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2. Zambias Infrastructure: A Continental Perspective

3. Africa Infrastructure Country Diagnostic: a multi-stakeholder effort

4. Methodology and approach Methodology Data collection by local/international consultants and Bank staff based on standardized methodology Baseline year for data is 2006, does not reflect subsequent evolution Approach Focus on benchmarking Zambias infrastructure against African neighbors Benchmarking group includes Resource Rich Countries (RR), Middle Income Countries (MIC), South African neighbors, and regional outliers

5. Why infrastructure matters?

6. Despite Zambias strong economic growth, infrastructures contribution has been relatively low Changes in growth per capita due to changes in infrastructure (2001-5 vs. 1991-5)

7. Raising Zambias infrastructure to level of African leader could add 2.2 points to per capita growth rate Potential changes in growth per capita from improving infrastructure to level of African regional leader (Mauritius)

8. Key Message #1 Infrastructure has the potential to contribute more to Zambias infrastructure than it has in the past

9. The State of Zambias Infrastructure

10. Zambias power network

11. Benchmarking highlights exceptionally low power tariffs and levels of electrification UnitResource RichZambiaMIC Installed power generation capacityMW/mil. people 43.17 154.9 798.6 Power consumptionkWH/capita 205.68 771.0 4,479.3 Power outagesDay/year 14.52 49.8 5.9 Firms reliance on own generator% consumption 44.92 19.5 10.9 Firms value lost due to power outages% sales 6.99 3.7 1.6 Access to electricity% population 46.05 20.1 59.9 Urban access to electricity% population 79.41 50.0 85.2 Rural access to electricity% population 28.03 3.5 31.8 Growth access to electricity% population/year 2.38 0.3 1.5 Revenue collection% billings 81.07 96.5 100.0 System losses% production 25.80 12.0 10.1 Cost recovery% total cost 53.94 39.1 100.0 Total hidden costs as % of revenue% of revenue 168.29 93.3 0.1 US centsZambiaPredominantly Hydro Generation Other Developing Regions Effective power tariff (residential at 100 kWh) 2.910.27 5.0 – 10.0 Effective power tariff (commercial at 100 kWh/mo) 4.411.73 Effective power tariff (industrial at 50,000 kWh) 2.911.39

12. Zambias power prices are the lowest in Africa, and also look low by global standards Power tariffs in other developing countries: lower bound Power tariffs in other developing countries: upper bound

13. Zambias power tariffs appear in line with operating costs but far from long-run capital costs

14. Hidden costs of power utilities are high due to underpricing

15. Access to power highly inequitable making any subsidies to sector highly regressive

16. No affordability problems for those with access, nor even many of those without

17. Key Message #2 Meeting future power demands and raising electrification will be difficult without higher power tariffs

18. Road network traffic concentrated between Lusaka and Copper belt

19. Main trunk network in good condition except in outlying areas

20. Benchmarking indicates possible over-engineering of paved network in contrast to poor unpaved network UnitResource RichZambiaMIC Paved road densitykm/1000 km2 97.656.3146.8 Total road network density km/1000 km2 of arable land 128.295.0257.8 GIS Rural accessibility % of rural pop within 2 km from all-season road 19.716.822.9 Over-engineering % of main road network paved relatively to low traffic 15.065.0 20 Paved road traffic Average Annual Daily Traffic 1408.2736.62558.3 Unpaved road traffic Average Annual Daily Traffic 54.245.214.9 Paved network condition % in good or fair condition 67.98382.0 Unpaved classified network condition % in good or fair condition 61.42157.6 Perceived transport quality % firms identifying as major business constraint 27.410.64.8

21. Zambia has secured resources to cover road maintenance and rehabilitation needs of main road network

22. Levels of road sector spending are high in absolute terms and relative to GDP

23. Key Message #3 Strong budget envelope and apparent over-engineering of main roads suggests potential to shift resources to under-served rural roads

24. Zambias rail sector is a critical input for a minerals based economy

25. Benchmarking indicates low traffic density and relatively poor performance in terms of efficiency Country Zambia Angola Botswana Malawi Namibia S. Africa Zimbabwe Railway RSZ TAZARA CFM BRC CEAR TransNami b Spoornet ZR Concessioned (1)/ State run (0) 10001000 Traffic Density, Freight, 1000 ton- km/km 4064614698276624752427902 EFFICIENCY: Staff: 1000 UT per Staff 5023391211052813585736 Coaches: 1000 passenger-km per coach 3286nav40452391750nav Cars: 1000 ton-km per wagon 377nav950987476805913195 Locomotive Availability in % 25nav30411325338 TARIFFS: Average Unit Tariff, Freight, US cents/ton-km 4.9nav32.45.8nav Aver. Unit Tariff, Passenger, US cents/passenger-km 3.9nav11.31nav

26. Railway institutional reform scores relatively low indicating need to further develop supervision

27. Key Message #4 Improving supervisory framework could help to boost performance of rail concession

28. Concentrated potential for large scale irrigation with modest returns Simulated location of potential LARGE scale irrigation schemes

29. Simulated location of potential SMALL scale irrigation schemes Scattered potential for small scale irrigation with higher returns

30. Benchmarking indicates tendency to focus on higher end solutions and poor utility performance UnitResource Rich ZambiaMIC Access to piped water% pop 12.0 18.352.1 Access to stand posts% pop 12.6 15.618.9 Access to wells/boreholes% pop 49.0 46.96.0 Access to surface water% pop 23.7 19.013.0 Access to flush toilets% pop 1.6 18.140.8 Access to improved latrines% pop 6.4 1.61.4 Access to traditional latrines% pop 54.8 53.130.4 Open defecation% pop 27.6 27.014.3 Domestic water consumptionliter/capita/day per population served 90.3 80.7187.6 Urban water assets in need of rehabilitation % 42.0 25.0 Revenue collection% sales 69.768(*)100 Distribution losses% production 43.6 44.9 27.4 Cost recovery% total costs 55.6 65.4 80.6 Labor Costsconnections per employee 95.7 98.8210.8 Total hidden costs as % of revenue% 286.7 311.41854.2 US cents per m3Zambia Scarce water resources Other Developing Regions Residential tariff 48 60 3.00 – 60.00 Non-residential tariff 59 120 (*) Average of 3 providers

31. Dramatic urban – rural gaps and apparent declining coverage of piped water with increases elsewhere

32. Strong expansion of wells and boreholes, but worrisome increase in use of surface water

33. Expansion of sanitation options below the SSA average and troublesome expansion of open defecation

34. Hidden costs of Zambias water utilities are the highest in the region As of 2005

35. Key Message #5 Greater attention to sanitation and rural services needed, opportunity to harness new resources by improving efficiency

36. Zambias ICT network very tightly clustered around economic centers

37. Benchmarking indicates relatively low GSM coverage and relatively high price of calls Source: Preliminary results AICD 2008 UnitResource Rich ZambiaMIC GSM coverage% population 66.953.0 85.1 International bandwidthMbps/capita 4.04.4 104.0 Internetsubscribers/100 people 0.10.2 3.0 Landlinesubscribers/100 people 19.38.5 34.8 Mobile phonesubscribers/100 people 11.420.9 30.0 Labor productivitySubscribers/employee 405.1505.8756.8 Quality of serviceFaults per 100 main lines 82.490.850.8 ZambiaWithout Submarine Cable Other Developing Regions Price of monthly mobile basket14.611.19.9 Price of monthly fixed line basket8.913.6nav Price of 20-hour Internet package81.568.011.0 Price of a 3-min call to US5.52.62.0 Price of inter-Africa tel. calls, mean1.190.7

38. High international call charges driven both by technology and market power US$Percent cases Call within SSA Call to USA Internet dial-up Internet ADSL Without submarine cable 67%1.340.8668283 With submarine cable 33%0.570.4847111 monopoly on international gateway 16%0.700.7237120 competitive international gateway 16%0.480.233798

39. Some potential for private expansion of GSM coverage and only minimal need for subsidy

40. Key Message #6 Further competition across the board is needed to drive down prices and expand access

41. The AICD Financial Framework

42. 100% 80% 60% 40% 20% Efficiency gap Increasing cost recovery Improving operational efficiency $7.5 Spending budgeted resources $1.9 Prioritizing public spending $3.3 Existing spending 0% Spending needs All figures in US$ billion a year Funding gap

43. Key Message #7 Zambia needs to spend around US$16 billion over the next decade to catch-up with the rest of the developing world

44. Economic targetSocial target ICT Fiber optic links to neighboring capitals and submarine cable Universal access to GSM signal and public broadband facilities Power 1,700MW refurbished capacity, 1,700 MW new generation OR, 7,500 MW inter-connectors Electricity coverage of 24% (50% urban and 15% rural) Transport Regional connectivity by good quality 2 lane paved road National connectivity by good quality 1 lane paved road Rural Accessibility Index 100% for high value agricultural land, Urban popn within 500m paved road WSS Na. Achievement of MDG for water and sanitation Illustrative infrastructure targets over next ten years

45. US$ bn paCapitalO&MTotalPercentage ICT 13286 21814% Power 53299 63139% Transport 145144 28918% WSS 317154 47129% Total 1,1264831,609100% To meet these targets, Zambia would need to spend US$1,609 million a year for the next decade Trade expansion: 472

46. Burden of financing needs is substantial for Zambia at 15 percent of GDP

47. Key Message #8 Zambia already spends US$0.7 billion a year on infrastructure

48. Existing financing flows to Zambia, US$ million per year O&MInvestment Total Public ODANon-OECDPPI* Total Investment ICTNa. 108990 Power997028081180 Transport99855263145245 WSS35674719123158 Total 2332249915101439673 Zambias spending mainly domestically financed though with significant contributions of ODA, PPI (*) Includes household self-financed investments in sanitation

49. Existing infrastructure spending in addressing needs is moderate at 6 percent of GDP

50. Key Message #9 Zambia faces an efficiency gap worth US$0.3 billion a year

51. Efficiency gap of US$315 million a year, much of it associated with under-pricing of power

52. Key Message #10 Zambia faces a funding gap worth US$0.5 billion a year

53. Funding gap of US$500 million a year, mainly in power and water

54. There is a funding gap of US$500 million a year mainly in power and WSS US$ mn paICTPowerTransportWSSTotal Needs(218)(631)(289)(471)(1,609) Spending90++180245158673 Efficiency GapNa.1605996315 (GAP) or surplusNa.(291)15(217)(493)

55. What approaches can be taken to close the funding gap? Greater reliance on low cost technologies Costs of reaching MDGs could be reduced by US$218 million pa Power from DRC could (eventually) lower costs by US$160mn pa More appropriate road standards could lower costs by US$80mn pa Otherwise it may simply be a question of taking more time to reach the targets Holding spending constant but capturing efficiency gains, targets could be reached within 15 years Holding spending constant but NOT capturing efficiency gains, targets would take more than 30 years to reach

56. Final Conclusions

57. Policy measures Certain cross-cutting themes emerge Relatively little attention paid to the rural sector Need to focus on soft (policy, institutional) issues Key issues in each sector Power – financing expansion through greater cost recovery Roads – shifting emphasis towards unpaved network Rail – strengthening regulation to improve performance WSS – capturing inefficiencies and remembering sanitation ICT – boosting competition to raise access and lower prices

58. Final Message Zambias infrastructure situation is far more hopeful than that of many other African countries