Zambia - Fourth Railway Project

Document or The World Bank FOR OFFICIAL USE ONLY Report No. P-3986-ZA REPORT AND RECOMMENDATION OF THE P0ESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 20.5 MILLION TO THE REPUBLIC OF ZAMBIA FOR A FOURTH RAILWAY PROJECT March 4, 1985 This document has a restricted distribution and may be used by recipients only in the performaince of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - Kwacha US$1 - K 2.00 US$0.50 - K 1.00 (The US Dollar/Zambian Kwacha exchange rate shown above is the rate that prevailed at the beginning of N1ovember 1984.) WEIGHTS AND MEASURES 1 meter (m) . 3.28 feet (ft) 1 kilometer (km) - 0.62 miles 1 sq kilometer (km2) - 0.386 sq miles 1 metric ton (tonne) - 1,000 kg - 2,204.6 pounds I liter - 1.057 US quarts - 0.22 Imp. gallon ABBREVIATIONS AfDB - African Development Bank CH - Contract Haulage, Ltd. CIDA - Canadian International Development Agency CPU Contingency Planning Unit FRG Federal Republic of Germany GNqP = Gross National Prod'tct GOZ Government of Zambia .MAWD - Ministry of Agriculture and Water Development MPTC - Ministry of Power, Transport and Communications MWS - Ministry of Works and Supply NCDP National Commission for Development Planning PTC Post and Telecommunications Corporation RSA = Republic of South Africa RTC Road Traffic Commissioner SIDA 5 Swedish International Development Authority Tazara Tanzania-Zambia Railway Authority TCC - Transport Coordination Committee UZR = Unitary Railway System ZA = Zambia Airways Corporation ZLXCO = Zambia Industrial and Mining Corporation, Limited ZR = Zambia Railways ZTRS Zambia-Tanzania Road Services FISCAL YEAR ZR: April 1 - March 31 GRZ: January 1 - December 31  FOR OFmFCIAL USE ONLY REPUBLIC OF ZAMBIA FOURTH RAILWAY PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Zambia Executing Agency: Zambia Railways Limited Amount: SDR 20.5 million (US$20.0 million equivalent) Terms: Standard On-Lending Terms: The credit would be on-lent to Zambia Railways for 20 years, including 5 years grace, with a fixed interest rate of 12 percent per annum. Project Description: The proposed project would improve the operational efficiency of Zambia's railway system by providing materials, replacement equipment and machinery and spare parts for rehabilitation and maintenance. A radio signalling and telecommunications system would be installed to replace the outmoded 'open-wire- system and some modern operations facilities would be provided. Also included are technical assistance in critical operational areas and for project implementation, training and studies to improve efficiency. A limited amount of new rolling stock would be supplied under the project. Benefits and Risks: The proposed project would increase the operating efficiency of the railway in Zambia, thereby lowering the cost of transporting goods within the country and to and from the major parts handling the country's imports and exports. In addition to the general benefits derived from greater efficiency, Zambia's goods would become more competitive in foreign markets and thus the project would contribute to the export diversification effort. The physical and economic risks of the project are minimal. Only the highest priority items are provided and the emphasis is on maintaining, not expanding, railway capacity, in line with Zambia's economic prospects. There is little likelihood that traffic will vary significantly from forecast levels and productivity gains have been conservatively estimated. Institutional and financial improvements may be slower than expected, but close supervision and technical assistance should minimize that risk. This document has a restricted distribution and may be used by recipients only in the performanc | of their ufficial duties. Its contents may not otherwise be disclosed without World Bank authorization.  - li - Estimated Cost Local Foreign Total --US$ Million A. Track 0.7 5.2 5.9 B. Signalling & Telecommunications 1.8 9.2 11.0 C. Rolling Stock 1.9 7.6 9.5 D. Workshops and Equipment 0.4 1.2 1.6 E. Spare Parts 3.4 21.1 24.5 F. Operations Facilities 0.6 2.2 2.8 G. Training 0.7 2.7 3.4 H. Technical Assistance 1.4 5.2 6.6 I. Total Without Contingencies 10.9 54.4 65.3 J. Price Contingencies 5.4 12.4 17.8 GRAND TOTAL 16.3 66.8 83.1 (of which taxes and duties) (2.8) (2.8) Financing Plan: Local Foreign Total US$ million IDA - 20.0 20.0 AfDB - 20.0 20.0 SIDA - 5.2 5.0 USAID - 5.0 5.0 Belgium - 4.0 4.2 KfW - 1.6 1.6 ZR 16.3 11.0 27.3 16.3 66.8 83.1 Estimated Disbursements of IDA Credit: IDA FY 86 87 88 89 - - - US$ Million- Annual 2.0 9.5 7.5 1.0 Cumulative 2.0 11.5 19.0 20.0 s Rate of Return: Twenty-two percent. Staff Appraisal Report: Report No. 5256-ZA, dated March 5, 1985 Maps: IBRD 14252-Ri and 14253-RI.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC 0 ZAMBIA FOR A FOURTH RAILWAY PROJECT 1. I submit the following report and recommendation on a proposed credit to the Republic of Zambia of SDR 20.5 million (approximately US$20 million equivalent) on the standard terms to help finance a Fourth Railway Project. The Credit would be on-lent to Zambia Railways Limited for 20 years, including five years grace, at an interest rate of 12 percent per annum. Cofinancing is being provided by the African Development Bank (AfDB), SIDA, USAID, Belgium and KFW. PART I - THE ECONOMY 2. A Country Economic Memorandum on Zambia (Report No. 5000-ZA) was distributed to the Executive Directors on April 24, 1984. This part is based on that report's findings. Country data sheets are attached as Annex I. 3. Zambia's economy is heavily dependent on external trade and on government activity. Imports and exports range between 40 and 45 percent of GDP. Government expenditures amount to about 40 percent of GDP, and the Government owns a majority share of mining and most manufacturing enterprises. Copper mining provides over 90 percent of foreign exchange earnings and 15 percent of gross value added. Much economic activity is dependent on expatriate technical, managerial, and administrative skills. Current Economic Situation 4. Zambia continues to experience an economic and financial crisis initiated by a sharp decline in copper prices in 1975. Zambia's terms of trade have deteriorated steadily since then, and by 1984, were 70 percent below the average for the early 1970s. In 1982, and again in 1984, copper prices reached their lowest level in real terms during the post-World War II era. Real GDP has been in a general downward trend since 1975, declining on an average by about one percent per year. With population  - 2 - growing by 3.3 percent per annum, real GDP per capita is 25 percent lower than in 1974. GNP per capita was estimated at US$580 in 1983, using the World Bank Atlas methodology, but is now much lower as a result of major devaluations of the Kwacha in 1983 and 1984. 5. The balance of payments has been in chronic disequilibrium since 1975, with current account deficits climbing to an average of 19 percent of GDP in 1980-82. The deficit was reduced sharply to 9 percent of GDP in 1983, however, and is expected to be in this range for 1984. Nevertheless, the volume of imports has declined steadily and is now 75 percent below its level in 1974. This has resulted in an economy-wide problem of severe underutilization of capacity and, especially in the mining sector, a large backlog of maintenance and rehabilitation requirements which has contributed directly to a declining trend in copper production and exports. The large current account deficits led to heavy external borrowing, accumulation of arrears on import payments, and a draw-down of international reserves. At the end of 1983, Zambia's total external liabilities stood at US$4.2 billion, including drawings from the TMF (about US$650 million) and about US$500 million in overdue commercial payments. By comparison, merchandise exports amounted to somewhat over US$1 billion. 6. The decline in copper prices also severely affected Zambia's fiscal and monetary positions. In the past, mineral taxes provided a large share of government revenue, but they have been negligible since 1976. Deficit financing absorbed a large share of net domestic credit and contributed to a sharp rise in consumer prices, averaging 20 percent per annum during 1976-78 and 12 percent per annum in 1979-82. Price increases have accelerated in 1983 and 1984 to about 20 percent per annum, reflecting the decontrol of prices in December 1982 ard the devaluations of the Kwacha during the past two years. 7. There is no doubt that external factors have been an important cause of Zambia's present economic difficulties. Apart from low copper prices, other factors over which the Government has littl or no control include transport difficulties in neighboring countries on which Zambia is dependent for the movement of foreign trade, severe droughts which for three consecutive years have necessitated substantial food imports, and, last but not least, the fact that copper mining in Zambia is past its peak, and that for technical reasons, such as sinking deeper shafts and tapping less rich ore bodies, higher costs have to be incurred to maintain past levels of production. 8. Nevertheless, inappropriate policies and shortcomings in economic management have exacerbated the economic difficulties. The main deficiencies in economic policies were that: vi) pricing and subsidy policies favored the urban consumer at the expense of the agricultural producer, depressing the latter's income and incentive to produce for the market; also, controlled industrial prices led to low profitability in the manufacturing sector and a decrease in resources available for reinvestment; (ii) tax incentives and low interest rates led to a pattern of capital intensive investment; (iii) exchange rate and tariff policies have encouraged the -se of artificially cheap imported raw materials and  other inputs and discouraged the use of local materials. As a result, a highly capital and import-intensive productive structure was created that proved to be very vulnerable to prolonged declines in the availability of foreign exchange. Also, little progress was made in developing the use of local resources and diversifying production and exports. Strategy for Economic Restructuring 9. Economically exploitable ore reserves are only sufficient to maintain present levels of copper production for another 15 years or so, after which production can be expected to decline sharply. In the long run, therefore, the copper industry cannot be counted on to provide the domestic and external resources required for development. In the absence of policies and programs to develop new sources of income, employment and foreign exchange, Zambia may expect a drastic fall in living standards and social well-being by the turn of the century. However, Zambia has the potential to develop alternative sources of income, employment, and exports. The greatest potential is in agriculture, where there are opportunities for import substitution (cotton, oilseeds, livestock, grains, forestry products, and fish) and for exports (beef, cotton, coffee, tobacco, groundnuts, and sugar). Once a good start is made with agricultural development, possibilities will be created for agro-based industries. 10. For any long-term growth strategy to succeed, however, it is of the utmost importance that financial balance in the economy be restored first. As the main provider of foreign exchange, the copper industry has a major role to play. However, it is essential that previous levels of efficiency are restored to make the industry profitable again and competitive in world markets. Without a rehabilitated copper industry, the Government's diversification effort would fail for lack of financial resources. For this reason, the Bank recently approved an Export Rehabilitation and Diversification Project which aims to increase the efficiency of the mining industry and make it competitive again by international standards. This project was also accompanied by appropriate macro-economic and sector policy changes aimed at restructuring and diversifying the rest of the economy in order to create the conditions for developing new sources of income, exports and employment. .9 11. The Government, with Bank assistance, has developed a package of policies and measures to bring about better economic management and a policy environment conducive to healthy economic growth and diversification. The Government's economic restructuring policies may be summarized as follows: - Providing a system of incentives to producers and exporters of agricultural and industrial products in which prices are responsive to market forces; - Allowing greater competition in the procurement and selling of food crops. The National Agricultural Marketing Board (NAMBOARD), the Government's agricultural marketing agency,  -4- will move towards the role of buyer and seller of last resort, using a system of floor and ceiling prices for agricultural produce and inputs, respectively; - Improving planning and budgetary procedures to shift resources to productive investment. - Using wages and interest rate policies to reverse past trends of increasing consumption and declining investment; - Improving the management of foreign debt; - Strengthening the technical and managerial capacity of Zambia Industrial and Mining Corporation (ZIMCO), which is the holding company of most state-controlled enterprises; - Restructuring the energy sector to bring about lesser dependence on imported oil; and - Ensuring the competitiveness of exports through an active exchange rate policy. 12. In the past two years, the Government has made commendable progress in translating the above policies into tangible action. It has introduced institutional reforms to improve economic management and has introduced a number of changes in economic policies which constitute the beginning of an integrated program of short-term financial stabilization and longer-term growth and diversification. It is a program in which actions developed in cooperation with the IMF and the Bank complement and reinforce one another. 13. A program to restore financial stability was set in motion in 1983. A one-year Stand-by arrangement was agreed with the IMF, and a debt rescheduling agreement was reached with the members of the Paris Club. As part of the IMF program, the Kwacha was devalued by 20 percent in January 1983, and, in July 1983, the value of the Kwacha was linked to a variable basket of currencies. Since then, the Government has adjusted the exchange rate in a gradual manner such that it is now more than 50 percent lower than at the end of 1982. Because the Government has been successful in holding wage increases to considerably less than rises in the cost of living, it has maintained the benefits of devaluation in real terms, which has improved the competitiveness of exports. Further measures taken under the IMF program included increases in interest rates and tough budgetary measures (including reductions in subsidies and a cap on new government employment) aimed at reducing the Government's domestic borrowing. The program succeeded in reducing the current account deficit to less than 10 percent of GDP and domestic bank borrowing by the Government to less than 2 percent of GDP. A follow-up standby arrangement was agreed with the IMF in July 1984 and is currently being implemented, although with increasing difficulty due to a further decline in the copper price during 1984 (para. 4). Maturities due to Paris Club members in 1984 have been rescheduled as part of the current IMF program.  14. In terms of improving conditions for longer-term growth, the most significant of the above financial measures was no doubt the exchange rate adjustments. Other recent measures with significant long-term impact are real increases in producer prices for agricultural crops, freer marketing arrangements for the livestock sector and complete decontrol of most industrial prices. Over the last three years, producer prices for most agricultural crops have been increased considerably in real terms. This has already led to a significant increase in the area under cultivation. If it had not been for the severe droughts in the region, this would have led to substantial increases in production. In a further attempt to allow market forces to play a more important role in the economy, the Government abolished, in December 1982, the control of all industrial prices (except for three essential commodities: wheat flour, maize flour and candles). Since then, prices for a wide range of commodities have increased, thereby helping to restrain domestic demand, while increasing the profitability of firms. Most recently, the price of wheat flour and bread has also been decontrolled. 15. As part of its economic recovery plans, the Government presented a three-year expenditure program to the Consultative Group for Zambia in May 1984. The Consultative Group strongly endorsed the Government's new policy initiatives, as well as its expenditure program which emphasizes rehabilitation of existing infrastructure, increased capacity utilization and selected investments to diversify the economy, especially in agriculture. As a result, the Group indicated that its members are prepared to increase their assistance to Zambia. In addition, various members indicated that in view of Zambia's serious financial position, they are converting their assistance programs to a grant basis and are prepared to make assistance available in the form of quickly disbursing loans and grants. 16. The Government and the Bank continue to cooperate in the further development of policies and measures that would lead to diversification of production and exports. In the foreseeable future, this may lead to sector lending for industry through which the Government and the Bank are expected to agree on further actions of economic reform, covering such subjects as tariff policies, export incentives, investment criteria and improvements in the management of public enterprises. Creditworthiness 17. Over the past two years the Government has taken important measures towards financial stabilization and implementing a program of economic restructuring. More needs to be done, but there are encouraging signs that the Government is committed to take further appropriate action. There is, however, reason for considerable concern about Zambia's capacity to service new loans on conventional terms. At today's copper prices, scheduled service on existing external debt will remain at about 40 percent of export earnings for the next three years. In addition, considerable payments are due to the IMF, and it would be desireable to reduce Zambia's pipeline of commercial payment arrears and short-term borrowings. Even with an expected increase in the price of copper, Zambia will continue to  - 6 - experience grave difficulties in meeting its debt-service obligations. For a number of years it will be necessary for the government to continue its financial stabilization policies in cooperation with the IMF, to seek relief through further debt rescheduling, and, in addition, to obtain a significant increase in the proportion of quickly disbursing assistance from external sources. In the meantime, the Government should avoid as much as possible borrowing on commercial terms, and additional borrowing should carry sufficiently long grace periods and maturities. 18. In the longer term, the restoration of Zambia's creditworthiness depends on the vigor with which the Government continues to pursue its economic restructuring policies. The Government has made a promising start and is fully committed to take further steps towards economic reform. Assuming successful economic policies, careful financial management and an improving world economy, Zambia's debt service ratio could decline to about 20 percent in ten to twelve years. PART II. BANK GROUP OPERATIONS IN ZAMBIA 19. Since 1956, the Bank Group has made 28 loans and 11 credits to Zambia, totalling about U$730 million (net of cancellations). Two additional Bank loans were made to Zambia and Zimbabwe jointly to finance shared power facilities on the Zambezi River. Fourteen loans and five credits have financed energy, transportation, communications and rural water supply projects. Four loans and one credit for education have helped expand Zambia's secondary and higher education systems, teacher training, and commercial, agricultural and technical education systems. Two program loans have helped Zambia maintain its development program in periods of severe economic dislocation. In agriculture and forestry, six loans and four credits have been for industrial forest plantations, livestock, commercial crops, iategrated family farming, coffee production and smallholder dairy development. Agricultural projects in the Eastern and Southern Provinces are assisting smallholder farmers. Other loans have assisted Zambia's urban development program, copper mining and, through the Development of Bank of Zambia, its manufacturing, agricultural and industrial sectors. A technical assistance credit is helping the Government improve its planning and pro,ect preparation. 20. The International Finance Corporation (IFC) has invested about US$67 million in nine projects in Zambia since 1972. Two investments were in shoe manufacturing, two in a packaging materials plant, and one each in the Development Bank of Zambia, cobalt production, textiles and copper production. The latest IFC investment was approved by the Executive Directors on May 31, 1983. This investment (US$18.7 million equivalent, of which US$7.5 million is for IFC's own account) is helping to finance an expansion and rehabilitation of the Inter-Continental Hotel in Lusaka and rehabilitation of the Musi-o-Tunya Hotel in Livingstone. 21. The implementation of Bank-assisted projects in Zambia has deteriorated significantly in recent years, and serious delays have been  experienced in the execution of a number of these projects. There are several reasons for this, the main one being the lack of budgetary resources with which to finance local counterpart expenditures and to prefinance local expenditures which are subsequently to be reimbursed by the Bank loan. Most seriously affected have been the Bank's agricultural projects for which funds, although budgeted, have not been released to the executing agencies for several months. Other reasons for the lagging implementation of projects are ineffective project management and inadequate inter-agency coordination. The Bank-assisted agricultural projects, which require careful management and effective coordination due to their complex design, have suffered from these problems, as has the Third Highway Project. 22. The deterioration of project implementation has, as expected, substantially reduced the rate of disbursements on Bank Group loans and credits. During the first four years of the period FY77-81, the disbursement rate on loans and credits to Zambia averaged slightly over 25 percent per annum, higher than the Bankwide average of 21.2 percent, or the 21.5 percent average for the Eastern Africa Region, and well above the 22.2 percent for Tanzania, 23.4 percent for Senegal and 20.2 percent for Bolivia. In FY81, however, the rate dropped to just over 16 percent, compared with 20.7 percent Bankwide, 16.5 percent for Eastern Africa, 23.6 percent for Tanzania, 20.8 percent for Senegal and 21.2 percent for Bolivia. The rate has risen since FY81, reaching 20.1 percent in FY83, which was slightly below the average for the Eastern Africa Region (20.7 percent) and for the Bank o0erall (20.8 percent). To alleviate the problem, provision is being mnade for technical assistance in projects to strengthen implementing agencies and increased use of the Resident Mission in monitoring project execution. Revolving funds are being established under new and ongoing projects which should ease the Government's financial burden and accelerate disbursements. The Bank or IDA makes advance deposits into these funds to eliminate the need for prefinancing by the Government of local expenditures financed by the Bank/IDA. In addition, estimates of counterpart funds required and when the funds should be made available are being prepared by Bank/IDA staff well in advance of their need to allow implementing agencies as much lead time as possible to plan for these expenditures. As of December 1983, IBRD loans disbursed and outstanding were about 12 percent of Zambia's total medium and long-term debt disbursed and outstanding. 23. The Bank Group's strategy in Zambia is to support the country's efforts to diversify and increase economic efficiency. Raising the efficiency of the mining industry through the Export Rehabilitation and Diversification loan so that the industry may contribute resources to diversification programs was the first step in carrying out this strategy. Subsequent operations, such as the recently-approved Agricultural Rehabilitation Project and the upcoming Industr.al Reorientation Project will focus on improving sector policies in agriculture and industry, which are, respectively, the sectors with the best potential for production and export growth and for employment creation. The Group's strategy also gives priority to programs to increase the use of indigenous energy resources and to raise the efficiency of transportation services. Emphasis will be given  - 8 - to rehabilitation and maintenance, rather than expansion, of infrastructure and Bank Group assistance is expected to include a significant proportion of quick-disbursing resources. Support for addressing the longer term development constraints, e.g., improving economic management, education, population, health, etc., is also part of the strategy. Policy and institutional reform programs in each of the sectors, as well as on the macroeconomic level, are being agreed with the Government. PART III. THE TRANSPORT SECTOR Structure and Traffic Demand 24. Zambia's transport system comprises about 35,000 km. of roads, 2,000 km. of railway, 150 airports and a 1,700 km. oil pipeline from Dar-es-Salaam to the Indeni Oil Refinery at Ndola. Most of Zambia's external traffic is carried by rail, as is the internal bulk traffic such as coal, minerals and agricultural inputs (fertilizer) and output. Road transport handles most internal intermediate and consumer goods traffic. Both modes carry agricultural inputs and outputs during the short agricultural season, but basically the two are not in competition with each other for 90 percent of the freight traffic. Air freight of export items, while having increased rapidly in the past few years, is a very small portion of the total freight carried and is likely to stay that way. 25. Zambia's economy is highly trade-dependent and therefore a relatively high proportion of freight carried relates to external trade. Two evacuation routes carry this trade. The most important of these volume-wise is the eastern route via the port at Dar-es-Salaam which handles most of the country's export trade, especially its copper exports. The southern route through Zimbabwe and the port at East London, South Africa carries much of Zambia's import trade. Both road and rail carry freight along these routes, however to a large extent they serve different demands. Although the port at Dar-es-Salaam often entails delays (with associated costs). it is still more expensive to ship via the much longer southern route. This, together with the fact that Zambia's import trade is originating increasingly from the south, indicates that the existing freight traffic patterns are likely to remain, for the foreseeable future, as they are today. Internal freight (and passenger) traffic is concentrated in a narrow, densely populated, corridor running from Livingstone in the south through Lusaka to Ndola in the northern copperbelt region. Both road and rail serve this corridor. 26. Freight traffic in Zambia is determined by the overall level of economic activity and by developments in the country's trade patterns. With the economy expected to grow only modestly (2 - 2.5 percent per annum at best) over the next several years, the growth in freight traffic is forecast to be likewise limited. Trade patterns are expected to evolve slowly during this period, as a result of the emphasis currently being given to diversification of the economy away from copper, with agricultural and industrial exports increasing proportionately. For the next several  years, therefore, the existing capacities for hauling freight should suffice to handle the growth in traffic and to allow for variations in the nature of freight hauled. Consequently, investments in the sector should stress maintenance and rehabilitation of the existing transport infrastructure (including the Tazara rail link to Dar-es-Salaam, which is jointly owned and operated by Tanzania and Zambia), rather than any extension of the network, unless clearly justified economically. 27. By the turn of the century, the type of freight and the transport services required will have changed substantially. Zambia's economically exploitable copper resources will be largely exhausted in 15-17 years at current production rates, and output will decline sharply at that time. Concommitantly, the need for transport of copper will decline similarly. If the current drive to diversify exports is successful, a significant part of this trade will be replaced. It is unlikely that non-traditional exports will grow sufficiently to offset fully the drop-off in copper exports, however, and, of course, the nature of the transport services needed at that time will be significantly different. Another factor to be considered in attempting to forecast the demand for freight services is the country's parallel efforts to lower the present high dependence on imports. By the year 2000, therefore, the structure of the transport sector will have to have undergone major adjustment. Planning for these adjustments should be initiated without further delay, and the proposed project would initiate steps to improve transport sector policy and planning. Transport Policy and Planning 28. Transport sector objectives and strategies are not clearly defined and articulated in Zambia. As a consequence, sector policies and expenditure programs are not well-directed towards providing the most efficient and low cost services required. Nor is there adequate planning and forecasting to permit smooth adjustment to the changing needs of the economy for transport services. The relative roles of the private and public transport entities ar not well-defined. Because of the relatively high proportion of product costs represented by transport services resulting from Zambia's landlocked status, distance from major international markets, etc., it is particularly important that cost of these services be kept as low as possible, especially when there is an overriding need to compete effectively in foreign markets as there is in Zambia's case. 29. In the past, the country's concern has been to encourage the development of alternatives to the evacuation routes through Tanzania and the south. While understandable, this policy has led to a higher level of capital investment on both the rail and road systems than otherwise may have been necessary with a resulting loss of efficiency in the sector. Highway maintenance and rehabilitation suffered because of the large proportion of increasingly scarce foreign exchange and domestic resources being devoted to capital investment aud in recent years the operable capacity of the sector has been fdlling. This policy was reversed in 1983 and 1984 when mainter.ance expenditure was increased in both absolute and  - 10 - relative terms vis-a-vis capital expenditures, and further such relative increases are expected in 1985 and beyond. 30. The absence of transport planning reflects in part a lack of clearly designated responsibility for such planning. It also reflects a lack of adequately trained staff, particularly as regards analytical capability in the field of transport econoluy. Nominal responsibility for planning and policy formulation lies with the Ministry of Power, Transport and Communications (MPTC), however the Ministry is not adequately staffed for this purpose. At the same time, the main transport parastatals come under the responsibility of the Zambia Industrial and Mining Corporation (ZIMCO) and many critical investment and expenditure decisions are made at high government levels outside MPTC, many of which are executed by the parastatals or the Ministry of Works and Supply (MWS). 31. Some scope for a coordinated approach to transport investment and policy seemed to be offered, until recently, by the National Commission for Development Planning (NCDP). It was (and is) the seat of a Transport Coordination Committee (TCC) with representation from MPTC, NCDP, MWS, the transport parastatals, and other ministries concerned with transport (e.g., agriculture). However, the TCC has seldom met and has exercised practically no influence over the sector. 32. Effective transport sector objective setting, strategy formulation, planning and policymaking require the presence within the governmental structure of an organization with the capability to undertake the necessary analytical work and carry out these functions. It also requires qualified staff and technical assistance. The Government has undertaken to reorganize and strengthen the Planning Unit in MPTC with a view to improving its capability for effective planning. Agreement by the Association on the terms of reference for the Unit, including manpower requirements, would be a condition of credit effectiveness (Section 6.01(d), Draft Development Credit Agreement). The Government expects to obtain technical and training assistance for strengthening the Unit from bilateral aid sources. Zambia Railways Organization, Management and Staff 34. Zambia Railways Limited (ZR) is a wholly owned subsidiary of the Zambia Industrial and Mining Corporation (ZIf4CO) and is headed by a managing director. Its operations are divided into three regions. Each regional manager reports to the managing director, who is assisted by two assistant managing directors. The railway is predominantly organized along functional lines. The total staff numbers about 8,000 of whom 22 are expatriates holding specialized technical positions. The employment of expatriates has been reduced from 50 in recent years as a result of the company's training programs. Training has a high priority in ZR which has a training center responsible for all internal and external training.  - 11 - 35. ZR was incorporated by the Zambia Railways Act, on July 1, 1967, to replace the Unitary System which was owned jointly and equally by Zambia and Rhodesia. Effective January 1, 1979, the Government transferred ownership of ZR to ZIMCO, a Government holding company. The necessary legal formalities for effecting this transfer were not completed until December 1983. At that time, ZR was incorporated as a company under the Companies Act, which should result in more autonomy for ZR including less control by the Government over tariff adjustments. 36. ZR's managing director is appointed by ZIMCO and reports to a board also largely appointed by ZIMCO. The Chairman of ZIMCO's Board is the President of the Republic. One of the two divisional managers is in charge of Operations, the other is in charge of Administration. Also reporting to the managing director are three regional managers and the heads of the following functions: Finance, Marketing, Public Relations, Railway Police and Internal Auditing. Reporting to the assistant general manager of Operations Department are the chiefs of the three Engineering Departments: Mechanical, Civil, and Signalling and Telecommunications; the chief of Transportation and the chief of Safety. Reporting to the assistant general manager of the Administration Department are the managers of Corporate Planning, Data Processing, Supplies, and Personnel, and the Legal Counsel. The Training Section reports to the personnel manager. 37. As noted earlier, considerable progress has been made in reducing the number of expatriates employed by the Company through the training of local staff. With the training provided under the proposed project, ZR is expected to become fully Zambianized in the next five years. Further training in some technical skills will be required during this period, as will continued operational support in some functional areas. Consequently, expatriate support will still be required for fixed terms to fill specific technical and managerial positions until the necessary training is completed. Additional assistance will be required for project implementation and operational advisory services (10 expatriates) and for studies of the means by which long-term improvements in the effeciency of railway services can be achieved and transport sector planning improved (3 expatriates). The 13 added expatriates employed will be on fixed term contracts and will carry out activities directly related to the proposed project. A Project Coordinator is required for project planning, coordination and follow-up, as well as for advising the managing director on a number of project matters. Two technicians, one with experience in the mechanical work on diesel electric lomotives and one with experience on the electrical work of these locomotives, are required. In addition, ZR will require the services of systems analyst and programmners with experience in similar systems, and finally expatriates specialists will be needed to carry out the studies referred to above. Track 38. ZR operates 1,273 km of single track, of which 848 km (Nkana/Kitwa - Victoria Falls Bridge) are on the main line and 425 km are branch lines. ZR also operates, on behalf of the Government, a 163 km line between Livingstone and Mulobezi in south-west Zambia. The line,  - 12 - openned in 1930 for the evacuation of sleeper timber, now has a traffic volume of 1,000 passengers per week and one freight train. In operating this line, incurs annually a deficit of K700,000 which is covered by a Government grant. The Government has considered several possible ways of ending this subsidy, includiag ZR's proposal to close the line. Government, however, has decided that ZR should continue to operate the line and carry out necessary track rehabilitation. In return, ZR will be allowed to introduce a special (higher) tariff for the line during project implementation and thereafter apply the same criteria to freight and passenger tariffs as to the rest of the system. This arrangement is satisfactory to the Association. It will be continued in a Government policy statement which will be submitted to the Association as a condition of credit effectiveness (Section 6.01(c), Draft Development Credit Agreement). Manpower Development and Training 39. ZR staff are generally well qualified. However, some weaknesses exist which will be addressed by provision of technical assistance and training under the proposed project. Areas of concern are the corporate planning and the related information system required for follow-up of the operational performance. Manpower development and training is considered a priority within ZR. A manpower study was carried out recently with the purpose of identifying ZR's manpower and training needs. ZR is establishing a manpower development unit within the Personnel Department to continuously monitor its manpower requirements. This new unit will work closely with the ZR training center to implement training courses as required. 40. The training center is responsible for all training programs including external courses. At present, training programs offered in the center comprise training of artisans, technicians, operational staff, supervisors and managers. Facilities in the training center are adequate except for the main workshop which needs rehabilitation and new equipment. Tle center, which employs about 50 instructors, is overstaffed. Training programs and courses need to be reviewed and revised in most cases, and links between on-the-job and other training require strengthening. Freight Traffic 41. ZR's total traffic has fluctuated between 4.5 and 5.1 million tonnes since 1977 with, however, an increase in tonne-kilometers from an estimated 1.26 billion in 1977 to 1.56 billion in FY82 and 1.40 billion in FY83. The increase in average haul resulted from the reopening of the southern route through Zimbabwe in 1979 and from the increased importance of international transit traffic (from 30 percent of the total in 1977 to 35 percent in FY82 and FY83). 42. The distribution of traffic in the future is unlikely to change significantly from that of the last two years, unless there are political developments which again close the borders of neighboring countries. The only categories of freight traffic likely to grow, in the absence of an unexpected rapid recovery in economic activity, are agricultural inputs and  - 13 - outputs and coal. Maamba colliery's production of coal is likely to expand significantly as a result of the rehabilitation program planned for the mine. The increased output is likely to be absorbed by the rehabilitated Kafue fertilizer plant and possibly by the substitution of coal for oil In mining. With virtually static traffic in other area3, aggregate traffic is forecast to increase in tonnage by only 8 percent to 13 percent between 1983 and 1989 and a by a further 5 percent by 1994. Recent traffic volumes and forecasts are summarized below. ZR Traffic (000 tonnes; m. tkm) Actual Forecast 1977 1980!81 1981/82 1982/83 1988/89 1993/94 High Low High Low Domestic (tonnes) 3359 2699 3295 2957 3417 3275 3565 3415 (tkm) 713 542 674 634 741 707 846 741 Export (tonnes) 532 518 543 546 540 540 600 540 (tkm) 93 191 188 202 200 200 232 200 Import (tonnes) 402 543 656 513 570 570 630 570 (tkm) 63 175 217 164 183 183 202 183 Transit (tonnes) 490 713 591 499 600 500 600 600 (tkm) 396 576 477 403 485 404 485 485 Total (Tonnes) 4783 4475 5085 4516 5125 4885 5395 5125 (tkm) 1265 1484 1556 1403 1610 1495 1765 1610 Passenger Traffic 43. Rail traffic has grown by about eight percent p.a. since 1976. Tariff increases appear to have had little effect on the growth of this traffic. Rather, the main determinant appears to have been the decline in the standard of living in Zambia since that time, which has resulted in a relative decline in car ownership and a shift to rail for travel along the north-south corridor. Financial Performance 44. After recording profits from 1976 to 1980, ZR'c financial situation deteriorated sharply during the period 1981-84 (April 1-March 31 fiscal year), with losses increasing steadily from K6.0 million to K19.1  - 14 - million. The major reason for this deterioration has been the lack of timely approval of tariff increases by the Government. All tariffs are based on costs and the intention is that no goods are to be carried at less than total cost. Costs have out-distanced tariffs in recent years, however, adversely affecting ZR's liquidity and current ratio, which declined from 2.5 in FY80 to 0.8 in FY84. ZR introduced a financial recovery program in FY84 that included cost saving measures and tariff increases, but the major tariff hikes came only in April, 1984 (FY85), too late to improve the FY84 financial picture. These increases are expected to have a significant impact on FY85 results however. In addition the company's financial position is being further buttressed by a 20 percent increase in freight and passenger tariffs effective April 1, 1985. 45. As noted earlier, no major increases in freight traffic are anticipated over the next several years. However, to produce an operating profit and create a cash flow sufficient to cover working expenses, debt service requirements and 20 percent of total investment, further real tariff increases of 20 percent on freight traffic and 25 percent on passenger traffic will be required next year. Also, the present debt/equity structure places too heavy a burden on the company's cash requirements. Agreement was reached at negotiations that ZIMCO would take measures to enable ZR to adjust its tariffs to enable ZR to meet its obligations under the project (Section 5.02(a), Draft Joint Project Agreement) and that capitalization of Kwacha 138.0 million owed the Government by Zambia Railways would be approved by June 30, 1985 (Section 5.02(b), Draft Joint Project Agreement). In addition, a schedule for further tariff increases was agreed at negotiations. 46. The Third Railway Project called for an eight percent return on net fixed assets in use commencing FY81. This objective was not attained for a number of reasons, including the effects of the recession in Zambia, the slow growth in freight traffic and accelerating inflation. Freight and passenger tariffs were not increased in a timely fashion during this period. In part this was due to the fact that because of the long delay in fiaalizing the company's financial statements, it has not been possible for ZR, ZDMCO and the Government to respond quickly with the tariff increases required to achieve the covenanted rate of return. Moreover, in view of the company's adverse liquidity position, the emphasis during the implementation period should be on attaining a satisfactory cash flow. It was agreed during negotiations that the covenant be changed to a U requirement that ZR, GRZ and ZIMCO take all measures necessary to achieve revenues sufficient to cover all wcrking expenses (before depreciation), taxes, debt service charges of principal and interest, and 20 percent of the total costs of the investment program (Section 5.03(a), Draft Joint Project Agreement). 47. In order to safeguard ZR's cash flow, ZR would be required to obtain the approval of the Association whenever investments beyond those included in the proposed project are estimated to exceed US$2.0 million equivalent in any one year (Section 4.03, Draft Joint Project Agreement). Also, ZR would be asked to agree not to incur any debt if its operating surplus for the fiscal year or the 12 consecutive months immediately before  - 15 - the date of occurrence, whicheve. Is greater, would be less than 1.5 times the maximum debt service requirements of any succeeding fiscal year (Section 4.04(a), Draft Joint Project Agreement). 48. When required, ZIMCO, the holding company, issues a certificate to the auditors that for the following year, it will provide or arrange the necessary finance as and when required by ZR to maintain the operations of the Railways at least at its present level. This agreement was confirmed during negotiations (Section 5.01, Draft Joint Project Agreement). Past Bank Group Activities in the Sector 49. The Bank Group has supported six projects in the transport sector in Zambia: three for the railway subsector for a total of US$63.5 million and three for the highway subsector for a total of US$50.7 million. The last two projects, one each in the highway and railway subsectors, are still ongoing. With the exception of the most recent highway project which has suffered from shortages of counterpart funding, the implementation of these projects has been satisfactory and their objectives have been largely met. The First and Second Railway projects concentrated on the provision of workshop equipment and rolling stock and on track improvement. The Third Railway project continued assistance in these areas but in addition focussed on improving communications and the upgrading of skills through training and technical assistance. While the operational objectives of the third project will be generally met, the recession in Zambia has affected ZR's financial situation and the rate of return targets may not be achieved. The on-going project has been successful in improving ZR institutionally due to its heavy emphasis on technical assistance and training. The proposed fourth railway project continues this effort by extending technical assistance and training in key areas needing further improvement, while at the same time improving the availability of rolling stock and the communications system. PART IV. THE PROJECT Introduction * 50. The proposed project is a continuation of the Third Railway Project (Loan 1790-ZA/Credit 973-ZA) and extends the rehabilitation and maintenance programs initiated under the earlier project. It was Identified in February 1983 and appraised in February 1984. Negotiations took place in Washington, D.C., from January 23 to January 25, 1985. The Zambian Delegation was led by Mr. G.A. Zaza, Senior Under-Secretary, Ministry of Finance. A Credit and Project Summary is presented at the beginning of this report and Supplementary Project Data Sheet is in Annex III.  - 16 - Project Objectives and Description 51. The purpose of the proposed project is to improve the operational efficiency of the railway. It would do so by providing for the replacement of life-expired equipment and machinery, by providing materials and spare parts for maintenance of equipment and facilities and by providing modern operational facilities. The project also contains studies designed to improve efficiency, support for ZR's training programs and technical assistance in specific areas crucial to effective operations and for project implementation. Details of the various components are described in the following paragraphs. 52. Track Rehabilitation - The rail is heavily worn on curves on many sections of the mainline and a large proportion of the sleepers are worn out. In addition, the branch line from Kitwe to Chingola requires extensive maintenance. Because of the poor track condition, speed restrictions are in effect for many sections of the track and in some cases the trains have to stop before entering certain sections. Despite these restrictions, derailments occur frequently. The Project provides for improvements to these sections, including the replacement of about 15 km. of track and 80,000 sleepers. Track maintenance equipment and spare parts are also included. 53. Signalling and Telecommunications - The open-wire pole system supporting the signalling and telecommunications system is outdated and lacks sufficient capacity for the railways' needs, particularly since it must also support data circuits. It is unreliable, subject to vandalism and theft, and requires major rehabilitation to remain in use. Investment in its rehabilitation would make little significant improvement in its reliability and the increased demand for signalling and telecomaunications capacity cannot be economically met by an open-wire system. Consequently, the project provides for replacement of this system by radio communications, plus maintenance spare parts and improved maintenance facilities. 54. Locomotives and Rolling Stock - Provided there is improved locomotive availability, reliability and utilization, the existing fleet of locomotives is sufficient to meet the estimated traffic demand for the next five years. The fleet is relatively new, with about half of the 76 operable and repairable locomotives having a further ten years of serviceable life. Some, however, suffer from deferred major maintenance due to lack of foreign exchange for replacement parts and will require major overhaul. An overhaul program will be initiated under the proposed Project. 55. ZR operates some 6,300 wagons, of which 2,800 belong to the Unitary Railway System, and cannot be used outside Zambia. In addition, about 1,500 are from other countries. About 1,000 wagons should be scrapped during the project period. However, as a result of actions to be taken to improve availability and utilization, an adequate total supply of wagon capacity can be maintained with the purchase of 170 new units. These are provided for in the proposed Project, as are 24 new brake-vans which are required.  - 17 - 56. Workshops and Equipment - The workshop at Kabwe requires replacement machinery to efficiently maintain ZR's equipment. This would be provided in the proposed project. 57. Spare Parts - Spare parts are required to increase ZR's locomotive availability from the present 62 percent to an expected 1987 level of 75 percent. In addition, each locomotive will require spare parts for about US$39,000 annually to maintain the availability at 75 percent. Spare parts are also required for maintenance of wagons and other transport equipment. Based on a maintenance program prepared by ZR, the total three year foreign exchange requirement for spare parts is estimated at US$21.1 million, for which funds are included in the proposed project. 58. Operations Facilities - For improved equipment utilization, ZR will require a modern wagon control system and a system for production planning and control connected to the new data processing facilities provided for in the Third Railway Project. These systems, plus some needed software would be provided under the proposed project. 59. Training - A manpower study was carried out under the ongoing project with the purpose of identifying ZR's manpower needs and related training on which the training program has been based. The proposed project provides for repair and rehabilitation of the training workshop, workshop equipment tools, technical assistance for meeting training objectives and fellowship training. 60. Technical Assistance and Studies - At present, 22 of ZR's employees are expatriates. ZR will retain its expatriate staff during the pro ect period and require additional assistance for project implementation. In total, the proposed project would provide for 586 man-months of technical assistance. 61. The proposed project will also include funds to study means by which long-term improvements in the efficiency of railway services can be achieved. This would require about 108 man-months of technical assistance. Estimated Cost and Financing 62. Estimated Costs - The total project cost is estimated at US$83.1 million (including taxes and duties), consisting of US$5.6 million for track rehabilitation, US$10.4 million for signalling and telecommunications, US$9.1 million for rolling stock, US$1.5 million for workshops and equipment, US$23.2 million for spare parts, US$2.7 million for operating facilities, US$3.4 million training and US$6.6 million for technical assistance. Price contingencies are provided for local costs at 15 percent for 1985 and 1986 and 10 percent thereafter and for foreign costs at 8 percent for 1985 and 9 percent thereafter. The foreign exchange costs are estimated at US$66.8 million. The project would be implemented over a period of four years.  - 18 - 63. Financing Arrangements - IDA would provide US$20 million, equivalent to about 30 percent of the estimated foreign exchange cost. The Federal Republic of Germany is expected to cofinance US$1.6 million, Belgium US$4.0 million, SIDA US$5.2 million, USAID US$5.0 million, AfDB US$20.0 million, and ZR US$27.3 million. Fulfillment of conditions of disbursement of USAID financing would be a condition of credit effectiveness (Section 6.01(b), Draft Development Credit Agreement). Interest in cofinancing the project has also been expressed by the OPEC Fund. If this cofinancing materializes, ZR's contribution to project financing will be reduced accordingly. The Association's funds would be on-lent to ZR at 12 percent interest with repayment over 20 years with 5 years grace (Section 3.01(b), Draft Development Credit Agreement). The execution uf a Subsidiary Loan Agreement between GRZ and ZR would be a condition of credit effectiveness (Section 6.01(a), Draft Development Credit Agreement). The foreign exchange risk would be borne by ZR. Implementation 64. The proposed project would be implemented by Zambia Railways. ZR has considerable experience in operating the railway and in implementing projects financed by the Association so no major difficulties are envisaged. Nonetheless, ZR will require the assistance of a project Coordinator (18 man-months), two full-time mechanical technicians (72 man-months), and systems analysts and programmers with experience in production planning control (108 man-months) and wagon monitoring control (160 man-months). In addition, 216 man-months of advisory and operational assistance will be needed. This includes three expatriate engineers assisting the Chief Civil Engineer, a Chief Mechanical Engineer with three expatriate technicians assisting him and a Chief Signal and Telecoumunications engineer. Except for the position of Chief Mechanical Engineer, these positions would be fully Zambianized upon project completion. Procurement and Disbursements 65. Procurement - Goods and services to be financed by che proposed credit would be procurred by ICB in accordance with the Association's guidelines. An exception to the above would be made (i) in cases where the borrower can show to the Association's satisfaction that the items required are clearly established manufacturers parts, in which case they may be obtained directly from the original suppliers through negotiated contracts (Part C(1), Schedule 1, Draft Joint Project Agreement); and (ii) where small orders are under US$100,000 each, up to a maximum of US$1.0 million in total, for which limited international bidding through obtaining at least three price quotations will be applied (Part C(2), Schedule 1, Draft Joint Project Agreement). Goods financed by co-donors will be procured in accordance with procedures of the respective agencies. All documentation for equipment procurement under ICB and financed by IDA will be subject to IDA review prior to issuance of tenders (Part D, Schedule 1, Draft Joint Project Agreement). Eligible domestic bidders would be afforded a  - 19 - preference of 15 percent or applicable duty whichever is lower under ICB procurement (Part B, Schedule 1, Draft Joint Project Agreement). Procurement arrangements are summarized below. US $ (Million) PROCUREMENT METHOD TOTAL _____________________________ COST Project Element ICB LCB LIE Other N/A A. Track Material - - - - - 6.25 C-) (-) C-) (-) C-) (-) B. Signalling & Telecommunications - - - 11.14 - 11.14 (-) C-) C-) C-) C-) C-) C. Rolling Stock - - - 9.22 - 9.22 C-) C-) C-) (-) C-) C-) D. Workshop Equipment 1.00 - - 0.44 - 1.44 (1.00) C-) (-) (-) C-) (1.00) E. Spare Parts 5.33 - 1.00 19.70 - 26.03 (5.33) - (1.00) C-) C-) (6.33) F. Operations Facilities - - 2.70 - 2.70 C-) - - (2.70) - (2.70) C. Training 0.85 - - 2.64 - 3.49 (0.85) - - (2.64) - (3.49) H. Technical Assistance - - - 6.48 - 6.48 C-) C-) (-) (6.48) C-) (6.48) TOTAL 7.18 - 1.00 58.57 - 66.75 (7.18) (-) (1.00) (11.82) C-) (20.00) Note: Figures within brackets show the IDA-financing. 66. Disbursements - Disbursements would be fully documented, except for disbursements under contracts of less than US$20,000 which would be made against statements of expenditure. The IDA credit would finance 100 percent of foreign expenditures and 75 percent of local expenditures for equipment, materials, spare parts and services locally procured and 100 a percent of foreign expenditures for technical assistance and training. Accounts, Audit and Reporting 67. ZR would maintain separate records and accounts for all activities related to the financing of items under the proposed project. The accounts and financial statements would be audited by auditors acceptable to IDA and submitted to IDA not later than six months following the end of each fiscal year (Section 4.02 (a and b), draft Joint Project Agreement and Section 4.01 (a) and (b), Draft Development Credit Agreement) ZR will submit quarterly progress reports to IDA and, no later than six months after the closing date, ZR will provide the Association vith a Completion Report evaluating the operations, execution, costs and benefits of the project.  - 20 - Environmental Impact 68. The proposed project would have no adverse environmental impact. Benefits, Risks and Justification 69. Benefits The main benefits of the proposed project result from the increased efficiency of the railway which would result in the avoidance of traffic diversion to more costly road transport. 70. The ERR on the total project lies between 21.8 and 24.3 percent, while on the individual components between 43.5 and 16.5 percent. The lower benefits are expected on new equipment, where the lack of dynamism in traffic growth will mean the benefits from improved communications and equipment will take somewhat longer to materialize than from the urgently needed rehabilition inputs. If the benefits were to decline by 2 percent p.a., the ERR on the total project would fall to 20 percent. If, in addition, the costs would increase by 10 percent, the ERR would drop to 17 percent. In either or both of these cases the ERR would be acceptable. 71. Risks - The physical and economic risks of the project are minimal. The project concentrates on thie highest priority items in ZRIs investment program and the most cost-effective means of maintaining -ot expanding-the railway's capacity to handle traffic on offer. There is little likelihood that traffic will not, on average, reach forecast levels although fluctuations can be expected as in the past. Equally, productivity improvements (reflected in availability and utilization of capacity) have been forecast at a modest level. However, the institutional and financial improvements could be slower than expected to materialize. The technical assistance provided under the project would address these risks. PART V. LEGAL INSTRUMENTS AND AUTHORITY 72. The draft Development Credit Agreement between the Republic of Zambia and the Association, the draft Joint Project Agreement among the I Association, ZINCO and Zambia Railways and the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 73. Special conditions of the Project are listed in Section III of Annex III. Special conditions of credit effectiveness would be: (a) executioa of the Subsidiary Loan Agreement (para. 63); (b) fulfillment of conditions of disbursement of USAID financing (para. 63); (c) terms of reference for the MPTC Planning Unit (para. 32); and (d) policy statement on operation of the Mulobezi line (para. 38).  - 21 - 74. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI. RECOMMENDATION 75. I recommend that the Executive Directors approve the proposed credit. A.W. 'lausen President Attachments Washington, D.C. March 4, 1985 .1  - 22- ANNEX I T AIL t 8 Page I of 5 z7WuR - B0CiAL IDICATORS DATA SHURT ZMBIA RfiRRCE GROUPS (WElIGUD AVZRAGEZ /. msar (OmST uCnT uTIuATK) A 1RIEXeT MIDDLE INCO IDL INCO 19i0at 1970/b ZSTIHATRLk. LRtICA S. OF SAARA N. AFRICA a KID EAST Au (ObUAND SQ. -a) TOTAL 752.6 732.6 752.8 AGRICULTUPAL 397.4 399.5 401.6 orEMR CWITA (115) 230.0 380.0 840.0 1112.9 1149.6 motrcosuOnm MR CAPITn (IILOGtAIS Or OIL EQUIVAUNT) .. 301.0 443.0 529.0 622.1 S1011TI MD VrML TATrIJTCS POPULATIONMID-YEAR (THOUSANDS) 1207.0 6159.0 6045.0 UURN POPULATION (2 OF TOTAL) 23.1 30.0 44.8 29.7 *6.2 POPULATION ROJECTIoNS POPdLATlON IN YAR 2000 (MILL) 11.4 STATIONAkI POPULATION (MILL) 37.0 POPULATION FUETUt 2.0 POPULATION DENSIn PER SQ. Cl. 4.3 5.5 7.8 55.8 36.3 PrR SQ. MA. .GRti LAND 8.1 10.4 14.5 111.5 4hl.7 POpULATION AGE SrRUCTURE (2) 0-14 RS 45.0 46.1 47.4 45.C 43.6 15-64 YRS 52.5 51.4 50.0 51.7 53.1 65 MD ABOVE 2.5 2.5 2.6 2.9 3.3 POPULATION GROWTH RATE (Z) rOTAL Z.4 2.6 3.1 2.8 2.8 URBAN 5.3 5.2 6.5 5.2 4.5 CRUDE UIRTH RATE (PER THOUS) 5D.6