Zambia - Agricultural Rehabilitation Project

Documeent of The World Bank FOR OFFICIAL USE ONLY Report No4. P-3916-ZA REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 24.7 MILLION TO THE REPUBLIC OF ZAMBIA FOR THE AGRICULTURAL REHABILITATION PROJECT IDecember 18, 1984 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 authorization.  CURRENCY EQUIVALENTS US$1 K 2.00 US$0.50 K 1.00 (The US Dollar/Zambian Kwacha exchange rate shown above is the rate that prevailed at the beglnning of November 1984.) WEIGHTS AND MEASURES 1 hectare (ha) 2.47 acres 1 kilometer (km) = 0.624 miles 1 sq kilometer (kC2) = 0.386 sq miles I kilogram (kg) = 2.2046 pounds I metric ton (ton) = 1,000 kg = 2,204.6 pounds I liter = 1.057 US quarts ABBREVIATIONS BOZ = Bank of Zambia CFB = Commercial Farmers Bureau PIC = Project Implementation Committee PIU = Project Implementation Unit GR'! Government of the Republic of Zambia KFC Kwacha Fund Committee MAWD = Ministry cf Agriculture and Water Development MOF = Xinistry of Finance Namboard = National Agricultural Marketing Board NCDP National Commission for Development Planning PCUs - Provincial Cooperative Unions FISCAL YEAR GRZ: January I - December 31  FOR OFFICIL USE ONLY REPUBLIC OF ZAMBIA AGICULTURAL REARILT&TION PROJECT CREDIT AND PROJECT SUMKARY Borrower: Republic of Zambia. Executing Agency: Bank of Zambia Beneficiaries: Commercial and eucrgent farmers Amount: SDR 24.7 million (US$25 million equivalent). Terms: Standard. Project Description: The project would further Zambia's economic recovery and diversification efforts by supplying critical agricul- tural inputs needed to restore production levels and establish the foundation for future production increases. It would support policy and institutional reforms in the agricultural sector. Specifically, the Project would provide farm machinery and implements, agro-chemicals, miscellaneous items, e.g., agricultural hand tools, packaging materials for grains, etc., improved seeds, small-scale irrigation pumps and fittings, etc., and about 27 man-months of consultant , services to carry out an agricultural marketing study. Benefits and Risks: The Project would help restore the productivity and efficiency of the agricultural sector, thereby making Zambia more self-sufficient in agricultural products. It would support the country's strategy of output and export diversification, improve the balance of payments and lay the groundwork for employment expansion. The main risks are delays or failure to carry out the envisaged policy and institutional reforms; inadequate availability of complementary inputs not provided by the project, particularly fertilizers; and recurrence of drought. The Government continues to demonstrate the political will to implement unpopular measures, and in view of the difficult economic prospects facing the country, it is realistic to expect that the reforms supported by this project will be implemented. Planned efforts to increase domestic production and the expected continued availability of bilateral support for imports should reduce the likelihood of serious shortages of fertilizer. Research is underway to develop more drought resistant crop varieties and farming techniques. This document has a rsricrtd distnibution and may be used by recipients only in the performance of , their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Estimated Cost Local Foreign Total z USS Million Farm Machinery 3.9 36.0 39.9 55.2 Spare Parts 1.2 10.2 11.4 15.8 Agro-Chemicals 2.0 17.4 19.4 26.8 Miscellaneous 0.2 1.2 1.4 1.9 Consultancy 0.2 0.2 0.3 Total 7.3 65.0 72.3 100.0 Financing Plan: Local Foreign Total z US$ million IDA - 25.0 25.0 34.5 African Development Bank - 23.4 23.4 32.4 Swiss Government 4.8 4.8 6.6 USAID 5.0 5.0 6.9 CIDA (Canada) 6.8 6.8 9.4 Trading Houses 7.3 - 7.3 10.2 Total 7.3 65.0 72.3 100.0 Estimated Disbursement: IDA Fiscal Year 85 86 87 88 UsS Mlllion Annual 4.2 10.6 7.7 2.5 Cumulative 4.2 14.8 22.5 25.0 Rate of Return: 59 percent. Staff Appraisal Report: Report No. 5050-ZA of December 12, 1984 No. IBRD 11631/R  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMKENDATION OF THE PRESIDENT TO TIE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF ZAMBIA FOR THE AGRICULTURAL REHABILITATION PROJECT 1. *I submit the following report and recommendation on a proposed credit to the Republic of Zambia of SDR 24.7 million (approximately US$25 million equivalent) on standard terms to help finance an Agricultural Rehabilitation Project. Part of the proceeds of the credit would be channelled through the Bank of Zambia to trading houses which would import the items to be financed by the credit. The African Development Bank is expected to provide a loan of US$23.4 million equivalent, the Swiss Government a grant of US S4.8 million equivalent and CIDA a g-ant of US$6.8 million equivalent to help finance the Project. USAID is financing US$5.0 million of the inputs to be imported under the project. PART I - THE ECONOMY 2. A Country Economic Memorandum on Zambia (Report No. 5000-ZA) was distributed to the Executive Directors on April 24, 1984. This part is based on that report's findings. Country data sheets are attached as Annex I. 3. Zambia's economy is heavily dependent on external trade and on government activity. Imports and exports range between 40 and 45 percent of GDP. Government expenditures amount to about 40 percent of GDP, and the Government owns a majority share of mining and most manufacturing enterprises. Copper mining provides o-er 90 percent of foreign exchange earnings and 15 percent of gross value added. Much economic activity is dependent on expatriate technical, managerial, and administrative skills. Current Economic Situation 4. Zambia continues to experience an economic and financial crisis initiated by a sharp decline in copper prices in 1975. Zambia's terms of trade have deteriorated steadily since then, and by 1982, were 60 percent below the average for the early 1970s. In 1982, copper prices reached their lowest level in real terms in the post-World War II era; they recovered somewhat in 1983 and early 1984, but have fa'len sharply in recent months and are now below the depressed levels of 1982. Real GDP has been in a general downward trend since 1975, declining on an average by about one percent per year. With population growing by 3.3 percent per  - 2 - annum, real GDP per capita is 25 percent lower than in 1974. GNP per capita was estimated at US$640 in 1982, using the World Bank Atlas methodology, but is now much lower as a result of major devaluations of the Kwacha in 1983 and 1984. 5. The balance of payments has been in chronic disequilibrium since 1975, with current account deficits climbing to an average of 19 percent of GDP in 1980-82. The deficit was reduced sharply to 9 percent of GDP in 1983, however, and is expected to be in this range for 1984. Nevertheless, the volume of imports has declined steadily and is now 75-80 percent below its level in 1974. This has resulted in an economy-wide problem of severe underutilization of capacity and, especially in the mining sector, a large backlog of maintenance and rehabilitation requirements which has contributed directly to a declining trend in copper production and exports. The large current account deficits led to heavy external borrowing, accumulation of arrears on import payments, and a draw-down of international reserves. At the end of 1983, Zambia's total external liabilities stood at almost US$4.5 billion, including drawings from the IMF and about USS500 million in overdue commercial payments. By comparison, merchandise exports amounted to somewhat over US$1 billion. 6. The decline in copper prices also severely affected Zambia's fiscal and monetary positions. In the pasL., mineral taxes provided a large share of government revenue, but they have been negligible since 1976. Deficit financing absorbed a large share of net domestic credit and contributed to a sharp rise in consumer prices, averaging 20 percent per annum during 1976-78 and 12 percent per annum in 1979-82. Price increases have accelerated in 1983 and 1984 to about 20 percent per annum, reflecting the decontrol of prices in December 1982 and the devaluations of the Kwacha during the past two years. 7. There is no doubt that external factors have been an important cause of Zambia's present economic difficulties. Apart from low copper prices, other factors over which the Government has little or no control include transport difficulties in neighboring countries on which Zambia is dependent for the movement of foreign trade, severe droughts which for three consecutive years have necessitated substantial food imports, and, last but not least, the fact that copper mining in Zambia is past its peak, and that for technical reasons, such as sinking deeper shafts and tapping less rich ore bodies, higher costs have to be incurred to maintain past levels of production. 8. Nevertheless, inappropriate policies and shortcomings in economic management have exacerbated the economic difficulties. The main deficiencies in economic policies were that: {i) pricing and subsidy policies favored the urban consumer at the expense of the agricultural producer, depressing the latter's income and incentive to produce for the market; also, controlled industrial prices led to low profitability in the manufacturing sector and a decrease in resources available for reinvestment; (ii) tax incentives and low interest rates led to a pattern of capital intensive investment; (iii) exchange rate and tariff policies have encouraged the use of artificially cheap imported raw materials and other inputs and discouraged the use of local materials. As a result, a highly capital and import-intensive productive structure was created that proved to be very vulnerable to prolonged declines in the availability of  foreign exchange. Also, little progress was made in developing the use of local resources and diversifying production and exports. Strategy for Economic Restructuring 9. Economically exploitable ore reserves are only sufficient to maintain present levels of copper production for another 15 years or so, after which production can be expected to decline sharply. In the long run, therefore, the copper industry cannot be counted on to provide the domestic and external resources required for development. In the absence of policies and programs to develop new sources of income, employment and foreign exchange, Zambia may expect a drastic fall in living standards and social well-being by the turn of the century. However, Zambia has the potential to develop alternative sources of income, employment, and exports. The greatest potential is in agriculture, where there are opportunities for import substitution (cotton, oilseeds, livestock, grains, sugar, forestry products, and fish) and for exports (beef, cotton, coffee, tobacco, groundnuts, and sugar). Once a good start is made with agricultural development, possibilities will be created for agro-based industries. 10. For any long-term growth strategy to succeed, however, it is of the utmost importance that financial balance in the economy be restored first. As the main provider of foreign exchange, the copper industry has a major role to play. However, it is essential that previous levels of efficiency are restored to make the industry profitable again and competitive in world markets. Without a rehabilitated copper industry, the Government's diversification effort would fail for lack of financial resources. For this reason, the Bank recently approved an Export Rehabilitation and Diversification Project which aims to increase the efficiency of the mining industry and make it competitive again by international standards. This project was also accompanied by appropriate macro-economic and sector policy changes aimed at restructuring and diversifying the rest of the economy in order to create the conditions for developing new sources of income, exports and employment. 11. The Government, with Bank assistance, has developed a package of policies and measures to bring about better economic management and a * policy environment conducive to healthy economic growth and diversification. The Government's economic restructuri-g policies may be summarized as follows: - Providing a system of incentives to producers and exporters of agricultural and industrial products in which prices are responsive to market forces; - Allowing greater competition in the procurement and selling of food crops. The National Agricultural Marketing Board (Namboard), the Government's agricultural marketing agency, will move towards the role of buyer and seller of last resort, using a system of floor and ceiling prices for agricultural produce and inputs, respectively; - Improving planning and budgetary procedures to shift resources to productive investment.  4 - Using wages and interest rate policies to reverse past trends of increasing consumption and declining investment; - Improving the management of foreign debt; - Strengthening the technical and managerial capacity of Zambia Industrial and Mining Corporation (ZIMCO), which is the holding company of most state-controlled enterprises; - Restructuring the energy sector to bring about lesser dependence on imported oil; and - Ensuring the competitiveness of exports through an active exchange rate policy. 12. In recent months, the Government has made commendable progress in translating the above policies into tangible action. It has introduced institutional reforms to improve economic management and has introduced a number of changes in economic policies which constitute the beginning of-an integrated program of short-term financial stabilization and longer-term growth and diversification. It is a program in which actions developed in cooperation with the IMF and the Bank complement and reinforce one another. 13. A program to restore financial stability was set in motion in 1983. A one-year stand-by arrangement was agreed with the IMF, and a debt rescheduling agreement was reached with the members of the Paris Club. As part of the IMF program, the Kwacha was devalued by 20 percent in January 1983, and, in July 1983, the value of the Kwacha was linked to a variable basket of currencies. Since then, the Government has adjusted the exchange rate in a gradual manner such that it is now more than 50 percent lower than at the end of 1982. Because the Government has been successful in holding wage increases to considerably less tk'n rises in the cost of living, it has maintained the benefits of devaluation in real terms, which has improved the competitiveness of exports. Further measures taken under the IMF program included increasea in interest rates and tough budgetary measures (including substantial reductions in subsidies and a cap on new government employment) aimed at reducing the Government's domestic borrowing. The program succeeded in reducing the cur,-ent account deficit to less than 10 percent of GDP and domestic bank borrowing by the Government to less than 2 percent of GDP. A follow-up standby arrangement was agreed with the IMF in July 1984 and is currently being implemented, although with increasing difficulty due to recent declines in the copper price (para. 4). Maturities due to Paris Club members in 1984 have been rescheduled as part of the current IMF program. 14. In terms of improving conditions for longer-term growth, the most significant of the above financial measures was no doubt the exchange rate adjustments. Other recent measures with significant long-term impact are real increases in producer prices for agricultural crops, freer marketing arrangements for the livestock sector and complete decontrol of most industrial prices. Over the last three years, producer prices for most agricultural crops have been increased considerably in real terms. This has already led to a significant increase in the area under cultivation.  -5- If St had not been for the severe droughts in the region in the last two years, this would have led to substantial increases in production. In a further attempt to allow market forces to play a more important role In the economy, the Government abolished, in December 1982, the control of all industrial prices (except for three essential commodities: wheat flour, maize flour and candles). Since then, prices for a wide range of commodities have increased, thereby helping to restrain domestic demand, while increasing the profitability of firms. Most recently, the price of wheat flour and bread has also been decontrolled. e 15. As part of its economic recovery plans, the Government presented a three-year expenditure program to the Consultative Group for Zambia in May 1984. The Consultative Group strongly endorsed the Government's new policy initiatives, as well as its expenditure program which emphasizes rehabilitation of existing infrastructure, increased capacity utilization and selected investments to diversify the economy, especially in agriculture. As a result, the Group indicated that its members are prepared to increase their assistance to Zambia. In addition, various members indicated that in view of Zambia's serious financial position, they are converting their assistance programs to a grant basis and are prepared to make assistance available in the form of quickly disbursing loans and grants. 16. The Government and the Bank continue to cooperate In the further development of policies and measures that would lead to diversification of production and exports. In the foreseeable future, this may lead to sector lending for industry through which the Government and the Bank are expected to agree on further actions of economic reform, covering such subjects as tariff policies, export incentives, investment criteria and improvements in the management of public enterprises. Creditworthiness 17. Over the past two years the Government has taken important measures towards financial stabilization and implementing a program of economic restructuring. More needs to be done, but there are encouraging signs that the Government is willing and capable to take further appropriate action. There is, however, reason for considerable concern about Zambia's capacity to service new loans on conventional terms. At today's copper prices, scheduled service on existing external debt will remain at about 40 percent of export earnings for the next three years. In addition, considerable payments are due to the IMF, and it would be desireable to reduce Zambia's pipeline of commercial payment arrears and short-term borrowings. Even with ar. expected increase in the price of copper, Zambia will continue to experience grave difficulties in meeting its debt-service obligations. For a number of years it will be necessary for the government to continue its financial stabilization policies in cooperation with the IMF, to seek relief through further debt rescheduling, and, in addition, to obtain a significant increase in the proportion of non-project lending available from external sources. In the meantime, the Government should avoid as much as possible borrowing on commercial terms, and additional borrowing should carry sufficiently long grace periods and maturities.  -6- 18. In the longer term, the restoration of Zambia's creditworthiness depends on the vigor with which the Government continues to pursue its economic restructuring policies. The Government has made a promising start and is fully committed to take the necessary further steps towards economic reform. Assuming successful economic policies, careful financial management and an improving world economy, Zambia's debt service ratio iuld decline to about 20 percent in ten to twelve years. PART II. BANK GROUP OPERATIONS IN ZAMBIA 19. Since 1956, the Bank Group has made 28 loans and 11 credits to Zambia, totalling about U$730 million (net of cancellations). Two additional Bank loans were made to Zambia and Zimbabwe jointly to finance shared power facilities vn the Zambezi River. Fourteen loans and five credits have financed energy, transportation, communications and rural water supply projects. Four loans and one credit for education have helped expand Zambia's secondary and higher education systems, teacher training, and commercial, agricultural and technical education systems. Two program loans have helped Zambia maintain its development program in periods of severe economic dislocation. In agriculture and forestry, six loans and four credits have been for industrial forest plantations, livestock, commercial crops, integrated family farming, coffee production and smallholder dairy development. Agricultural projects in the Eastern and Southern Provinces are assisting smallholder farmers. Other loans have assisted Zambia's urban development program, copper mining and, through the Development of Bank of Zambia, its manufacturing, agricultural and industrial sectors. A technical assistance credit is helping the Government improve its planning and project preparation. 20. The International Finance Corporation (IFC) has invested about US$67 million in nine projects in Zambia since 1972. Two investments were in shoe manufacturing, two in a packaging materials plant, and one each in the Development Bank of Zambia, cobalt production, textiles and copper production. The latest IFC investment was approved by the Executive Directors on May 31, 1983. This investment (US$18.7 million equivalent, of which US$7.5 million is for IFC's own account) is helping to finance an expansion and rehabilitation of the Inter-Continental Hotel in Lusaka and rehabilitation of the Musi-o-Tunya Hotel in Livingstone. 21. The implementation of Bank-assisted projects in Zambia has deteriorated significantly in recent years, and serious delays have been experienced in the execution of a number of these projects. There are several reasons for this, the main one being the lack of budgetary resources with which to finance local counterpart expenditures and to prefinance local expenditures which are subsequently to be reimbursed by the Bank loan. Most seriously affected have been the Bank's agricultural projects for which funds, although budgeted, have not been released to the executing agencies for several months. Other reasons for tne lagging implementation of projects are ineffective project management and inadequate inter-agency coordination. The Bank-assisted agricultural projects, which require careful management and effective coordination due to their complex design, have suffered from these problems, as has the Third Highway Project.  - 7 - 22. The deterioration of project implementation has, as exrtcted, substantially reduced the rate of disbursements on Bank Group loans and credits. During the first four years of the period FY77-81, the disbursement rate on loans and credits to Zambia averaged slightly over 25 percent per annum, higher than the Bankwide average of 21.2 percent, or the 21.5 -ercent average for the Eastern Africa Region, and well above the 22.2 percent for Tanzania, 23.4 percent for Senegal and 20.2 percent for Bolivia. In FY81, however, the rate dropped to just over 16 percent, compared with 20.7 percent Bankwide, 16.5 percent for Eastern Africa, 23.6 percent for Tanzania, 20.8 percent for Senegal and 21.2 percent for Bolivia. The rate has risen since FY81, reaching 20.1 percent in FY83, which was slightly below the average for the Eastern Africa Region (20.7 percent) and for the Bank overall (20.8 percent). To alleviate the problem, provision is being made for technical assistance in projects to strengthen implementing agencies and increased use of the Resident Mission in monitoring project execution. Revolving funds are being established under new and ongoing projects which should ease the Government's financial burden and accelerate disbursements. The Bank or IDA makes advance deposits into these funds to eliminate the need for prefinancing by the Government of local expenditures financed by the Bank/IDA. In addition, estimates of counterpart funds required and when the funds should be made available are being prepared by Bank/IDA staff well in advance of their need to allow implementing agencies as much lead time as possible to plan for these expenditures. As of December 1983, IBRD loans disbursed and outstanding were about 12 percent of Zambia's total medium and long-term debt disbursed and outstanding. 23. The Bank Group's strategy in Zambia is to support the country's efforts to diversify and increase economic efficiency. Raising the efficiency of the mining industry through the Export Rehabilitation and Diversification loan so that the industry may contribute resources to diversification programs was the first step in carrying out this strategy. Subsequent operations, of which the proposed project is the first, will focus on developing agriculture and industry, which are, respectively, the sectors with the best potential for production and export growth and for employment creation. The Group's strategy also gives priority to programs to increase the use of indigenous energy resources and to raise the efficiency of transportation services. Emphasis will be given to rehabilitation and maintenance, rather than expansion, of infrastructure and Bank Group assistance- is expected to include a significant proportion of quick-disbursing resources. Support for addressing the longer term development constraints, e.g., education, population, health, etc., is also part of the strategy. Policy and institutional reform programs in each of the sectors, as well as on the macroeconomic level, are being agreed with the Government. PART III. THE AGRICULTURAL SECTOR Structural Features 24. The development of Zambia's agriculture has remained far below potential. Of the estimated 60 million ha of arable land, only about 12 million or 20% is currently cultivated, even though the climate is  -8- generally favorable for the cultivation of a wide range of crops. Maize is by far the most important crop, representing over 70 percent of the value of marketed agricultural output. Other significant crops are cassava, millet, sorghum, groundnuts, sunflower, cotton, tobacco, sugar cane, rice, soyabeans and a variety of legumes and vegetables. In addition, the country has a sizeable number of the various types of livestock. Cattle are a major source of cash income and offer a considerable potential for animal draft power. 25. The sector is acutely dualistic. On the one extreme are about 460,000 traditional farmers, some 76 percent of the estimated 600,000 farm households, who cultivate an average of slightly less than 2 ha. They use family labor and simple hand tools, and produce for subsistence purposes with only occasional marketable surpluses. On the other extreme is a small but highly mechanized and productive group of comercial farmers, compris- ing about 4 percent of the farm households. These farmers produce about 40 percent of the maize and 55 percent of the other marketed agricultural products. This dualism has been slightly moderated in recent years by the emergence of a class of market-oriented smallholder farmers, numbering about 125,000, or 20 percent of the farm households. These emergent farmers cultivate an average of 3 ha, using mainly hand tools and family- labor, but they also employ oxen and hired tractors and modest amounts of purchased seasonal inputs, especially fertilizers. Their marketed output consists primarily of cereal grains, such as maize. Objectives and Achievements 26. Zambia's agricultural objectives have historically aimed at diversifying output; attaining self-sufficiency in staple food crops, especially maize; spreading development to all parts of the country with a view to narrowing the rural-urban income gap and redressing regional disparities; and ensuring low-cost food for the urban population. Little progress has been made since Independence towards achieving these goals however. The country continues to import agricultural commodities that could be produced locally. Zambia did become a net exporter of maize in the mid-1970s but soon reverted to being a chronic net importer and its cereal self-sufficiency ratio declined from 102 during 1974 to 79 in the early 1980s. 27. The growth rate of agricultural output has been on a steadily declining trend since the mid-1970s. During 1970-74, total production grew by 2.1 percent annually but since then, the s'ctor's growth has slowed, averaging 1.8 percent during 1974-79 and only percent during 1979-83. This compares with a population growth rate of 3.1 percent per annum during the period. The performance of the market-oriented subsector, which depends heavily on imported inputs, has been particularly disappointing. 28. The sector's contribution to the country's diversification effort has been minimal. Its share of real GDP has declined from about 13.7 percent at Independence to 11.5 percent in 1982, and no significant new export commodities have appeared. Likewise, its impact on the urban-rural income gap and on regional disparities has been disappointing. The terms of trade have deteriorated by about 28 percent against rural areas compared to 1970, and the three ecologically better endowed ane historically more  -9- developed provinces have continued to account for over 90 percent of the marketed farn products. 29. The reasons behind the poor results are many and include external factors, especially the shortage of foreign exchange and severe droughts. However, the adverse impact cf such external shocks and natural calamities has been greatly exacerbated by a number of internal constraints stemming mainly from inappropriate pricing policies, inefficient produce marketing and input distribution systems, poor research and extension services, and inadequate tillage power. Pricing Policies 30. Producer prices of the major crops, notably maize, are subject to Government control and, until two years ago, were kept substantially below the border-price equivalents, thus imposing an implicit tax on producers. Retail prices, at the same time, were set below costs, thereby resulting in mounting subsidies to consumers. This poliey was drastically modified towards the end of 1982, when the principle of economic pricing was adopted. Retail prices were decontrolled, except for maize (although the maize price was increased substantially) and wheat products, and producer prices were increased to border price levels. Wheat product prices were decontrolled in November 1984. By the latter half of 1984 rapid currency devaluation had restored somewhat the gap between domestic and border-prices. 31. Although significant improvements have been made, the country's agricultural pricing policy continues to entail a number of adverse features. These include: a price structure for maize and fertilizer that does not permit sufficient regional differentials or full cost recovery and a defective price setting methodology. This has led to inefficient resource allocation and has constrained agricultural development by ignoring inter- and intra-regional comparative advantages. Also, because of the inadequate price levels, the Government has had to subsidize transport and marketing costs. 32. The subsidies on maize have tended to encourage its consumption at the expense of the unsubsidized traditional crops such as cassava and sorghum. This has acted against the interest of an estimated 60 percent of the farmers for whom, due to climate and soil conditions, the cultivation of maize is marginal compared to these other traditional crops. The subsidies on fertilizer have benefited the small proportion of farmers who have sufficient resources to cultivate a large acreage and who find the available technical packages involving fertilizer suited to their farming methods. In addition, by not allowing full-cost recovery, the pricing policy has: fostered inefficiencies among the marketing agencies (Namboard and Cooperatives); denied these agencies the opportunity to generate funds needed to develop essential facilities such as storage; and inhibited the growth of private enterprise which can survive only if allowed to recoup full costs. At negotiations, the Borrower submitted to IDA an action program, for implementation within twenty four months of credit effectiveness, to adjust the consumer price of maize and the price of fertilizer sufficiently to cover Namboard's and the Cooperatives' full cost within a regionally differentiated price structure.  - 10 - 33. The method used to determine producer prices is unsatisfactory. These prices are derived from estimated average production costs for the year immediately preceding the cropping season, based on a singe model farm budget for the whole country. The data used have little empirical basis and the resultant prices are not related to prevailing or anticipated supply-demand imbalances, or to foreseeable changes in incremental production costs. No account is taken of the trading opportunities open to the country as reflected by border prices. At negotiations, the Borrower agreed to formulate, and not later than six months after credit effectiveness adopt, a pricing methodology for setting producer prices, which, inter alia, takes into consideration border price equivalents and full production cost. with Namboard assuming the role of the buyer and seller of last resorr (para. l(c), Schedule 3, draft Development Credit Agreement). Produce Marketing and Input Distribution 34. Produce marketing and input distribution in Zambia play a critical role in the development of agriculture because only when a reliable marketing system is assured can the traditional farmers be expected regularly to produce a marketable surplus. Because of their importance to the sector, the efficiency of maize marketing and fertilizer distribution is crucial to the welfare of both producers and consumers. The marketing and distribution functions for these commodities are handled almost exclusively by Namboard and the Cooperatives. 35. Namboard: Namboard was established in 1969. Its main responsibi- lities are to ensure market outlets in the maize surplus regions, adequate supply in the deficit regions, and the availability of fertilizers in all parts of the country. Following its establishment, it rapidly expanded its functions and geographical coverage becoming, in the process, an unwieldy and inefficient organization. Government policies have compelled it to buy at higher prices than it is allowed to sell at, and to expand its operations over all the country irrespective of the financial implications. Consequently, Namboard has been running heavy deficits, rising from an annual average of K 19.2 million during 1970-74 to K 87.5 million during 1980-82. These deficits have had to be covered by budgetary subsidies. 36. During the last few years, the Government has introduced measures to reduce Namboard's operating losses. These measures include: increasing Namboard's resale prices to equ&I the prices it pays to producers for maize, hiving-off its intra-provincial operations and handing them over to the Provincial Cooperative Unions (PCUs); and reducing Namboard's staff. Namboard's main functions are now limited to purchasing maize from PCUs in surplus provinces, or importing it, and selling it to PCUs in the deficit provinces; importing fertilizers and distributing them to PCUs; and maintaining maize security reserves. Consequently, Namboard has become a more manageible operation and has reduced its staff from a total of about 6,000 in 1979 to about 2,000 in 1983. Subsidies have fallen from K 109.7 million in 1980 to K 84.3 million in 1982, with a further estimated reduction to K 35.8 million in 1983.  - 11 - 37. In part, Namboard's problems have been solved by shifting the burden to the PCUs. This is evident from the fact that subsidies to the PCUs increased from K 30.6 million in 1981 to K 57.8 million in 1982, and that the consolidated totals (for both Namboard and the Cooperatives) rose from K 100.1 million to K 141.1 million between the two years. 38. Provincial Cooperative Unions (PCUs). There are nine PCUs in Zambia, one for each province. Their major functions are: purchasing, collecting, transporting, storing and selling farm produce, and distributing farm inputs, notably fertilizers. Partly as a result of the Government pricing policy, all the PCUs have been operating at substantial losses and depend heavily on budgetary subsidies. While potentially capable of playing a significant role in the agricultural sector, the PCUs will have to be strengthened financially. The adjustment of the consumer price of maize and the price of fertilizers to allow PCU's sufficient margins to cover full cost, as agreed at negotiations, will help to achieve this result (see para. 32) 39. The transfer of Namboard's intra-provincial functions to the PCUs is a move in the right direction, but it has led to a rapid expansion of their operations without a corresponding improvement in their managerial and operational capabilities. All PCUs suffer from an inability to attract and retain competent staff, from weak management, and from inadequate capital. Programs are urgently needed to improve their operational and financial management. This should be done through staff training, intensified supervision and the introduction of sound financial and operational systems. At negotiations, the Borrower agreed to initiate a study not later than six months after credit effectiveness with a view to identifying and implementing measures to improve the level of efficiency of the PCUs (Part B, Schedule 2 and para. 1(b), Schedule 3, draft Development Credit Agreement). 40. Role of the Private Sector: The private sector plays the major role in the marketing of all agricultural products other than maize, and in the distribution of all agricutural inputs other than fertilizers. However, maize and fertili7.rs account for the major part of agricultural marketing and the input distribution trade, and exclusion of private traders from these two commodities severely restricts the role of the private sector. In view of the urgent need to improve efficiency in agricultural marketing and input distribution, the private sector should be permitted to participate in these areas. At negotiations, the Borrower submitted to IDA an action program, for implementation within twenty-four months of credit effectiveness, which would allow private traders to enter into maize marketing and fertilizer distribution. Under this action program, MAWD will carry out a marketing study, provided for under the project, and implement the recommendations of the study with regard to ways and means of increasing the efficiency of the cooperatives and Namboard in maize marketing and fertilizer distribution with participation of the private sector acting as an essential spur to that end (Part B, Schedule 2 and paras. 1(b), 3 , 4, and 5, Schedule 3, draft Development Credit Agreement).  - 12 - Research and Extension 41. Insufficient research attention has been given to crops grown mainly by smallholder and subsistence farmers (e.g., cassava, sorghum and millet) and the availabie technical packages are largely unsuited to their needs. Extension services have been geared uainly to the co_ ercial farmers, and extension efforts have been seriously hampered by inadequate funding and a shortage of qualified and experienced staff. As a result the average crop yields among traditional farmers have remained very low. The Government is now preparing a long-term program to improve research and extension services, under a possibly Bank-supported project, and to re-orient these services to the needs of smallholders. 42. Partly due to poor technical guidance and weak extension services, Zambia consumes an extraordinarily high amount of fertilizers for a country of its agricultural size. The Government has obtained bilateral assistance to study the problem and identify possible solutions. At negotiations, the Borrower agreed that this study would be undertaken within six months following credit effectiveness and its recomendations implemented within twelve months of credit effectiveness in consultation with IDA (para. 1(a) and 3(a), Schedule 3; draft Development Credit Agreemer.t). On the other hand, imports of various agro-chemicals and produce and input packaging materials have fallen below essential levels because of the shortage of foreign exchange. This is having an adverse effect on agricultural production among the market-oriented farmers. The proposed project would make funds available for these and similar inputs. Agricultural Credit 43. The majority of farmers have no effective demand for credit in view of the unavailability of suitable technical packages. However, the shortage of bridging funds to finance produce and input purchases by Namboard and the PCUs is an important problem, stemming primarily from the Government's budgetary contraints. This has in turn led to long delays in paying the farmers and has caused cash flow problems down the marketing chain, thereby artificially increasing the need for credit at the farm level. Nonetheless, the majority of the commercial farmers face no serious difficulties in obtaining credit from commercial banks and parastatal lending institutions. Tillage Power 44. Inadequate tillage power (in terms of labor, animal draft and machine power) is a serious contraint on agricultural development in Zambia and reliance by smallholders on the hand hoe as the only available means of cultivation is one of the major causes of the under-utilization of land. This constraint is exacerbated by the fact that rains are confined to a short period of four to five months, thus necessitating hurried land preparation to avoid late planting. Labor shortages for land cultivation are, therefore, a major problem during the peak seasons. The situation is being further aggravated by the exodus of the young and able males from the rural to the urban areas. Apart from restricting the cropped area, these constraints influence the type and range of crops grown, leading farmers to prefer the less labor and power intensive crops. This is one of the factors underlying the sharp decline in the production of crops such as groundnuts and tobac..o.  - 13 - 45. Efforts to lessen these constraints have focussed on promoting the use of animal and tractor power. The use of draft animals is limited by tsetse infestation, inadequate facilities for training the animals, and a shortage of ox-drawn implements. The use of oxen is also rendered less attractive by the fact that labor requirements for weeding and harvesting still remain, and, unlike with tractors, the farmer has to await the onset of the rains to soften the ground before ploughing. 46. During the last thirty years, tractor power has played an important role in expanding the cultivated area and in ensuring the supply of marketable surpluses. But since the mid-1970s, the acute shortage of foreign exchange has compelled the farmers to defer essential repairs and replacements. Tractor imports declined from an annual average of 840 units during 1970-74 to 490 units during 1975-80, and to 230 units during 1981-82. Imports of essential spare parts has similarly been curtailed as a result of which it is estimated that about 40Z of the 2,500 operable tractor units now in the country are out of action. Because of frequent breakdowns due to inadequate maintenance, the operable units cannot cope with more than 40 ha/year each. 47. Virtually all of the medium and large-scale farmers as well as many of the emergent farmers have sufficient farming skills and a fairly suitable technical package with which to respond quickly to the recent changes in policies and institutional environment. Insufficient tillage power alone circumscribes the area these farmers can plough, plant and weed during the critically short cropping season. The proposed project would help to finance rehabilitation of the repairable stock of tractors and associated implements, plus some replacement, as well as the procurement of animal drawn implements. 48. A Government tractor fleet, now consisting of abolut 280 operational units, has been offering hire services to smallholders who, because of their limited financial resources and the small size of their cultivated plots, are unable to individually own tractors. Also, farmers and other individuals who own tractors are free to offer services at whatever price the market can bear. The Government services have been running at a loss because the charges are fixed below full cost. This has inhibited proper maintenance thereby widening the cost-recovery gap and making operational efficiency more difficult to achieve. At negotiations, the Borrower submitted to IDA an action program for implementation within seventeen months of credit effectiveness, which, in addition to the recent increase, would adjust charges for government tractor hire se-vices sufficient to ensure full cost recovery (para. 2, Schedule 3; draft Development Credit Agreement). Part IV. THE PROJECT 49. The proposed project was identified in discussions between Zambian officials and a Bank mission which visited Zambia in March 1983 in connection with agricultural sector work. It was prepared jointly by Bank staff and the Ministry of Agriculture and Water Development (MAWD) and appraised in November 1983. Negotiations were held in Washington, D.C. during the period August 6 to 10, 1984. The Zambian delegation was led by Mr. N. Mukutu, Permanent Secretary, Ministry of Agriculture and Water  - 14 - Development. A credit and project summary appears at the beginning of this report, and a supplementary project data sheet is attached as Annex III. 50. Project Objectives and Description: The main objectives of the proposed project are: (i) to encourage and support the Government's efforts in policy and institutional reform in the agricultural sector; (ii) to reverse the declining trend in marketed agricultural output; and (iii) to reinforce Government's efforts to diversify the economy from the extreme dependence on mining. The project seeks to complement policy and institutional reforms with physical inputs. This recognizes the fact that to avert further declines in agricultural production in the immediate future, it is necessary not only to improve the policy environment but to ensure the availability of key inputs so as to enable the farmers to respond positively to the improved policy and institutional framework. 51. Although the long-term growth of Zambian agriculture depends critically on the development of the subsistence and smallholder farmers, the urgent need to increase food supplies, reduce imports and diversify the economy, dictates that the short-term strategy include measures to ameliorate the constraints immediately facing the medium and large-scale farmers, since these farmers offer the best prospects of increasing production in the short-run. The physical input component of the project is designed to address the problems currently facing these farmers. 52. The project also supports a specific policy action program for the agricultural sector, extending the policy measures contained in the .Semorandum of Development Objectives and Policies' submitted to the Bank by the Government in January 1983. This Memorandum affirmed the Govern- ment's commitment, inter alia, to: (a) provide a system of incentives to producers of agicultural products, based on a sound price setting methodology, with a view to facilitating the establishment of economic prices and a rational allocation of resources according to the principle of comparative advantage among the various regions; (b) adopt a policy of economic pricing for parastatal enterprises, and streamline their operations; and (c) increase the efficiency of the marketing system, by allowing competition among the official marketing organizations, cooperatives, and private traders, eventually leading to a system in which official producer prices would become floor prices and Namboard would become the buyer and seller of last resort.  - 15 - 53. In summary, the actions to be taken in connection with this project include: (a) allowing sufficient trading margins in maize and fertilizer to cover Namboard's and the Cooperatives' full costs, within a regionally differentiated price structure; (b) undertaking a study, and implementing its recommendations, regarding ways and means to improve ;he efficiency of Namboard and the Cooperatives; (c) evolving and adopting a better methodology for setting producer prices, which relates such prices to the border-price equivalents; (d) adjusting the charges for the Government tractor hire services to achieve and maintain full cost recovery; Ce) allowing private traders to participate in the marketing of maize and the distribution of fertilizer; and (f) undertaking an assessment of the factors underlying the extraordinarily high consumption of fertilizers, and implementing its recommendations.. The proposed project would encourage the Government to further the policy and institutional reforms in accordance with the details and implementation schedule set forth in Annex IV herein. (Schedule 3, draft Development Credit Agreement). Project Description 54. The project has four main components as detailed below: (a) Farm Machinery and Implements: new tractors; mechanically powered and animal drawn machinery and implements for land preparation, sowing, weeding, fertilizer and agro-chemical spreading or spraying, and for crop harvesting; ox-carts; and spare parts; (b) Agro-chemicals: various crop protection chemicals and herbicides; (c) Miscellaneous: agricultural hand tools; bags for packaging fertilizer and grain; improved seeds; small-scale irrigation pumps and fittings; and farm trucks and trailers; and (d) Consultant services: about 27.5 man-months of internationally recruited specialists to carry out the proposed maize marketing and fertilizer distribution study. 55. Provision of Inputs: Because of foreign exchange shortages, machinery, equipment, etc., have not been replaced or maintained adequately and the sector's capital base has eroded significantly. In addition, the  - 16 - supply of tools, packaging materials, seeds, spares, etc., and agro-chemicaLs is seriously deficient. A necessary condition for a resumption of adequate rates of growth in the sector, as well as for the diversification of production and exports, is to restore the capital base and provide the materials needed by the sector. This part of the project will supply a substantial proportion (about 75 percent) of the sectors' requirements in this regard, supplementing the resources made available from the country's foreign exchange earnings. 56. Consultant Services: Some of the proposed project's policy and institutional measures require analysis before implementation. Studies, estimated to involve about 10.5 man-months of consultant's services, to determine the appropriate pricing structure for Namboard and the Cooperatives so that they can recover their trading expenses, and for the Government to achieve full cost recovery on its tractor hire services, have already been initiated. A study of the maize marketing and fertilizer distribution systems is also included in the proposed project. This study would focus on ways to increase the efficiency of these systems through the strengthening of Namboard and the Cooperatives both managerially and financially and through the introduction of private trading of these items. It is estimated that the study would take about six months and would require about 17 man-months of internationally recruited consultants. The consultants chosen would be acceptable to IDA and would be selected in accordance with IDA guidelines. (Section 3.03(a); draft Development Credit Agreement). At negotiations the Borrower agreed to carry out the study and implement its recommendations in line v7ith the schedule shown in Schedule 3 of the draft Development Credit Agreement. Estimated Costs and Financing Arrangements 57. Estimated Costs: The total project cost is estimated at about US$72.3 million, consisting of US$39.9 million for farm machinery and implements, USS11.4 million for spare parts, US$19.4 million for agro-chemicals, US$1.4 million for miscellaneous inputs, and US$0.2 million for consultants services. The foreign exchange costs are estimated at US$65.0 million. The project would be implemented over a period of three years. 58. Financing Arrangements: IDA would provide US$25 million, equiva- lent to about 38% of the estimated foreign exchange costs. The Swiss Government is expected to co-finance US$4.8 million, the African Development Bank US$23.4 million, USAID US$5.0 million and CIDA (Canada) US$6.8 million. The signing of the Swiss Grant and ADB Loan agreements, would be a condition of effectivenes of the IDA Credit (Section 6.01(a); draft Development Credit Agreement). An agreement with USAID to finance certain items under the project has already been signed. CIDA:s participation, while firm, may not be formally committed until mid-1985 and therefore is not a condition of effectiveness of the IDA credit. The local costs, estimated at US$7.3 million, v"uld be financed directly by the farm machinery and implement dealers (trading houses). Each Trading House would be required to pay to the Bank of Zambia (BOZ) the Kwacha equivalent of the full amount of the foreign exchange cost of the items it is authorized to import under the project. At the current exchange rate the IDA Credit would generate about K 50 million of local funds. The IDA Credit would be to the Republic of Zambia and would be subject to the standard IDA terms.  - 17 - Provision has been made for retroactive financing of up to SDR 80,000 for expenditures incurred for consultants' services in connection with the studies already initiated (para. 56). Implementation and Management 59. Overall Responsibility: The Bank of Zambia (BOZ) will have the overall responsibility for implementing and managing those aspects of the project which involve financing physical inputs, while the Borrower, through MAWD, will be responsible for implementing the studies. To help BOZ to carry out its responsibilities under the project and before Credit effectiveness, GRZ would establish a Project Implementation Committee (PIC) consisting of representatives of the Ministry of Finance (MOF), Ministry of Agriculture and Water Development (MAWD), Ministry of Commerce and Industry (MCI), National Commission for Development Planning (NCDP), commercial and small-scale farmers, and the Project Executive Officer (Section 3.02, draft Development Credit Agreement). PIC's main functions would include establishing implementation procedures and allocating foreign echange among the participating trading houses (Paragraph 1(b), Schedule, draft Project Agreement). BOZ has already set up criteria for allocating foreign exchange among the trading houses and has prepared a proforma agreement between itself and the trading houses. These are satisfactory to IDA. 60. Project Implementation Unit: BOZ would also establish, before Credit effectiveness, a full-time Project Implementation Unit (PIU), which would be headed by a Project Executive Officer (PEO) with qualifications and experience acceptable to IDA. The PIU would be staffed sufficiently and provided with adequate facilities and logistical support. It would be responsible for the day-to-day operations including: evaluating and processing import applications; ensuring that import licenses are issued promptly to the eligible Trading Houses; monitoring the project activities to ensure that the Trading Houses are complying fully with the stipulations of the agreement between themselves and BOZ, and maintaining proper records to show the uses of the proceeds of the Credit. (Section 6.01(d),draft Development Credit Agreement and Section 2.02 and Paragraph 1(c), Schedule, d-aft Project Agreement). 61. Trading Houses: Importation of the goods financed by tne proposed * Credit would be undertaken by Trading Houses, which are farm machinery and agro-chemicals dealers located in Zambia. Each Trading House wishing to participate in the project would enter into a formal agreement with BOZ. The Trading Houses or their agents would allow on-the-spot inspection by BOZ of goods imported under the project, stock sufficient spare parts up-country, and submit supplier contracts or similar documents for approval by PIC prior to execution. Conformed copies of shipping and other relevant documents would be sent to PIC upon receipt of the goods concerned. 62. Tranching: The IDA Credit would be made available in two tranches: (i) a first tranche of SDR 10 million upon Credit effectiveness; and (ii) a second tranche of SDR 14.7 million, approximately 15 months after Credit effectiveness and after IDA's satisfaction following a joint  - 18 - review of progress on implementing the policy reforms set out in Schedule 3 of the draft Development Credit Agreement. Procurement and Disbursement 63. Procurement: Procurement would be undertaken by Trading Houses already established in Zambia and dealing in farm machinery and implements, spare parts, and agro-chemicals. All items would be procured by the various Trading Houses through normal commercial channels; the major international manufacturers of farm machinery and agro-chemicals are well represented in Zambia and are engaged in fairly intense competition for the available market. The consultant services would be procured in accordance with the Bank/IDA guidelines (Section 13, draft Project Agreement) 64. Disbursements: The proceeds of the IDA Credit would finance 100 percent of the foreign exchange expenditures for imported farm machinery, spare parts, agro-chemicals and miscellaneous items; and 100 percent of the consultancy service costs. Disbursements would be fully documented. To facilitate disbursement for the eligible goods and services, the Borrower would open a Special Account in the Bank of Zambia on terms and conditions acceptable to IDA and into which IDA would, upon Credit effectiveness and receipt of a valid withdrawal application, deposit a sum of up to US$3 million (equivalent to about 3 months of imports of the eligible goods). Thereafter, IDA would periodically replenish the Special Account upon receipt and approval of the borrower's application, subject to the maximums set by the tranching arrangement described in paragraph 62, and a minimum of US$20,000 equivalent per each replenishment application. The establishment of the Special Account would be a condition of Credit effectiveness (Section 2.02(b) and 6.01(b), draft Development Credit Agreement). Accounts, Audit and Reporting 65. The Bank of Zambia would maintain separate records and accounts for all activities relating to the financing of physical inputs under the proposed project while the Borrower would similarly do so regarding the studies (Section 4.01; draft Project Agreement and Section 4.01 of the draft Development Credit Agreement). The accounts and financial statements would be audited by auditors acceptable to IDA and submitted to IDA not Later than four months following the end of the financial year (Section 4.02, draft Project Agreement and Section 4.01 of the draft Development Credit Agreement). BOZ and the Borrower would also maintain adequate records to facilitate a close monitoring of Project implementation and would prepare and submit to IDA quarterly progress reports and a final Project Completion Report. Relations with the IMF 66. The project would complement the IMF's programs in Zambia by assisting the Government to eliminate subsidies, thus helping to reduce budgetary expenditures and deficits, and by increasing the domestic production of the major staple food crops and industrial raw materials. By reducing the need to import food commodities and fertilizers, it would contribute towards improving the balance of payments.  - 19 - 67. Environmental Impact: The project would have no adverse environmental impact. Agro-chemicals known to damage the environment would not be eligible for IDA financing. Benefits, Risks and Justification 68. Benefits: It is not possible to make a meaningful assessment of the benefits likely to result from the project . However, tt is realistic to expect that the policy and institutional reforms supported by physical inputs would have a considerable positive impact on agricultural development in Zambia. They would do so especially by: (i) encouraging a more efficient use of resources in accordance with regional comparative advantage, (ii) releasing funds to productive investments through reductions in subsidies, and (iii) improving the efficiency of the marketing and input distribution channels through making the system more competitive with private sector participation. Also, the project would reinforce Government's efforts to diversify the economy, generate alternative sources of employment and income, help to ease the balance of payments problem, and increase domestically produced food supplies. 69. To gain some notion of the likely impact on production arising from the project an indicative assessment of the financial and economic costs and benefits has been carried out on the cultivation of hybrid maize by the medium- and large-scale farmers. 70. Under conservative assumptions, the project would increase maize production by an amount rising from about 30,000 tons in year 1, to a peak of about 320,000 tons in year 10. Incremental production would average 190,000 tons annually over a period of 12 years which, at current prices, is equivalent to about K 59.8 million gross; the present value of the net benefits discounted at 13.5X would be K34.3 million (US$17.2). On this basis, the financial rate of return is estimated at 27 percent and the economic rate of return is estimated at 59 percent. The financial rate of return is fairly sensitive to changes in costs and benefits: a decrease in benefits by 10 percent would reduce the rate of return to 15 percent, while an equal increase in costs by 10 percent would reduce it to 17 percent. 71. The envisaged policy and institutional reforms would benefit a wide spectrum of Zambian farmers, including subsistence farmers on the verge of entering the market economy. The major part of the machinery, spare parts, and agro-chemicals would go to the medium- and large-scale farmers. However, assuming that farmers buy these inputs in proportions that reflect the current ownership of tractors, at least 20 percent of these inputs would benefit the emergent farmers. In addition, about 7,000 emergent farmers would benefit from ox-drawn implements financed by the project. 72. Risks: The project's main risks are: delays or failure to carry out the proposed policy reforms; inadequate availability of complementary inputs, especially fertilizers; and recurrence of droughts. The Government has already demonstrated its determination to carry out unpopular measures. Because of the grim economic and financial prospects confronting the country, it is realistic to expect that the Government will continue to implement the reforms proposed under the project.  - 20 - 73. The risk related to the possible shortages of Imported complementary iuputs is expected to be minimized by the on-going efforts to increase local production of fertilizers, and by the fact that fertilizers are one of the input. for which Zambia ham found it relatively aamy to obtain assistance from bilateral sources. With regard to droughts, little can be done in the short- to medium-terms. For the long-term period, research is proceeding with a view to developing drought-resistant crop varieties. In any event, severe droughts have not occurred with great frequency historically; the recent prolonged period of low rainfall belng an anomaly. 74. Justification of IDA Assistance: Agriculture offers the best prospects for diversification of the Zambian econony and for generating future export proceed. to substitute for the decline In copper earnings expected about the turn of the century. Because of its international character and expertise in the sector, IDA is in a unique position to be able to support the Government's efforts to reform sector policies and institutions and to mobilize the external resources needed for that purpose. PART V - LEGAL INSTRUMENTS AND AUTHORITY 75. The draft Development Credit Agreement between the Republic of Zambia and the Association, the draft Project Agreewent between the Association and the Bank of Zambia and the Recommendation of the Committee provided for in Article V, Section l(d) of the ArLicles of Agreement of the Association arc being distributed to the Executive Directors separately. 76. Special conditions of the Project are listed in Section III of Annex III. Additional conditions of effectiveness include: (a) signing of the ADB Loan and Swiss Grant Agreements (para. 58); (b) opening of the Special Account (para. 64); (c) establishment of the Project Implementation Committee (para. 59); (d) establishment of the Project Implementation Unit (para. 60); and (f) establishment of project execution procedures (para. 59). 77. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI. RECOMMENDATION 78. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen Attachments Washington, D.C. December 18, 1984  -21 - ANNEX I Page 1 of 5 2ANIIA - EOcIAL INDICATOR4 S DATA mU mflma Umncu MoUMa CuuiTlD ALRACIS) p MOST (NO"T MCUNT r.TIMTS) lb RCCNT HMIDDLE INC mnIaDDLK tHCnO zseobk 19701k tiTmlUTbt AFRICA 3. OF SAM N. ARICA & MD WT Ma cuu.mM IQ. 0) TOTAL 752.6 712.4 752.e AGRICULTURAL 397.4 399.3 401.4 OFP MCAPITh CUE) 230.0 380.0 640.0 1112.9 1149.6 WEDDT cmsuawia ISa CAPITA (RILOMS OF OIL EQUIVALENT) .. 301.0 443.0 529.0 U22.1 M IATIO MO1 VtS TAISTIC8 POPULATWON,NHD-YRAR (THOUSANDS) 3207.0 4159.0 4045.0 URBAN POPULATION (C 0W TOTAL) 23.1 30.0 44.6 29.7 41.2 POPULATiON PtoJECTIONS POPULATION IN YEAR 2000 (HILL) 11.4 STATlONARY POPULATION CHILL) 37.0 POPULATION PERHTUI 2.0 POPULATION OCHSITY PER Su. lO. 4.3 5.5 7.8 55.8 36.3 PER SQ. KI. ACRl. LAND 8.1 10.4 14.5 111.5 461.7 POPULATION AGE STRCTURE (1) 0-14 YIS 45.0 46.1 47.4 45.4 43.4 15-64 YRS 52.5 51.4 50.0 51.7 53.1 43 AND AOVE 2.' 2.5 2.6 2.9 3.3 POPULATION GRCAI RmAn ZX) TOTAL 2.4 2.6 3.1 2.8 2.8 URBAN 5.3 5.2 6.5 5.2 4.5 CRtDE BIRTH RATE (PER THOUS) 50.6 49.6 49.5 47.0 40.4 CRtUDE DEATH RATE (PER THOUS) 24.4 20.1 15.5 15.2 11.5 GROSS REPROOUCTION RATE 3.4 3.4 3.4 3.2 2.5 FAMELY PLANNING ACCEPTORS. ANNUAL (THOUS) USERS (2 OF HRRIED OEN) .. .. .. .. 22.2 gm AN OIITION INDEX OF FOOD PROD. PER CAPITA (1969-71-100) ".0 96.0 87.0 91.6 97.3 PER CAPITA SUPPLY OF CALORIES (2 OF REQUIRhENETS) 87.0 87.0 93.0 93.2 110.8 PROTEINS (GRAMS PER DAY) 58.0 58.0 58.0 56.7 70.1 OF WHICH ANIMAL AND PULSE 14.0 16.0 14.0 /c 17.0 17.8 CHILD (AGES 1-43 DEATh RATE 38.0 29.0 20.0 16.7 14.6 ALTU LIFE *XPECT. AT BIRTH (TEARS) 39.7 44.6 50.9 51.7 57.5 INFMT MOnT. RATE (PER THOUS) 164.0 137.0 105.0 102.7 101.5 ACCESS TO SAFE WATER (ZPrP) TOTAL * 37.0 42.0 Id 35.6 59.7 URBAN ., 70.0 86.0 7 54.1 64.5 RURAL *- 22.0 16.0 T 27.3 38.4 ACCESS TO EXCRETA DISPOSAL (C OF POPUIATION) WTOTAL .. 16.0 42.0 Id URBAN .. 12.0 87.07; RURAL .. 11.0 16.o 7 POPULATION PER PHYSICIAN 9540.0 8140.0 7b70.0 le 11943.3 4345.1 POP. PfU RURSING PERSON 9920.0 /f 2430.0 1730.0 7e 2248.9 1831.1 POP. PER HOSPITAL BED TOTAL 360.0 300.0 210.0 Ia 986.9 632.9 URBA 180.0 If .. 350.0 7j 368.7 545.5 XMtlAL 470.0 If .. 240.0Ig 4012.1 2513.5 ADMISSIONS PER HOSPITAL BED .. .. 31.0 2 .. 24.2 OSlING AVERAGE SIZE OF HOUSENOLD TOTAL .. 4.4 URBS .. .. RURAL .. .. AVERAGE NO. OF PERSONS/ROIB TOTAL 2.6 URBAN .. .. . . RURAL .. .. ACCESS TO ELECT. (2 OF DWELLINGS) TDrAL .. .. .. .. 44.2 UR 277.5 .. .. .. 77.7 RURAL .. .. .. .. 16.1  -22 - ANE I Page 2 of 5 ZAMIA -USOCA zIuICAOmu DATA SHIR ZAMBI NBRNC ROUS (VRIGnTK AVIRIOR) La. MOST (MOST ECUT ESThIAY) a RECUT IZIU iNCOnK NIDDLE 13CI z,mo13. 197w0b n uilk AnicA S. r sAna s. AnicA mIaD UaT ADJUSTED INROLUNT RATIOS PRiAY, TOTAL 42.0 89.0 96.0 91.0 88.3 MALE 51.0 99.0 102.0 90.5 102.5 FEMALE 34.0 79.0 90.0 73.6 73.6 SECONDARY: TOTAL 2.0 13.0 16.0 17.4 43.0 MALE 3.0 17.0 21.0 23.7 52.3 73ALE 1.0 6.0 11.0 14.8 33.0 VOCATIONAL (5 0? SECONDUY) 27.8 3.2 2.3 5.3 10.3 PUPIL-TIACHZ RATIO PRIKARY 50.0 47.0 44.0 ;s 38.6 30.3 SECONDARY 14.0 22.0 22.0 W 24.3 23.1 ADULT LITERACt RATE (2) 28.5 /f 47.3 44.0 35.6 43.5 PASSENCER CARS/TNOUSAND POP 10.2 14.5 18.7 /b 20.7 17.8 RADIO RICECIVERS/TOUSAND POP 4.7 18.0 23.9 100.8 138.8 TV RECEIVERS/TEO0SAND POP .. 4.1 10.6 19.5 46.1 NEWSPAPER ("DAILY GENEA INTEREST-) CIRCULATION PER THOUSAND POPULATION 5.0 13.7 19.9 /i 17.2 31.2 CiEMI ANNUAL ATTENDANCE/CAPITA .. .. 0.3 7iW 0.3 1.7 TOTL LABOR FORCE (THOUS) 1322.0 1621.0 2157.0 FEMALE (PERCENT) 33.3 32.6 32.3 33.8 10.8 AGRICULTURE (PERCENT) 79.0 73.0 67.0 57.1 42.4 INDUSTRY (PERCENT) 7.0 9.0 11.0 17.4 27.9 PARTICIPATION RATE (PERCENT) TOTAL 41.2 39.0 35.7 36.3 26.2 MALE 55.3 52.9 49.3 47.6 46.4 FEMALE 27.3 25.2 22.6 25.1 5.8 ECONOMIC DEPENDENaC RATIO 1.2 1.2 1.4 1.4 1.8 aWCE Dmmm PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5Z OF HOUSEHOLDS 33.7 23.0 /i HIGHEST 202 OF HOUSEHOLDS 58.2 63.0 7-1 56.7 /b LOWEST 201 OF HOUSEHOLDS 5.4 3.8 71" 3.6 7.. LOWEST 401 OF HOUSEHOLDS 13.0 10.1 7I" 11.1 7W povn TARw GRU ESTIKATED ABSOLUTE POVERTY INCOME LEVEL CUSS PER CAPITA) URBAN .. .. 247.0 525.3 274.8 RURAL .. .. 16S.0 249.0 177.2 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 126.0 477.4 402.6 RURAL .. .. 85.0 166.0 284.9 ESTIMATED POP. BELOW ABSOLUTE POVERTY INCOME LEVEL (Z) URBAN .. .. 25.0 RURAL .. NOT AVAILABLE MT APPLICABLE N 0 T E S /a The group averages for each indicator are populatLon-aeibted aritretic mans. Coverage of countries ano the indicators depends an availability of dat and Is not uniform. /b Unless otherwise noted. Data for 1960- refer to any year betaLe 1959 and 1961; -Data for 1 70" between 1969 and 1971; and data for host Recent EetiuteC between 1980 and 1982. /c 1977; /d 1975; /e 1979; /f 1963; /L 1978; /h 1976; /1 1973. 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