to agri agencies (and other stakeholders).

• Review and streamline processes and procedures

• Review multiple licensing and inspection charges

Planned ASA: Zambia Investment Climate Assessment Partnership AUSAID and WBG, and possibly the EU, will collaborate on capacity building and skill-building support in priority technical areas, e.g. mining cadaster improvements, geo-data mapping and physical audits monitoring, and integrated planning for mining and infrastructure. AUSAID study tours and scholarships for government officials to countries where capacity in these areas is advanced. WB and IFC are facilitating ZMLCI, a collaborative public-private initiative. WB is also working with ACET in Ghana; IFC and the WB are also coordinating their support to the Government for PPPs in key areas such as capacity building through implementation of actual PPP transactions Other cooperating partners AUSAID, EU, DFID

The SNDP emphasizes road and railway transport maintenance and rehabilitation, including improving access for rural communities. It also puts emphasis on increasing access to electricity. The government recognizes the energy sector as a key driver of growth and increasing irrigation infrastructure. The SNDP also puts emphasis on effective water resource management at catchment, regional and national level

Critical infrastructure investment gaps and inadequate supply of electricity, water supply and sanitation, and high transport costs constrain growth In the urban areas lack of reliability of supply of electricity is a big issue

Indicator 2.2.1 Decrease in the average interruption frequency per year (SAIFI) in the project area Baseline (2013): 5.00 Target (2017): 3.00 Indicator 2.2.2 Households with access to an all season road as percentage of total population in targeted 5 districts Baseline (2010): >5% Target (2016) >60%

Milestones 2.2.1 • Transmission lines

constructed under the project

• Transmission lines rehabilitated under the project

• Substations upgraded and functional

Milestones 2.2.2 • 120 kilometers of roads

benefiting from spot improvements in the targeted 5 districts

Financing: On-going IDA: Road Rehabilitation Maintenance Project Phase II (P106596) FY10 Increased Access to Electricity Services Project (P077452) FY08 Lusaka Transmission and Distribution Rehabilitation (P133184) FY13 Water Resources Development Project (P114949) FY13 Regional IDA projects: Kafue-Muzuma-Victoria Falls Regional Transmission Line Reinforcement Project (P124351) FY12 Kariba Dam Rehabilitation (P146515) FY15 Trust Fund: GEF Increased Access to Electricity (P076320) Zambia SREP Investment Plan (P153795) Renewable Energy Resource Mapping and Geospatial Planning (P145271) Government Improvement in the Road Sector in Zambia (P131231)

Outcome 2.2 Selected Infrastructure built and rehabilitated

20

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

Frequent droughts and floods, hydrological variability and seasonal water shortages compounded by growing water demand from the major sectors of the economy and limited water infrastructure impose a serious constraint on medium and long term growth prospects

Indicator 2.2.3 Rural population (no.) with access to reinstated river crossings: Baseline (2010): 120,000 Target (2016): 508,000

• 6 small bridges rehabilitated in the 5 targeted districts

• Revised milestone: 135 kilometers of roads benefiting from spot improvements in the targeted 5 districts (milestone revised by Justin)

Milestones 2.2.3 • 103 additional river

crossings rehabilitated • Two bridges

constructed, at Chiawa and Mufuchani

Pipeline IDA: Eastern Region Inclusive Growth (P149091) FY16 Knowledge: Planned ASA Peri-Urban Poor (Sanitation Improvement and Condiminial Sewerage). Partnership The WB will work closely with IFC and CPs such as DFID to support the government with PPPs for infrastructure. Updating of the 2003 National Transport Policy. The WB facilitated a meeting between the Energy Ministers of Zambia and Zimbabwe and the Zambezi River Authority to discuss the financing and rehabilitation options for the Kariba dam and the financing options for the Batoka Gorge. Other cooperating partners DFID, AfDB, EU, EIB, Germany, MCA, China

The high cost of finance and limited access to financial services is a constraint to capital formation and growth. The Financial Sector Development Program (FSDP) is the broad reform program for the financial sector and will continue to be implemented under Phase II in the SNDP. The reform measures will be focused at addressing weaknesses in the financial sector so as to:- (i) Improve market infrastructure; (ii) Increase competition; and (iii) Increase access to finance.

The limited availability and high cost of financial services poses a serious constraint on the ability of entrepreneurs to start and/or to expand their operations. Small and medium enterprises are the most affected

Indicator:2.3.1 Improvement in ease of access to loan by enterprises (as measured by the World Economic Forum Global competitiveness) index: 1-7(best) ) Baseline (2015): 2.4 Target (2017): 3.0 Indicator 2.3.2 Number of recommended laws/regulations/amendments/codes enacted or government policies adopted and Number of entities that implement recommended changes Baseline:(2014): 0 Target (2016): - 2 laws/regulations/amendments/ codes

enacted or adopted; and

Milestones 2.3.1: • Develop and expand the

use of new instruments such as factoring services, warehouse receipt and order financing beyond their current low-levels

• Adoption of new Insolvency Law

Milestones 2.3.2 • Personal Property

Security Act enacted • Personal Property

Security Registry system implementation by the Patents and

Financing: On-going Trust Funds: Zambia Financial Consumer Protection TA (P150987) Policy Dialogue on National Social Protection (P146858) Support for Development of MIS and Single Registry of Beneficiaries (P147659) Let’s Work Program in Zambia (P153568) Pipeline Trust Funds: Zambia Financial Sector Advisory TA for Policy Dialogue. Launch and Implementation of Multi-Year Financial Inclusion Support Framework Launch and Implementation of New FIRST Programmatic TA on risk based supervision. Joint WBG/IMF FSAP Update. IFC: ABZ LC Loan 2013 Knowledge: On-going ASA Zambia Financial Sector Advisory (P151850)

Outcome 2.3: Improved Access to finance for small enterprises

21

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

- 3 entities implement recommended changes

Companies Registration Agency (PACRA)

• Establishment of the Registry office

IFC Advisory projects: Zambia Secured Transactions and Collateral Registry MicroEnsure Zambia AB Bank Zambia Advisory Partnership The World Bank and IFC are coordinating their support for financial and private sector development in Zambia through better information sharing, overall business planning and complementary support. Other cooperating partners DFID, Finland, AfDB

Strategic Objective 3: IMPROVING GOVERNANCE AND STRENGTHENING ECONOMIC MANAGEMENT Government will continue to promote good governance during the SNDP period in the following areas (i) enhancing integrity, accountability and transparency in public and private bodies; 2) improving access to Justice by all especially for the vulnerable; 3) promoting human rights and 4) enhancing democratization. The Government intends to put in place effective mechanisms that prevent corruption, improve service delivery and promote broad-based participation in public affairs.

Weaknesses remain in public finance and human resource management, including limited monitoring and evaluation and suboptimal statistics. Both the executive and oversight institutions have not been able to fully implement their stated mandate because of inadequate capacity and low expertise. Informal oversight through social accountability is also weak. There is recurring misuse/misappropriation of public resources. Though there is legislation requiring disclosure of assets, its scope is limited and there is no verification in practice. The prevalent mindset in the civil service still remains inhibitive to results-oriented delivery. Though some progress has been made (e.g. pay policy reforms), there now needs to be a shift from process to results. This

Indicator 3.1.1 Improved coverage of integrated financial management system (IFMIS) Baseline (2012): 28 sites Target (2017): 50 sites Indicator 3.1.2 M&E Baseline (2012): M&E systems are weak and uncoordinated Target (2016): Pilot implementation to commence in 5 sectors spread over 6 ministries

Milestones 3.1.1 • 2014: roll out to 35 sites

complete • 2015: 48 sites • 2016: Budget for 2016

to be generated through IFMIS

• 2017: roll out in 50 sites complete & starting of pilots in selected districts

Milestones 3.1.2 • 2013: Sound M&E

framework is developed, based on diagnostic of existing system

• 2014: Implementation plan finalized and pilots initiated in select

Financing: On-going Trust funds: Public Financial Management Reform Program Phase I (P147343) Zambia Statistical Capacity Building (P151680) Public Financial Management Reform Program (P132523) Pipeline IDA: Zambia Environmental Remediation and Improvement (P154683) FY16 Trust funds: Public Financial Management Reform Program MDTF, Externally Financed Output (EFO) Knowledge: Ongoing ASA Zambia Mining Sector Governance Reform (P122732) Public Sector Management (P133378) Economic Briefs (P148042) Support to Increase Accountability in Zambia (P121142) Zambia Mining Sector Governance Reform (P122732) Support to demand for Good Governance in Zambia (P125474) Zambia Wage Bill Management TA (P152324) Poverty Statistical Capacity Building (P154499) Planned ASA Zambia Financial Sector Advisory TA for Policy Dialogue. Launch and Implementation of Multi-Year Financial Inclusion Support Framework

Outcome 3.1: Strengthened systems and processes for public sector performance

22

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

requires strategic performance management and monitoring framework across Government, with specific-time-bound targets and indicators against which progress can be measured.

Indicator 3.1.3 Procurement reform Baseline (2010): 0 Target (2017): (i) procurement audits carried out for at least 33% of MPSAs (ii) Capacity and Risk Assessment carried out in 120 MPSAs and Risk Mitigation Action Plans implemented by 2017.

programs/ projects to create demonstration effect

• 2015: Needs assessments being done and project document for roll out of M&E framework to be developed

Milestones 3.1.3 Procurement regulations and national law amended • Institutional capacity

assessments undertaken for most MPSAs

• Procurement fully decentralized to MPSAs and their capacity assessment development continues

• ZPPA transformed into an oversight and regulatory body

Launch and Implementation of New FIRST Programmatic TA on risk based supervision. Joint WBG/IMF FSAP Update. Project Appraisal System TA Programmatic Support for Fiscal Management Partnership The Bank will continue to work closely with other CPs partners (including in the direct budget support group) to support strategic PSM and PFM reforms. For example, the Bank is partnering with DFID to provide technical assistance on IFMIS through an externally financed output (EFO) mechanism and has volunteered to provide the lead for the next phase of PFM reforms. Discussions are in progress for a possible multi-donor trust fund for pooling the resources for PFM reforms that will take into account the lessons learned from PEMFA and successful practices elsewhere. Other cooperating partners DFID, Swedish, EU, Finland, Germany, UNDP

The SNDP notes the government’s commitment to improve the efficiency, effectiveness, transparency and accountability of public funds. Government has also committed to sustain and build upon the gains made by the Zambian Extractive Industry Transparency Initiative on transparency of mining revenues and civil society participation

Suboptimal transparency and accountability levels and use of demand-side governance instruments, especially at the sub-national levels Transparency in the mining sector is key. Transparency through Zambia EITI process, including quality improvements in EITI data disclosure and IT automation, as well as strong engagement by civil society building upon Zambia's recent attainment of EITI-compliant status

Indicator 3.2.1 Transparency Baseline (2012): Zambia is now EITI-compliant Target (next validation due 2017): Maintain EITI-compliant status, including regular publication of mining revenues.

Milestones 3.2.1 • Continued publication

of Zambian EITI (mining transparency) reports of revenues and payments and wide communication of same, annually in line with EITI International requirements

Financing : Ongoing Trust fund: Extractive Industries Transparency Initiative Implementation Post Compliance I (P131881) Knowledge: Ongoing ASA Support to Increase Accountability in Zambia (P121142) Support to demand for Good Governance in Zambia (P125474) Supporting CSOs’ Participation in EITI Zambia (P132556) Fifth Economic Brief – Mining (P151208) Zambia Policy Notes on Managing Copper Resources (P151807) EITI Initiative (P102422) Partnerships Zambia EITI, and Zambian civil society, are supported by WB with technical assistance and grant funding via the EITI MDTF. Zambia EITI is additionally supported

Outcome 3.2: Citizen access to information increased

23

Country Development Objectives and Results

Issues and Obstacles CPS Outcomes Milestones World Bank Group Program (and Partners)

by the EU/Norway/DFID-funded Mining Basket Fund and AfDB Other cooperating partners DFID, Germany, Swedish, EU, Irish, USAID, Finland, UNDP

24

Annex 2: Changes to the Results Matrix Compared to 2013 CPS Version

Outcomes

Indicator

Milestones

1.1 Improved crop and animal productivity in selected areas

Indicator 1.1.1 on increased yields for major irrigated crops dropped as the irrigation component for the project has been delayed.

Dropped

Indicator 1.1.2 on livestock productivity is being replaced with the indicator on reduction in diseases. The indicator on livestock productivity is being restructured. Indicator 1.1.2 now becomes 1.1.1.

All the milestones changed to serve the restructured indicator

New Indicator 1.1.2 on increasing technology availability to farmers from the APPSA project.

New milestones

1.2 Improved access

to resources for strengthening household resilience and health in targeted areas

Indicator 1.2.1 on new irrigation and drainage services has been dropped as implementation of irrigation component delayed.

Dropped

Indicator 1.2.2 now becomes indicator 1.2.1 and target adjusted to account for implementation delays.

Milestone adjusted

New indicators 1.2.2 and 1.2.5 from climate resilience and health, respectively New milestones Indicators 1.2.3 and 1.2.4, no change. No change

2.1 Improving key

aspects of the regulatory environment for business

Indicator 2.1.1 on ease of doing business no change but new target for 2017 CPS extension year.

New milestone for 2017

Indicator 2.1.2 no change. No change New Indicator 2.1.3 on improvement in trade logistics performance. New milestones

2.2 Selected

infrastructure built and rehabilitated

Indicator 2.2.1 dropped because it was dropped from project. New indicator added, from another energy project.

New milestones for the new indicator 2.2.1

Indicator 2.2.2 no change. No change Indicator 2.2.3 dropped-project faced implementation delays. New indicator on access to reinstated river crossings.

New milestones for new indicator

2.3 Improved access

to finance for small enterprises

Indicator 2.3.1 restructured, shifting focus from SMEs accessing formal financial institutions to improving the ease of access to loans by enterprises.

New milestones with restructured indicator

New indicator 2.3.2 from new IFC project that became fully operational after the CPS’ approval.

New milestones

3.1 Strengthened

systems and processes for public sector performance

The target for indicator 3.1.1 changed from IFMIS coverage of 48 sites by 2015 to 50 sites by 2017 with CPS extension year.

The milestones for indicator 3.1.1 restructured

Indicator 3.1.2 on M&E systems in government has been restructured due to capacity issues in MOF.

The milestone also restructured

Indicator 3.1.3 target year changed from 2014 to 2017 because of limited progress and CPS extension.

No change

3.2 Citizen access to

information increased

Indicator 3.2.1 on the strengthened capacity of journalists has been dropped as the WB program supporting this indicator closed and all the funds exhausted before the indicator target could be achieved.

Dropped

Indicator 3.2.2 on transparency has become indicator 3.2.1 as the original 3.2.1 has been dropped.

No change

Indicator 3.2.3 on freedom of information has been dropped due to the reluctance of the Government to pass the Freedom of Information bill.

Dropped

25

Annex 3: Matrix Summarizing Progress Towards FY13-FY16 CPS Objectives

CPS Outcomes Progress To Date WBG Program Strategic Objective 1: REDUCING POVERTY AND THE VULNERABILITY OF THE POOR

Outcome 1.1 Improved crop and animal productivity in selected areas Indicator 1.1.1: Yields increase (tons /ha) for major irrigated crops in target sites Baseline (2010): Tomatoes: 10 Onions: 12 Wheat: na Bananas na Target (2016): Tomatoes 31 Onions: 32 Wheat: 29 Banana:31 Indicator 1.1.2: Increase in livestock productivity in project areas Baseline: (2012) hen mortality %: 40 kid (young goat) mortality %:33

Outcome 1.1: Watch: Progress on Outcome 1.1 was to be tracked through two indicators, both are being restructured. The two projects, IDSP and Livestock, have had slow implementation of their procurement plans and have experienced delay in disbursing funds. However, they made progress on the feasibility studies and in demonstrating technologies (irrigation project) and achieving vaccination coverage (livestock) Other projects in the portfolio, e.g. the regional APPSA project, IFC and MIGA interventions, and trust funded activities have been contributing to improving agricultural productivity. Indicator 1.1.1: Progress8 Tomatoes: 9 Onions: 10.50 Wheat: 4.4 Banana: 28 Milestones for indicator 1.1. 1: Watch: A total area of 26,647 ha has been covered by feasibility studies out of end target of 45,000 ha and 10 technologies out of end target of 16 have been demonstrated. But there has been delay in providing new irrigation and drainage services as only 800 ha out of end target of 10,000 ha has so far been covered. Milestones for indicator 1.1. 2: Watch: 95% of target for FMD and 89% for CBPP have been achieved on vaccinations. Data on small holder livestock owners (male and female) satisfied by the quality of veterinary services, and smallholder livestock owners adopting at least one project

Financing: On-going IDA: Irrigation Development and Support Project (P102459) FY11 Livestock Development and Animal Health Project (P122123) FY12 Regional IDA project: Agriculture Productivity Program for Southern Africa-APPSA (P094183) FY13 Trust Fund: ICT Enhanced Services for Women Farmers in Irrigated Agriculture (P151201) Zambia integrated Forest and Sustainable Land Management Program TA (P153071) Pipeline Trust Fund: Zambia COMACO Landscape Management (P144254) FY16 Eastern Region Inclusive Growth (P149091) FY16 Knowledge: On-going ASA Linking women and the private sector (P132953) Planned ASA Land Policy Dialogue Partnership South-south learning events, APPSA project is supporting the development of collaborative partnerships between weak and strong systems in the region Collaboration with Indaba Agriculture Policy Research Institute Other cooperating partner USAID, EU, Finland, AfDB, JICA, IFAD

8 Some crops like tomatoes may have progress lower than baseline due to seasonal changes associated with pest and disease problems causing fluctuations in the observed yield data.

26

CPS Outcomes Progress To Date WBG Program weaned piglets per sow per year %: 12 milk per cow per day liters: 6 Target (2015) Reduced hen mortality %: 33 Reduced kid (young goat) mortality %:30 Increased weaned piglets per sow per year %: 14 Increase milk per cow per day liters: 7

recommended improved animal husbandry practice will only be available after the mid-term review in mid-2015.

Outcome: 1.2. Improved access to resources for strengthening household resilience and health in targeted areas Indicator1.2.1: Area provided with new irrigation and drainage facilities (ha) Baseline (2012): 0 Target (2016): 10000 Indicator 1.2.2: Direct Project Beneficiaries from small water resources infrastructure developments Baseline (2013):0 Target: (2016): 80,000 beneficiaries

Outcome: 1.2: On-Track: Overall outcome 1.2 is made up of four indicators, two have been achieved, one is on-track and the achievement of the fourth has so far been challenging. The Malaria Booster Project achieved the indicators and surpassed the targets. However, the IDSP and WRD projects have faced implementation challenges. Indicator 1.2.1: Progress (2015): 800 Ha Milestones for Indicator 1.2.1: Watch: Progress in contracting a consultant has been made as short listing of firms has been completed, however the evaluation report has been delayed. By 2015, only 1,500 of the target of 8,000 water users provided with irrigation and drainage services achieved. Indicator: 1.2.2: Progress (2015): 28 Beneficiaries Milestones for Indicator 1.2.2: Mostly On-Track: Implementation of the WRD Project has faced delays partly as a result of delayed institutional reforms and donor coordination. However, the Zambia Public Service Management Division (PSMD) has begun undertaking staff inventories to provide an orderly transfer, capacity building and appraisal of staff under new institutional arrangements for the water resources sector. It is expected that by the end of the CPS period (with the one year extension) the reduced target will be achieved.

Financing: On-going IDA: Irrigation Development and Support Project (P102459) FY11 Water Resources Development (P114949) FY13 Health Services Improvement (P145335) FY14 Lusaka Sanitation (P149091) FY15 Girls Education and Women’s Empowerment and Livelihood (P151451) FY15 Trust Funds: GEF Extension of the Kasanka Management System to Lavushi Manda National Park (P108882) Sustainable Management of Nyika Transfrontier Conservation Project (P108879) HIV efficiency Analyses and TA for HIV Delivery Solutions (P151945) Zambia Community RBF Impact Evaluation (P152482) Health Services Results Based Financing (145764) COMACO Landscape Management Project (P144254) Adolescent Girls in Zambia and Malawi (P152904) Program to Improve the Commercial Viability of the Lusaka Water and Sewerage Company and to Strengthen Institutional Capacity (P150056) Zambia Strengthening Climate Resilience – PPCR Phase II (P127254) Pipeline IDA: Eastern Region Inclusive Growth (P149091) FY16 Zambia Environmental Remediation and Improvement (P154683) FY16 Knowledge: On-going ASA Zambia HRBF Impact Evaluation (P130495) Policy Dialogue on National Social Protection (P146858) Planned ASA Rural-urban linkages. Peri-Urban Poor (Sanitation Improvement and Condiminial Sewerage).

27

CPS Outcomes Progress To Date WBG Program Indicator: 1.2.3: Increase the percentage of children under five years of age who slept under an insecticide treated net last night (Reduced incidence of morbidity and mortality due to malaria in children under-5) . Baseline (2010): 50% Target (2013): 55% Indicator: 1.2.4: Increase in the percentage of women delivering in facilities by a skilled birth attendant in RBF eligible districts (Improved maternal and child health outcomes in Results-based financing (RBF) intervention districts) Baseline (2010): 31 Target (2013): 36

Indicator 1.2.3: Progress (2013): 57% Achieved Indicator: 1.2.4: Progress (2013): 58.5% Achieved Milestones for Indicators 1.2.3. and 1.2.4: Achieved: Zambia Malaria Booster Project trained 345 health personnel out of the targeted 300 in nutrition and other health related aspects for under five children and pregnant women and constructed/renovated/equipped 404 health facilities surpassing the 180 target.

Designing, Piloting and Evaluation of Community Based RBF Intervention. Assessment of ideal workload and optimal manpower for delivering an integrated package of high impact HIV/AIDS interventions at the Primary Health Level in Zambia. Partnership The World Bank will be working closely with IFC and the AfDB in strengthening community resilience to shocks and improving their asset and resource base in critical sub-basins of the Zambezi. The World Bank and USAID are also collaborating to improve results in the health sector by identifying and removing bottlenecks to increased collaboration at the country level. Other cooperating partner AfDB, Nordic Development Fund, UN, GEF, World Fish, Red Cross, Concern etc. Sweden, USAID, UK, European Union, WHO, UNICEF and other UN Organizations

Strategic Objective 2: IMPROVING COMPETITIVENESS AND INFRASTRUCTURE FOR GROWTH AND EMPLOYMENT Outcome 2.1: Improving key aspects of the regulatory environment for business Indicator 2.1.1: Number of achieved reforms per year on ease of Doing Business e.g. priorities include trading across borders and construction permit Baseline (2011): 3 Target (2016): 4+ Indicator 2.1.2 Number of days to provide business registration Baseline (2012): 3 days Target 2014: 1 day

Outcome 2.1: Achieved: Outcome 2.1 was supported with two indicators, both have been achieved. The two indicators were achieved: Currently, it’s taking only a day to register a business as the one stop shop is fully operational. Indicator 2.1.1: Progress (2015): 4 Milestones for Indicator 2.1.1: Achieved: The program has achieved its objective of 4 reforms by 2015 and two more reforms are expected to be delivered by 2016. Indicator: 2.1.2: Progress (2014): 1 day

Advisory work IFC: Investment Climate Program phase II Financing: Proposed IDA: The support for institutional reforms and capacity development from the likely budget support credits will contribute towards improving the enabling environment for private sector development. Knowledge: On-going ASA Zambia Economic Briefs (P148042) Fourth Economic Brief – Financial Inclusion (P149550) Fifth Economic Brief – Mining (P151208) Zambia Policy Notes on Managing Copper Resources (P151807) Planned ASA: Zambia Investment Climate Assessment

28

CPS Outcomes Progress To Date WBG Program

Milestones for Indicator 2.1.2 Achieved: One stop shop is operational and the stakeholder agencies of NRA, NAPSA and PACRA involved in business registration are all connected.

Partnership AUSAID and WBG, and possibly the EU, will collaborate on capacity building and skill-building support in priority technical areas, e.g. mining cadaster improvements, geo-data mapping and physical audits monitoring, and integrated planning for mining and infrastructure. AUSAID study tours and scholarships for Government officials to countries where capacity in these areas is advanced. World Bank and IFC are facilitating ZMLCI, a collaborative public-private initiative. World Bank also working with ACET in Ghana; IFC and the World Bank are also coordinating their support to the Government for PPPs in key areas such as capacity building through implementation of actual PPP transactions Other cooperating partners AUSAID, EU, DFID

Outcome 2.2 Selected Infrastructure built and rehabilitated Indicator 2.2.1: Metered electricity customers in the project target areas (number) Baseline (2012):400,000 (number) Target (2016): 480,000 (number) Indicator 2.2.2 Households with access to an all season road as percentage of total population in targeted 5 districts Baseline 2010: >5% Target 2014 >60%

Outcome 2.2: On-Track: Outcome 2.2 was supported with 3 indicators. Electricity and Roads projects achievements are substantial, while the WRD project has faced implementation delays. Indicator 2.2.1: Progress (2014): 470,000 Milestones for indicator 2.2.1: On-track: The Increased Access to Electricity Services Project has rehabilitated/constructed a total of 198.8Km of distribution lines exceeding the target of 155Km. 419262 people in urban areas and 14724 in rural areas have been provided access to electricity. As noted in Annex 2, the indicator however, is being dropped and replaced with another on electricity. Indicator 2.2.2: Progress (2015): 50% Milestones for 2.2.2: On-Track: 84Km (24Km from APL1 and 60Km from APL2) have been rehabilitated and 10 small bridges have been rehabilitated exceeding the target of 6 small bridges.

Financing: On-going IDA: Road Rehabilitation Maintenance Project Phase II (P106596) FY10 Increased Access to Electricity Services Project (P077452) FY08 Lusaka Transmission and Distribution Rehabilitation (P133184) FY13 Water Resources Development Project (P114949) FY13 Regional IDA projects: Kafue-Muzuma-Victoria Falls Regional Transmission Line Reinforcement Project (P124351) FY12 Kariba Dam Rehabilitation (P146515) FY15 Trust Fund: GEF Increased Access to Electricity (P076320) Zambia SREP Investment Plan (P153795) Renewable Energy Resource Mapping and Geospatial Planning (P145271) Government Improvement in the Road Sector in Zambia (P131231) Pipeline IDA: Eastern Region Inclusive Growth (P149091) FY16 Knowledge: Proposed ASA Peri-Urban Poor (Sanitation Improvement and Condiminial Sewerage). Partnership The Bank will work closely with IFC and CPs such as DFID to support the Government with PPPs for infrastructure. Updating of the 2003 National Transport Policy. The World Bank facilitated a meeting between the

29

CPS Outcomes Progress To Date WBG Program Indicator 2.2.3: Water storage and regulation established in at least 20 target rural communities Baseline (2013): 0 Target (2016) : 20 new / 30 rehab

Indicator 2.2.3: Progress (2015): Peparatory planning has been slow but progress is being made. There is a good chance of achieveing the 2016 Target. Milestones for Indicator 2.2.3: On-Track: The Water Resources Management Authority was established, however the WRD Project has faced implementation delays which has resulted in infrastructure inventory not being done and no water storage established. Delays have been as a result of constrained project management arrangements and human resources reform constraints in the water sector

Energy Ministers of Zambia and Zimbabwe and the Zambezi River Authority to discuss the financing and rehabilitation options for the Kariba dam and the financing options for the Batoka Gorge. Other cooperating partners DFID, AfDB, EU, EIB, Germany, MCA, China

Outcome 2.3: Improved Access to finance for small enterprises Indicator:2.3.1: Increase in the percentage of SMEs that have access to formal financial institutions Baseline (2010): <10% Target (2016): 25%

Outcome 2.3: Being-restructured: Outcome 2.3 has one indicator 2.3.1 which is being restructured. The credit line project could not be prepared because of the change in government Policy. Milestones for Indicator 2.3.1: Restructured: As noted above, being restructured.

Financing: On-going Trust Fund: Zambia Financial Consumer Protection TA (P150987) Let’s Work Program in Zambia (P153568) Pipeline Trust Fund: Launch and Implementation of Multi-Year Financial Inclusion Support Framework (Trust Fund). Launch and Implementation of New FIRST Programmatic TA on risk based supervision. Joint WBG/IMF FSAP Update. Knowledge: On-going ASA Zambia Financial Sector Advisory TA for policy dialogue (P151850) Partnership The World Bank and IFC are coordinating their support for financial and private sector development in Zambia through better information sharing, overall business planning and complementary support. Other cooperating partners DFID, Finland, AfDB

Strategic Objective 3: IMPROVING GOVERNANCE AND STRENGTHENING ECONOMIC MANAGEMENT Outcome 3.1: Strengthened systems and processes for public sector performance

Outcome 3.1: Overall Watch: Outcome 3.1 has three indicators, one is on on-track, another on the watch list while the third is being restructured. IFMIS has been successfully rolled out and the

Financing: On-going Trust Fund: Public Financial Management Reform Program Phase I (P147343)

30

CPS Outcomes Progress To Date WBG Program Indicator 3.1.1: Improved coverage of integrated financial management system (IFMIS) Baseline (2012): 28 sites Target (2015) 48 sites Target pilots in district Indicator 3.1.2 M&E Baseline (2012): M&E systems are weak and uncoordinated . Target (2016): 5 select ministries/ departments have begun using an integrated M&E system Indicator 3.1.3 Procurement reform Target (2014): (i) procurement audits carried out for at least 33% of MPSAs (ii) MPSAs implementing Procurement Risk Mitigation Action Plans

process for procurement reform is moving. Little progress has been achieved with M&E due to capacity issues in MOF. Indicator 3.1.1: Progress (2014): 43 Sites Milestones for Indicator 3.1.1: On-Track: IFMIS has been successfully rolled-out in 43 sites as of 31 December 2014. This includes 22 Ministries, 10 Provinces and 11 other spending units. Indicator 3.1.2 Progress (2015): M&E framework was developed, based on diagnostic of existing system even though it was achieved in 2014, a year later than it was initially planned Milestones for Indicator 3.1.2: Restructured: Implementation of an integrated M&E has been delayed due to capacity issues in MOF, therefore, indicator has been restructured. An M&E framework has been developed and a joint technical committee has been formed to oversee the implementation of M&E across government. Indicator 3.1.3: Progress (2015): Assessment tool for audits being developed. Milestones for Indicator 3.1.3: Watch: Procurement was fully decentralized to MPSAs in January 2013. Since then, with support from Finland/HAUS, capacity building and change management has been ongoing and ZPPA has been transformed into an oversight and regulatory body. The process for amending the procurement regulations and national law is moving. However, because of staff limitations, ZPPA restructuring was only completed in December 2014 while retrenchment was carried out in January 2015. The assessment tool for procurement audits is also still being developed.

Zambia Statistical Capacity Building (P151680) Public Financial Management Reform Program (P132523) Pipeline IDA: Zambia Environmental Remediation and Improvement (P154683) FY16 Trust Fund: Public Financial Management Reform Program MDTF, Externally Financed Output (EFO) Knowledge: Ongoing ASA Zambia Mining Sector Governance Reform (P122732) Public Sector Management (P133378) Economic Briefs (P148042) Support to Increase Accountability in Zambia (P121142) Zambia Mining Sector Governance Reform (P122732) Support to demand for Good Governance in Zambia (P125474) Zambia Wage Bill Management TA (P152324) Poverty Statistical Capacity Building (P154499) Planned ASA Zambia Financial Sector Advisory TA for Policy Dialogue. Launch and Implementation of Multi-Year Financial Inclusion Support Framework (Trust Fund). Launch and Implementation of New FIRST Programmatic TA on risk based supervision. Joint WBG/IMF FSAP Update. Partnership The Bank will continue to work closely with other CPs partners to support strategic PSM and PFM reforms. For example, the Bank is partnering with DFID to provide technical assistance on IFMIS through an externally financed output (EFO) mechanism and has volunteered to provide the lead for the next phase of PFM reforms. Discussions are in progress for a possible multi-donor trust fund for pooling the resources for PFM reforms that will take into account the lessons learned from PEMFA and successful practices elsewhere. Other cooperating partners DFID, Swedish, EU, Finland, Germany, UNDP

31

CPS Outcomes Progress To Date WBG Program Outcome 3.2: Citizen access to information increased Indicator 3.2.1: Strengthened capacity of journalists Baseline (2012): Low levels of investigative journalism in Zambian media Target (2016): Increase in levels of investigative journalism in Zambian media Indicator 3.2.2: Transparency Baseline (2012): Zambia is now EITI-compliant Target (next validation due 2017): Maintain EITI-compliant status, including regular publication of mining revenues.

Outcome 3.2: Outcome overall on track: Outcome 3.2 has three indicators, two are on-track and one is on watch. Ibrahim Index of African Governance and the Economist Intelligent Unit shows some improvements in Zambia. Some of the key factors that have contributed to these gains include the increased participation of citizens through the growing number of private-owned community radio stations, TV stations, and print and online newspapers. Indicator 3.2.1: Progress (2015): The establishment of Investigative unit within existing independent media has been initiated - early days of development. Milestones for Indicator 3.2.1: On-Track: Zambia’s most promising journalists trained and mentored in investigative skills and skills of reporting on technical topics (including EITI, mining taxation, roads, access to information etc.). The 2011 EITI Report was disseminated to stakeholders including journalists. Separately, capacity building activities were undertaken for civil society including journalists covering topics related to (i) the new EITI Standard; (ii) overview of the mining value chain; and (iii) base erosion and profit shifting (“BEPS”), of which transfer pricing is included. Indicator 3.2.2: Progress: Next Validation due in 2017 Milestones for Indicator 3.2.2: On-Track: 2011 report has been prepared and disseminated, while the 2012 report was prepared and finalized by December 31, 2014. Indicator: 3.2.3: Progress (2015): Bill not yet passed Milestones for indicator 3.2.3: Watch: No progress achieved since 2012 when draft legislation was finalized due the reluctance of the Government to pass the bill. The Freedom of Information Bill is highly contentious. The indicator is being dropped from the CPS.

Financing: Ongoing Trust Fund: Zambia Statistical Capacity Building (P151680) Extractive Industries Transparency Initiative Implementation Post Compliance I (P131881) Pipeline Zambia Financial Sector Advisory TA for Policy Dialogue Joint WBG/IMF FSAP Update Knowledge: Ongoing ASA Support to Increase Accountability in Zambia (P121142) Support to demand for Good Governance in Zambia (P125474) Agriculture Policy Note (P128735) Supporting CSOs’ Participation in EITI Zambia (P132556) Zambia Economic Briefs (P148042) Fourth Economic Brief – Financial Inclusion (P149550) Fifth Economic Brief – Mining (P151208) Zambia Policy Notes on Managing Copper Resources (P151807) Governance Improvement in the Road Sector (P131231) Partnerships On the Accountability through Community radio pilot the Bank has been partnering with Cambridge University’s Centre for Governance and Human Rights, to evaluate the use of ICT-enabled systems for improved governance. With the Support to Investigative Journalism pilot the Bank has established strong partnerships with The Mail & Guardian in South Africa and The Bureau for Investigative Journalism in UK. WB and DfID are currently exploring the possibility of a joint media fund that would provide institutional grants towards the development of investigative journalism. The On Track pilot is the result of an internal Bank collaboration between WBI, AFTOS and PREM. Zambia EITI, and Zambian civil society, are supported by WB with technical assistance and grant funding via the EITI MDTF. ZEITI is additionally supported by the EU/Norway/DFID-funded Mining Basket Fund and AfDB Other cooperating partners DFID, Germany, Swedish, EU, Irish, USAID, Finland, UNDP

32

CPS Outcomes Progress To Date WBG Program Indicator 3.2.3: Freedom of Information Baseline (2012): Zambia has no Freedom of information Bill Target (2016): Bill is passed and Legislation is being implemented

33

Annex 4: IFC Programs

Zambia Committed and Outstanding Portfolio by Client

As of May 31, 2015 US$ millions

Approval FY Institution Sector Committed Outstanding

LN ET TOTAL LN ET TOTAL

2011/ 2013 Access Zambia Finance & Insurance - 0.25 0.25 - 0.25 0.25

2014 Bayport Zambia Finance & Insurance 8.25 - 8.25 8.25 - 8.25

1976/ 1993 DBZ Finance & Insurance - 0.00 0.00 - - -

2010 Zanaco Finance & Insurance 15.00 - 15.00 15.00 - 15.00

2015 Chayton Africa Agriculture & Forestry - 20.00 20.00 - - -

1985/ 1990/ 1993

Mpongwe Agriculture & Forestry - 0.08 0.08 - - -

1982/ 1990/ 1993

Ethanol Zambia Chemicals - 0.00 0.00 - - -

2010/ 2012 Zambeef Food & Beverage 30.00 - 30.00 30.00 - 30.00

1975/ 1990/ 1993

Century Pack Plastics & Rubber - 0.05 0.05 - - -

TOTAL: 53.26 20.39 73.64 53.26 0.25 53.51 Zambia Active Portfolio of Advisory Projects As of May 31, 2015

Project ID

Project Name Primary Business Line Name Implementation Start Date

Implementation End Date

564748 AMSMETA ABCH ZB. Financial Institutions Group Aug 1, 2011 Feb 28, 2015

569910 AB Bank Zambia Limited TA Financial Institutions Group May 31, 2012 Dec 31, 2015

584967 Zambia Investment Climate Program II

Trade & Competitiveness Jan 1, 2013 Dec 31, 2016

599863 Zambia Secured Transactions & Collateral Registry

Finance & Markets Nov 1, 2013 Jun 30, 2016

34

Annex 5: Portfolio Performance

Table 1: Zambia IDA Portfolio in FY13 to FY15 (Excludes IDA to regional Projects)

Fiscal Year (FY) 2013 2014 2015*

Disbursed in Fiscal Year 54.7 76.0 62.1

Open Undisbursed Balance Beginning FY 332.7 432.0 366.5

Dibursement Ratio = (Disb in FY/Open Undisb Bal Begin FY)*100 16.4 17.6 16.9

*the disbursement ratio as of June 15.

Note: Figures for FY15 are as of June 15, 2015. FY13 & 14 are as of June 30 for the respective years. The last two weeks of the fiscal year generally see substantial disbursements going through and therefore the figure for FY15 is expected to rise.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

2013 2014 2015*

54.7

76.0

62.1

Amou

nt in

US$

Milli

on

Disbursement in FY13 - FY15

15.8

16.0

16.2

16.4

16.6

16.8

17.0

17.2

17.4

17.6

2013 2014 2015*

16.4

17.6

16.9

Disb

urse

men

t Rat

io (%

)

Dibursement Ratio in FY13 - FY15

35

Table 2: Zambia Current Active National IDA Projects – Approved Before and After Finalization of the CPS

Proj ID. Project Short NameApproval FY

Project Development ObjectiveNetCommAmt

Disb in FY15

P114949 ZM-Water Resources Development 2013

The Project Development Objective is to support the implementation of an integrated framework for development and management of water resources in Zambia. The Project Development Objective Level Results Indicators are: a. Improved accuracy of hydrological forecasts; b. Water storage established in rural communities; c. Water resources infrastructure investments under preparation; and, d. Water permits monitored for compliance.

50.0 2.9

P133184 ZM-Lusaka Transm. & Dist. Rehab. 2013 The objectives of this project are to increase the capacity and improve the reliability of the electricity transmission and distribution system in the Lusaka area.

105.0 0.8

P145335 ZM-Health Services Improvement Project 2014The project development objective is "to improve health delivery systems and utilization of maternal, newborn and child health and nutrition services in project areas.

52.0 0.0

P149091 Lusaka Sanitation Project 2015 The objective of the project is to increase access to sustainable sanitation services for the poor in Lusaka

65.0 0.0

P151451Girls Education and Womens Empowerment and Livelihood Project

2015 The objective of the project is to increase income levels of extremely poor households benefiting from the project

65.0 0.0

337.0 3.7

P077452 ZM-Incr.Eff.&Access to Elec SIL (FY08) 2008The objective of this project is to increase access to electricity services and improve efficiency and quality of the electricity distribution system in targeted areas.

48.3 12.4

P102459 ZM- Irrigation Development Project(FY10) 2011The project development objective is to increase yields per hectare and volume of products marketed by smallholders benefitting from investments in irrigation in selected sites served by the project.

115.0 4.7

P106596 ZM-RRMP PHASE II APL 2010

The overarching goal of the Road Rehabilitation and Maintenance Project (RRMP) is to stimulate economic growth and contribute to poverty reduction through appropriate investment in road infrastructure, adequate policy and institutional reforms, and enhanced road sector management. The specific objective of RRMP Phase II is to preserve road assets in target transport corridor and improve transport safety and connectivity in target areas.

75.0 34.6

P122123 ZM:Livestock Develop & Animal Health Prj 2012

The Project Development Objective (PDO) is to improve the productivity of key livestock production systems for targeted female and male smallholder producers in selected areas of the Recipient’s territory. Specifically, the project will target selected species including cattle, small ruminants (sheep and goats), pigs and poultry for smallholder producers in Eastern, Southern and Western provinces and the Disease Free Zone comprising Central, Lusaka and parts of Copperbelt provinces.

50.0 6.7

288.3 58.4

625.3 62.1

Source: BW and Operations Portal as of June 15, 2015

GRAND TOTAL

Projects Approved after Finalisation of the CPS

Total

Projects Approved before Finalisation of the CPS

Total

Water18%

Energy25%

Health8%

Agriculture26%

Transport12%

Social Protection & Labor11%

Figure 3: IDA Commitments for on-going projects by sector

After CPS Before CPS

337.0

288.3

Amou

nt in

US$

Mill

ion

Figure 4: IDA Projects Commitment Before and After CPS Approval

36

Table 3: IDA Lending Program and ASA for FY 15 to FY17

Table 3a: IDA Lending Program for FY 15-17 in US$ million FY15 IDA FY16 IDA FY17 IDA Girls’ Education and Women’s Empowerment Project

65 Zambia Environmental Remediation and Improvement

50 Trade & Competitiveness 50

Kariba Rehabilitation 25@ Eastern Region Inclusive Growth

65 Africa Higher Education Centers/Great Lakes Cohesion of Border Communities

10@

Lusaka Sanitation 65 Regional TB 10@ Access to Finance for SMEs 35 Total 155 125 95 Note: (i) i) In the CPS the line of credit for SMEs was programmed for FY14 but did not happen because of the policy change. If the policy environment becomes suitable in the coming months; the credit line will be supported in FY17. (ii) DPO support is contingent on having an adequate macro-economic framework. (iii) @ denotes national IDA share of regional project; (iv) The amounts shown in outer years are indicative only. Actual allocations will depend on: the total IDA resources available; the country’s performance rating, per capita GNI, and population; the terms of IDA assistance (grants/credits); the allocation deductions associated with MDRI annual debt service forgone as applicable; the performance, other allocation parameters, and IDA assistance terms for other IDA borrowers; and the number of IDA-eligible countries. Table 3b: ASA ASA Status Zambia Education Public Expenditure Review Ongoing

Adolescent Girls Diagnostic Ongoing Scaling Up Renewable Energy Investment Plan Ongoing Electricity Access for Low-income Households Technical Assistance Ongoing PPIAF Water & Sewerage Infrastructure and Peri Urban Sanitation Improvement Ongoing Financial Sector Advisory and Consumer Protection Technical assistance Planned Governance Improvement in the Road Sector Ongoing Project Appraisal System Technical Assistance Ongoing Health Results Based Financing Impact Evaluation Ongoing Let's Work Program Planned Programmatic Poverty Analysis Planned Programmatic Support for Fiscal Management Ongoing/Planned Investment Climate Assessment Ongoing

37

Table 5: Trust Funds (Operations Portal as of June 15, 2015)

TF# Proposal Approval

Grant Closing

Grant Amt.

($’000) Project Name Lead GP/CCSA Prod. Line

TF018625 11/26/2014 08/31/2020 115.00 Zambia COMACO Landscape Management Agriculture Carbon Offset TF018627 11/26/2014 08/31/2020 26.50 Zambia COMACO Landscape Management Agriculture Carbon Offset TF018794 12/22/2014 06/30/2019 440.00 Zambia COMACO Landscape Management Agriculture Carbon Offset

TF018795 12/22/2014 06/30/2018 622.31 Zambia COMACO Landscape Management Agriculture Carbon Offset

TF018978 01/27/2015 08/31/2020 165.00 Zambia Integrated Forest Landscapes Program TA Agriculture Technical Assistance

TF019042 02/05/2015 08/31/2020 570.00 Zambia Integrated Forest Landscapes Program TA Agriculture Technical Assistance

TF019062 02/06/2015 10/31/2015 58.00 Programmatic Analysis of Adolescent Girls in Zambia and Malawi

Education Programmatic Approach

TF018856 01/07/2015 11/24/2016 35.00 SREP Investment Plan Energy & Extractives Technical Assistance

TF019238 03/03/2015 02/01/2017 2,754.97 Livelihood and Nutrition Project Health, Nutrition & Population Recipient Executed Activities

TF019299 03/11/2015 01/25/2018 245.00 Livelihood and Nutrition Project Health, Nutrition & Population Recipient Executed Activities

TF018016 09/03/2014 12/31/2015 124.00 HIV Efficiency Analyses and Technical Assistance for HIV Delivery Solutions

Health, Nutrition & Population Technical Assistance

TF018403 10/28/2014 12/28/2017 75.00 Community RBF Impact Evaluation Health, Nutrition & Population Impact Evaluation

TF019344 03/17/2015 06/30/2017 1,000.00 Let's Work Program Jobs Technical Assistance

TF017909 08/13/2014 09/15/2016 250.00 Statistical Capacity Building Macro Economics & Fiscal Management

Recipient Executed Activities

TF017836 08/01/2014 05/31/2015 260.00 Lusaka Sanitation Project Water IBRD\IDA

TF017631 06/24/2014 07/31/2016 400.00 ICT Enhanced Services for Women Farmers in Irrigated Agriculture

Agriculture Technical Assistance

TF015888 10/22/2013 11/30/2016 3,050.00 Renewable Energy Resource Mapping and Geospatial Planning: Zambia

Energy & Extractives Technical Assistance

TF016995 03/24/2014 12/31/2015 200.00 Zambia Strengthening Climate Resilience (PPCR Phase II) Environment & Natural Resources

Recipient Executed Activities

TF017045 03/31/2014 09/30/2016 177.20 PPIAF Improve Commercial Viability of the Lusaka Water & Sewage Company & Capacity Building

Finance & Markets Technical Assistance

TF017272 05/02/2014 12/31/2017 138.00 Public Financial Management Reform Program Governance Global Programs and Partnerships

38

TF# Proposal Approval

Grant Closing

Grant Amt.

($’000) Project Name Lead GP/CCSA Prod. Line

TF017118 04/11/2014 12/31/2017 17,000.00 Public Financial Management Reform Program Phase I Governance Recipient Executed Activities

TF017171 04/20/2014 12/31/2017 1,600.00 Public Financial Management Reform Program Phase I Governance Recipient Executed Activities

TF016639 02/10/2014 06/30/2019 15,000.00 Health Services Improvement Project Health, Nutrition & Population IBRD\IDA

TF017307 05/08/2014 06/30/2015 850.00 Health Services Improvement Project Health, Nutrition & Population IBRD\IDA

TF017683 06/30/2014 06/30/2019 170.00 Health Services Improvement Project Health, Nutrition & Population IBRD\IDA

TF016907 03/12/2014 09/30/2016 141.20 Program to Improve the Commercial Viability of the Lusaka Water and Sewerage Company and to Strengthen Institutional Capacity

Water Partnership

TF016324 12/23/2013 12/18/2015 300.00 Policy Dialogue on National Social Protection Social Protection & Labor Technical Assistance

TF016323 12/23/2013 12/18/2015 100.00 Support for Development of MIS and Single Registry of Beneficiaries

Social Protection & Labor Recipient Executed Activities

TF016728 02/20/2014 12/31/2015 1,000.00 Support for Development of MIS and Single Registry of Beneficiaries

Social Protection & Labor Recipient Executed Activities

TF016894 03/12/2014 06/30/2016 371.60 Lusaka Sanitation Project Water IBRD\IDA

TF013154 09/10/2012 12/31/2014 350.00 Extractive Industries Transparency Initiative Implementation Post Compliance I

Energy & Extractives Recipient Executed Activities

TF014573 04/08/2013 12/31/2019 5,000.00 Strengthening Climate Resilience (PPCR Phase II) Environment & Natural Resources

Recipient Executed Activities

TF014588 04/08/2013 12/31/2019 31,000.00 Strengthening Climate Resilience (PPCR Phase II) Environment & Natural Resources

Recipient Executed Activities

TF013744 12/03/2012 12/31/2015 150.00 Financial Consumer Protection Finance & Markets Technical Assistance

TF010148 07/07/2011 07/30/2020 942.00 Strengthening Climate Resilience (PPCR Phase II) Environment & Natural Resources

Recipient Executed Activities

TF012558 06/05/2012 04/30/2015 381.00 Governance improvement in the road sector Governance Technical Assistance TF012542 06/01/2012 09/30/2015 1,485.00 HRBF Impact Evaluation Health, Nutrition & Population Impact Evaluation

TF099384 03/25/2011 05/31/2015 520.00 Health Results Based Financing Project Health, Nutrition & Population Recipient Executed Activities

TF097260 06/28/2010 06/15/2015 13,373.49 Increased Access to Electricity Services Energy & Extractives IBRD\IDA

TF092315 06/19/2008 06/30/2015 4,500.00 Increased Access to Electricity Services Energy & Extractives IBRD\IDA

Note: In the pipeline is the Zambia Integrated Forest landscapes Program (P155827) Zambia, Carbon Offset, FY2017

39

1