Zambia - Poverty assessment (Vol. 1 of 5) : Main Report

Report No. 12985-ZA Zambia Poverty Assessment (In Two Volumes) Volume l: Main Report November 10, 1994 Hluman Resources Division Southern Africa Department Africa Regional Office Document of the World Bank  CURRENCY EQUIVALENTS (July 1994) Zambia US Dollar Kwacha 1973 US$1.00 = KO.643 Jan. 1984 US$1.00 = Kl.60 June 1989 US$1.00 = K42.00 Oct. 1992 US$1.00 = K300.00 Oct. 1993 US$1.00 = K660.00 Apr. 1994 US$1.00 = K720.00 June 1994 US$1.00 = K700.00 GOVERNMET FISCAL YEAR 1 January to 31 December WEIGHTS AND MEASURES Metric System GLOSSARY OF ABBREVIATIONS AR1PT Adaptive Research and Planning Team ASIP Agriculture Sector Investment Program BA Beneficiary Assessment CSO Central Statistical Office CUSA Credit Union and Sa ings Association DHS DIemographic and Health Survey DWA Departnent of Water Affairs FAO Food and Agriculture Organization FEWS Famine Early Warning System FHANIS Food Security, Health and Nutrition Information System FP Family Planning GDP Gross Domestic Product GRZ Government of the Republic of Zambia HBS Household Budget Survey HEIS Household Income and Expenditure Survey IAS Institute For African Studies, University of Zambia IMR Infant Mortality Rate LINTCO Lint Company of Zambia LIS Low Income Settlement LFS Labor Force Survey MAFF Ministry of Agriculture, Food and Fisheries MOE Ministry of Education MCTI Ministry of Counerce, Trade and Industry MCDSS Ministry of Community Development and Social Services MOF Ministry of Finance MOH Ministry of Health  MPTC Ministry of Power, Transport and Communications MPU Microprojects Unit NATCO National Tobacco Company NCDP National Commission for Development Planning NCZ Nitrogen Chemicals of Zambia NFNC National Food and Nutrition Comission NGO Non-Governmental Organization PPA Participatory Poverty Assessment PPC Purchasing Power of Currencies PPM Program to Prevent Malnutrition PS Priority Survey PUSH Programme Urban Self Help PWAS Public Welfare Assistance Scheme SEP Small Scale Enterprise Promotion Programnme SIDO Small Scale Industry Development Organization TB Tuberculosis UPA Urban Poverty Assessment VIS Village Industry Services WFP World Food Programme ZAMSEED Zambia Seed Company ZATPID II Zambia Agricultural Training, Planning and Training Development Project II ZCF Zambia Cooperative Federation zCCM Zambia Consolidated Copper Mines UNDP United Nations Development Programme  Acknowledgements and Preparation Tean The Assessment would not have been possible without the direct monetary support of the Governments of Sweden (participatory poverty assessment, rural poverty issues and consultation workshops), the Netherlands (informal sector issues and consultation workshop) and the United Kingdom (urban poverty assessment) as well as support from the General Consultant Trust Funds of Denmark and Norway (macroecononiks and statistical analysis). The Government of Sweden also provided the services of Mr. Hans Hedlund of the University of Stockholm. The Assessment was written by Steen J0rgensen (task manager) and Maryam Salim (social sector analyst). Helena Ribe provided comments and guidance. Data work and the poverty profile were developed by Alexandria Valerio (all Human Resources Division, Southern Africa Department). Lemma Merid (Southem Africa Deparanent) reviewed an earlier draft on benalf of country operations. Gertrude Ssali provided administrative support and did the formatting of the rep ort. Leo Demesmaker provided editing services for parts of this report. Peer reviewers are Harold Alderman, Bert Hofman, Kathie Krumm and Samuel Lieberman. The Division Chief, Country Operations Manager, and Department Director are Roger Grawe, Phyllis Pomerantz and Kaffierine Marshall, respectively. Three major background papers (volumes 2-4) have been commissioned for this Assessment, one on Rural Poverty by Jeffrey Alwang and Paul Siegel (of the Virginia Polytechnic University and University of Tennessee, respectively), one on Urban Services and Poverty by Hilary Cottam (Southern Africa Department) and Caroline Moser (Transport, Water and Urban Development Department), and the Participatory Poverty Assessment by John Milimo (University of Zambia), Daniel Owen (Southern Africa Department) and Andrew Norton (ODA Secondment, Africa Technical Department). Other background papers have been written on Nutrition (Rae Galloway, Population, Health and Nutrition Department), Urban Informal Sector (Kevin Kane, consultant), Education (Alan Dock, Southern Africa Department) and Service Deprivation (Lennox Forte, intern). Norbert Mugwagwa and Jeannette Murphy (Southemn Africa Department) provided comments and suggestions on the sections on AIDS, Population and Family Planning. Jayshree Balachander (Africa Technical Dqertment) provided input on the Nutrition chapter.  TABLE OF CONTENTS: EXECUTIV SUM ARY ....................................... i PART I: BACKGROUND AND POVERTY PROFILE ....... .. ............ I CHAPTER 1: INTRODUCTION ................... 3 A. Methodology ..................................... 3 B. Building Ownership ...... .............. ........... 8 C. Outline of Report ................................... 9 CHAPTER 2: HISTORY AND BACKGROUND ......... .. ............. 10 A. Economic and Political History ....... ................. 10 B. Income Distribution and Social Indicators ..... ............ 15 C. Demographic Issues, AIDS and Environmental Degradation .... .. 24 D. Conclusions .................................... 28 CHAPTER 3: POVERTY PROFLE .............. ................. 30 A. Characteristics of a Poor Person ........................ 30 B. Poverty Measures: Methodology . ....................... 32 C. Geographic Distribution of Poverty .... .... ............. 35 D. Rural Poverty. .......... ........ ............... 42 E. Urban Poverty ...... ....... ..................... 53 F. Muldvariate Analysis of Poverty ........................ 64 G. Rural/Urban Linkages .................. ........... 67 H. Summary and Typology of Poor Households ................ 69 1. Recommendations for Poverty Monitoring .................. 74 PART H: FRAMEWORK FOR POVERTY REDUCTION ................. 77 CHlAPlER 4: THE EFFECTS OF MACRO POLICIES ON POVERTY .... ...... 79 A. Adjustment and Stabilizatn... 79 B. ndustry and Trade Reform. .. . ....................... 82 C. Maize Pricing and Marketing Policies .................... 85 D. Public Expenditures. ......... ..................... 96 E. Impact of Reforms on the Poor ........................ 103 CHAPTER 5: RURAL POVERTY .......... ...................... 108 A. Overview of Rurl Poverty .... : ...................... 108 B. Modeling Rual Household Behavior .................... 113 C. Institutional Framework ........ ..................... 126 D. A Strategy for Reducing Rural Poverty ................... 130 CHAPIER 6: URBAN POVERTY ........... ...................... 139 A. Background . ................................... 139 B. Urban Poverty . .................................. 141 C. Constraints to Urban Poverty Reduction ................... 145 D. Towards an Urban Poverty Reduction Strategy .... .......... 154 E. Action Plan ...................................... 161  CHAPTER 7: N U TR ITIO N ..................................... 162 A. The Conceptual Framework .......................... 162 B. Related Sectoral Policies ....... 166 C. Summary and Reconunendations ....... 167 CHAPrER 8: HUMAN RESOURCE DEVELOPMENT ....... 171 A. Issues in Social Service Delivery .............172 ......... 17 B. Education ....... 176 C.Health ....... 184 D. Family Planning ....... 190 iE. Summary and Recommendations ....... 194 CHAPTER 9: COPING STRATEGIES, SAFETY NETS & TARGETED INTERVENTIONS ....... 200 A. Coping Strategies ....... 201 B. Fonnal Safety Nets ....... 206 C. Conclusions ....... 211 D. Recommendations ....... 212 PART III: TOWARDS AN ACTION PLAN ....... 215 CIAPTER 10: TOWARDS AN ACTION PLAN ....... 217 A. Setting an Agenda for Action ....... 217 B. Institutional Issues - Who and How? .... ....... 223 C. Impact on World Bank Program ....... 225 D. Sunnmary and Conclusions ....... 225 LIST OF FIGURES: Figure 1.1 Multifaceted Nature of Poverty - a women's point of view .... ... 4 Figure 1.2 Households and Economic Effectiveness ....... 6 Figure 2.1 Agriculture's Barter and Income Terms of Trade .................. 16 Figure 2.2 International Comparisons for Zambia ......................... 22 Figure 2.3 nternational Comparisons for Zambia - part I .................. 23 Figure 3.1 Beneficiary Assessment: Description of a Poor and a Rich Person .... ... 31 Figure 3.2 Distribution of Households by Expenditures ..................... 34 Figure 3.3 Geographic Distribution of Poverty, 1991 - National ................ 35 Figure 3.4 Geographic Distribution of Poverty, 1991 - Districts ................ 36 Figure 3.5 Geographic Distribution of Poverty, 1991 - Rural .................. 37 Figure 3.6 Provincial Distribution of the Rural Ultra-poor ................... 39 Figure 3.7 Female Headship and Expenditures ........................... 44 Figure 3.8 Marital Status an Exenditures - Rural Zambia ............ 45 Figure 3.9 Poverty and Dependency Ratio - Rural Zambia ........ ..... 45 Figure 3.10 Age of Household Head and Expenditures (Rural Areas) .46 Figure 3.1 1 Poverty and Dependency Ratio - Urban Zambia .................. 55 Figure 4.1 Real Producer Price of Maize .............................. 87 Figure 4.2 Real Price of Maize Meal ........ ... 89 Figure 4.3 Unit Price Maize Meal (lKg)/Unit Price Maize Grain (1Kg).91 Figure 4.4 Maize Meal Retail prices in Selected Areas (kwacha per 25 Kg roller meal) . 92 Figure 4.5 Area Planted in 1992/3 and 1993/4 ........................... 93  Figure 4.6 Health and Education Sector Spending (million 1993 Kwacha) .. . 95 Figure 4.7 Per capita Expenditures by Province (1993 Budget) ................ 98 Figure 4.8 Education Budget and Expenditure Pattern ...................... 100 Figure 4.9 Poverty Projections - Rural Zambia ......................... 105 Figure 4.10 Poverty Projections - Urban Zamnbia .105 Figure 7.1 UNICEF's Conceptual Framework on Nutrition ......................... 164 Figure 8.1 Public Spending on Health and Education ....................... 173 Figure 8.2 Participation Rates in Prmary School by Province ................. 179 LIST OF TABLES: Table 2.1 Average Annual Real Earnings of Employees by Sector .... .......... 15 Table 2.2 Labor Force and Formal Sector Employment ..................... 18 Table 2.3 Recent Trends in Health Indicators ........................... 20 Table 2.4 Percentage of Malnourished Zambian Children (0-5 years of age)- Data from Four Surveys ....................................... 21 Table 2.5 Fertility Rates Under Different Scenarios ........................ 24 Table 2.6 Population Projections (million) ............................. 24 Table 2.7 School Aged Children .................................... 25 Table 3.1 Poverty Groups - (%) .................................... 33 Table 3.2 Geographic Distribution of Child Malnutrition (%) ................. 40 Table 3.3 Deprivation Index ...................................... 41 Table 3.4 Geographic Distribution of Poverty: Rankings by Province .... ........ 43 Table 3.5 Rural Household Characteristics ............................. 43 Table 3.6 Poverty Groups and Curffently Employed Population in Rural Areas .... ... 47 Table 3.7 Poverty Groups and Rural Asset Ownership ..................... 49 Table 3.8 Poverty Groups and Rural Expenditure Shares (%) ................. 50 Table 3.9 Poverty Groups and Rural Drinking Water ....................... 51 Table 3.10 Poverty Groups and Rural Primary School Attendance ............... 53 Table 3.11 Urban Household Characteristics and Poverty .................... 54 Table 3.12 Poverty Groups and Currently Employed Population in Urban Areas ..... 55 Table 3.13 Poverty Groups and Urban Asset Ownership ..................... 57 Table 3.14 Poverty Groups and Urban Expenditure Shares (%) ................ 58 Table 3.15 Poverty Groups and Urban Drinking Water ..................... 60 Table 3.16 Poverty Groups and Urban Primary School Attendance .... .......... 63 Table 3.17 Rural Poverty in Zambia ................................. 71 Table 3.18 Urban Poverty in Zambia ................................. 72 Table 3.19 Typology of Poor Households in Zambia ....................... 74 Table 4.1 Estimated Production and Recorded Maize Marketing 1992/93 (Thousands of 90kg bags) .......................................... 88 Table 4.2 Expenditures by Sector (Billion 1993 Kwacha) .................... 96 Table 4.3 Expendtms by Category (Bilion 1993 Kwacha) .................. 97 Table 4.4 Poverty Groups and Type of Educational Institution ................. 101 Table 5.1 Summary of Results: Index of Returns per Household Member, Traditional Male-Headed Household = 100. ..... ...... .................. 122 Table 5.2 Summary Results: Comparison of Objective Values Baseline Objective Value = 100. ....................................... 123 Table 5.3 Production Oriented and Basic Needs Projects ..................... 128 Table 5.4 Inffrastructure and Emergency Aid Projects. ....... ............... 129 Table 6.1 Decline in Chawama .................................... 140 Table 6.2 Poverty Indices at the National Urban, City and Sub-City Level .... ..... 141  Table 6.3 Employment status of the currently emnployed workforce. .... ......... 143 Table 6.4 Average monthly urban wages and profits (kwacha) by gender ........... 143 Table 6.5 Trends in occupational categories in Chawama 1978 and 1992 .... ...... 144 Table 7.1 Nutrition Interventions That Cost Under $25 per DALY .... ......... 170 Table 8.1 Provincial Distribution of Poverty and use of Family Planning .... ...... 193 Table 10.1 Short-run Action Plan ................................... 226 LIST OF TEXT BOXES: Box 1.1 Causality Analysis by Women in Simanansa ......... ............... 5 Box 2.1 Daily Workload of Widows During the Dry season .............. .... 27 Box 3.1 Uses of catde - Syampande ................................. 48 Box 3.2 Piecework in Mongu ..................................... 56 Box 3.3 Poverty Descriptions - Mongu ............. ................. 57 Box 3.4 Seasonality of expendiures ................................. 58 Box 3.5 Descriptions of a Poor Person ................................ 59 Box 3.6 Time of crisis in Kalingalinga ................................ 61 Box 3.7 From E. Skjonsberg, 1994 ......... .............. . 68 Box 3.8 Going Home .......................................... 69 Box 6.1 Characteristics of Poor . 142 Box 7.1 Stunted Growth = Stunted Growth. 162 Box 7.2 People's perception of malnutrition ........................... 163 Box 8.1 Kerosene and EPI in Mumbwa District .......................... 174 Box 8.2 Level of Educational Attaimnent .............................. 176 Box 8.3 Perceptions of Education by the Rural Poor ....................... 177 Box 8.4 Perception of Education by the Urban Poor ....................... 181 Box 8.5 A Decade of Education Policy Reform ... ..... ............ 183 Box 8.6 Perceptions of Heath Facilities in a Rural ................. 185 Box 8.7 Perceptions of Health Facilities in an Urban Community ............... 186 Box 8.8 Villager From Kefa on User Fees ............................. 190 Box 9.1 Survival strategies in rural communities during the 1991/92 drought - (Southern Province) ...................................... 201 Box 9.2 Survival strategies in rural communities during the 1991/92 drought (Western and Eastern Province) ..................................... 202 Box 9.3 "Food aid was my husband" .................................. 203 Box 9.4 Coping with Hunger in Mongu ............................... 204 Box 9.5 Children as a Safety Net ................................... 205 Box 9.6 Low Participation in Programs in Chawama ....................... 209 Box 10.1 The Poor's Own Action Plan ............................... 218  EXECUTIVE SUMMARY 1, INTRODUCT7ON AND BACKGROUND 1. The poverty crisis in Zambia is a result of long-standing inappropriate policies compounded by severe extnmal shocks.- Zambia's development path neither provided adequate opportunities for the ural poor to increase their incomes, nor generated employment opportunities for the fast-growing urban labor force. From being one of the most prosperous countries in Sub-Saharan Africa in the early seventies, Zambia became a country of low economic development, declining incomes and deteriorating social indicators. 2. The development strategy followed by Zambia after Independence relied on copper export eamings and tax revenues to fund investment in import-substituting industries and to provide resources for expanding public sector employment, government services, and consumer subsidies. Between 1970 and 1990 copper production fell by more than one-third and real US dollar copper prices fell by more than one-half, yet Zambia's fundamental dependence on copper scarcely changed. Despite some partal and half-harted attempts at adjustment during the eighties, the situation worsened; the reforms were neither systematic nor sustained. Unemployment increased in urban areas, and rural terms of trade worsened as Government tried to cushion the inipact of extemal shocks on the urban population by beeping maize prices low and financing this subsidy by foreign borrowing. The education and health of the population worsened as increased demand for social services coincided with falling supply, caused by declining funding and inefficient delivery systems. Vulnerability intreased as the basis for urban employment shrunk and as the economy declined. 3. Perhaps worst of all, Zambia's policy was biased against agriculture and rural development and, as a result, failed to generate significant employment and income growth. The bias against ariculture meant that Zambia's potental for smallholder agriculture was neglected; consequently, the sector was never able to contribute significantly to poverty reduction. 4. Building on renewed adjustment efforts started in the late eighties, the current Government has pursued an aggressive and comprehensive adjustment and stabilization program. Key measures include liberalizing foreign trade and exchange rates, lowering the fiscal deficit primarily through expendiu cuts (particularly subsidies), controlling liquidity through the strict enforcement of cash budgeting (and to a certain extent the issuance of government securities), and privatizing maize and agricultural input marketing. In 1993 the Govermnent started to reform the social sectors, beginning with a wide-ranging decentralization program in health and the devolution of safety-net activities to local groups and NGOs. During 1993 the Goverpment also implemented a stabilization program that succeeded in lowering inflation but caused real interest rates to skyrocket and the kwacha to appreciate. This measure put a damper on the supply response to adjustment measures. S. As a result of the recent reforms, the economic decline has been halted and growth is expected to resume. But these changes are not sufficient to reduce poverty significantly. If implementation of the current reform program was successful and made Zambia's development path more pro-poor (so that growth is equally shared), staff estimates indicate that the prevalence of core poverty could conceivably decline from 55 percent to around 40 percent by the year 2000. However, even this improvement is not sufficient to help most of the poor. In fact, to achieve the projected decline (and possibly go further in poverty reduction) growth in and of itself is not going to be enough.  ii 6. The current strategy is to sustain the reform measures while putting in place the investments to improve Zambia's growth prospects and foster supply response and hunan resource development. This Assessment focuses on actions to ensure that the poor share faster in the benefits of reform through improving their human capital and its productivity. In this way poverty reduction would lead to growth through higher employment and productivity and a virtuous poverty reduction cycle could be set in motion. In the meantime an effective safety net is needed for marginalized groups. 7. An important constraint to poverty reduction is the current high population growth rate which is unsustainable, and is straining the capacity to deliver social services while constraining households' coping ability by increasing already high dependency ratios. Lowering fertility will require multi- sectoral intervenmions such as improvements in fenale education, increased access to family planning and health care, and improved safety net systems. H. THE POVERTY PROFILE Poverty us senous and wide-spread 8. Poverty in Zambia is very high. In 1991 about 69 percent of all Zambians were living in households with expenditures per adult equivalent below a level sufficient to provide basic needs. If the poverty line is reduced to cater only for basic nutritional needs, 55 percent of persons fall below the line (the "core poor"). Other measures of poverty such as access to services or nutritional status, also indicate an acute poverty problem and confirm the characteristics of poor households found using the expenditure-based measure. Findings reported in other poverty studies, which relied on different household surveys from the ones used in this Assessment, point to similar conclusions. While the number of people identified as poor may change according to the measure chosen, the main characteristics of the poor do not. The poverty profile draws from a combination of quantitative, participatory and longitudinal data to analyze the characteristics of poverty. The combination of these data allow a dynamic analysis of the dimensions of vulnerability and poverty in Ziambia. Quantitative data includes two Priority Survey-type household surveys, one Demographic and Health Survey and one (incomplete) expenditure survey. Participatory data include a participatory poverty assessment, a beneficiary assessment and two longitudinal studies - one in a Lusaka slum area and one in a village in Easten Province. 9. Rural poverty is more prevalent, deeper, and more severe than urban poverty. Poverty prevalence (core poverty) in rural Zambia stands at 76 percent. As regards poverty depth, average expenditures for the rural core poor are only 57 percent of the poverty line value compared to 87 perceat for the urban core poor. The severity of poverty in rural areas is 29 perce4tt compared to 8 percent in urban areas. Rural poverty is more prevalent in remote provinces and is especially severe in remote districts within a province. The prevalence of urban poverty was negligible in the seventies (4 percent in 1975 by one estimate), but it increased to just under 50 percent of the urban population in the nineties. Urban poverty is diverse spatially. Using expenditures as the poverty measu1e, the two major line of rail urban cemers are placed at each end of the spectrum (Lusaka with the lowest levels of poverty and the Copperbelt among the worst). However, when measuring poverty as lack of access to services, the Copperbelt and Lusaka both score among the least poor. 10. Analysis of incomplete information from a 1993 Priority Household Survey indicates that the poverty sitation has not improved in spite of improved macroeconomic performance. Urban poverty contiued to increase and rural poverty remained prevalent and deep. This data must be taken with  iii some reserve: (1) the data were collected on the harvest that failed because of the worst drought in two decades and (2) the data were not fully cleaned by the time the analysis for this report was completed (July 1994). Evtii with these reservations, the data strongly suggest that while growth is necessary as poverty is so wide-spread and serious, growth alone will not be sufficient; Zambia has to ensure that growth increases fte retums to the poor's assets (mainly labor and land). T7he poor have low returns to their labor 11. More than 50 percent of the rural core poor live in Eastern, Luapula and Northern provinces. If appropriate policies and programs are put in place in these provinces, there is good potential for agricultural growth, a regional nucleus of growth around these provinces would be feasible. In the past, their development was held back by the excessive concentration of efforts in Lusaka and the Copperbelt and by the lack of local linbages. Although rural poverty is more prevalent and more severe inWestern and Northwestern provinces, these contain only about a quarter of the core poor. In these provinces, while there may be less evident long-term growth possibilities, there are good prospects for supporting better coping strategies for local poor if technologies to circumvent time constraints for women producing cash and food crops are introduced. In the line-of-rail provinces with good land and good linkages to markets, the main constraint to pro-poor agricultural growth in the medium-term could be limited access to land for smallholders in the commercial sector. 12. Most urban poor live in unplanned squatter settlements on the periphery of urban centers, where lack of legal status and service provision constrain their productivity. The urban poor mostly work in informal sector activities concentrated in petty trading. Although this is the sub-sector with highest returns within the informal sector, the poor are concentrated in the lower deciles of the highly skewed income distribution within trading. Physical insecurity is a major constraint on the returns to the poor's time - particularly for poor women. The insecurity is compounded by poor transportation services, lack of police protection and poor infastructure, all of which force women to attempt to make a living out of their homes and keep girls out of school. 13. Rural poverty is closely associated with geogaphic isolation. Distance from facilities has a strong positive association with rural poverty. Approximately 22 percent of all rural households are more than 1 km from the nearest (probably unsafe) water source; almost 32 percent of the poor are located over 20 km from the nearest food market, and about 18 percent of poor households are located more than 20 km from the nearest transportation service. Access to services has a strong correlation with poverty in urban areas. Although most of the urban population live within one kilometer of a water source, very often the nearest water source (public tap) in low-income communities is out of order or provides erratic service at best. Lack of tansport is particularly critical. More than 90 percent of the poor walk to facilities (health centers, schools or markets). Of the core poor, 60 percent say that cost is the critical constraint to their using transportation services. 14. In rmal areas, the lack of productive assets such as oxen, storage facilities and mechanized farm implements severely constrains the poor's productivity. Urban residents have access to very few assets. The illegality of many of the slum areas means that the poor do not have formal title to their dwellings. For those with formal title, housing regulations are so restrictive that the returns to housing are very limited, in contrast with other urban areas where housing is a very important asset for the poor and represents a means of escape from poverty. In Zambia, lack of tidtle and restrictive regulations have precluded the poor from capitalizing on income-generating activities.  iv 15. Cydical effects compound these problems. For instance, the hungry season before harvest follows closely after the season of highest morbidity and highest need for labor inputs into agriculture. This seasonal pattern places poor households in a vicious cycle where disease and malnutrition lower productivity, thus lowering production, forcing famnily members to do piecework on other families' plots during the peak labor demand months, and so causing smaller yields on their own plots. Similarly cash outlays for school fees and uniforms, health services and agricultural inputs tend to cluster in the same months. Estimates in this assessment show very high shadow-prices for cash during thds period, indicating a substantial demand for credit. 16. Female headship is a good predictor of poverty in rural areas. The poor say that "women without support' is a key symptom of poverty. Female-headed households are not necessarily poor, but a combination of female headship lacking both a current relationship with a man and support from adult children make the household very likely to be among the core poor. There are variations among and within rural and urban areas, but the factors compound each other such that an elderly widow without the support of children is very likely to be among the poor.st. As most female-headed households in nual areas also have some of the other poverty characteristics, female-headship is a good predictor or proxy for poverty. the poor have inadequate hwman resources 17. The poor's welfare is negatively affected by malnutrition, poor health status and low levels of education. Chronic manutrition (stunting) affects 45 percent of children from non-poor households in rual areas, increasing to 47 percent in core poor rural households. In urban areas the rate is 31 percent for the non-pMor and 41 percent for the core poor. Acute malnutrition (wasting) affects 6 percent of all rura and 8 percent of all urban children. These very high rates will impose a serious drag on Zambia's development prospects. Recent studies indicate that productivity falls more than proportionally with malnutition. The next generation of Zambians will be much less productive than they could have been. Zambia is much too poor to allow such a waste of its most critical resource, its people. 18. The Zambif .ducation system show serious problems. More than half a million children of school age (onethird of all) do not attend school in the appropriate grade. Non-attendance varies from 45 percent among the core poor in rural areas to 20 percent among the non-poor in urban areas. Zambia built up impressive school atendance rates and literacy rates in the seventies. Since enrolnment has not dropped with the general economic decline, Zambia continues to outperform its peers (now among the poorest counties) on school enrollment. Parents value education highly and have increased private funding for education as public funding has declined. However, parents are reaching their limit, and serious drops in attendance rates have been observed, disproportionally afecting girls. 19. Zambia is one of the few countries to experience an increase in infant mortality over the eighties (from 97 per thousand in 1980 to 107 in 1990). This increase is due to the increase in poverty and the increase in HIV infecdon coupled with an inefficient and inappropriate health care system. According to the 1993 World D)evelopment Report, Zambia is among the countries getting last value for its health care resources. The Govermment is etying hard to reverse these trends and health indicators are beginng to turn around in response to the well-managed and well-fuided health reform program.  V 20. The major threat to the welfare of Zambians and to the fture growth propet of the country, irrespective of the policy regime, is the AIDS emergency. Recent data suggest that ifection rates of HIV are above 30 percet among low-risk urban residents and more than 15 percent in sevenr rural areas. This will wreck havoc on household coping strategies as the dependency ratio incrases due to disease and death. Becase Zambia is likely to lose a large share of its labor force every year, national growth projections must be reconsidered. Even though many infected in the last five years have not developed AIDS yet, funral costs are already among the top concen of private business-owners. Vulnerabiiy, thc 1l1tra-poor and coping 21. More than 30 percent of Zambians spent 85 percent or more of their income on food making them extremely vulnerable to shocks. Vulneality i urban areas is mainly caused by the high inflation of the past. An ever-smaller share of the urban population is engaged in formal sector wage employment with its attendant security and access to services (such as housing). Crowding and inappropriate sanitation make the poor vulnerable to weather conditions and associated diseases. In rural areas vulerability is high because of dependence on a single main crop (maize) that is not highly drought-resistant and becase of dependence on an ineffective and inefficient public marketing system subject to the vagaries of politics. This system caused terms of trade for the rural poor to drop by more than 60 percent over the eighties. The poor's isolation and poor human resource development heightens their vulnerability. The evidence on informal and private safety nets is not encouraging. Increased economic hardship overall - but especially in urban areas - has all but destoyed inter-family, intra-generational and urban to rural transfers - in the words of one rural resident: tmy urban relatives come to visit and do not even have enough money for the bus home'. 22. Twenty percent of mrual households and 6 percent of urban households are ultpoor (with expendurs of less than 25 percent of the core poverty line value). In rural areas residents of remote provinces (such as Western and Northwestern), households headed by women, old persons or widows are most likely to be ultra-poor. This evidence is confirmed by the poor's own description of the ultra-poor (those they saw as deserving of community support). In all the sites surveyed, between 10 and 20 percent of households were considered ultra-poor all with extemely low productive capacity and with widowed or divorced women or very old people as the household head. The evidence on urban areas is less clear on household chacteristics. Eighty percent of the ultra-poor Ive in the Copperbelt, with the majority having had a job in the last year but not in the last week. Clearly, these households have been negatively affected by lay-offs or sickness. 23. The evidence on coping strategies is positive. There are indications of both the rural and urban poor adjustng to the changing circumstances under the economic reforms and spreading risk to improve their situation, for instae by growing a more diverse crop mix or by engaging in a variety of micro-businesses. As regrds safety nets, preliminary data from a 1993 survey show only limited increases in acute malnutrition in spite of the serious drought. This confims the poor's own perception that the joint private-public drought relief program was highly successfl. As one runr woman puts it: "the road project had bewome like a husband to me, it helped me a lot'.  vi 11. AN ACTION PLAN FOR POVERIT REDUCTION 24. The reform process in Zambia could foster growth and poverty reduction, but unless actions are taken to enhance opporunities for the poor, and their ability to respond to them, the decline in the prealence of poverty will be slow. Acelting poverty reduction in Zambia requires consistent actions in four main areas: I. Ensuring a pro-poor macroeconomic framework. 2. Facilitating the poor's response to the reforms. 3. hIproving human resource development. 4. Improving safety net activities. These priority areas have been confimed by large segments of civil society in Zambia through the intensive consultation process carried out in the preparaton of this Assessment. 25. First, the ongoing pro-poor refonn elemens must be sustained and deepened. The Govenmen has implemented most of the reforms necessary for enabling longer-term growth in the economy. In rural areas, however, only the larger farmers are likely to benefit from these changes: the smallholders face additional structural constraints. Given the current economic difficulties in urban areas, it is tempting to enact policies to protect existing inefficient enterprises. However, doing so would be tantamount to continug transferring resources from poor consumers to non-poor producers. This would send a negative signal regarding the Government's commitment to reform and thus slow down private sector supply response. 26. Second, actions are required to improve the output and productivity of smallholders and to ceate market and trasport linkages with urban areas. It is essential to facltate sma(llolder agri wl grwth by providing rural infrastructure and technology and supporting private markedng, storage and processing. The prospects for growth in the smallholder sector are good. Smalholders are adjusdng to the changing market signals and show a surprising resilience to the dramatic changes in the marketg system. Access to good land does not seem to be a constraint for most people in most areas, except for widows. 27. AgriculturWal growth has good potential for spilling over into pro-poor growth in the non-farm rural economy and in urban areas that service agiculture. Such growth could come from small-scale agro-processing and marketing. There are also possibilities for manufactuing-led growth in urban ares in the longer-term, but these are uncertain as activities in the sector are likely to change dramatically as the macro-reforms take hold. In the shorter term, the main avenue to increasing incomes of the urban poor will be in the micro-enterprise sector - which has some potential - contigent upon the removal of regulatory constraints and the improvement of supporting Inrsrcture and services. 28. Third, it is essential to encourage human resource development to ensure that Zambians have greater access to quality education, primary health care, family planning, and mntrition services. Human capital development is a critical investnent for the longer-run. Welfare will improve only when social services (including education and health) are improved. A key part of the strategy is to expad female education with its large multiplier effects on better family health, higher productivity, and lower dependency ratios. Zambia can improve its human capital development strategy; it used to be one of the best African deliverers of education and health ervices. The health sector is already  vii taking bold steps to refocus public health services on a cost-efective package of health interventions that could greatly benefit human capital fomation within the next five years. 29. Fouth, actions are required to develop a strateg to provie a safety net to vulnerable groups of the poor. Households needing safety net protection include those with dependency ratios so hifgh that they are exremely vulnerable to externa shocks and those with incapacitated nmers. The success and sustainability of such a safety net is clearly dependent on sustained economic growth. There is some room for optuimsm. The poor have developed effective coping strategies over the deep economic decline. The Govermnent and the NGOs recently showed excellent coopeation in response to the effects of the drought of 1992, where their joint efforts averted a national disaster. The strategy may include a major push for invesUtents in a labor-intensive public works program which would both deal with short-term employment problems and remove some of the longer-run constaint by provision of needed infrastucture. 30. To ensure that the benefits of such a strateg do indeed reach the poor, two process activities must also be considered: 1. Implementation of programs must be carried out in a dec l, tated and ticipatory manner. 2. A systmatic monitoring system must be established. These topics are addressed in turn in the next section. A. Ensung a Pro-Poor Maceconomic Framework 31. To foster economic growth and employment it is essential to ensure that the basic macroeconomic framework is supportive of poverty reduction. This will require: - maintaining stabilzaton polices, - antaining liberalization and competon policies, - acceleraing parastaal refonn and privaotiation program, - encouraging private sector grovw, and - promoing a more effiaent pubic sector. 32. So far the Zambian Government has emphasized limiting state involvement in the economy. Such limited involvement - a major achievement - is a significant departure from previous policy. However, it is just as important to ensure that what the state should do gets done better. This requires reforms in the social sectors and in the provision of infrastucture. Reforms must include moving aggressively into reforming the civil service, streamlining goverment procedures, and consistently involving beneficiaries in planing and delivering public services. Such measures will help to reduce fiscal deficits through improved cost-effecveness. 33. Achieving growth in the longer-run will require the creation of an enviroment conducive to private investment by limiting government's direct involvement in production and distribution of goods and services, and refocusing governmentts attetio towards building human capital, physical nrastucu, safety net services, and legal protection for the vulnerable. Goverent's leadership can be best expressed through facilitation rather than direct involvement.  viii 34. To ensure investor confidence, Zambia will have to deal with its large balance of payments problem - particularly with one of its main components, the huge debt overhang. Another key poverty reduction and investor confidence-building measure is to limit inflation. This will require contning the public sector deficit by cutting expenditures and raising revenue. Simultaneously, the protection of core pro-poor expenditures for inputs to health and education, rehabilitation of water systems, and safety net activities implemented in 1994 should be sustained. Any remaining subsidies benefitting the non-poor emloyees and clients of major parastatals such as Zambia Airways should be eliminated through privatization or conunercialization. These subsidies disrupt fiscal discipline and force the Govenment to borrow, keeping real interest rates high and crowding out private investment. 3S. Budgeting and disbursement procedures should be modified to avoid bottlenecks in disbursement of allocated funds to service providers. The decentralization of funds to District Health Boards should be evaluated and if found positive should be implemented in other sectors such as education. Discretionary spending authority must be continuously updated as prices increase, to ensure that social semrice delivery staff have the authority to spend money on critical inputs without facing major bureaucratic hurdles. Program budgeting pilot schemes should be supported and instionalized for key social sector mnistries by the 1996 budget. 36. CompetIoion poicdes have both a pro-poor and pro-private sector impact. The elimination of the possibility of rent-seeking by the non-poor, the establishment of market-determined consumer prices, the improved competition and efficiency in production and distribution, and the move towards market-based, non-subsidized prices for capital brought about by the liberalization of the exchange rate and the trade regime nmst be sustaned. These measures will all help to raise the price of capital to its appropriate level and induce a more labor-intensive growth path. 37. The effect of maize lizatin so far is mixed. Reforms are clearly needed as shown by te disastr experience of the past. The public sector can clearly not be relied upon to ensure the efflcient and effectve system needed for poverty reduction. Smallholders are beginning to diversify their crop mix away from maize and to exploit market niches to reduce their vulnerability to drought and political interfeence in the maize marketing system. The poor are beginning to behave according to market principles (from necessity, often quicker than managers of large finns and civil servants). However, in man) remote areas, the private sector has not taken up where the public sector left off and where it has, private monopolies have often taken over. It is clearly inefficient to subsidize poor famers by paying middlemen to transport maize; other forms of subsidies did not help during the eighties, when th rural terms of trade fell by more than 60 percent. In the longer-run, in response to liberalization, there will have to be a shift out of maize in more remote areas. However, in the short- nm some intervention is needed to protect the most vulnerable, although the instruments are not well defined yet. Protection of the remote rural poor requires further study with carefil weighing of the altenatives for sustainability potential and equity impact. One option is to move aggressively on a rural public works program which would increase market access and welfare through improved inf_astuure and provide a cash infusion into the local economy.  ix B. Facltating the Poor's Partation in the Economy 38. Although the ongoing reforms are seting the stage for economic giowth and poverty reduction, they are not sufficient to bring about a sharp reduction in the prevalence of poverty. The reforms need to be broadened to include actions that accelerate the rate at which the benefits from growth accrue to the poor. Fostering a pattern of growth that more effectively reduces poverty requires action to promote rural development and factitate pro-poor urban growth in ways that enhance th.e productivity of small farmers and urban entrepreneurs. Promote Rural Development 39. Promoting rural development requires the following actions: - improvng real returns to agriulture by sustaining terms of trade improvement, - ensuring better market access for small farmers, - improving agricultural productivity and growth, especially by reducing women's time- constraint, and - unproving beneiciary participation in program design and implementation. 40. Broad-based agricultural growth is a necessary precondition for the sustained reduction of rural and urban poverty. Agricultural production grew moderately from 1974 to 1991 despite the declining terms of trade. Such growth under an unfavorable incentive regime (and despite widely- documented under-investment of public funds in agriculture) leads many analysts to hope that agriculture might replace copper as the engine of economic growth and as a major source of foreign exchange earnings. But such a profound shift is unlikely to be seen in the immediate future. The moderate growth in agriculture over the past decade has been uneven, mostly occurring in the favored areas along the line-of-rail where commercial farmers predominate. In many regions, total food production has not kept pace with population growth, and productivity has fallen. Most of the increase in production can be attributed to expanding acreage as yields have fallen for most crops. The agricultural sector is fragile and vulnerable. Inadequate public investment in research, extension, and infrastructure; continal over-emphasis on maize production; and crippled output marketing and input supply mechanisms charcterize the sector. Some of this vulnerability was exposed during the 1991/92 drought when the maize crop, critically dependent on rainfall, failed in many areas and left much of the rural population exposed to ruin and hunger. 41. Over the long-run, price incentives, in the form of improved terms of trade for rural food producers, should benefit mral areas. Liberalization of export markets and removal of price controls on agricultural products should increase prices to producers. Small-scale producers will not feel many of these benefits since their marketed surpluses tend to be small and they will face higher input prices following liberalization. Remoteness can have a dramatic impact on farm gate prices of inputs and outputs because of deficient infrastucture. As illustrated by the simple linear programming model used to illustrate the dynamics of a rural household, these unfavorable price changes dramatically lower the profitability of agricultural production and thus constrain the potential for agricultural development in remote areas. Input purchases can fall by as much as 71 percent for remote households because of poor input supplies. Liberalization will probably worsen the terms of trade for producers in remote areas. Lack of access to inputs radically reduces the need for cash, but leads to increases in land under cultivation. Farmers substitute land and labor for cash and improved seed varieties. Elmination of pan-territorial pricing and marketing subsidies will benefit some producers  x while hurtwig others. Rural producers of maize in more remote areas may face worsening terms of trade, and will need assistance in shifting out of hybrid maize. The geography of relative price variations depends on infrastructure and distance to markets, density of market production, aitd availability of financing for agricultural marketing services. 42. To stimulate agricultural growth, broad-based public investment in the rutal economy is necessary. Two key constraints must be addressed: (i) improve the poor's linkages to markets, including infrastructure, transportation, information and measures to increase market participation, and (ii) improve productivity in rural areas requiring a special emphasis on eliminating structural constraints such as women's time use. 43. In the immediate future, the Government must improve market linukges for the poor by maintaining and extending the transportation and communication infrastructure in rural areas. The state has proved capable of delivering infrastructure in the past, but has not funded infrastructure projects to the necessary level in recent years. The positive experience of projects funded by the Microprojects Unit and of the post-drought recovery program of the Program Against Malnutrition should be built upon. These projects use local coordination and implementation mechanisms that provide transfers based on payments for labor as well as appropriate infrastructure. Major infrastucture investments are needed to link provincial capitals with surrounding areas to make these local centers of growth. Such investments would foster agricultural output growth and could bring maportant benefits in employment and income growth for the non-farm economy. 44. Many of the rural poor remain physically isolated. Programs to increase market integration must include the promotion of decetalized storage and milling facilities. It is extremely important to provide incentives to suppliers of inputs and marketers of output in isolated areas. It has been sgested that the Government, through its proposed Food Security Agency, should purchase maize in outlying areas as a way of decreasing isolation. This would not encourage the entry of private agents, and would represent a return to inefficient centralized maize marketing. Improving access to market information and investing in road construction and upgrading infrastructure (for example, fixing bridges and drainage to ensure access in the rainy season) would provide a higher benefit by removing stuctural constraints that now limit the ability of the poor (especially those in remote areas) to respond to market forces. 45. As a result of the historical over-centralization and control of the economy, many of the rural poor do not know how to function in a market economy. In isolated settings, information asymmetries and physical distance have created a sense of powerlessness and uncertainty about market forces. Market liberalization alone is not sufficient; the poor need to understand the functioning of markets to be able to create rural markets. Initiatives such as the Agricultural Sector Investment Program should be designed to support programs that create conmunity-based market organizations and structures, such as farmer's or trader's groups that both educate and communicate with isolated groups. Some facilitadon is necessary to identify market opportunities, understand options and responsibilities, and increase communications within communities. Community groups especially need assistance from the district councils in organizational and financial management. Flexible grants for infrastructure, social overhead capital creation, and programs for productive activities should be made to community-based organizadons that demonstrate the ability to cooperate and organize. 46. A bottom-up approach to plan and identify rural priorities should use NGOs, church groups, volunteers, and others, as facilitators. Proper facilitation should make communities self- reliant and make the outside facilitators eventually redundant. Communities will gradually develop the  xi capacity to organize programs themselves. The cost of such activities would be small compared to the potental costs of inappropriately designed top-down interventions. District government must, in parnrhip with the comnities and facilitators, coordinate planning and implemention. 47. Agricultural research and extension need to be reoriented towards meeong the needs of flexible farming systems evolving in response to market forces. Extension has already started to move in this direction through decentralization and the increased promotion of crop diversification. More needs to be done to increase productivity. The agricultural research system still does not allocate enough resources to the problems of poor producers, and extension remains poorly linked to the research system. 48. The household model applied in this Assessment shows that the shortage of labor severely constains the ability of poor households to produce. Programs, policies and technologies aimed at lowering labor requiments for land preparation could have a significant value. There is also a need for improving labor-saving technologies for post-land preparation activities. Research should be geared towards labor-aving technologies, especially for land preparation and harvest. Incorporating the use of animal power into cultivation, harvest, and post-harvest activities is an important research topic. Draught power, where appropriate, can raise labor productivity and add to land under production. Post-harvest technologies and efficient on-farm storage are other topics for of urgen research with important potential benefits to smallholders. 49. A community-based participatory adaptive research approach (based on the experience of the Adaptive Research and Planning Teams) is suggested to broaden extension efforts, and crea an effective linkage between research and the end-users of technology. With a broadened perspective extension will be able to link groups to the community. By promptly providing market infonnation and becoming more closely involved in adaptive research, extension can facilitate the linldng of peole to markets. 50. To accomplish these objectives, extension should be restructured, personnd should be tamned, and district-level decentralization should be encouraged. Icentives need to be reviewed, &d where necessary changed and performance targets should be redefined to include indicators of community organzaion. Faciltate Pro-poor Urban Growth 51. A pro-poor urban development strategy must focus on building linges within and among urban centers by: - legalzing peri-wtan setlenents andfacilitating titlng to land and housing, - removing regulatory constraints to small-scale economic activity (incflng trasport services). - imnproving water supply and saniation using a commwniy-ased approach with facilition from the urwan council, and - revising the institional set-up for serice delivery to a more responsive paricipatory mode. 52. In the past, optimism related to the copper sector resulted in the planning of a sophisticated urban sevice system. These services were limited in scope, designed to serve the small administraive lite, and rlied on limited mnagement capacity at the central, municipal and  xii community level. All transportation routes connect Lusaka to other regions, but provide poor linkages between the regions. The transportation infrastructure in Lusaka was focused on getting labor from the periphery of the city (where they lived) to the center (where they worked) not across the periphery. Development in outlying areas was discouraged, by such means as suppression of urban small-scale activity and neglect of service provision in peri-urban areas. Institutions were geared to serving the formal sector, were highly centralized, and excluded the participation of the non-fonnal sector. 53. The erosion of the economy combined with the inappropriate policy framework has brought devastating effects on all urban dwellers. Formal sector employment has fallen and employment is now concentrated in informal small-scale activities severely constrained by the regulatory environment. Nearly 80 percent of the urban labor force currently work outside the formal sector. Declining services and infrastructure have reinforced the negative impact on the urban economy and on the productivity of urban residents. Despite decreasing wages and falling employment, people must invest time and money to compensate for declining services. For example, to get water, poor households may have to bribe the guards at a well-to-do house or queue early at the few stand-pipes that still work. Institutions remain centralized and unresponsive to demands. Their employees' real salaries have been eroded, and the financing of recurrent expenditures is never sufficient. At the household level, the decline in formal employment has meant that an increasing number of people in the household must depend on fewer providers whose earnings are dropping. Many women have entered the low end of the infornal sector but they are earning very little. Poorer urban households are becoming increasingly large as generations "double-up". Their difficulties are often compounded by the burden of disease - sometimes by the scourge of AIDS. 54. Within this bleak picture, poor households are adapting to changed circumstances and some of their strategies in small-scale economic activity show potential for expansion. But realizing this potental will require removing critical constraints. The poor's asset base is ver weak. Their hmnnan capital has been impaired by poor health and nutrition and by limited access to primary education and training. The value of other assets (land and housing) is suppressed by the difficulty in gaining access to land with clear legal property rights. Official policy still says that many are living in illegal settlements. 55. Returns to assets are low because of poor access to good infrastructure and transportation services. To improve urban services, change is required in both the types of services provided and in the manner of provision. Transportation rules and regulations protect a private oligopoly that is driving up prices; public transportation needs to be restructured and the participation of local communities ensured (for example, in the placement of bus stops) to improve service use. Water services are sorely needed. Provision of these services despite scarce fiscal resources will require a fiudamenl redirection of implementation: building local initiative and implementation and operation by community groups. Increased community responsibility will dictate a major restructuring of urban councils and line ministries. This will entail changing the basic structures to make officials facilitators and technical advisors to communities, not implementors. Institutions designed to promote small-scale enterprises need restructuring. This new mandate should be information dissemination and facilitation of credit access, vacating any regulatory role. 56. The ntuonal and reguaty frameworks make the costs of operating businesses prohibitively high. Institutional constraints include the continued insistence on applying formal sector rules to small enterprises. Improving urban services and removing the land constraint will have a positive impact on micro-enterprise activity. To ensure the full benefits of such improvements, laws  xiii and regulations should be revised to improve the incentive framework for small businesses. Among the first candidates for change should be the Trade Licensing Act and the Town and Country Planning Act. 57. The poverty reduction strategy is to remove these constraints and build linkages through development of infrastructure within urban centers of dynamism and between potential regional growth centers and the rural areas surrounding them. In the short-term, the emphasis should be on building linkages within urban areas, and fostering the new economic activities with good potential. In regions with agricultural potential, linking the non-metropolitan urban communities with surrounding rural areas must be supported. A strategy for pro-poor urban growth must give priority to ensuring property rights to land and housing. Housing can be a productive asset for renting and a base for small-scale business activity, especially for women. A major effort is needed to deregulate the housing market and recognize the so-called "illegal settlements". A formal reversal of the current bulldozing policy is required to ensure the confidence necessary for investing in peri-urban areas. These issues require further study and phased implementation is likely to be necessary. C. Enhancing Hwnan Resource Development 58. Zambia made impressive gains in health and education status in the 10 to 15 years after Independence, but social indicators have all worsened since the mid-eighties. School enrollment rates have fallen, infant mortality has increased and malnutrition has worsened (though not by as much as would be expected given the economic decline). Lessons from other countries confirm that the poor will not be able to benefit from the improved macroeconomic policy framework if they are illiterate, malnourished or in poor health. Building on its experiences, Zambia can improve social services, by putting sufficient funding and appropriate delivery mechanisms in place. Now is the critical time to reverse the decline of the last decade. 59. Enhancing human resource development would require improving access to better quality education, health, family planning, nutrition, and AIDS prevention services through: - increasing public expenditures for prinary services in health and education, - decentralizing responsibility for pimary service delivery to districts levels and below, - improving government's human resource base and personnel management in line with decentralization, - focusing on critical inputs to improve education quality (earning materials, infrastructure), and - implementing health reforms that focus on key result areas (including nutrition and family planning). 60. A major constraint to service delivery is the dramatic fall in public expenditures on health and education and the even greater fall in funding for primary services within these sectors. To reverse this decline, the Government allocated a larger share of the budget to health and education in the 1994 budget and promised to protect these services during budget implementation. It will also protect in absolute terms key areas within the social sectors such as non-personnel recurrent costs for primary services. This effort must be sustained and deepened. The budget would have room for such measures if the remaining parastatal subsidies are removed and if revenue is enhanced by improved tax collection. Any increase in revenue collected should be earmarked for social sector spending and investment in basic infrastructure. In the past, advocating more money for the social sectors would not have had a major impact as the policy and implementation frameworks were over-centralized and  xiv over-sophisticated. However, with the successful decentralization of health service delivery to autonomous District Health Boards, and the development of a consistent policy framework for primary education, there is greater hope that additional funds would be spent better. Policy development is progressing in the education sector as a whole using the principles established in the primary education policy. 61. Human resource constraints now hinder the delivery of social services. To improve skills and performance, training and complex and rigid personnel procedures should be reviewed. These developments must accompany the decentralization of delivery systems. Some reforms are under way in the health sector, linking pay to performance, ensuring incentives to retain qualified staff, and decentralizing personnel management. A similar effort should be undertaken by the Ministry of Education. The overall civil service reform program needs to be speeded up and focused on education: health is already ahead of the game. Educton 62. The basic difficulties in education stem from a failure to focus on cost implications and a system that is inherently elitist. By concentrating on the formal system of primary to tertiary education as they do, strategies for the development of the education system are elitist by nature. No linkages are made with non-formal or informal education, nor is any effort made to consider the employment realities of the population. University students receive grants higher than the median salary for university graduates while primary school parents must cover more than three-quarters of non-salary recurrent costs (including uniforms, books, supplies and fees). The policy framework and appropriate implementation mechanisms (including decentralization measures) must be developed: this will call for a wide variety of inputs from different parts of society. Meanwhile there is a need for short-run activities to improve access to better quality primary education services for the poor. Since women's education is critical to economic and social development, immediate measures should address the increasing difference between male and female drop-out rates. Short-run measures proposed include: lowering direct costs of primary education to parents by reviewing the critical private cost items, such as the uniform requirement to eliminate the regressive cost-sharing currently in place; improving infrastructure through rehabilitation and expansion of existing schools using critcal community inputs combined with limited new construction in pen-urban areas (some peri-urban schools run quadruple shifts now); and supplying schools with critical inputs such as books, blackboards, chalk, teachers' notes and guides, to quickly improve the learning environment. This would also help to reduce the implicit cost-sharing for primary education (the best-equipped schools have five students per book) - and be a highly visible improvement, that could support the political sustainability of the adjustment program. 63. Addressing these critical constraints is likely to benefit girls proportionately more because the decline in access and quality over the last ten years has affected girls disproportionally. Of course, the increased cost implied by the scarcity of good quality school places affects girls relatively more than boys.  xv Health 64. Here the situation is much better than in education. A clearly formulated strategy is in action: decentralization of funding and service delivery responsibility has been implemented (with donor funds a 1993 and with government funds fur recurrent expenditures in 1994); and an implementation program for the other aspects of health reforms has been prepared and agreed to by stakeholders. The basic emphasis on delivering a cost-effective, quality-assured, equitable, basic package of health care as close to the family as possible" is ir line with the overall economic reform program. Progress has been good; district staff have been trained in management and are using their new-found power and resources to improve primary health care services. The annual incidence of cholera has dropped to less than 10 percent of the levels of the last two years. There is still a need to revise and review sub- sectoral policies relating to human resources, drugs and supplies management and logistics, and private sector participation to reflect the new service delivery system. 65. The major problem with the implemenation of health reforms is that the Government has decided to press ahead with an uncoordinated implemenation of health user-fees across the country before the implementation of the quani.. h-ovements in health care. The ongoing review of health financing options must be speeded-up and the recommendations implemented properly. Gender issues are being addressed in the various sub-sectors and the Ministry of Health is sensitizing districts to the importance of looking at gender roles. Serious problems related to gender biases remain in the treatment given by health personnel and in the low numbers of women managers of the system at all levels. 66. To ensure that the short-run effects of reforms are sustained, the Ministry of Health needs to emphasize to decentralized agencies the importance of implementing core activities such as: treatment and prevention of malaria, HIV and maternal mortality; immunization and other cost-effective preventive interventions. This will require support from the Ministry of Health in providing technical advice to districts for implementation of such interventions and support for monitoring of no more than ten or twelve key output indicators. The results of these efforts will form a basis for the ultimate judgment of the success of district interventions and thus of the health reforms. Famiy Plannng 67. Large numbers of closely-spaced births are putting pressures on families' coping abilities by increasing the dependency ratio and endangering the health of the mother. We need to increase access to family planning through exploring altemative delivery systems, improving the relevance and frequency of training for providers of family planning and initiating an information canpaign. 68. There is potetial for expanding family planning services in urban areas. Although over 40 percent of women wish to space their families, only 10 percent use modern contraception. Alternative delivery systems using traditional birth attendants and community health workers have the potential for reaching the rural populations in remote areas. The community-based workers can relate to rural and pen-urban poor women because they share similar experiences, are selected by them, and live with them. Training of family planning providers should be more formalized and better structured and should include a core of full-time trainers. The health reforms provide the opportunity to fully integrate family plamiing services within the basic package of health care for which the Government  xvi will take responsibility. A much more aggressive information campaign is needed: miisinformation and lack of knowledge regarding the benefits and risks of family planning are prevalent. Nutrition: 69. Nutrition and household welfare can be improved by: - improving householdfood security through crop diversification by sustaining maize reforms and improving access to technology and infrastructure development, - strengthening nutrion status of children by improving women's educaton and strengthening dissemination of critical information, improving health services through implenmentation of health reforms, and - implementing targeted interventions, mainly in micromtrientsj to achieve improvements in the short-term. 70. Zambia faces serious structral problems in nutrition as shown by the high prevalence of malnutrition across income groups and in areas of relatively high agricultural productivity. Nutrition has been marginalized in the development debate in Zambia, probably because its relation with poverty (both as a cause and effect) is poorly understood. Moderate malnutrition, despite its serious consequences, is a problem not readily visible to policy makers, and the multiplicity of sectors involved in implementing nutritional programs results in a situation where although virtually everybody is involved nobody is responsible for nutritional outcomes. There is a need to realize these issues, strengthen managerial capacity for planning and monitoring nutrition interventions and experiment with community-based operations resea-ach that will provide the basis for a nutrition program/policy. 71. In the long-term, improvements in nutrition will come with increases in income and attention to household food insecurity, poor health and inadequate care of children - the main causes of malnutrition. Reforms currently underway relating to crop diversification and processing in agriculture need to be sustained and supported by improvements in technology and infrastructure. The decentralization effort in the health sector should continue with further emphasis on community outreach and preventive services for maternal and child care. Appropriate caring practices will be improved by enhancing opportunities for education (particularly of girls and women). 72. In the short-term, targeted interventions, mostly concerning niicronutrients, can have a significant effect on nutrition. Legislation and monitoring of the iodization of all salt imported into Zambia, iron supplementation for pregnant women, standard treatment of certain medical conditions with Vitamin A, de-worming of primary school age children and the promotion of appropriate breatfeedmg and supplementary feeding practices are among the cost-effective interventions. These are all simple measures which could be carried out within the existing implementation framework. In the past, districts did not have the technical knowledge to do this, however, within the health reforms, such knowledge could be imparted to district health officials by the National Food and Nutriton Commission if this institution was given a clear mandate and professional management. AIDS 73. Direct recognition of this problem, bringing this disease to the center of the development debate and encouraging political commitment to AIDS prevention aie necessary first steps in developing a cross-sectoral action program to combat AIDS.  xvii 74. Sickness and death due to AIDS could derail any development prospects for Zambia. Estimates of infection rates vary, but between 20 and 30 percent HIV prevalence appears reasonable. This will put a tremendous strain on health services and family coping strategies. AIDS will increase the levels of poverty by imposing direct costs to society and families. AIDS will also compound the already high dependency ratios. The basic problem is a lack of political awareness and support for AlDS interventions. There is a tendency to bide behind slogans advocating fidelity, and denial of the magnitude of the problem. Experience from other countries shows that the first essential step is a wide political recognition of the problem. Misconceptions about AIDS are widespread: these along with political denial will constrain effective prevention and alleviation measures. The health sector is beginning to address the problems but there is a need for cross-sectoral actions as well such as work- place education programs and coordination on information dissemination with outreach workers in agriculture and community development. D. Creadng a Safely Net 75. The 1991/2 drought relief program was well received by the poor and helped avert a national disaster. Previous public safety net activities failed because these did not involve comm-nunities and thus did not build on the poor's own coping strategies. Private safety nets (including kinship and church-based aid) which functioned relatively well in the past have deteriorated with the decline of the economy. improving safety net activities would require: - sustaining the process of devolution to local commuty-based groups, - increasing government support for expansion of existing programs, - focusing eWansion on labor-intensive infrastructure improvement for the non- incapacitated poor (PUSH, PAM, MPU), and - reforming the Public Welfare Assistance Scheme to gain greater community and non- gov ental invlvement. 76. Two main target groups for safety net interventions are identified: the incapacitated poor, and those with some productive capacity who are vulnerable to shocks. If the economic decline continues, temporary employment creation programs may be necessary for social stability. 77. Several successful programs cover the second group and have good potential for expansion. These include the follow-up program to the drought relief: the Program Against Malnutrition (PAM), Program Urban Self-Help (PUSH) and the activities of the Microprojects Unit (MPU). All three programs have been successful in giving transfers based on the payment of labor while providing infrastructure and improving service delivery systems. The relative success is probably attributable to a shared implementation philosophy of involving beneficiaries in the planning and implementation of the activities and of reliance on local (in and out of government) networks for monitoring and facilitation. The important differences in procedures and sectors of emphasis among the programs could provide useful diversified responses if activities are well coordinated at the central and district level. To decrease vulnerability, MPU and PAM should probably focus on drought-prone areas of the country and on activities such as water supply and other basic infrastructure. The extension of PUSH currently underway, with its focus on community sustainabiity, should be pursued vigorously. A large nmber of NGO activities need to be coordinated among themselves, with government and with the MPU, PAM and PUSH. This initiative must come from NGOs themselves.  xviii 78. The only public sector program with significant potential for addressing the needs of the incapacitated poor is the Public Welfare Assistance Scheme (PWAS). The implementation structure is sound, relying on local committees for identification of the poor with auditing, guidance and monitoring from the center. The activities reflects the poor's own perception that the indigent poor are a community responsibility, while the support for other groups is the responsibility of individuals and kinship groups. PWAS has had problems in monitoring and targeting. Explicit guidelines should outline general principles while leaving the identification of the needy and the payment method to local committees. Local committees may decide to let other agencies with more experience with transfers (such as churches) carry out the actual payments on a contract basis. If such reforms are put in place, further budgetary resources must be allocated to the program. Since currently less than 1 percent of the national budget goes to this program, even a tripling would not have major fiscal implications. E. Poverty Monitrong 79. To ensure efficient monitoring of progress towards poverty reduction, the following actions are necessary: - establishing a regular particpatory poverty impact monitoring system. changing social statistics collection to a unified system of household surveys, instiutional data collection and seninel site suwveillance, improving existing coordnation mechanisms among .ata producers and users to facilitate the use of the data for policy-making, and - expanding facilitation of policy-relevant research on poverty. 80. The revisions in policy and programs proposed here and the better targeting and monitoring of the impact of interventions on the poor will require a new coordinated poverty and welfare monitoring system. Several successful experiences with data collection and analysis can be found. In the past, government agencies such as the Central Statistical Office (CSO) have preferred to have programs and projects proliferate to ensure continued employment and increased benefits to their staff. The National Commission for Developmnent Planning has not been able to coordinate the data collection and analysis or the monitoring of poverty. 81. Ongoing activities need to be coordinated, strengthened and mainstreamed to ensure a greater impact on policy making. Participatory studies, such as the beneficiary assessments and the participatory poverty assessment have shown the importance of such data sources in giving a voice to the poor in the planning and monitoring of policies and programs. A systematic, continuous monitoring of welfare, using participatory methodologies currently being developed, needs to be supported. The collection of household survey data, institutional data and sentinel site surveillance currently under-way under the Food Security, Health and Nutrition Monitoring System and the Social Statistics Department of CSO must be rationalized and coordinated. The first step would be to increase the participation of data users (current and potential) in the development of an integrated monitoring system. 82. Even when data are produced, these are often not analyzed or not applied for policy development. There is a need to create better linkages among data producers, researchers and policy makers in poverty monitoring. The limited, but positive experience under the donor-funded Study  xix Fund in the President's Office (in MPU) has shown the potential for the expansion of the current activities to help facilitate policy-relevant studies. F. Implemention Issues 83. The key to making activities effective is to eliminate institutional constraints as far as possible. This will require action in three main areas: decentralization of planning and implementation, - integration of donor, government and NGO programs, and - community partiapation. Decentrlzaton 84. Central ministries and departments need to move out of a mode where identification, planning, implementation and financial control are all centrally-located. Instead, the central ministry should become a facilitator of local initiatives, a fund-raiser in relation to the outside world, a collector and disseminator of information on best practices, and an auditor and supervisor of local agencies. This radical shift is furthest along in the health sector, but is also being pursued in agriculture. In health, program managers are now consultants and the Ministry would like their salaries to be based (at least partly) on demand for their advice from the implementing agencies - the districts. The principle behind decentralization is simple; responsibility for service delivery should be located where the knowledge of need is clearest and should be accompanied by spending and management authority. In health, this level has been identified as the district. Other half-hearted attempts at decentralization to provmnce level have stalled or are quickly falling apart. Among central bureaucrats, the resistance to decentralization is great (because it removes their power base) but the experiment in health has overcome this resistance so far. Decentralization needs to be followed-up by training in financial management and accounting, and by training for central staff in supervision and training techniques. A good auditing system (one combining independence and immunity from political interference) is vital to the transparency of the system. 3ntration 85. The second concern is the need to eliminate fragmentation. The agriculture and health ministries are taking the lead here, by developing a strategic framework in which nost donors will fit. From a comprehensive strategic vision of the place of these sectors in the development of Zambia, the ministries developed a budget and investment program which they are asking all donors to "buy into". This has improved integration of the many diverse donor programs. A similar integration would be desirable for NGO activities, to ensure that national priorities are pursued even in a fully decentralized system. Since donors will sacrifice some leeway by adapting to national priorities and by applying a unified national set of procedures, they are likely to insist on closer monitoring and thorough auditing. The next sector to adopt this approach is education.  xx Participation 86. Beneficiary participation has rarely been encouraged in Zambia. During the humanist era, the state as the ultimate provider determined was good for its citizens. Official consultation and democratic involvement followed the party structure from the smallest unit all the way up to the central committee. With democratization, decentralization and less reliance on central planning, there is a real opportunity for greater community involvement. The experience of several (generally donor- supported) projects involving beneficiaries in identification, design, financing, implementation, and execution of projects and programs has been positive. As decentralized agencies gain more control, these become the key interlocutors and mediators between communities and the public sector. In the meantime, Zambia must continue to rely on NGOs and others with experience in participatory methodologies. Participation and decentralization must be followed by careful (and participatory) monitoring to ensure that gains are not usurped by local elites. IV. IMPACT ON WORLD BANK PROGRAM 87. Each of the main areas outlined at the beginning of the previous section as priorities for action will have consequences for the World Bank's assistance program with Zambia. The need to ensure a pro-poor macroeconomic framework implies that policy-based lending must include support these priorities. For each policy measure, the impact on growth and on poverty reduction must be evaluated. For example, the usual stabilization and budget control policy conditionality must be supplemented with protection of core expenditure items. This does not imply a major shift in planned activities, but it does mean ensuring that the actions supported under the recent Economic and Social Adjustment Credit are followed up and supplemented by further actions on decentralization, labor market reform and divestiture of loss-making enterprises. 88. For investment project lending, the emphasis on integration moves towards lending for integrated sector operations where Government takes the lead. This model is being pursued in health and agriculture and should be expanded to education, urban services, transport and the environment. The World Bank's support for community-based infrastructure rehabilitation and safety net activities should be continued through a second social recovery project. Infrastructure projects should have a high profile, but should be focused on the poor, not on large-scale technologically complex interventions in water and roads. The support for Governmnent's development of an integrated education sector program must be increased and the World Bank must be ready to play the donor of last resort in this sector (as it is now doing in health and agriculture). The integrated programs in health and agriculture must be carefully supervised and support must be given to Government for implementation. The World Bank's focus on supporting poverty monitoring systems should be maintained and intensified. 89. The issues of labor markets, safety nets, and small and micro-entrepreneurs should be further studied with a specific focus on gender issues, and appropriate policy reforms or investment lending strategies should be developed. A specific issue that needs following up is exploring the linkages between education, labor markets and productivity. This Assessment needs to be followed-up with support for the Govermnent's preparation of its own action plan and with regular updates of progress towards poverty reduction. AIDS and population issues are critical issues for Zambia's longer-term development and poverty reduction; however, so far the Government has asked for only limited support in these areas. The World Bank nust be ready to incorporate AIDS and population issues across the sectoral spectrum. Other sectors or areas of investigation should only be pursued if extra  xxi resources are available. As the Government should change its mode of operations so should the World Bank. This will require building on the ongoing support for participation and decentralizadon efforts, especially as regards participatory monitoring of progress in poverty reduction overall and of the impact of specific interventions specifically. V. SHORT RUN PRIORITY ACTIONS FOR POVERTY REDUCTION 90. Of the many important actions proposed, urgent action should be taken on a limited number. These were chosen for their immediate impact, their importance for longer-run development, their high visibility needed for political sustainability of the refonns, and the existence of implementation capacity. These actions correspond well to those proposed by the poor themselves as regards specific investments and have been confirmed by the consultation process followed in the preparation of this Assessment. The priority listing is being developed in Zambia into a full-fledged short-term, implementable and monitorable agenda for action. (1) Ensure Pro-poor Macroeconomic Framework: sustain trade liberalization and privatization programs - reduce public deficit further to eliminate high interest rates while maintaining real levels of spending in social sectors (2) Facilitate Response From Small-holders and Micro-entrepreneurs: (v) Improve market information and access to appropriate technologies: - improve access to market information and skiUs necessary in a market economy - refocus rural extension services towards women's labor-saving technologies (weeding, food processing, and haulage), non-hybrid maize and developing more drought- resistant maize hybrids - remove legal and regulatory constraints for micro-entrepreneurs - establish combined training and information centers in urban compounds (ii) Expand infrastructure and services: - broaden rural infrastructure investments, especially in roads - improve urban services infrastructure mainly in water supply - improve community-based storage facilities and water supply in rural areas - support community initiatives using labor-intensive techniques derivedfrom the successes of the MPU, PAM and PUSH (3) Improve Human Resources: (t) Education - eliminate the regressive cost-sharing currently in place by enforcing exemptions reviewing fee structures, and liberalizing uniform reqirements - improve infrastructure by rehabilitating and expanding existing infrastructure wih critical community inputs - supply schools with critical inputs such as books, blackboards, chalk and teachers' guides  xxii fii) Healt provide diricts with su4fident resources to deliver the basic package of care - fuemure the inclusion of nutrition and fajmiy planning services in the basic package of care iii) Nution imple t targeted interventions, mainly in micronurients (iv) Family PlanWng - iniiate information camWgn based on Population Policy (4) uuzWM= and Improve Saety Nets: Swain and imwrove sfety net service delivery: - maintan current policy of devolution to local groups for identification and implementon ofprograms - protect current levels of governmentfuding - improve coordination of existing programs public works programs How Ihese actons are carried out is as important as what gets done. All implementation needs to be done by decentralized agencies with full beneficiary participation and carried out in a coordiated fadhio among agencies and sectors. 91. These actions call for decisive and sustained support from Govement, donors, and NGOs. An esentdal precondition before comig to grips with the various component elments of reform is the establhment of systems and structures tending towards accountability and transparency. But the opotuity for building this framework is not likely to remain feasible for long. In seizing the moment quickly, the Zambian Government will be able to choose from a still attractive range of 0s.  PART I: BACKGROUND AND POVERTY PROFILE  Chapter 1: Introduction 1.1 The Zambian Government is committed to social justice and poverty reduction. To fulfill its commitment, the Government has requested donor assistance in analyzing poverty issues and developing poverty reduction strategies and actions. In addition, the Board of Directors of IDA requires staff to carry out poverty assessments for all active borrower countries - this report proposes to satisfy that role for Zambia. Finally, IDA is in the process of reviewing and revising its country assistance strategy to strengthen its poverty reduction focus. This report is intended to provide the analytical framework for this exercise. 1.2 The audience for the report is expected to be Zambian Government officials and staff of NGOs, donors and other development agencies working in Zambia. A. METHODOLOGY 1.3 This report addresses the impact of (i) macro programs and policies, (ii) sectoral programs and policies, and (iii) changes in the external environment on poor households and the household response to such external factors. The report revisits many policies and programs analyzed in other documents, but analyzes their impact from the perspective of poor households. 1.4 The basic definition of a poor household is one that is unable to attain a standard of living that is consistent with social standards and deprived of assets to fulfill basic needs. The Poverty Profile analyzes various approaches to estimate the prevalence of poverty at the national, rural, and urban levels. The discussion of the various approaches is intended to examine the relative aspects of poverty, especially in the context of addressing differental impacts on the various sub-groups of the poor (Chapter 3). 1.5 Policies and programs have different effects on different members of the household partidcularly depending on gender and age. The relationship between increased household welfare and improved living conditions for household members is also contingent upon the age and gender of such individuals. For the purpose of this report, we will attempt to examine data in a disaggregated fashion. However, we acknowledge that individual and intra-household level data are often too scanty to permit sound inferences. Therefore, the ultinate outcome on which policies and programs will be judged is thei impact on the household's production of welfare. 1.6 The multifaceted nature and simultaneity of the causality of poverty is contained in a flow chart illustrating varied dimensions of poverty prepared by a focus group of village women in the area of Simanansa. The flow chart is striking in demonstrating the multidimensional and complex nature of their understanding of the problems they face (see Box 1.1 and Figure 1.1). As depicted in the flow chart, "hunger" is invariably tied to macro policies and to the household's ability to respond to such policies. More specifically, hunger is tied to the quality and quantity of human capital, availability of household assets, presence of physical infrastructure in the community and ability to cope with adverse environmental conditions. For instance, women stated that the quality and quantity of human capital determines whether the household has able-bodied individuals to earn a living; i.e., disease, and malnutrition translate into less labor, less food and more hunger. The availability of productive assets determines whether the household is able to plant or harvest; i.e., lack of  }lqowvDlVmby 22 Womcn Cbief: Mooabe Moue. Zamlbia 1S/10/93 ; mmalzti a ta \ rPoor > / | Yt \ iC jJ /food tRoad J/ I/\likof _ y /gulin Ftw U 7lh W Nwr of Poat -I oe' onfVe  -5- Chapter 1: Introduction fertilizer, farm implements, cattle, money. The presence of physical infrastructure determines whether seed or fertilizer is available and whether produce arrives to market. The report uses a similar multi-dimensional and multi-causal analytical framework and does not dwell on (theoretical) discussions of causes and effects of poverty. A group of women were asked to list the reasons for poverty. The women were asked to show this relationship on a causal-flow diagram. They started with hunger and all the things that cause it (Figure 1.1). Several conditions or things were put down as causing hunger. Bad harvest - lbere wia be no food leading to hunger Bad road - In times of lunger crisis no food aid will be transported as transporters will refuse. Lack of cattle - Without cattle they camnot ctidvate nuch food hence it will lead to hunger Laziess - Causes hunger Lack of fertlizer - The yield, if it is there, will be very low hence little food will be produced leadn to hunger Lack of farm implements - limited acreage will be culvated without them, hence less food and hunger. Poor rains - Ihe crops wiU not grow if there is not enough rainfall, hence no food and hunger subsequeny. Water-logged soils - The crops would die before they mature, hence no food and hunger. LAc of seed - One wiU not even culdvate without theni hence hunger will start. Poor planning - A person may misuse resources and later have nothing to buy inputs with, hence will not cuivate and hunger will come into his bome. Wht cs these situations?: Poor harvest is caused by: - poor rains - lack of fertiizer lack of farm implements - -wat-logged soils - lackof seed - laziness - lackof caule Bad road caused by: - ^lack of grader caused by lack of help from the government. Laziness caused by: - the reluctance of the heart. Lack of cattle caused by: - lack of money - lack of loans - poor socialization (not associating with other people to share ideas, informadon) - catte deaths resulting from diseases. Lack of fbrdlizer caused by: - lack of money - lack of loans Lack of farm implements caused by: - lack of money Lack of seed cued by: - lack of money - poor planning 1.1: Causality Analysis by Women in S'ianansa  Chapter 1: Introduction -6- 1.7 Poverty-reducing growth depends crucially on raising the asset base and returns to assets of the poor through investment in human capital and on pursuing strategies that promote a productive use of the poor's most abundant asset - labor (WDR 1990). To achieve the latter, it is important to understand the impact that macro and sectoral policy changes have on the household in order to develop an effective poverty-reduction growth strategy (see Figure 1.2). As illustrated in the diagrun, the degree to which households are able to respond positively to sound macro economic policies depends heavily on the number of constraints facing the household as well as on the socio-cultural environment surrounding the household. Thus, it is not sufficient to have appropriate policies that stimulate growth; poverty reduction requires policymakers to understand the response of households to economic incentives. This should then define the pace and direction of change. j 4 ~~~PoficyProg= ravenionsA\ Fgure 1.2 Households and Economic Effectiveness 1.8 There also exists an interrelationship between the macro and sectoral policy environment. Understanding the interplay among the various policies and their influence on the households' production of welfare is key. For example, poor health status leads to poor educational atainment or poor productivity, poor education means lower income-earning potental and thus poorer housing and sanitary facilities, leading to poorer health conditions, etc. As illustrated by Figure 1.2, constraints often exist which prevent households from effectively responding to changes in the macro-level environment. These constraints are similar to the constraints expressed by women from the area of Smana (Figure 1.1). In  -7- Chapter 1: Introduction fact, Figure 1.2 can be thought of as a stylized version of the Simanansa women's flow chart. This report will examine the constraints and attempt to provide strategies that try to remove these constraints. 1.9 This report combines household survey analysis with participatory assessment information to pennit a better understanding of how households produce welfare and how they react to policy changes. This approach is intended to enable development of appropriate program interventions. The participatory data are not substitutes for the household survey data but rather complements and help to enrich and deepen the understanding of the poor's behavior, constraints and aspirations. 1.10 The report's analyses are based on two household surveys, one is a Social Dimensions of Adjustment Survey - Priority Survey I (PSI) based on the "Priority Survey" module as developed by the Social Dimensions of Adjustment Program. The PSI covers about 10,000 households and is representative down to the level of Province/rural/urban. The questionnaire is administered once and thus the income/expenditure data are probably not as reliable as a full household budget survey. The survey and the data files were prepared by the Central Statistical Office (CSO) of Zambia with support from Statistics Norway funded under the IDA-sponsored Social Recovery Project. The other household survey is a Demographic and Health Survey (DHS), one in a series of surveys done world-wide with a standardized methodology. This survey does not collect income information and is focused on reproductive health questions asked of women. The survey was carried out by the University of Zambia with assistance from DHS/Macro. The PSI was carried out in November 1991, the DHS in March 1992. 1.11 The Participatory Poverty Assessment (PPA) and the Second Beneficiary Assessment (BA) are the main sources for participatory data used in this report. Using participatory approaches, the poor's perspective is taken into consideration in the formulation of the action program. The approach combines relevant elements of various social research methodologies, notably beneficiary assessment (as practiced in a number of operations in the Southern Africa Department of IDA) and participatory rural appraisal (PRA). Qualitative research methods are employed, drawing heavily on anthropological fieldwork techniques for data gathering. The assessments are characterized predominantly by open-ended conversational interviewing by researchers conversant in the local language and familiar with the knowledge needs of project management. Interview guides are prepared and tested in pilot assessments prior to the study personnel going to me field. Focus rroun discussions, case studies, and participant observation are also drawn upon to capture prevailing opinions and observed behavior. 1.12 PRA represents a complimentary approach for collecting micro-level data of a socio- cultural dimension. PRA promotes and relies on local people's active role in the portrayal of local conditions. Self-charaterization and self-depiction are key elements of PRA research, based on the premise that individuals and local groups themselves have the "proprietary knowledge", the expertise, the experience and the skills to command the architecture of the study. PRA taps into these skills by empowering informants to conduct their own mapping, modelling, ranking, diagramming and representation, with limited direction from outsiders. In this way, PRA is an inductive exercise. It is an approach that coincides very closely with the need for specificity, where we lack an understanding of how people perceive and articulate their own condition. PRA results help validate the results offered through quantitative analysis, and goes a step further by providing deeper understanding of why people are poor  Chapter 1: Introduction -8- and coping measures utilized. This understanding then has implications for policy formula.ion and development of a workable strategy. 1.13 Research sites were selected in order to represent a variety of comrmunities differentiated by: (i) rural/urban characteristics, (ii) mode of livelihood, (iii) cultural/ethnic group, (iv) agro-ecological zone, (v) level of access to infrastructure, and (vi) level of integration with markets. Participants were selected largely by selecting poor urban and rural communities. Within these communities a range of people were usually interviewed. Many of these people would not necessarily consider themselves 'poor' in local terms, being full and active members of their own societies - the great majority would come under a national poverty line, however this was defined. 1.14 The Assessment also draws on comparative anturopological work by Dr. Else Skjonsberg. Dr. Skjonsberg studied one village in Zambia (Kefa in Eastern Province) in detail in the late seventies and the results were presented in her book Change in an African Vilage. For this assessment, Dr. Skjonsberg returned to Kefa in January 1994, and updated her findgs, focusing on the changes brought about by internal and external factors. 1.15 The urban parts of the Assessment draw on two documents: a background paper on Urban Services and Poverty (Volume 3) and the research paper Poverty and Vulnerability in C7awama, Lusaka, Zambia 1978-1992 (Lusaka UPA, 1994). The Lusaka UPA was carried out in an urban slum called Chawama in Lusaka. The UPA combines comparative panel community sociological work (comparing a survey from the seventies with one carried out in 1992) with detailed household surveys, an open-ended sub-sample questionnaire and a commumty survey. While the Lusaka UPA was not designed to be statistically representative at the city level, a number of detailed comparisons show the findings can be readily compared with other low-income compounds of similar size and legal status. Thus, Chawama is referred to throughout the urban Chapter (Chapter 6), providing empirical examples which serve to draw out otherwise invisible complexities important in this context of understanding urban services. The assessment of urban services also draws on findings gathered during the Zambia Poverty Assessment Mission, November 1993, during which ten low-income areas were visited and a broad cross-section of government, non-government, donor, trade union, and community representatives were met. 1.16 The rural parts of the Assessment are based on the background paper on Rural Poverty (Volume 2). The background paper provides a profile of rural poverty and describes the geographical distribution of poverty and its association with various social and economic variables. A simple agricultural model was created in order to quantify the relative importance that various constraints posed to income generation activities of rural households. B. BUILDING OWNERSHIP 1.17 A successful poverty assessment is one whose analysis is widely discussed and agreed upon and whose conclusions have been subscribed to by key development agents. This requires open discussions and sharing of findings. To this end, the preparation of this report has been carried out using a consultative process. The issues paper for the report was discussed with Govermnent, NGOs and donors at a workshop in May 1993. To generate sypergies among the many researchers and policy-makers working on poverty, a short /  -9- Chapter 1: Introduction workshop was held allowing each of the groups to present their (preliminary) findings using a common outline or framnework in September 1993. Salsa, 1993 comprises the minutes of the workshop presenting the main findings. An incomplete first draft was subjected to scrutiny by a workshop in April 1994 wbere the workshop participants reviewed the preliminary findings and developed recommendations. This workshop provided valuable comments and suggestions that are incorporated in the current draft. After reconunendations were developed and the report had been subjected to an internal review, the relevance of the recommendations was then checked out with key individuals in smaller groups. Also the dissemination workshops for the Gender Paper and the Lusaka UPA in late May 1994 helped clarify a number of issues. The final draft was discussed in a seminar including representatives from Government, NGOs, donors and the research community in August 1994. At the seminar no major objections were raised and Government committed itself to leading the development of a Zambian action plan using this Assessment as an input. The Bank committed itself to producing a short summary which several groups expressed an interested in using for discussion with local groups. The PPA team will bring the findings of the Assessment back to the communities studied as the first step in the participatory poverty monitoring system (see Chapter 3). A year after the Assessment's completion, a workshop will be held to evaluate progress on poverty reduction. C. OUTINE OF THE REPORT 1.18 The Poverty Assessment is divided into three parts. The historical analysis and poverty profile is provided in Part I. The pervasiveness of poverty is demonstrated in Part I; this pervasiveness should have implications for sector policies and interventions at all levels from macroeconomic policies to specific targeted interventions. The framework in which a poverty reduction strategy needs to be outlined is developed in Part II. In Part II employment and market linkage issues are addressed from a macro (Chapter 4), rural (Chapter 5), and urban perspective (Chapter 6). Next, human resources issues are presented, first nutrition (Chapter 7) and subsequently health, education and family planning together (Chapter 8). Safety nets are discussed in Chapter 9. Each chapter is self-contained in as much as it presents background, analysis and recommendations, but as several reconmendations and issues cut across sectors there will be some overlap. The proposed action plan is summarized presented in Part Ell (Chapter 10).  Chapter 2: History and Background 2.1 Ihe stage s set for the core of theAssessment intib Chaptr by describing ZambW's economic and political history and trends in income ditribution and social Indicators over time. Ihe political and economic history is discussed In Secdon A fom Independence, through the centraized socialist economy of the sevenies, to the atempts at reform in the eighties ending with the liberalization of the political and economic systems in 1991. Trends In income, poverty and social Indicators are presened in Section B; these indicators follow a patn of improvement for the fis decade after indepedence and then faiig as economi policies were not adjusted to reflect changed circumstces. Zambi's current socoeconmic Idicators are compared with those of its pes In this Section. Tree other legacies of the past that wDI have a major effect on poverty in the future are discussed in Section C; thde legacies are population growth, AIDS and environmental degradation. The findins of the Chapter are summarized in Secdton D. A. ECONOMIC AND POL1TICAL HISTORY 2.2 In 1964, Zambians attained political Independence with great expectations of reaching the "promised land' of prosperty and happiness. After nearly three decades, some of tfiese expectations have remained an unrealized dream. As of the most prosperous counhties in Sub- Saharan Africa in 1970, Zambia ranks today as one of the poorer countries on the con_nent Much of the economic deterioration has occurred during the eighties. Rural poverty has been and comimnes to be a major problem in Zambia, compounded by rapid growth In ura poverty. The country has for many years been charactrized by a statedominated productve sector with inappropriate technologies, poor management and enormous waste of resources as its main features; low or negative rates of GDP growth; high unemployment and uderemployment; rising inflation; high levels of poverty and inequality in the distribution of income and wealth; and a considerable part of the social servceinfucture ina state of disrepair. lawandoriented Poldes - In ce to 1975 2.3 Zambia's formal economy before Independence in 1964 was dominated by the copper sector and heavily controlled by non-Zambians. All but a small number of Zambians employed in the mrines or in government were outside the formal economy, predominany In subsistence agriculture. Zambians also provided labor for the mines of neigboring coties. The tetory that is now Zambia was generaly considered to be a labor pool for neighboring areas. The area was not developed except what was necessary to maintin the labor pool. Some observers see a continuation of this policy in the relative neglect of ra Zambia after IndependenceY# 2.4 At Independence in late 1964, the task for the new Zambian government was not just to redress imbalances in income distribution and economic power but also to promote growth in the formal sector which was expected to induce growth in the rest of the economy. Zambia's mineral wealth was seen as national income that should be used to address sodal imbalances. Eaborated in the official philosophy of "Humanism," this strategy included increasing govement's provision of goods and services, nationalizing major industries, and 1' Bas on Gram (1) an varo Bank rpmu  -1i- Chapter 2: History and Background the Zambianization of formal sector employment It should be remembered, however, that the interventionist policies that post-Independence Zambia adopted were essentially to address the Imblances in income ditibution and economic power between the haves (mostly non- Zabians) aand the have-nots (virtually all Zamblans). What is more, these policies had wide support, outside as well as inside Zambia. 2.5 In the years immediately after Independence, the Zambian Government maintained a fily liberal political and economic environment, even after 1968 when it announced its interventionist inten in the Mulungushi Declaration. This decision (and its implementation In 1972) came against a backgound of modest growth and buoyant copper export revenues. Output growth in the first ten years after Independence, when copper exports were strong, was modest but disappoinng. Mua led the way during the expansion, but agricultural output failed to keep up with population growth. This was a time of false prosperity, missed opportunities, and transition toward a state-controlled economy. 2.6 Ihe Mulungushi Declaration in 1968 and the full implementation of the Declaration by 1972 marked the establishment of a more restrictive policy environment that: i) limited the degree of competition (trnal and eeal) to which the domestic economy was exposed; ii) suppressed the role of market mechanisms in guiding the allocation of resources; and ill) overly extended the role of the public sector. Despite various half-heated reform efforts, this policy regime remained largely intact until 1989. The ramifications of this policy thrust were manifested in the rapid expansion of the public sector, the imposition of a protectionist trade rgime, and an inability to adapt to a changing environment. Ihese distortions derived in part from a distrust of the private sector based on colonial experience, but many of the measures derived independent justification from the powers and benefits that they bestowed on a mostly urban, favored class. 2.7 Ihe restrictive policy environment resulted in conrol over all aspects of society. Government stuctures were matched oy party structures at aUl levels: provincial planing units, district councils, ward development mmittes, and village productivity cmmitte. The Government's influence at all levels became pervasive with the one-party state, from getng permission for a stall in the local market to conducting business at the highest level. 2.8 While the Government mismanaged the economy, it did promote some institutional development. For example, it extended a sbsanti amount of basic infrastructure, such as health facilities and schools to even the most remote parts of the country, although it failed to maitan them. Ihe politics of the one-party state, which made party memberhip a prerequisite for virtually aU basic services, at times resultedt in the poorest and most vulnerable being margnalized from policies or programs that were designed to benefit them. At the same time, the belief that the state should dictate and provide all services free of charge led to a decline in self-help initiatve, as well as to the failure to maintain infrastructre. 2.9 Excassive public sector control and resulting inefficiencies meant that, during the first ten years of Independence when copper prices were increasing, investment levels were high, and nearly all of the eernal signs were positive, Zambia's economy grew by only 2.4 percent per year, well below the rate of population growth. The limited flexibility inherent in a public sector-.ed economy (especially with low levels of public sector management capacity) and the neglect of the rural sector was to prove Zambia's undoing in the decade that followed.  Chapter 2: History and Background -12- Oaoff-ei-gain A4Iwsment Poicdes 1975-1991 2.10 After 1975, Zambia tried to grapple with the impact of collapsed copper prices, military conflicts in nehoring countries, and world oil-price shocks, all in the midst of increasing evidence of its own struct problems. Unforunately none of the government's altempts at strucmr change was comprehensive enough, and none was sustained. It was a period of economic decline with few solutions. 2.11 The first stabilization package agreed upon between the Zambian government and the IMF was as early as 1973174. It included a stand-by agreement to halt declines in extea reserves and correct the budget ddicit resulting from the terms of trade deterioration following the decline in copper prices. The second IMF stand-by Program was agreed in 1976/77, with conditionality again focused on demand management and included such measures as a 16 percent ceiling on domestic credit expansion; a wage freeze; and reduction of the government deficit Under this Program, whose performance was monitored quarterly, investment outays were restricted to the support of on-going projects. The conditionalities included a 25 percent increase of the maize producer price and a 20 percent devaluation of the kwacha. No positive effects were realized from this Program, and this was explained largely by exteral factors tha included the closure of the southern route (due to the war of liberation in the then Rhodesia) which was highly disruptive of the country's trade. 2.12 The third and longer IMF Program, also demand management-focused, was the 1978- 1980 stand-by facility. Program performance criteria included limiting domestic credit expansion to 18 percet, and a 10 percent devaluation of the kwacha's nominal value. Despite the county's GDP registering a negative growth rate during the period, the government met all the conditions and the total stand-by facility was disbursed. Ihe decline in the copper price and poor rainfall adversely affected the economic situation soon after the Program was completed. The fourth arrangement with the IMF was an Extended Program which covered a three-year period from 1981-83. Whereas the first three IMP Programs above were directed more towards demand management, the fourth one focused primarily on the supply side policies for the promotion of agriculture, mining and m. 2.13 It was during the period 1983-85 that a more comprehensive IMP/World Bank Struct Adjustnent Program was first attempted. It covered a much w der range of structu policies and involved two stand-by facilities for the 1983-84 and 1984-85 periods, complemented by World Bank Structural Adjustment lending which focused on the promotion of non-traditional exports. The conditionalities of the Program included the following: (a) export diversification through an active foreign exchange policy; (b) the replacement of the crawling exchange rate system with the auction system in October 1985; (c) the abolition of quantitative import restrictions resulting in the liberlization of the import licensing system; (d) decontrol of prices; (e) interest rates liberalization; (f) a wage freeze; and (g) restrction on govermnent expenditure in order to reduce the government budget deficit. 2.14 Ihe introduction of the auction system was perhaps the most controversial of the IMF/World Bank-supported measures. Under this system, the price of the kwacha was ddemined by the market-clearing bid that eausted the su"ly of foreign exchange allozated weeldy by the Bank of Zambia. Critics of the auction system have argued that too much adjustment was attemd at once without taking proper care to complement the exchange adjustment with tight fiscal and monetary policies aimed at controlling inflation. Also, the  -13- Chapter 2: History and Backgound promised foreign exchange support from donors that was required to sustain the auction system was erratic. 2.15 Political discontent resulted in food riots on the Copperbelt In December 1986 and loss of life. There was poUtical opposion to the IMPl\World Bank-supported Program, particularly among wage earners and the unemployed. Against that background, the Government unilateraly abandoned the IMFlWorld Bank supported Strucur Adjustment Program in May 1987 and introduced its own New Economic Recovery Program. This program included the re-activation of import controls; the decision to limit debt service payments to only 10 percent of the net export earnings after the foreign exchange required by specified strategic sectors had been deducted; re-introduction of price controls; a return to a system of fixing commercial bank interest rates by government; and the re-appearance of the administraive allocation of foreign exchange. Ihe key slogan for the new approach was 'growth from our own resources.' 2.16 Upon the abandonment of a liberalized exchange rate market, the Zambian kwacha was revalued and pegged at the rate of kwacha 8 per doliar with the intention of cutting inflation. Despite the revaluation of the kwacha, consumer prices for the low-income groups continued to rise, for instance, by 56 percent from May 1987 to May 1988. Money supply during the same period rose by 43 percent. Tne S3iadon Dwing the Eighties 2.17 The post-Idpendence development strategy of using the resources generated by the export mining sector to sustain growth in industry and the public sector (based on relatively high-wage formal employment) could have succeeded, if the earnings of the min sector had gone on expanding at a sufficiently high rate, or the industrial sector had managed to reach high enough levels of efficiency to provide a base for eport of manufctures. Neither occurred. Minera earnings declined and the industrial sector could only survive under heavy protection, basically producing for the domestic market 2.18 Despite the availabilty of land and the end of colonia policies restricftig smallholder cash-crop agriculture, there was no transformation after Independence, as tat experienced in post-Independence Kenya. The competition with the urban labor market, which drained many of the most energetic members of the rural labor force to the towns was one factor holding back agriculture. A trading system that de-emphasized the development of competitive marketing channels and instituted pricing policies that discouraged the development of an efficient pattern of crop specialization was another. Also, it seems likely that one histodcal legacy in Zambia may have been a certain bias against the potential of smallholder production. 2.19 The underlying origins of the large urban population outside the formal sector were the continming expectations of high-wage fonnal employment, without any gromunding in reality. People continued to move out of rural areas even after the decline in formal real wage and the stagnation in formal employment opportnities set in. Migration was reinforced by policies that subsidized urban food prices and failed to stimulate the growth of income in smallholder agriculture. 2.20 The growth of an urban work force without access to formal employment has been experienced in most African economies in the past two decades and has been assodated with  Chapter 2: History and Background -14- the gr ;wth of "Informal sectore economic acthvities which have provided opporunities for the urban households to support themselves outside the formal sector. Debt and External Finance 2.21 lhe severity of the terms of trade deterioration Zambia suffered in the last half of the 1970s (together with the reduction in copper output) severely restricted the availability of foreign excange and reduced the rate of economic growth. The necessary adjustments were not made. Expectng good times to reurn, the reaction was to borrow heavily and to increase the share of income going to consumption, to resist depreciation in the exchange rate, and to increase the distortions caused by direct controls and parastatal dominance. Zambia needed rapid and large adjustment Unfortuately, Zambia's public sector-dominaed economy could not and did not adjust, and the result was one of the worst economic growth peformances in the world over the past 17 years. 2.22 Zambia has remained heavily dependent on copper export earnings. Non-metal exports have been limited in large part by the overvalued exchange rate but also by policies that discouraged production of products in which Zambia would appear to have a comparative advanage, particularly in the agricultural sector. The decline in copper proceeds has been due both to declines in production and in price. The world copper price divided by the average cost of traded manufactured goods declined by 63 percent from 1970 to 1985- 2.23 Zambia has one of the highest levels of indebtedness relative to national output and exports. Much of this borrowing was done to offset the reduction in copper export earnings. Unfortunately, the loss in export eanings was so large that even the large amounts borrowed (over $500 million per year in 1983-87) were not enough to maintain the level of real imports. Also, unfortunaely, much of this borrowing went for conumption (or more correctly, it pearmied the level of consumption to be higher than it otherwise would have been) and so did not contribute to economic growth or to debt servicing capacity. Zambia's Inability to adequately service the debt caused the debt stock to increase in the eighties even after most borrowing had ceased. Although generous rescheduling and increasingly soft terms should keep the debt service/export ratio to just over 30 percent over the next five years, the large debt stock will have to be addressed more directly if Zambia is ever to achieve sustainable and self-sufficient growth. "1we hour has come" - democracy and markd refonn (post-1991) 2.24 In the first multiparelections for two decades (held in October 1991) a new party - the Movement for Multiparty Democracy (MMD), won by a landslide based on an aggressive reforn agenda. Their slogan 'the hour has comet summaized the mood in Zambia; it was time for a change, time to throw out the old and begin a fresh. The Government has embarked on an aggressive reform of the economy and has re-established links with the multilateral lending agencies. The basic philosophy of the society changed with the change in Govermnent, no longer was it the 'party and its govermmente but all officia links with the political parties were severed. Instead of aempting to provide for everyone for free (and failing) the MMD manifesto puts emphasis on private initlative and seeing the role of Government as one of supportng private Iiative not supplanting it This changed emphasis runm the gamut from removig business regulations, to asking for co-payment in socia service  -1S- Chapter 2: History and Background delivery, and prvatzing partatals. A detailed description of the new policies and analysis of their efect on the poor is provided below in Chapter 4. B. INCOME DISTRIBUTION AND SOCILL INDICATORS Inome and Empenwat 2.25 Since the mid-1970s, Zambia's per-capita national income and all its social indicators have fallen dramatically. For the average Zambian, living sandards have been falling for more than 20 years. The drop in Zambian's national ouwut, which determines the long-term prospects for aional income, was no less starting; investment, which was particularly buoyant in 1965-74 (if not particularly efficient) when copper exports boomed, declined sharply after the 1970sY 2.26 In the 1960s and early 1970s, Zambians made gains in income, life expectancy, school enrlment and reduced malnutrition and infat mortality. Between 1975 and 1990, those improvements stalled, and in some cases were reversed. Real formal sector eanings dwindled to a mere 25 percent of their 1975 level. The decline in per-pita income pushed more people below the poverty line; and by 1991, 67 percent of Zambians lived in poverty, as compared to an estimted 60 percent in 1974-75. Wage inequaities did narrow between 1974 and 1991, but that was due more to a sharper decline for the higher-paid than any improvement for the low-paid. Table .1: Average Ammal Real Earings of Employees by Sector (lindez 1975-100) 1965 1970 1975 17 197 0 1986 11 199 4th q!t. Am 2ad qtr. 2nd qtr. 2nd qt. Dcc. Mrc A _icuk^ Po"Uy 90 139 100 111 118 119 136 48 22 and Tubhing mIin & Qu!ying 110 126 100 71 63 62 36 34 22 M "n_zrg 100 ill 100 78 72 71 37 25 23 C _ualructioa 84 119 100 78 0 0 0 46 30 0owAvaden 75 102 100 69 0 0 0 26 20 5svicaW 99 103 100 76 73 69 40 26 20 T Ilal _ 97111 100 77 73 72 44 30 21 afl e lum amimU191. FML VW mi 1992 1 nm g in f t Om dVPi"d,. _am: CSO, Sf la _ im 1994 Offi do PXuMd, laasr bv hw k.h 9I2n (E4 191 2.27 Re Earna. The decline in real earnings set in earlier hathe decline in per capita income. Real earnings in the formal sector rose by 2.7 percent per year during 1965- 70, but by 1975 this gain had all but disappeared and after 1975, real wages fel sharply CFable 2.1). In 1991, average real earnings (wages and emoluments) were only 30 percent of the 1975 level, with a low of 25 percea for the anaring sector. he relative gainIn noan is basd oh the dlatc County Sconoonic MaomAudm for Zambia  Chapter 2: HIstory and Backgrund -16- grIculta wages over 1975- was lost in the later part of dhe 1980s. Despte the steep decline in fonral sector real earnings, compensation of employees as a share of national income acay ros from S7 percent in 1975 to 63 percent in 1991 because employment grew fer than Icom and becase the Imonnal sector (which has higher average earnings) gmr aster than the formal secor. 2.28 The wage structre In the formal sector was increasingly compressed over dtis period of decline In wages. Whereas by 1990 the maxinmm basic unionized wage had declined to 12 percent of its 1974 level, the minimum basic wage had only declined to about 29 percent of the 1974 level. lbe sme pattern could be observed within the public sector where the declne In wages was much less for the lower-income brackets. Apkre's Baer and om Tem of T=Io 17449 LO - UuftmTasof Tad.-AI . . . . . . . ~~~~~~~~~*0035 FIgur 2.1: Agriculture's Barter and Incme Terms of Trade 1974-899 2.29 IMo M fotLIatrAgjlir Only a small proportion of rural people depend on wage incme; most are farmers and rely on earings from the crops they grow. Figure 2.1 shows trends In the tems of trade for agrcuture. Rural incomes have also deteriorate since the middle of the 1970s, as agrcultura prices have not risen as fast as other prices in the economy. Betee 1981 and 1986, barter tems of trade for food (the real producer pr1ce)Y remained fairy constant but they deteroraed signficanty therefter, reflectin the Governments dtriaonto keep them low in the face of higher infaton and Its contiued oommimentto an urban-based development strategy. By 1989, real producer prices for food ermps were about one thir of their 1975 level. Export crops had done relatively better as ther price wer not tihty controlled, falling to two thirds of their 1975 level, a failthat lagely reflects the over-valuation of the curecy. Income tems of tradeif which capture the Impact of incease marketed quanit and better reflect farmer' financia well-being, declied V Baite Tam, of T=ad - Indea of Apiculwm Prodwwe PA=fulndsz of Cwwner Price. TwIo=s Tom of Trade - bumitrla of trade x lnoft of moaedziuton  -17- Chapter 2: History and Ba1 goud as well but much slower as farmers marketed a larger share of their crops. This apparent contradiction (lower prices and increased sales) is due to the efect of the massive subsidy on maize meal. Towards the end of the 1980s, maize meal subsidies were so high that it was worthwhile for farmers to sell their maize and buy miled meal from the citias instead of milling the maize in the local area for own consumption In spite of the low producer price. Price controls and an overvalued currency were, effectively, taxes on farm incomes for all commodities in Zambian agriculture. For example, esimaes suggest that in 1989 smal- holders earned only one-arter of the incomes that ey would have received in the abce of distortions in output pricesY 2.30 Income Eqal Y Economic decline has equalized income differences in Zambia, both overall and between urban and rural areas. In 1974-75, the poorest 20 percent of the population earned 3 percent of all income, whereas the richest 20 percent earned 53 percent, and the richest 5 percent earned 25 percent of all income. In rural areas, the poorest 20 percent earned 4 percent of total rural income, while the poorest 20 percent in urban areas earned 6 percent of urban income. Per capita rural income was K74 a month,1' less an a third of the K255 in urban areas. Rural inequality was as high as urban inequality (both with a Gini coefficient of 0.48), but the large gap between average urban and rural incomes resulted in an overall Gini coefficient of 0.59 in 1974-75 which is high by interatioa studards. Data for 1959 show an overall Gini coefficient of 0.48,V suggesdg that the inward-looking policies in the 1960s and early 1970s made income distribution less equal. 2.31 In 1985, the poorest 25 percent in urban areas earned only 3.1 percen of all Income, compared to 7.1 percent in 1974-75; the second poorest 25 percen, however, increased their share from 12.1 percent in 1974-75 to 18.1 percent in 1985, whereas the top half saw only minor declines.1' The result was an urban income Gini coefficient about the samne as in 1974- 75 but the rural coefficient fell to 0.42,W2 indicating a more equal income distribution. 2.32 EEmWmne. In 1980, formal sector employment was almost 24 percent of the labor force, but this had declined to under 10 percent by 1990 (rable 2.2). Changes in the stucture and growth of formal employment in Zambia largely reflect the changing performamce of the economy since Independence. During the First National Development Plan perod (1966-70), formal wage employment increased at an average amnal rate of 6 percent. The increase in the number of males in formal wage employment was linked to the growth in heavily- V hiformadon based ontho Agiioukur Snomr Strteg. If Band an data and analso fom tde la Country EcoBnic Mdmmoadn zi Someo under-reportin of own producd consumpon was&u iinaldh the publiatio of the prdhniur rewlt. IV ILO, rowinhe Ga Planning fo Basw Neods N Poduc Enovmt in Za Add Ab, January 1l97, p. 292. 2' Moe died data for 198S ame not available 2/ Pearce, Rhad, Food Comam_to and Mjusr ambia, i a. P.did mXgdma No. 2, 19, p.6.  Chapter 2: }istory and Backgound -18- potcted tradable sectors such as mining and nf i and related non-tradable sectors sch as construction, transport and utlities. The proportion of females in formal wage employment inreased from 2.2 peren in 1966 to 6.3 percent in 1975, due to the expansion of public sector services and private sector services and sales related jobs. Total formal eanloymet reached its peakIn 1975. After tat t stagnated and from l980 declined at an annual average rate of 0.6 percent. 2.33 While formal sector employment has been declining, the labor force has been incring rapidly. Formal sector employment as percentage of the total labor force peaked at 29.1 percet in 1974 and fell to 9.9 percent in 1988. Thus from a sitaton in which one in he Zambas had a job in the formal sector in 1974, less than one in ten had such a job just over a decade later. Today the mber of economically active women and men without access to direct or indrect support from wage and salary incomes far outweighs the number that do have such supports. The implications are far-reaching, both for employment and income security at the household level and for the future distrbution of gains of any improvement in labor market flexibility nd returns to labor in the formal sector over the medium to long term Table 2.2: Labor Force and Formal Sector Employment Formal LAbor Formal Employment YEAR Fore Employment As % of Labor (000) (OO0) Fore 1980 1586 379 23.9 1982 1710 366 21.4 1984 1845 365 19.8 1986 2700 361 13.4 1988 3780 369 9.8 1990 3860 377 9.8 '