Report No. 81001 - ZM Public Disclosure Authorized Zambia Poverty Assessment Public Disclosure Authorized Stagnant Poverty and Inequality in a Natural Resource-Based Economy Public Disclosure Authorized December 2012 Poverty Reduction and Economic Management Africa Region Public Disclosure Authorized Abbreviations and Acronyms ARVs Antiretroviral Drugs BIA Benefit Incidence Analysis CCT Conditional Cash Transfer CSO Central Statistical Office, Government of the Republic of Zambia CSP Community, Social and Personal Services FISP Farmer Input Support Program FSP Fertilizer Support Program FSPP Food Security Pack Program GCE General Certificate of Education HDI United Nations Human Development Index ILO International Labor Organization IOB Policy and Operations Evaluation Department, Netherlands Ministry of Foreign Affairs ISIC International Standard Industrial Classification LCMS Living Conditions Monitoring Survey LFPR Labor Force Participation Rate LFS Labor Force Survey MACO Zambian Ministry of Agriculture and Cooperatives MoFNP Zambian Ministry of Finance and National Planning MDG Millennium Development Goal MoH Zambian Ministry of Health NGO Nongovernmental Organization SSA Sub-Saharan Africa WDI World Bank World Development indicators WHO World Health Organization ZMK Zambian Kwacha ii Acknowledgements This report is the product of a team effort between the World Bank and the Government of Zambia. The report incorporates papers prepared by several World Bank staff members and consultants. Roy Katayama, Sean Lothrop, Julio Revilla, Monica Beuran, Nobuo Yoshida, Shivapragasam Shivakumaran and Louise Fox collaborated at different stages of a long but fruitful process, which incorporated advanced methodological discussions with government representatives including the Central Statistical Office (CSO) and the Ministry of Finance and National Planning (MoFNP). The inputs provided by these organizations are reflected in the detailed description of Zambian poverty dynamics presented in the first two chapters. Haron Bhorat was responsible for the labor market analysis presented in the third chapter. The fourth chapter, on the provision of public service and the orientation of social spending was prepared by Jose Cuesta, Pamela Kabaso and Pablo Suarez- Becerra. The team was led by Julio Revilla who produced the draft report with Sean Lothrop. Peter Lanjouw and Gabriel Demombynes provided very detailed comments and suggestions as peer reviewers. As noted above, this Poverty Assessment was developed in partnership with Zambia’s CSO and MoFNP. Goodson Sinyenga, Director of Economic Statistics at the CSO, and Francis Chipimo, Advisor at the MoFNP, provided invaluable advice. Vice President: Makhtar Diop Country Director: Kundhavi Kadiresan Sector Director: Marcelo Giugale Sector Manager: John Panzer Task Manager: Julio Revilla iii Table of Contents Abbreviations and Acronyms .............................................................................................................. ii Acknowledgements ............................................................................................................................ iii Table of Contents ............................................................................................................................... iv List of Figures ..................................................................................................................................... vi List of Tables ..................................................................................................................................... vii List of Boxes ...................................................................................................................................... vii EXECUTIVE SUMMARY ............................................................................................................................ 1 Poverty in Zambia ........................................................................................................................... 1 The Labor Force, Income and Employment Dynamics.................................................................... 2 Poverty and Social Spending ........................................................................................................... 5 Policy Options ................................................................................................................................. 7 Background ........................................................................................................................................... 11 The Zambian Economy .................................................................................................................. 11 A Note on the Data ....................................................................................................................... 13 Chapter 1: Poverty and Inequality ........................................................................................................ 14 A. Introduction .............................................................................................................................. 14 B. Poverty Trends .......................................................................................................................... 17 National, Urban and Rural Poverty Trends (1996-2010) .............................................................. 19 Provincial Poverty Trends ............................................................................................................. 23 C. Distributional Changes in Consumption Expenditures ............................................................. 26 Growth Incidence Curves .............................................................................................................. 28 D. Trends in Nonmonetary Poverty Indicators .............................................................................. 29 Public Health ................................................................................................................................. 30 Education ...................................................................................................................................... 31 E. Trends in Inequality .................................................................................................................. 34 F. Conclusion ................................................................................................................................. 37 Chapter 2: The Poverty Profile .............................................................................................................. 39 A. Introduction .............................................................................................................................. 39 B. Demographics of Poverty .......................................................................................................... 40 Correlates of Poverty .................................................................................................................... 44 Rural and Urban Poverty ............................................................................................................... 45 C. Assets and Housing Conditions ................................................................................................. 49 iv D. Access to Basic Services ............................................................................................................ 52 E. Self-Identified Causes of Poverty .............................................................................................. 55 F. Conclusion ................................................................................................................................. 57 Chapter 3: The Labor Market, Employment and Wages ...................................................................... 59 A. Introduction .............................................................................................................................. 59 B. Data and Definitions Used in the Analysis ................................................................................ 59 The Dataset ................................................................................................................................... 59 Definitions and Exclusions ............................................................................................................ 60 C. Statistical Characteristics of the Labor Market Model ............................................................. 60 D. An Overview of the Employed and Unemployed Workforce ................................................... 66 Urban-Rural Linkages and the Unemployment Differential ......................................................... 70 E. Income Dynamics ...................................................................................................................... 73 F. Determinants of Employment: A Multinomial Logit Model ..................................................... 76 Estimation Results ......................................................................................................................... 78 G. Conclusion ................................................................................................................................. 79 Chapter 4: Poverty and Social Spending ............................................................................................... 81 A. Introduction .............................................................................................................................