Zambia - Lusaka Squatter Upgrading and Site and Services Project

FILE ~~~~~CIRCULATING COPY FILE COPYTO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1442-ZA REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ZAMBIA FOR THE LUSAKA SOUATTER UPGRADING AND SITE AND SERVICES PROJECT June 24, 1974  CURRENCY EQUIVALENTS ZAMBIAN KWACHA (K) 1 = US$1.556 TITSS 1 = KO.643 MEASURES m (meter) = 5.28 feet m-' (square meter) = 1.196 square km (kilometer) = 0.@2 miles km2 (square kilometer) = 0.384 square miles ha (hectare) = 2.47 acres ABBREVIATIONS LCC = Lusai<. City Council. SNDP = Second National Development Plan MOLGH = Ministry of Local Government and Housing NHA = National Housing Authority AFSC = American Friends Service Committee UNICEF = United Nations- International Children's Emergenicy Fund- UNIP = United National Independence Party FISCAL YEAR January 1 to December 31  REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO ZAMBIA FOR THE LUSAKA SQUATTER UPGRADING AND SITE AND SERVICES PROJECT 1. I submit the following report and reconmendation on a proposed loan to the Republic of Zambia for the quivalent of US$20.0 million to help finance the cost of a squatter upgrading and site and services project in Lusaka. The loan would have a term of 25 years, including 4Y/2 years of grace, with interest at 71/4 percent per annum. About US$17.5 millior. of the loan would be relent to the Lusaka City Council on the same terms and conditions as the proposed Bank loan; the Government would bear the exchange risk. PART I: THE ECONOMY 2. The last Economic Report on Zambia (Report No. 4-ZA) was issued on December 26, 1972. An updating mission visited Zambia 'n October-November 1973. The most recent economic lata are summarized in Annex I. 3. The economy is characterized by a distinct dualism between the large modern sector and the rural 6ubsistence economy. Almost half the population of 4.5 million is involved in the modern sector; the remainder depend for their livelihood on small-scale traditional agriculture. The average per capita national income in 1971 was estimated at $100 in the traditional sector while the figure for the modern sector is over $650. There are approximately 400,000 in wage employment, which has been growing at about 3 percent per annum in recent years. Population growth is estimated at 2.5 percent per annum. 4. The shortage of trained citizens to man the economy has been a critical constraint to development. At Independence (1964) there were only about 100 citizens who were university graduates and l,nOO possessing secondary school level certificates. Since then remarkable progress has been made in expanding education at all levels. At present there are over 800 Zambian university graduates and the annual output from the secondary schools has risen to over 6,000. In recent years the Government has placed special emphasis on expanding vocational and technical training. 5. The modern sector is dominated by the copper industry, which con- tributes nearly 40 percent of GDP and 95 percent of exports. Thus the world copper price has a large and pervasive effect on the economy. Unfortunatelys the copper price is notoriously unstable and the Government has inadequate means of insulating the economy from t-_e fluctuations of the copper market. In recent months, Zambia has benefitt--c from the record copper prices result- ing in a dramatic improvement in the country's financial and foreigrn exchange   position. However, it is essenCial to view the present exceptional situation in a longer term perspective. Economic trends between 1970-73 were in sharp contrast with those in the preceeding years, as well as current trends. 6. Between 1964 and 1969, :; ro~;s gztlonal income at constant prices grew on the average by almcs: 1 pe Sent a year. MIore than half of this increase, however, resulted from. t`e -:rm-rovem ent in terms of trade. ThEtn, as now, the sharp increase 4n ,th ~c r.d cooper price had placed Zambia 1n a strong financial position, The cer.ermn _s budget and the balance of payrients produced growing surnlusas. In he course of 1970, however, the period of rapidly rising nCormene