Zambia - Second Coffee Project

Document of The World Bank FOR OFFICIAL USE ONLY csR />y2-2A4 Report No. P-4408-ZA S MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 16.9 MILLION TO THE REPUBLIC OF ZAMBIA FOR A SECOND COFFEE PROJECT October 30, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. [ts contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Kwacha (K) US$L.00 - K 7.2 K 1.00 - US$0.139 M - million WEIGHTS AND MEASURES 1 kilogram (kg) - 2.2 pounds 1 metric ton (ton) - 0.98 long tons 1 millimeter (mm) 0 0.39 inches 1 meter = 3.28 feet 1 square meter (m2) 10.76 square feet 1 cubic meter (i3) = 1.31 cubic yards 1 kilometer (km) - 0.62 miles 1 square kilometer (km2) - 0.386 square miles 1 hectare (ha) - 2.47 acres 1 liter (it) - 1.76 pints ACRONYMS ICA = International Coffee Agreement LINTCO = Lint Company of Zambia. ZCCL = Zambia Coffee Company Ltd.  InternaEional Development Association FOR OFFICIAL USE ONLY 1FOR For consideration on EXECUTIVE November 25, 1986 DIRECTORS' . MEETING toAeR86-115/1 FROM: Vice President and Secretary November 7, 1986 ZAMBLA: Second Coffee Project As referred to iii the Secretary's memorandum (IDAIR86-115) on a proposed Second Coffee Project, attached is the Country Brief on Zambia. Distribution: Executive Directors and Alternates President Senior Vice Presidents Senior Management Council Vice Presidents, IFC Directors and Department Reads, Bank and IFC This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents mav not otherwise be disclosed without World Bank authorintion.  l Countrv Brief THE REPUBLIC OF ZAMBIA I. THE ECONOMY 1. A Country Economic Memorandum on Zambia (Report No. 5000-ZA) was distritbuted to the Executive Directors nn April 24, 1984. A new CEM and a Public Expenditure Review will be issued shortly. The analysis presented here.is based on these reports' findings and on subsequent informatinn received from the Zambian authorities. Country data sheets are attached as Annex I. 2. Zambia's economy Is heavily dependent on-external trade and on government activity. Iuports and exports each range between 30 and 40 percent nf GDP. Government expenditures amount to about 35 percent of GDP, and the Government owns a majority share of mining and most manufacturing enterprises. Mining, mainly copper, provides about 90 percent of foreign exchange earnings and 10 percent of gross value added. Much economic activity is dependent on expatriate technical, managerial, and administrative skills. Current Economic Situation 3. For the past decade, the Zambian economy has been in a state of contraction and the country is presently in the midst of an acute economic and financial crisis. Relying on a single primary commodity for the bulk of its expnrt earnings and with an industrial sector highly dependent on imported inputs, the economy was vulnerable to the combination of deteriorating export prices, increasing costs for imported goods and raw materials, and regional unrest which occured over the past decade. Since 1975, when the economy's problems began with a sharp drop in the copper price, Zambia's terms of trade have deteriorated steadily and by 1985 were more than 70 percent below the average for the early 1970s. Although the Government initially managed to slow the decline in economic activtty by extensive foreign borrowing, contributing to the serious debt-servitting problem that constrains the country's current options, real GDP has been on a general downward trend since 1975, falling on average by about 1.5 percent per year. With population growing by 3.1 percent per annum during this period, real GDP per capita is now about 25 percent below the 1974 level. Following the World Bank Atlas methodology, GNP per capita was estimated at US$470 in 1984, but It is much lower now as a result of che substantial depreciation of the Kwacha in the past two years. 4. The balance of payments has been In chronic disequilibrium since 1975, with current account deficits climbing to an average of 19 percent nf GDP in 1980-82, before dropping to an average of about 10 percent of GDP in the past three years. Nevertheless, the volume of imports declined  -2- steadily and is now about 60 percent of the ievel in 1980 and 45 percent of the level in L974. 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 expenditure that has contributed directly to a declining trend in copper production and exports. In 1985, copper exports fell to their lowest level (475,000 tonnes) since Zambia's independence. The current level of imports, supported by external aid, is now only barely adequate to sustain copper production and to provide a critical minimum of inputs for the rest of the economy. The large current account deficits have also led directly to Zambia's high level of external indebtedness. At the end of 1985, Zambia's total external liabilities stood at US$5.4 billion, including drawings from the IMF (US$640 million) and 6verdue commercial payments of about US$600 million. By comparison, merchandise exports amounted to only about US$715 million in 1985. 5. The decline in copper prices also severely affected Zambia's fiscal and monetary positions. Prior to 1976, mineral taxes provided a large share of government revenue, but because of the losses incurred by the mining company in that and subsequent years, they became an insignificant source of funding for the government. A new mineral export tax was introduced in 1983, however, which now contributes about IJ percent of Government's revenue. 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. Currently, inflation is running at an annual rate of about 30-40 percent due largely to the sharp depreciation of the Kwacha from 2.2 per US$1 in October 1985, just prior to the introduction of the foreign exchange auction, to over 10 per US$1 at present. 6. There is no doubt that external factors have been an important cause of Zambia's present economic difficulties. Apart from low copper prices, severe droughts over 1982-84 have necessitated substantial food imports. 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; also, controlled industrial prices led to low profitability in the manufacturing sector; (ii) tax incentives and low interest rates led to a pattern of capital intensive investment; (iii) exchange rate and tariff policies encouraged the use of artificially cheap imported raw materials and other inputs. Strategy for Economic Restructuring 7. Zambia's 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 absence of new sources of income, employment and foreign exchange, Zambia may expect a drastic fall in living standards and social well-being  3 by the turn of the century. However, Zambia hap 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, forestry prnducts, and fish) and for exports (beef, cotton, coffee, tobaccn, groundnuts, and sugar). Once a good start Is made with agricultural development, possihilities should be created for agro-based industries. 8. The Government's development strategy, then, is to restore copper production to the 530,000 tnune level,. the economically sustainable level given the technical and other constraints on the industry in Zambia, while at the same time accelerating development of the agricultural and industrial sectors, with a heavy emphasis on production for export. This strategy Is designed to maximize foreign exchange earnings from mining over the medium term, while efforts are made to diversify production and exports through growth in the other sectors of the economy. This will require a susbstantial restructuring of production and employment, which can only be accompllshed in the long run. The Government initiated this effort in 1983 with the introduction of a far-reaching program of economic reforms that has received the full support of the international donor community. The authorities also introduced, with support from the IMF, a comprehensive stabilitzation program deslgned to restore the country's financial viability. 9. The main content of the economic restructuring package may be summarized as follows: -- Providing a system of incentives to producers and exporters of agricultural and industrial products in which production is responsive to market forces; -- Ensuring the competitiveness of exports through an active exchange rate policy; - Using tariffs and interest rate policies to reverse past trends of Import dependence and capital intensity; t. -- Liberalizing administrative restrictions an foreign trade and the licensing of production, in order to improve the allocation of resources and to encourage investment in produrtive activities; - Reducing the Government's deficit and recourse to domestic bank borrowing by reducing expenditure on personnel costs, subsidies and other non-development relpced activities; - Improving planning and budgetary procedures to shift resources to productive uses and economic investments; -- Allowing greater competition in the procurement and selling of food crops. The National Agricultural Marketing Board (NAWBOARD), the Government's agricultural marketing agencv,  -4- 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; -- Strengthenlng the techntcal 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. 10. In. the past two years, the Government has made significant progress in translating the above policies into tangible action. Stand-by arrangements were agreed with the IMF in 1983, and again in 1984. Unider these programs, the Kwacha was first linked to a basket of currencies and was depreciated in a gradual manner through October 1985 when a foreign exchange auction was introduced, resulting in a furtber substanttal reduction in the value of the Kwacha. Because the Government has been successful in holding wage increases to considerably less than rises in the cost of living, it has maintained the benefits of devaluation in real terms, which has improved the competitiveness of exports. Debt reschedullnz with members of the Paris Club, commercial banks and non-OECD governments covering obligations due in 1983 and 1984 was also obtained. In early 1986, following approval of a two year IMF standby arrangement, the Paris Club agreed to reschedule Zambia's 1985 arrears to the Club members, plus all obligations falling due in 1986. 11. In terms of improving conditions for longer-term growth, the most significant of the above financial measures was no doubt the exchange rate adiustments. But other measures with significant long-term impact have been introduced as well. Since December 1982, the Government has abolished the control of all wholesale and retail prices except for maize flour used In the production of roller mea), the basic staple consumed by the lower income segments of society. Over the last three years, producer prices for most agricultural crops have been increased considerably in real terms, and they now approximate border prices. The Government has also improved the incentives affecting foreign trade by introducing a foreign exchangd; - retention scheme and concessional tax rates for non-traditional exports, and by imposing a minimum tariff on many non-dutiable imports which should reduce the high rates of effective protection afforded to import-intensive industries. 12. The Government's efforts over the past two years represent a major reformulation of economic policies and incentives. This progress Is currently in danger of being set back, however, due to insufficient foreign exchange to maintain production (and exports) and to honor external debt obligations. On one hand, the Government- wishes to improve the supply of essential consumer goods by providing inputs to the productive sectors and thus show some benefits from the considerable sacrifices its policies have required of the population. In particular, a rapid increase in the consumer price of maize (resulting from higher producer prices, drought induced imports and lower subsidies) has heightened the political  sensitivity of further reforms that may result in higher prices for other goods and services. On the other hand, the Government must allocate considerable foreign exchange to debt service that cannot be rescheduled, 13. Along with the new exchange rate system, the Government introduced last October a wide range of supporting measures, including decontrol of interest rates, conversion of the import licensing system to one of import registration, and further measures to reduce government expenditure and borrowing from the banking system. There remains, however, a major requirement for the success of the economic reform program. Xbe Government's capacity for policy analysis and formulation, for administering development programs and for mobilizing and monitoring the flow of domestic and external resources needs to strengthened considerably. The Government will need to focus on this crucial issue in the context of a long-term program of training and institutional development, while also giving top priority to improving immediately the policy formulation and implementation capacities of such key agencies as the Ministry of Finance and Planning and Bank of Zambia which are essential to the success of the whole reform program. Growth Prospects 14. Zambia's external payments situation deteriorated further in 1986 and the worsened prospects for mineral exports in the near term have worked to delay the recovery process. On the other hand, however, more rapid growth'than was anticipated has occured in industry and agriculture in response to favorable weather conditions and the reform measures, and the response of non-treaditional exports to the improved incentives and exchange rate has been quite promising. It seems reasonable to expect, therefore, modestly positive growth in 1987 and 1988, followed by somewhat more rapid growth in ensuing years. The main obstacle to more rapid growth continues to be the excessive amount of debt service falling due in the medium term, which prevents imports from reaching the levels required for faster growth. Resolution of this problem will require a high and sustained level of commitments and disbursements from the donor community, on concessional terms and in quick-disbursing form, preferably in support of the auction. It will also require continued access to IMF resources. But most significantly, it will require an extraordinary restructuring of Zambia's external debt to bring about a large reduction in the debt service ratio. The amount of restructuring provided by the annual rescheduling exercises of past years although helpful will simply not suffice, since imports will not be able to reach the necessary levels. 15. For the five year period, 1986-90, the Zambian economy should be able to achieve GDP growth (at market prices) of about 3.6 percent per annum on average, which would only maintain per capita income at current levels. Because of the difficulties facing-the economy in the next couple of years, especially in the mining sector, the rate of growth is not likely to exceed 2.5 percent per annum on average, but as productive efficiency rises and the confidence of the private sector is restored by the reform program, there should be an upturn in economic activity in the later years of this period. To achieve this level of GDP growth, gross investment  -6- would have to increase by about 10 percent per annum in real terms, reaching 16 percent of GDP by 1990 from 12 percent in 1985.. At this level, the investment ratio is still low. However, it is the most that is achievable given the external constraints on the economy. On' the other hand, a good part of the gains in GDP over the next few years are expected to come from increased productivity of investment due to improved resource allocation and greaLer selectivity in capital projects by the public sector. While a major effort is required to generate domestically the savings needed to support this level of investment, a substantial part of the investment will have to be financed from abroad. 16. There is no question but that the social cost of adjustment in Zambia will be heavy, particularly for the next five years and perhaps for the next decade. Coming on top of the large drop in living etandards that has already occurred, this will be an especially difficult period for the Zambian people. However, it is equally certain that without these adjustments living standards would decline even further and there would be little or no prospects for improvement in the future. With the adjustment program per capita income will be stabilized in the medium term and rise in the longer run, which would not be the case without the program. Steps are being taken to soften the impact of these measures on the lowest income segments of society, e.g., the maize subsidy is being retained for this group, assistance is being provided for resettlement to rural areas, incentives are being given for investment in lower income areas, etc. Most importantly, the adjustment program itself will ensure increasing supplies of basic consumer goods at reasonable prices, which would not be the case otherwise. Creditworthiness 17. Scheduled service on public and publicly guaranteed (PPG) external debt will remain over US$400 million per annum for the next three years, or about 40 percent of export earnings at today's copper prices. Of this amount, about US$65 million per annum is due to the World Bank Group, including the IPC. (The Bank currently holds US$467 million, or 15 percent of Zambia's US$3.2 billion PPG debt disbursed and outstanding). In y addition, about US$200 million per annum in payments is due to the IMF and another US$50-70 million per annum on Zambia's pipeline of commercial payment arrears and short-term borrowings. In total, scheduled debt service will amount to over US$700 million per annum for the next three years, and it will thus be necessary for the Government to continue its financial stabilization policies in cooperation with the IMP and to seek debt relief through further rescheduling. Even with maximum debt relief under rescheduling arrangement similar to those of the past, however, Zambia will continue to owe over US$400 million per annum in debt service that cannot be rescheduled. The Government.should, therefore, avoid as much as possible borrowing on commercial terms, and additional borrowing should carry sufficiently long grace periods and maturities. 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 is well underway in  -7- adjusting Its economic policies and Is fully committed tn take further steps towards economic reform and the restructurlng of Zambia's productive industries. Assuming successful economic policies, careful financial management and adequate external assistance, Zambia will be able to achieve a sufficient measure of export growth and diversification within the next decade to allow the country to resume normal debt servicing. II. BANK GROUP OPERATIONS IN ZAMBIA 19. Since 1956, the Bank Group has made 28 loans and 14 credits to Zambia, totalling about U$780 million (net of cancellations). Two additional Bank loans were made to Zambia and Zimbabwe jointly to finance shared power facilities on the Zambezi River. Fourteen loans and six credlts 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, forestry and fisheries, six loans and six credits have been for industrial forest plantations, livestock, commercial crops, integrated family farning, coffee production, smallholder dairy development and fisheries development. Agricultural projects in the Easterr. arnd Southern Provinces are assisting smallholder farmers, and an Agricultural Rehabilitation Project is providing inputs to the sector in support of policy reforms. 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. An engineering credit is supporting a project to assess the rehabilitation requirements of the TAZAMA oil pipeline. 20. The International Finance Corporation (IFC) has invested about USS87 million in 11 projects in Zambia since 1972. Two investments each were in shoe manufacturing, in a packagtng materials plant and in tettiles - and fiber production, and one each in the Development Bank of Zambia, tourism development, food production and processing, cobalt production, and copper prodtuctlon. 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 heing 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 the lagging iuiplementatiov of projects are ineffective project management and inadequate inter-agency coordination. The Bank-assisted agricultural  prolects, whtch require careful management and effective coordination have suffered from these problems, am has the Third Highway Project. 22. The deterioration of project implementation has, as expected, substantially reduced the rate of disbursements nn Bank Group loans and credits. As of September 30, 1985 a total of US$87 million of loans and US$128 million of credits remained undisbursed. To alleviate the problem, provision Is heing made for technical assistance in projects to *trengthen implementing agencies and increased use Is being made of the Resident Mission in monitortng project execution. Revolving funds arm belng established under new and nngoing projoets which should sase the Government's financial burden and accelerate disbursaments. In addition, estimates of counterpart funds required and when the funds should be made avatlable are beina 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 1984, IBRD loans disbursed and outstanding were about 12 percent of Zambia's total medlum and long-term debt disbursed and outstanding. 23. The Bank Group's strate*y 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 Rehabtlitation and Diversification loan so that the industry may contribute resources to diversification programs was the first step in carrying out this strategy. Subsequent operations, such as the Agrtcultural Rehabilitation Project and the Industrial Reorientation Project are focusing on improving sector policies in agriculture and industry, which are the sectors with the best potenttal 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 ralse 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 stgnificant proportion of quick-disbursing resources. Support for addressing the longer term development constraints, e.g., Improving economic management, 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 heing agreed with the Government. Through organizing and chairing the regular meetings of the Consultative Group for Zambia, the Bank is assisting the Government in coordinating the country's economic rehabilitation program and investment needs with the International donor community. At its last meeting, which was convened on an emergency basis in December 1985, the Consultative Group endorsed the Government's recent economic measures, in particular the foreign exchange auction system, and announced substantial multi- and bilateral financial support for the Government's program. November 2, 1986  ANNE I - ZAIBIA: EMM C IDICAURS Populatln: 6.678 nulliow (mid-1985) NP pjr Capita: we$400 (t985) USS Perent Amdal Grwth Rates CZ) at Constant Prices Indicator mLIlilns of GW 1975-0 19B1 1982 1983 1984 1985 GDP, Factor Cost 2055 88 -0.7 2.7 -2.1 -6.0 1.5 4.8 GDP, Mrket Prices 2345 100 -1.1 6.2 -2.8 -2.0 -0.4 3.4 Agriculwr 339 14 0.5 8.2 -11.7 8.4 5.6 9.2 minir 334 14 -3.0 4.7 0.0 3.0 -9.8 -5.3 Other dustry 2/ 592 25 -0.2 5.1 -0.9 -5.1 o.6 .4.8 Servics 1O80 4i 0.4 6.5 -1.6 -4.3 -2.8 2.5 Conptlicn 1911 81 0.0 9.3 -8.8 -4.4 2.5 6.9 Gross Inestant 280 12 -16.9 -11.l -23.5 -24.2 5.8 -10.7 Dqportu of Goods & NfS 896 38 -3.5 -12.8 15.7 -9.7 -6.8 8.8 bnpor of Goods & NFS 742 32 -8.9 -16.0 -22.0 -15.6 -2.5 1.0 Grs Domestic Savng 434 19 0.0 -48.2 -26.6 83.9 16.2 -19.1 GOVer nFwa General Govenust 3/ Central Go aent (1985) rKMJn.) Z of (P (K ?Gn.) Z of G Ownt Receipt 1536 24.3 Orrent Expenditures 2489 39.3 Owrent Surplus -953 -15.0 Capital EBpeditures 456 7.2 External Finrianirig 361 5.7 MM,. CREDr an PRCES 1975 1980 1981 1982 1983 1984 1985 1986 (June) (mnion K, End peii) itney ad Quasi Mrmy 493 907 979 1309 1454 1704 2415 2704 Bank Credit to covenmut 318 1355 1495 1983 2099 2287 2809 2617 ant Credit to Private Sector 41 393 505 765 lOll 1197 1401 2039 2252 (Percentage mid Index 4unbers) tey wd Quasi tneyas X of GDP 31.3 29.6 28.4 36.4 34.8 36.0 38.1 n.a. Wiulesale Price Index (1966-100) 5/ 188.6 424.2 475.9 542.8 663.7 829.2 n.a. n.a. Akoi percntap dchags in: Wholesale Price Index 16.6 11.1 12.2 14.1 22.3 24.9 Bak Credit to Covermrent 406.9 20.8 10.3 32.7 5.8 9.0 22.8 5.8 Banc Credit to Private Sector 4/ 17.0 4.6 51.4 32.2 18.4 17.0 45.5 49.3 1 Base on World Bank Atlas M1thodolcg. 2 cfanzstg, cxtruction, electricity, gas ancd water. 3 Figgres do not differ slgnificantly frmu altral Gonme. 4 Inchles pestatal orgnizations (ZIL is included as from 1982 t). 5 All doastialy used gds. Septeter 23, 1986  FOR OFFICIAL USE ONLY MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO TEE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF ZAMBIA FOR A SECOND COFFEE PROJECT 1. The following report on a proposed development credit to Zambia for SDR 16.9 million (US$20.4 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms and help finance the development of the coffee industry in the country. 2. Background. Zambia is heavily dependent on external trade. Copper provides more than 90% of the country's foreign exchange earnings. Agriculture in Zambia, while providing a living to about 60% of the total population of 6.4 million and employing 67% of the labour force, only contributes 17% of GDP, indicating a low level of rural productivity and income. Agricultural output grew at about 2.8% per annum during 1965-85, which was less than the population growth rate of 3.4%. Consequently, self-sufficiency in major food crops declined and agricultural exports remainedl at less than 2t of the total export earnings. This development is of particular concern because agriculture is the sector with the best potential for growth and income generation in the short and medium term. It is also the most promising sector for diversifying the economy and the country's foreign exchange earnaings away from mining. Recognizing this the Government has recently taken a number of actions which should help :Improve agriculture's performance. The most important ones are: (a) introduction of a foreign exchange auction system; (b) progressive decontrol of crop prices and interest rates; (c) encouragement of private sector investments in agricultural production and agro-processing; and (d) increased emphasis on agricultural research, extension and training. 3. Zambia's coffee production was small until 1976. Since that time, due mainly to the implementation of an IDA assisted coffee project and an IFC supported coffee estate development project, coffee output has been rising and is expected to rise to levels that would satisfy local consumption and leave a small surplus for export. The IDA assisted project concentrated on the establishment of 450 ha of coffee and construction of a coffee factory by a parastatal organization, Zambia Coffee Company, Ltd. CZCCL). Most of the project's physical targets have been achieved, but project implementation has been slow, the irrigation system requires major improvements, and management performance and agricultural operations are not yet satisfactory. The major reasons for the disappointing performance *can be traced to unrealistic appraisal estimates, shortage of funds, lack of Zambian experience in coffee production, processing and marketing, and a worsening economic situation in the country-resulting in shortages of materials and suppl