EC - Zambia cooperation

by Dr Nikolaos ALEXANDRAKIS

Zambia acceded to independence from Britain in 1964, contradictorily inheriting both the highest per capita income of any black African state and only about 100 university graduates. Copper accounted for almost all of the country's foreign exchange earnings and most of Zambia's manufacturing industry is oriented towards supplying the mining industry.

The paternalistic and inefficient political and economic pattern of the first 27 years after independence obviously led to too much state regulation as well as providing too little or wrongly directed investment. This, compounded by the very high costs of transport and a soaring defence budget, (a consequence of the country's landlocked situation and commitment to being in the forefront of Southern African emancipation), and the continued plummeting of copper prices, turned Zambia into one of the world's most indebted nations-8 million people owing external creditors more than US$7 billion.

Such was the inheritance of the newly elected democratic government, which came into power in 1991 after a peaceful electoral process. The new regime-a coalition of prominent businessmen, a new generation of politicians, technocrats and labour leaders-was therefore confronted with the need to undertake a very radical programme of reforms. This they are doing at a remarkable pace.

In a framework of a distressing external debt burden, enhanced donor aid is crucial to support the current ambitious economic restructuring process, aimed at diversifying away from the fortunes of copper, hence building up a sustainable and diversified new economic foundation.

EC assistance to Zambia

1. Programed Aid

Lom

Having become a signatory to the 1st Lomonvention in 1975, Zambia was the beneficiary of ECU 47m under Lom, allocated to:

-Agricultural sector: projects in the field of livestock development, feeder roads directly geared to agricultural development objectives and needs and training requirements in the dairy and livestock sector.
-Economic and social infrastructure: site and service schemes in rural townships and rural health clinics.

All activities under Lom have been completed.

LomI

The National Indicative Programme was designed to be consistent with Zambia's 'Third National Development Plan (1979-83)', the objectives of which placed particular emphasis on rural development, employment creation, food production and import substitution:

-Rural development: to achieve selfsufficiency in food production, to improve the quality of life in rural areas and to stimulate production of industrial crops for national manufacturing and processing;
-Economic and social infrastructure: to reduce external dependency in the energy sector, to develop a transport strategy by improving existing roads and developing new links and by upgrading rural landing strips. Also included was the development of water supply schemes, medical facilities, sites and services for housing and small-scale industries in rural and smaller urban areas;
-Geological surveys and research: to assist in the preparation, drawing and printing of geological maps;
-Microprojects: to assist local communities in self-development, thereby strengthening grassroots participation in development activities;
-Training and technical assistance: staff development, technical assistance and equipment, special attention being given to in-country programmes in vocational and technical training, science education, management, communications and in-service training;
-Supporting activities: to cover the undertaking of necessary supporting studies, trade promotion and credit to small and medium-sized industries.

Under LomI, ECU 58m were allocated. Generally the projects have reached their completion, the total closure of the Convention being expected shortly.

LomII

The integration of the EC's assistance into national development strategies and programmes was the objective under LomII. Emphasis was laid on the notion of a focal sector, where EC support could be more appropriately integrated. Implementation requirements were reinforced by the establishment of a timetable of commitments mutually binding for Zambia and the EC. Agriculture and integrated rural development was again the sector concentrated on as far as the NIP was concerned, 90% of the total resources having been initially devoted to it. In 1990 the LomII NIP was augmented by ECU 12m from a Special Debt Programme, bringing the final figure to ECU 92m.

Among the activities that should be outlined are the Smallholder Development Projects in the Copperbelt and Central Provinces, which aim at increasing yields and total production of smallholders through the introduction of improved technical packages for rain-fed agriculture. To better support the production aspects, the projects also include the improvement of infrastructure, inputs, credit, marketing and social facilities.

Import support programmes constituted the major bulk of the EC's assistance under LomII:

-Supply of inputs to Nitrogen Chemicals of Zambia (NCZ): import of chemicals, catalysts and spare parts for the rehabilitation of the factory at Kafue;
-Foreign Exchange Facility I: sectoral import programme in agriculture;
-Foreign Exchange Facility II: essential inputs for the agricultural sector.

The residual funds from these programmes were later used as additional resources for a General Import Programme (GIP) undertaken under an Import Support & Special Debt Programme aimed at, among other things, assisting Zambia in clearing her arrears to the IMF, hence creating the conditions for re-starting structural adjustment disbursements from the World Bank and the IMF.

The projects on education and training are also worthy of mention:

-Zambia mathematics & science teacher education: aimed at upgrading lower secondary Science and Mathematics teachers, enabling them to teach at senior secondary level, hence improving the standard of science education in Zambia; - Zambia Centre for Accountancy Studies: aimed at developing an indigenous Zambian accountancy profession in a cost-effective manner.

Implementation of LomII projects is still on course, secondary commitments reaching 86% and disbursements 67%.

LomV

The NIP for LomV was signed in February 1991, the EC having made available to Zambia the total sum of ECU 111m, comprising:

-National Programmable Resources: ECU 95m;
-First instalment from Structural Adjustment Facility: ECU 16m.

In recognition of Zambia's democratisation process, her strong commitment to adjustment and the consequent need for donors to increase and speed-up their financial support, it was possible to double the first instalment of the Structural Adjustment Facility to ECU 41.5m (including 10% of the programmed resources) and fix disbursement targets for the second instalment at ECU 27m in 1993 and ECU 14m in 1994.

As focal areas for LomV cooperation, two priorities have been identified: -Assistance to the productive sector, with special emphasis on rehabilitation and maintenance of the road system, the promotion of non-copper exports and the improvement of the livestock sector;

-Improvement of the social infrastructure and services, taking special account of the impact of the adjustment process on the living conditions of the poor and vulnerable groups of the population.

These priorities are being addressed through the development of the following activities:

-Rehabilitation of the roads sector: contribution to the national programme for the rehabilitation of trunk roads and rehabilitation and maintenance of feeder roads in areas of high agricultural production;
-Export development: improvement of non-traditional export performance by alleviating supply and market constraints which are faced by the high-potential agricultural, and relatively well-based industrial sectors;
-Improvement of animal health: reinforcement of the planning and monitoring capabilities of the national veterinary department and supporting the private sector's efforts;
-Microprojects: continuation of the microprojects support programmes which were implemented in
LomI and III;
-Social sector support: improvement of district health care, improvement of blood safety at provincial level and improvements in the quality of primary education, hence contributing to mitigating the effects of structural adjustment on the most vulnerable groups of society.

Outside the focal areas, the following activities are being designed and/or implemented:

-Natural resources conservation: the preservation of wildlife, including the reorganisation and restructuring of the Department of National Parks and Wildlife Service;
-Training of accountants: continuation of assistance to the Zambia Centre for Accountancy Studies (ZCAS), started under LomII, within an overall programme to indigenise accountancy training and the profession;
-Support services: technical assistance and consultancy services to help the Government of Zambia in developing specific policy changes in the areas affected by structural adjustment, and to facilitate the acquisition of new skills and technologies for the productive sector;
-NIP's contribution to structural adjustment: 10% of the NIP was utilised to reinforce the first instalment of the Structural Adjustment Facility.

The urgent need to reorganise the economy naturally makes structural adjustment assistance one of the main priorities in EC/Zambia cooperation. With this in view, the following programme has been agreed upon between the Government of Zambia and the EC:

-Framework: to support Zambia's efforts to diversify the economy away from copper' improving economic efficiency and establishing a more stable macro-economic environment. These policies will aim at improving the mobilisation and utilisation of domestic resources and restoring internal and external balances by pursuing appropriate fiscal, monetary and trade policies;
-Objectives: provision of foreign exchange for imports to support the adjustment programme and to reinforce the measures laid down in the NIP. The resulting counterpart funds are to be allocated to the central budget mainly in order to allow increases in the agreed budgeted expenditure, particularly for education and health;
-Strategy: The volume and the nature of the EC's support to the Zambian Structural Adjustment Programme results in a critical mass which requires a concomitant effort to ensure efficient utilisation. Hence, the EC's inherent strategy is being developed along the following lines: improvement of the analysis of the short-term evolution of the Economic Recovery Programme (ERP); improvement of the influence of medium/ long-term adjustment objectives on short-term policies; monitoring the social impact of adjustment; improving public finances management; supporting monetary sector reform and monitoring.

2. Unprogrammed A;d

SYSMIN

A Sysmin loan amounting to ECU 55m was awarded to Zambia in 1982 and another amounting to ECU 28m was awarded in 1986. These were aimed at rehabilitating the production facilities owned by Zambia Consolidated Copper Mines (ZCCM) in order to improve costs of production. The resulting counterpart funds (CFs) have been integrated into a Social Fund aimed at improving living conditions of the population in the mining areas.

In view of Zambia's eligibility for Sysmin III funds, a grant of ECU 60m was awarded in 1992. The purpose of the inherent programme is to support the current structural adjustment programme, by assisting in the diversification away from dependency on copper, hence reinforcing the LomV balance-ofpayments support. The consequent GIP will come in support of trade liberalisation and of the development of the nontraditional productive sector. The resulting CFs are intended to be used for covering expenditure in the social sectors, for budget lines directly linked to the privatisation process now under way, or for paying off public debt vis-is the banking sector, thereby allowing an easing of credit availability to the private sector.

Emergency aid and aid for refugees

Under Articles 203 and 204 of LomII, Zambia was granted the funding of a major Solid Refuse Disposal Programme in Lusaka, included in the overall national programme aimed at controlling a cholera epidemic in the capital and with funding for the upgrading of the Petauke-Ukwimi Road.

Food aid

At the end of 1990, Zambia was deemed to be ineligible to receive more food aid from the EC, because of nonpayment for deliveries to parastatals during previous operations. Nevertheless, considering the severe drought that devastated the country at the beginning of 1992 (probably the worst to afflict the region this century) and the democratisation process being undertaken, the EC decided to come to the support of Zambia, making the following available:

The total value of the current food aid operation amounts to ECU 39m, a part of which has been donated to Zambian NGOs and the World Food Programme for free distribution.

Financial table

3. Regional cooperation

As one of the 19 members of the Preferential Trade Area for Eastern and Southern African States (PTA), Zambia is a co-beneficiary of the framework of cooperation agreed between the EC and the PTA. This cooperation is focused on activities leading to economic integration in the sub-region, in particular addressing the issues of obstacles to trade, transport and cross-border investment, with emphasis on trade facilitation.

Zambia is also a co-beneficiary of EC cooperation with the Southern African Development Community (SADC), which acts on behalf of its member states as regional coordinator in the programming of EC cooperation. In this framework, the areas of concentration are transport and communications, food security, agriculture and natural resources.

4. European Investment Bank (EIB)

Under the Lom, II and III Conventions, the EIB accorded to Zambia and Zambian companies a total of 12 loans at concessional rates amounting to ECU 71.6m of which ECU 42m was out of the EIB's own resources with a significant interest subsidy financed by the EDF. Risk capital operations utilising EDF risk capital funds under EIB management, amounted to ECU 29.6m.

Under LomV, the EIB earmarked an amount of ECU 35m for the possible financing of projects and programmes in the sectors of industry, agro-industry, tourism, mining, energy, transport and communications. N.A.