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Zambia Systematic Country Diagnostic

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Zambia Systematic Country Diagnostic Report No. 124032-ZM Public Disclosure Authorized Republic of Zambia Systematic Country Diagnostic Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized March 15, 2018 Document of the World Bank For Official Use Only ACKNOWLEDGMENTS This Systematic Country Diagnostic (SCD) for Zambia is a Country Management Unit (CMU) product being prepared under the overall supervision of Paul Noumba Um (Country Director) and Ina-Marlene Ruthenberg (Country Manager). Peer reviewers to the concept note and the final SCD report were Martin Raiser (Country Director, LCC5C) and Joao Pedro Wagner de Azevedo (Lead Economist, GPV03). The SCD team was co-led by Alejandro de la Fuente (Senior Economist, GPV07), Manohar Sharma (Senior Economist, GPV07) and Gregory Smith (Senior Economist, GMF13). This diagnostic has benefited from advice provided by Program Leaders (Sebastien Dessus, Paolo Belli, and Catherine Signe Tovey), Practice Managers (Andrew Dabalen, GPV07, and Mark Thomas and Mathew Verghis, GMF13), Country Program Coordinators (Emmanuel Ngankam and Ivan Velev), International Finance Corporation (IFC) Country Manager (Jumoke Jagun-Dokunmu, CAFE5), IFC Resident Representative (Madalo Minofu, CAFZM), and SCD focal points of Multilateral Investment Guarantee Agency (MIGA). Contributions were received from a multi-sectoral team comprising all relevant Global Practices, Cross Cutting Solution Areas, IFC, and MIGA. Contributions were compiled and consolidated by a wide range of SCD focal points and their teams (see table below). The team is grateful for inputs from the government, cooperative partners, academia, nongovernmental organizations (NGOs), and civil society organizations received throughout the SCD process. SCD Focal Points Focal Point(s) IFC Frank Douamba MIGA Gero Verheyen Agriculture Willem Janssen Public-Private Partnership Jane Jamieson Climate Change Tambi Matambo Energy Joseph Kapika Mining Javier Aguilar Information and Communication Technology (ICT) Krishna Pidatala Transport Justin Runji Water (combined with Disaster Risk Management) Shelley Mcmillan Urban Somik Lall Social Yaa Pokua Afriyie Oppong Geospatial Keith Garrett Land Anna Corsi Health, Nutrition and Population Collins Chansa Education Xiaonan Cao Social Protection Emily Weedon Governance Ana Bellver Poverty and Equity Alejandro de la Fuente Manohar Sharma Jobs Dino Merotto Gender Daniel Kirkwood Macroeconomics, Fiscal and Growth Gregory Smith and Ziv Chinzara Growth Modelling Steven Pennings Finance and Markets Uzma Khalil Trade and Competitiveness Tugba Gurcanlar Environment Iretomiwa Olatunji ABBREVIATIONS AND ACRONYMS 7NDP Seventh National Development Plan ASA Advisory Services and Analytics CCPC Competition and Consumer Protection Commission COMESA Common Market for Eastern and Southern Africa CPF Country Partnership Framework CPI Consumer Price Index CPIA Country Policy and Institutional Assessment CRVE Civil Registration and Vital Statistics CRVS Civil Registration and Vital Statistics CSO Central Statistical Office CSR Corporate Social Responsibility EITI Extractives Industries Transparency Initiative EPF Environmental Protection Fund FDI Foreign Direct Investment FISP Farmer’s Input Support Program FRA Food Reserve Agency GDP Gross Domestic Product GER Gross Enrollment Rate GEWEL Girl's Education and Women's Empowerment and Livelihoods GRZ Government of the Republic of Zambia HIPC Heavily Indebted Poor Country HIV/AIDS Human Immunodeficiency Virus Infection/Acquired Immune Deficiency Syndrome ICOR Incremental Capital Output Ratio ICP International Comparison Program ICT Information and Communication Technology IDC Industrial Development Corporation IFC International Finance Corporation IFMIS Integrated Financial Management Information System IFPRI International Food Policy Research Institute LBW Low Birth Weight LCMS Living Conditions Monitoring Survey LTGM Long-Term Growth Model MDG Millennium Development Goal MDRI Multilateral Debt Relief Initiative MIGA Multilateral Investment Guarantee Agency MPK Marginal Product of Capital NAAIAP National Accelerated Agricultural Inputs Access Programme ND-GAIN University of Notre Dame Global Adaptation Initiative NDC Nationally Determined Contribution NES National Electrification Strategy NGO Nongovernmental Organization NPS National Payment Systems NRC National Registration Card OBB Output-based Budget OPHI Oxford Poverty and Human Development Initiative PAYE Pay-As-You-Earn PER Public Expenditure Review PF Patriotic Front PIM Public Investment Management PPCR Pilot Program on Climate Resilience PPP Purchasing Power Parity PSRP Public Service Reform Program PV Photovoltaic PWAS Public Welfare Assistance Scheme RAI Rural Access Index RALS Rural Agricultural Livelihood Survey REDD+ Reducing Emissions from Deforestation and Forest Degradation SACCO Savings and Credit Cooperatives SADC Southern African Development Community SACMEQ Southern and Eastern Africa Consortium for Monitoring Educational Quality SCD Systemic Country Diagnostic SCT Social Cash Transfer SCTS Social Cash Transfer Scheme SES Socioeconomic Status SME Small and Medium Enterprise SOE State-owned enterprises TB Tuberculosis TFP Total Factor Productivity TFR Total Fertility Rate TVET Technical and Vocational Education and Training UNFCCC United Nations Framework Convention on Climate Change UPND United Party for National Development VAT Value Added Tax WAVES Wealth Accounting and the Valuation of Ecosystem Services WDI World Development Indicators WHO World Health Organization ZCCM-IH Zambia Consolidated Copper Mines Investment Holdings ZDHS Zambia Demographic and Health Survey CONTENTS PART A: THE POVERTY CHALLENGE AND THE CONTEXT .......................................................................1 CHAPTER 1: INTRODUCTION.................................................................................................................. 3 1.1. Outlining the Poverty and Inequality Challenge ........................................................................ 3 1.2. Why Has Poverty Remained So High, Despite GDP Growth? .................................................... 5 CHAPTER 2: POVERTY AND SHARED PROSPERITY TRENDS ................................................................. 17 2.1 Monetary Poverty .................................................................................................................... 17 2.2 Non-Monetary Poverty ............................................................................................................ 19 CHAPTER 3: GROWTH, MACROECONOMIC, AND EMPLOYMENT TRENDS ......................................... 29 3.1 Growth Trends and Scenarios.................................................................................................. 29 3.2 Macroeconomic and Employment Trends .............................................................................. 35 PART B: PRIORITIZATION .................................................................................................................. 41 CHAPTER 4: A FRAMEWORK TO UNDERSTAND POVERTY REDUCTION AND INEQUALITY ................. 43 4.1 What Will It Take to Achieve the World Bank’s Twin Goals? .................................................. 43 4.2 Pathways out of Poverty and Challenges to Them .................................................................. 44 CHAPTER 5: WHAT IS CHALLENGING GROWTH? ................................................................................. 49 5.1 The Full Benefits of the Mining Sector Have Not Been Realized ............................................. 49 5.2 Poor Infrastructure, Low Skills, and the High Cost of Doing Business Means That Most Enterprises Do Not Expand Beyond the Household Level and Create Employment .......................... 52 CHAPTER 6: WHAT IS CHALLENGING INCLUSION? .............................................................................. 67 6.1 Small-scale Farmers’ Low Agricultural Productivity ................................................................ 67 6.2 The Low Quality and Lack of Inclusiveness of Education and Health Services Hinders Opportunities for the Poor, Especially Women................................................................................... 75 6.3 The Poor Get Insufficient Benefits from Fiscal Policy due to Vested Interests and Limited Safety Nets ........................................................................................................................................... 79 CHAPTER 7: HOW SUSTAINABLE IS THE CURRENT PATH OF GROWTH AND INCLUSION?.................. 85 7.1 Environmental Degradation Affects Communities’ Health, Livelihoods, and Resilience to Climate Shocks ..................................................................................................................................... 85 7.2 Volatile Macroeconomic Outcomes and an Unsustainable Fiscal and Debt Path .................. 91 CHAPTER 8: THE BINDING CONSTRAINTS ............................................................................................ 95 CHAPTER 9: KNOWLEDGE GAPS AND IDEAS FOR FUTURE RESEARCH .............................................. 105 REFERENCES ....................................................................................................................................... 109 ANNEX 1: SCD METHODOLOGY ......................................................................................................... 116 LIST OF FIGURES Figure 1. GDP Per Capita (US$), 1964–2015 .................................................................................................
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