The Experience of Zambia
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39659 SERVICES T R A D E & Public Disclosure Authorized DEVELOPMENT THE EXPERIENCE OF ZAMBIA Editors Aaditya Mattoo • Lucy Payton Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized SERVICES TRADE and development SERVICES TRADE and development The Experience of Zambia Edited by Aaditya Mattoo and Lucy Payton A copublication of Palgrave Macmillan and the World Bank © 2007 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 10 09 08 07 A copublication of The World Bank and Palgrave Macmillan. Palgrave Macmillan Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world Palgrave Macmillan is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave® is a registered trademark in the European Union and other countries. This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank con- cerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permis- sion may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750- 4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN-10: 0-8213-6849-4 ISBN-13: 978-0-8213-6849-7 eISBN-10: 0-8213-6850-8 DOI: 10.1596/978-0-8213-6849-7 Library of Congress Cataloging-in-Publications Data Services trade and development : the experience of Zambia / edited by Aaditya Mattoo and Lucy Payton. p. cm. Includes bibliographical references and index. ISBN 978-0-8213-6849-7 (pbk.) — ISBN 978-0-8213-6983-8 (hardback) — ISBN 978-0-8213-6850-3 (electronic (pbk.)) — ISBN 978-0-8213-6984-5 (electronic (hardback)) 1. Service industries—Zambia—Evaluation. 2. Service industries—Government policy—Zambia. 3. Free trade—Zambia. 4. International trade. I. Mattoo, Aaditya. II. Payton, Lucy. HD9988.Z33S47 2007 338.4096894—dc22 2007000445 Cover photos: Corbis. Contents Acknowledgments xi Contributors xiii Abbreviations xv 1 Services Trade for Zambia’s Development: An Overview1 Aaditya Mattoo and Lucy Payton 2 Services in the Zambian Economy 61 Jens Arnold and Aaditya Mattoo 3 Telecommunications: The Persistence of Monopoly 101 Jens Arnold, Boutheina Guermazi, and Aaditya Mattoo 4 Financial Services: Dealing with Limited and Unequal Access 155 José de Luna Martinez 5 Air Transport: Revitalizing Yamoussoukro 191 Charles Schlumberger 6 Tourism: Unfulfilled Promise 213 Olivier Cattaneo 7 Migration from Zambia: Ensuring Temporariness through Cooperation 259 Mohammad Amin and Aaditya Mattoo Boxes 1.1 The Least Developed Countries and the WTO Services Negotiations 4 1.2 Trade in Services: Four Modes of Supply 10 1.3 Lessons from Privatization 18 v vi Contents 1.4 From Colonialism to Kaundian Socialism, from Conditionality to Empowerment: The Present in Historical Context 20 1.5 The Retail Distribution Sector in Zambia: Lessons for the Interplay between Services and Goods Reform 22 1.6 Some Observations on the Political Economy of Reform 34 2.1 The Potential Gains from Services Reform: International Evidence 74 3.1 The Early History of Telecommunications in Zambia 105 3.2 The Case for Reform: A Comparison of Mauritania and Ethiopia 119 3.3 Estimated Gains from Full Competition in Telecommunications Services in Zambia 121 4.1 Testimony of the Difficulties Faced by a Banker in Serving Low-Income Households in Zambia Because of the Know Your Customer (KYC) Rules 180 4.2 Credit Guarantee Scheme Operations in Zambia (1987–93) 184 5.1 Key Objectives in the National Air Transport Policy, 2002 200 5.2 Technical Assistance for Regulatory Oversight: The Case of Mozambique 204 5.3 ATC Infrastructure Financing: The Case of Tanzania 206 6.1 Evaluating Zambia’s Performance and Potential in Tourism Services 224 6.2 Fighting Informality by Easing Business Registration: The Examples of Vietnam and Uganda 231 6.3 The Regulatory Guillotine: A Model for Zambia? 232 6.4 Level 1: General Level of Taxes for Tourism Activities 234 6.5 Level 2: Subsector and Geographic Tax Exemptions and Other Incentives of Relevance to Tourism 237 6.6 Level 3: Individually Negotiated Tax Exemptions and Other Incentives of Relevance to Tourism 238 6.7 Public Sector Organizations 240 6.8 Private Sector Organizations 240 7.1 A Model Agreement for the Migration of the Unskilled 268 7.2 Past Experience with Managing Temporary Migration of the Unskilled 269 7.3 Model Agreement for the Migration of the Skilled 286 Figures 1.1 Structure of the Exercise 7 2.1 Postindependence Growth by Broad Sector 62 2.2 Value Added by Broad Sector and the Contribution of Different Services Sectors 63 2.3 Zambia: Metal Exports and Nontraditional Exports 65 2.4 Cost Structures: Firm-Level Average by Country 66 2.5 The Productivity of Zambian Firms in International Comparison 68 Contents vii 2.6 The Balassa-Gap for Select Countries (reflecting the relative cost of services) and Export Performance 73 2.7 The Composition of Zambia’s Services Trade 76 2.8 International Comparison: Services Exports per Capita 77 2.9 The Distribution of FDI Inflows by Broad Sectors and across Services Sectors in 2001 90 2.10 International Comparison: Access to Telecommunications Services 92 2.11 International Comparison: Access to Financial Services 93 2.12 Collateral Required to Obtain a Loan 94 2.13 International Comparison: Access to Air Transport 94 2.14 International Comparison: Access to Education Services 95 2.15 International Comparison: Access to Health Services 96 2.16 Regional Disparities in Teledensity 97 3.1 Access to Telecommunications Services 106 3.2 High International Call Prices Compared with Selected Countries in Africa and Middle East 107 3.3 Zambia Has One of the Lowest Residential Connection and Local Call Rates in the SADC Region 111 3.4 Mobile Rates Are Higher in Zambia 113 3.5 The International Gateway Monopoly and Weak Regulation Adversely Affect Competition in Other Segments 115 3.6 Variations in the Level of Competition by Segment and by Market 116 3.7 International Calls Are Lower with Competition 117 3.8 The Introduction of Competition Often Marks the Start of a Significant Increase in Fixed-Line Penetration 118 3.9 Percentage of International Traffic Traveling over IP 125 3.10 Percentage of Countries with Fully or Partially Privatized Incumbents 126 3.11 Effects of Sequencing on Mainlines 138 4.1 Size of Zambia’s Financial System 162 4.2 Percentage of Population with a Bank Deposit Account in Africa 162 4.3 Distribution of Bank Deposits in Zambia, March 2006 163 4.4 Real Value of a K 320,000 Deposit 164 4.5 Number of Bank Branches in Zambia, 1990–2004 166 4.6 Zambia: Domestic Credit to the Private Sector by Banks 167 4.7 Distribution of Bank Loans and Advances, March 2006 168 4.8 Distribution of Bank Credit to Private Firms in Zambia, 2005 169 4.9 Assets of MFIs (as percent of assets of all financial institutions) 170 4.10 Sequencing of Financial Sector Reform in Zambia 172 4.11 Zambia: Growth in the Number of Banks, 1990–2004 172 4.12 Zambia: Balance Sheet Structure of Banks, 2002–05 176 5.1 Passenger Movements at Lusaka Airport 195 viii Contents 5.2 International Freight, 1999–2005 199 6.1 Tourism Bed Nights, 1999–2003 220 6.2 National Park Tourist Entry Trends by Destination, 2000 and 2003 221 6.3 Cost of Regulatory Compliance, 2005 229 6.4 Constraints to Tourism Development as Identified by the Hospitality Sector in Zambia 247 7.1 Tertiary to Secondary Migration Rate, 2000 265 7.2 Tertiary to Primary Emigration Rate, 2000 266 7.3 Skilled Migration and Human Capital in Africa, 2000 270 7.4 Nurses Recruited in the United Kingdom, 2000 271 7.5 Annual Health Care and Welfare Graduation Rate, 1998–2003 274 7.6 Students in Zambia by Discipline, 1998/99 276 7.7 Temporary versus Permanent Migration from the Viewpoint of the Host Country 284 Tables 1.1 Restrictions on Trade and Foreign Presence 14 1.2 Key Recommendations, by Sector 26 1.3 Priorities for International Engagement in Alternative Forums 42 A-2.1 Zambia––Schedule of Specific Commitments 57 2.1 Sources of Growth in Zambia, 1965–2002 64 2.2