for official use only - world bank...years to finalize a suitable agreement for the pcbs to resume...

Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No:. 20279

IMPLEMENTATION COMPLETION REPORT

ZAMBIA

AGRICULTURAL MARKETING AND PROCESSING INFRASTRUCTURE PROJECT(Cr. 2422-ZA)

April 5,2000

Rural Development OperationsEastern and Southern Africa

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed without WorldBank authorization.

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CURRENCY EQUIVALENTS

At Completion US$1 =ZK 2,550.00At Appraisal US$1=ZK 125.0

FISCAL YEAR OF BORROWER

Government of ZambiaJuly 1- December 31

ABBREVIATIONS AND ACRONYMS

AfDB African Development BankAMIC Agricultural Market Information CentreASIP Agricultural Sector Investment ProgramBOZ Bank of ZambiaDCA Development Credit AgreementGRZ The Govermment of the Republic of ZambiaIDA International Development AssociationLIBOR London Inter-Bank Offered RateMAFF Ministry of Agriculture, Food and FisheriesMLGH Ministry of Local Government and HousingMMAP Marketing Management and Assistance ProjectMOF Ministry of FinancePC Project CoordinatorPCBs Participating Commercial BanksPIU Project Implementation UnitPPF Project Preparation FacilityROADSIP Road Sector Investment ProgramRTS Roads Training SchoolTA Technical AssistanceZABS Zambia Bureau of StandardsZAMPIP Zambia Agricultural Marketing and Processing Infrastructure Project

Vice President :Callisto E. MadavoCountry Director :Michael N. SarrisSector Manager :Sushma GangulyTask Team Leader :Tekola Dejene


ZAMBIA


Table of Contents

Preface ..................................................................... iEvaluation Summary .................................................................... iii

PART I: PROJECT IMPLEMENTATION ASSESSMENT .....................................................1A. STATEMENT/EVALUATION OF OBJECTIVES .....................................................1B. ACHIEVEMENT OF PROJECT OBJECTIVES .........................................................3C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THEPROJECT ...................................................................... 4

General ...................................................................... 4Private Sector Development .................................................................... S5Rural Roads Rehabilitation and Maintenance ..........................................................7Market Development and Monitoring ...................................................................... 8Policy Reform Package ...................................................................... 9Technical Assistance and Training ..................................................................... 9Project Organization and Management .....................................................................9Procurement .................................................................... 10Project Costs and Financing .................................................................... 11

D. PROJECT SUSTAINABILITY .................................................................... 11E. BANK PERFORMANCE .................................................................... 11F. BORROWER PERFORMANCE .................................................................... 12G. ASSESSMENT OF OUTCOME .................................................................... 12H. FUTURE OPERATIONS ..................................................................... 131. LESSONS LEARNED .................................................................... 13

PART II: STATISTICAL TABLES ..................................................................... 15Table 1. Summary of Assessments .15Table 2. Related Bank Loans/Credits .. 17Table 3. Project Timetable .17Table 4. Credit Disbursements: Cumulative Estimated and Actual . .18Table 5. Key Indicators for Project Implementation .18Table 6. Key Indicators for Project Operation .19Table 7. Studies Included in Project .19Table 8A. Project Costs .............................................. 20Table 8B. Project Financing ............................................... 21Table 9. Economic Costs and Benefits .............................................. 21Table 10. Status of Legal Covenants ............................................... 22Table 11. Compliance with Operational Manual Statements .............................. 23Table 12. Bank Resources: Staff Inputs .............................................. 23

Table 13. Bank Resources: Missions ............................. 24

APPENDICES

A. AIDE MEMOIREB. REVIEW OF RURAL ROAD COMPONENT

Map - IBRD No. 23688


ZAMBIA

AGRICULTURAL MARKETING AND PROCESSING INFRASTRUCTURE PROJECT

(Cr. 2422-ZA)

Preface

This is the Implementation Completion Report (ICR) for the Agricultural Marketing andProcessing Infrastructure Project, for which Credit 2422-ZA in the amount of SDR 24.1 million(US$ 33 million equivalent) was approved on September 8, 1992 and made effective on May 28,1993.

The Credit was closed on June 30, 1999, as originally scheduled. About 64% of the Creditwere disbursed by the end of November 1999.

The ICR was prepared by a mission from the FAO/World Bank Cooperative Program (CP)on behalf of the Africa Rural Development Operations (AFTR1) of the World Bank. The ICR isbased on information obtained from the project files and on the findings of an ICR mission ,which visited Zambia in September 1999. The Borrower contributed to the ICR by preparingDraft Completion Reports on the Credit and Road Components, and providing input to the Aide-Memoire prepared by the ICR mission. The borrower also reviewed the draft ICR and sentofficial written comments. Some of these comments are taken into account in the finalpreparation of the report.

Messrs. Pietros Kidane (Mission Leader/Economist, CP), and Tim Jackson (Rural Infrastructure Engineer,Consultant).


ZAMBIA

AGRICULTURAL MARKETING AND PROCESSING INFRASTRUCTURE, PROJECT (Cr.2422-ZA)

Evaluation Summary

Introduction

1. Since the 1970s, Zambia's economy has been deteriorating progressively due to thecombined effects of declining copper prices and rising oil prices. Substantial Governmentcontrol and intervention in the economy, leading to a major crisis in the late 1980s have furtheraggravated this. In order to reverse the trend, the Government of the Republic of Zambia (GRZ)decided to overhaul the economy, and, in 1990, prepared a Policy Framework Paper that pavedthe way for a sweeping reform program. The main focus of this program, supported by theWorld Bank and the International Monetary Fund, was economic liberalization, including thedecontrol of prices, exchange rates and domestic and foreign trade, reduction of budget deficit,and increased participation of the private sector in the economy. In the agricultural sector, thereform aimed at eliminating subsidies and public sector monopoly in the marketing of maize andother agricultural commodities, and in processing.

2. The Zambia Agricultural Marketing and Processing Infrastructure Project (ZAMPIP)aimed at increasing agricultural production by supporting the economic reform program. Themain project objectives were to assist with reforn of the highly regulated financial sector andinefficient agricultural marketing and rural transportation systems. Project components includedprovision of credit for marketing of inputs and outputs, maize milling and rural transport;improvement of some 1,000 km of rural roads; market development comprising establishment ofan information center and introduction of grading and standards for agricultural commodities;technical assistance to support project implementation; and a policy reform package to acceleratethe reform program. The project, to be implemented over six years, was to be executed throughexisting line agencies, with a Project Implementation Unit (PIU) in the Ministry of Agriculture,Food and Fisheries (MAFF) providing project coordination.

Project Implementation and Results

3. When the project was declared effective in May 1993, only two components startd ontime, i.e., the policy reform package and the credit component. GRZ began the reform processbefore ZAMPIP became effective, and by the second year, the major objectives had beenachieved. The project played an important role in restructuring the agricultural sector byensuring that the conditionalities (restructuring of Commercial Banks and financial institution,ensuring cooperatives autonomy by law, liberalization of maize markets and prices, liberalizatioi

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of fertilizer markets, market-determined interest rates) incorporated in the Development CreditAgreement (DCA) were adhered to.

4. The credit component had commenced promptly, and within the first six months, a short-term loan of K 3.1 million (US$ 6.86 million) was disbursed to private traders to support the1992/93 maize marketing season. This season yielded a bumper maize harvest, posing a severetest for the privatized market operating for the first time without the co-operative unions, whichhad formerly operated a monopoly on behalf of GRZ. However, this promising start was short-lived as no credit was disbursed during the following three years. According to the ParticipatingCommercial Banks (PCBs), lending became impossible because of high interest rates caused bymeasures introduced by the Bank of Zambia (BOZ) to control money supply. It took about threeyears to finalize a suitable agreement for the PCBs to resume lending operations. By mid-1997,thirteen medium-term loans, amounting to US$ 4.05 million, were approved, mainly forproducing high value crops and for agricultural processing. While the demand for creditcontinued to grow, IDA decided to close the line of credit in mid-1 997, and transfer theremaining funds to the rural road component, which was then performing satisfactorily. Thedecision to cancel the credit component was made in part due to the slow disbursements in theearly years, and mainly on the assumption that the new IDA-supported project, the EnterpriseDevelopment Project (EDP) would provide the services that the private sector developmentcomponent of ZAMPIP was to provide. However, the timing was unfortunate, as the problemwas resolved after a new agreement was made between BOZ and PCBs.

5. Although a first phase road program had been prepared with the assistance of an IDAProject Preparation Facility (PPF) in 1992, road improvement works began only in January 1996.This was mainly due to a change of institutional responsibility for rural roads from the Ministryof Works and Supply (MWS) to the Ministry of Local Government and Housing (MLGH).Delays arose because MLGH took long to prepare a Rural Roads Policy Statement, one of theconditions for disbursement in the DCA. The MLGH, soon after assuming this responsibility,embarked on the preparation of a sector-wide road program and the preparation of the RuralRoad Policy was tied to this new initiative rather than ZAMPIP, and the condition was not metuntil the appraisal of the road sector program (ROADSIP) in the latter part of 1996. The firstphase road program, consisting of 550 km of road rehabilitation, was completed in December1997. A second phase program was prepared in 1997, comprising a further 240 km of roadimprovement, and training of road rehabilitation and maintenance contractors in labor-basedroadwork. However, the second phase road rehabilitation was not carried out due to slowprocurement of civil works. The training program was also not completed, because the MAFFwas not able to make payments on time to the training providers.

6. The market development and monitoring component was not implemented, because aprogram identical to that of ZAMPIP had started in early 1993 with the assistance of FAO andthe Government of the Netherlands. This program had established an Agricultural MarketInformation Center (AMIC), and is now operational within the MAFF, supported through ASIP.The establishment of grading and standards of agricultural outputs and inputs was not realizedbecause the Zambia Bureau of Standards (ZABS) failed to secure a laboratory building forproject equipment.

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7. As noted in the preceding paragraphs, ZAMPIP was impacted by developments thataffected its ability to implement planned activities. First, the project started in the midst offundamental economic and political changes in the country, including the advent of a newgovernment and the consequent restructuring of Ministries. Second, the project startup andsubsequent implementation coincided with the formulation and implementation of major nationalprograms and projects. FAO and the Government of the Netherlands supported the marketdevelopment and monitoring component and, the ASIP assumed the responsibility for thiscomponent after the FAO/Netherlands assistance ended in 1997. ASIP, which became effectivein January 1996, was formulated as the umbrella program for the agricultural sector. Althoughnot by design, ASIPs advent coincided with a diminished role for ZAMPIP, and reduced projectidentity. This is evidenced by the fact that only one formal IDA supervision mission was carriedout in 1995 and none in 1996, although 4 informal portfolio status updates were done by the taskteam during this period, and the joint GRZ/IDA mid-term review was not undertaken. Theformulation and implementation of IDA-supported EDP was also a factor for the closure of theline of credit and the reallocation of funds to another component, in addition to the component'spoor implementation record. The government, through MLGH, also embarked on theformulation and implementation of an integrated road sector program, with the goal offacilitating economic growth and diversification, and reforming the road sector policy andinstitutional framework. This created an expectation that the ZAMPIP project will be part of theROADSIP program and, therefore, MAFF paid little attention to the project. These actions werea conscious effort by Government and the Bank to overcome weaknesses in project approach todevelopment.

8. ZAMPIP also suffered from poor management. Under ASIP, the MAFF abandonedimplementation arrangement under PIUs. Project implementation responsibility was that ofdepartments within the structure of the Ministry. Therefore, procurement, financial managementand audit responsibility of the project was transferred to different units/departments of theMinistry. Moreover, there was no mechanism within which the various implementing agenciesand units within the MAFF could discuss and plan project activities and address policy issues. Inaddition, since the project became an integral part of MAFF, other implementing agencies feltexcluded and there was little interaction and coordination.

Achievement of Objectives

9. The project has only achieved some of its original objectives. The main achievement hasbeen in the area of policy reform, as the project was instrumental, together with other donors'support, in encouraging GRZ to continue implementation of the reform program in theagricultural sector. These included the liberalization of prices for all agricultural commoditiesincluding maize and fertilizer; elimination of monopoly rights to agricultural marketing grantedto the co-operative unions; removal of subsidies on agricultural inputs and outputs and on maizetransport and processing; the restructuring of MAFF, particularly, the gradual phasing out of theCo-operative Department formerly involved in agricultural marketing on behalf of GRZ, andfinancial sector reform.

10. Unfortunately, the PIU failed to establish an effective monitoring and evaluation system,and consequently, one has to rely on other sources of information to assess achievements of theproject. The agricultural sector was generally depressed during most of the project

v

implementation period, but the project has helped to minimize the negative impact on both theoverall economy and the sector. The reform in the liberalization of markets and theencouragement of private sector participation in output and input trade is one of the majorachievements. Although the short and medium-term impact has been dampened by adverseweather conditions in subsequent years, the reforms has opened the way for a substantialdevelopment of agriculture, enabling the sector to adjust to changing national and internationaldemand, as well as enabling the private sector to position itself to play a critical role inagricultural development. In particular, the project provided timely assistance to prevent thecollapse of the maize market when this was privatized in 1992/93. In terms of improvingmarketing and processing infrastructure, the project made little impact, because relevantcomponents were not implemented as intended.

Project Costs and Financing

11. Total project costs amounted to US$ 24.36 million, equivalent to about 36% of appraisalestimates. The lower costs were mainly due to major changes introduced to the project, whichentailed the transfer of components and donor funds to other projects. Total IDA disbursementamounted to US$ 21.11 million (64% of the Credit) and about US$ 12.71 million remainundisbursed. IDA financed 87% of the total costs, and GRZ the remaining13%.

Bank Performance

12. The Bank's decision to assist GRZ in the implementation of the economic reform programin the agricultural sector was a sensible initiative, which has led to a major reduction in publicsector involvement in marketing and processing of agricultural commodities. The Bank has beenpro-active in identifying emerging issues and designing new programs/projects that areresponsive to the demands of the complex and dynamic situations that were emerging in Zambia.The sector approach was implemented in the health, education, road, and agriculture sectors.The Enterprise Development Project was also implemented to address issues pertaining tofinancial sector reform and financial services. All these are rather positive actions by the Bankand the Government, although it had, by necessity, to disrupt the implementation of individualon-going projects in each sector, such as ZAMPIP. In spite of this, however, overall Bankperformance has been partially satisfactory. The main reasons for this assessment are mainlydue to weaknesses in project design, particularly, the weak atrangement for projectimplementation; the inflexibility of the medium-term loans, which carried a term of three yearsregardless of the type of business; unrealistic expectations for labor-based road contracts, in theabsence of any existing capacity in the country; and, unresolved institutional responsibility forrural roads at the time of project start up. Moreover, the Bank's performance in terms ofsupervision was inadequate, although supervision had improved within the last two years of theproject.

Borrower Performance

13. The Borrower's determined implementation of the economic reform program in the initialyears of the project was commendable. Equally, GRZ's readiness to resolve difficulties relating-

vi

to the credit component helped to improve the flow of funds. However, in spite of theseaccomplishments, overall performance of the Borrower has been deficient, largely becauseGRZ's commitment to the project has progressively declined with the formulation andimplementation of ASIP, EDP and ROADSIP.

Project Outcome, Sustainability and Future Operations

14. First, the project has met only a limited part of its objectives. As already noted, mostproject components were either transferred to other new projects (ASIP, ROADSIP, EDP), orsubstantially modified during the course of implementation. The establishment of amarket-based economy, with a liberalized agricultural sector, has largely been achieved. Thepolicy packages introduced by the project has resulted in greater private sector participation,including increased share of agriculture in total export earnings and diversification of production.Albeit limited, the credit extended under the project should contribute to increased agriculturalproduction and foreign exchange earnings. The reduced road rehabilitation program is believedto have improved rural transportation in some parts of the three provinces. Second, it is likelythat the few activities (e.g., policy reform, marketing and credit ) carried out by the project willbe sustainable, with the exception of the road component. Most of the private sector agriculturalproduction and processing enterprises supported by the project are believed to be sustainableventures. The sustainability of the road component of the project is, however, uncertain. This isbecause the institutional framework put in place under ROADSIP for the maintenance andrehabilitation, as well as the funding mechanisms are yet to be implemented, and hard to tell theoutcome. The uncertainty could improve if ZAMPIP's initiative of using local rehabilitationcontractors, which is under review, is fully implemented by ROADSIP. Concerning policyreform that took place over the years, it is likely to be sustainable and there is very little risk ofreversal in many of the areas. Third, as stated in earlier paragraphs, the activities/components ofZAMPIP are taken over and being supported by new on-going projects.

Lessons Learned

15. Important lessons that emerge from the implementation of ZAMPIP are:

In projects where there are several implementing agencies, it is appropriate tohave an inter-ministerial coordinating body, in which all the implementingagencies are represented, to discuss implementation progress and issues. Thelack of such an arrangement was one of the main causes for the poorimplementation of ZAMPIP.

Unilateral closing of a project component, as experienced with the line ofcredit, is not advisable. This discourages both PCBs and borrowers alike fromdealing with similar credit schemes in the future, as they tend to loseconfidence in the institutions.

Sufficient number of senior, competent, motivated, and project-specific staffare required for effective implementation of a project. Staff and other changes,which diffuse and reduce responsibilities for project management, will have anadverse effect on project performance. The project has suffered from

vii

unsatisfactory management by MAFF, and to a lesser extent, MLGH inensuring a timely and adequate flow of funds to implement the project.Continuity in project management and in project supervision, in the side of theBank, is also very critical, and was lacking under this project.

Setting up a project monitoring and evaluation system and maintaining thesystem through out the project is critical in order to enable project managementto check and assess implementation. The neglect by the project in setting upthe monitoring and evaluation system as envisaged has resulted in poorassessment of implementation progress and, hindered assessment of impact.

Road maintenance design should include sufficient resources and practicalarrangements for maintenance and rehabilitation, and should address the issueof how these resources will be generated (or sustained) after projectcompletion. Without assured maintenance, the pre-project situation of severeneglect will recur within a few years, as observed under the project.

When decisions to implement national programs, instead of projects, is made, itis appropriate to fold existing self-standing projects into the national programwithin a reasonable period of time, to avoid the kind of neglect the ZAMPIPproject encountered.

viii


ZAMBIA


PART I: PROJECT IMPLEMENTATION ASSESSMENT

A. STATEMENT/EVALUATION OF OBJECTIVES

1. In the early 1990s, the Government of the Republic of Zambia (GRZ) introduced a majorreform program to improve the performance of the country's ailing economy. In this context,GRZ prepared a Policy Framework Paper in 1990 with the support of the World Bank and theInternational Monetary Fund. The main thrust of the reform program was economicliberalization, which included: removal of price and exchange rate controls; elimination ofrestrictions in the import and export trade; reduction of budget deficit and domestic inflation;introduction of monetary policy measures to adjust interest rates; and implementation of aprivatization program to improve efficiency and the participation of the private sector in theeconomy.

2. Within the agricultural sector, the reform priorities included promoting private sectorparticipation in marketing of agricultural inputs and outputs, and in agro-processing, which wereboth previously dominated by the public sector. This was to be achieved by eliminating pricecontrols, subsidies and restrictions on foreign trade; reducing public expenditure in agricultureby removing subsidies on maize, fertilizer and transport of agricultural commodities; andpromoting private sector participation in agricultural production, processing and marketingthrough improvements in market information, rural transport and credit. The main areas ofsupport to achieve these objectives include:

Private Sector Development, consisting of the provision of investment andworking capital credit for private enterprises, traders, farmers, roadcontractors and transport operators. This support was expected to enhanceprivate sector participation in agricultural marketing, processing and ruraltransport. Newly privatized enterprises were also to receive technicalassistance (TA) in business management.

- Rural Roads Rehabilitation and Maintenance, whose main thrust was torehabilitate 1,000 km of rural roads through labor-based contracts, and tostrengthen maintenance capacity in Southern, Lusaka and Central Provinces.

- Market Development and Monitoring, consisting of the collection, analysisand dissemination of market information; provision of training to individualprivate traders; and establishment and monitoring of standards and grading for-maize, animal feed and other agricultural commodities.

- Technical Assistance to support implementation of the above components.

- Policy Reform Package to expedite reforms already initiated, and ensure, inparticular, the decontrol of maize prices, elimination of maize marketingsubsidies, liberalization of export marketing of maize, eliminatio9n f fertilizersubsidies by decontrolling prices at all level, decontrol road transport rates formaize and fertilizer, amend the cooperative Act and Agricultural MarketingAct to reflect their autonomy, establishing leasing arrangement for governmentowned storage facility and privatization of maize mills. This package consistedof conditionalities that bind GRZ to introduce measures required to implementthe reform program.

3. The project, to be implemented over six years', was estimated to cost US$68.0 million(K8,500 million), of which foreign exchange comprised about 45%. Some 51% of project costswere to be absorbed by the private sector development component, and 30% by the roadcomponent. The project was to be financed as follows: 49% IDA, 18% the African DevelopmentBank (AfDB), 23% GRZ, and 10% by commercial banks and beneficiaries.

4. The project was to be implemented by several existing agencies including: the RoadsDepartment of the Ministry of Works and Supply for the road component; the Ministry ofFinance (MOF) for the TA in business management for private enterprises; the Bank of Zambia(BOZ) and the Participating Commercial Banks (PCBs) for the credit component; the ZambiaBureau of Standards (ZABS) for standards and grading; and the Ministry of Agriculture, Foodand Fisheries (MAFF) for market development, monitoring and training. These implementingagencies were to be responsible for planning, execution, monitoring and reporting for theirrespective components.

5. Overall project responsibility was to be vested in MAFF, and co-ordination of projectimplementation was to be carried out by the Project Implementation Unit (PIU) of the PlanningDivision. It was envisaged that an experienced Project Co-ordinator (PC) would head the PIU toprovide co-ordination, reporting, monitoring and financial control. The PC was to be supportedby an economist, an accountant and other support staff. No inter-agency co-ordinating body wasforeseen under the project.

6. The design of ZAMPIP was correctly focused on sectoral improvements that can enhancethe emergence of a market-based economy, which was the basis of the reform program. Theeconomic situation in the early 1 990s was characterized by unsustainable public-sector activities,and project components were well suited to promote private sector involvement to improveagricultural production, marketing and processing. However, the project had some designlimitations including: the lack of inter-ministerial coordinating body in which all theimplementing agencies were represented; the inflexibility of the medium-term loans, whichcarried a term of three years regardless of the type of business; unrealistic expectations for labor-based road contracts, in the absence of any existing capacity in the country; and unresolvedinstitutional responsibility for rural roads. These design shortcomings have negatively affectedproject implementation.

The project implementation period is indicated as five years in the Staff Appraisal Report (SAR), while this4sgiven as six years in the Development Credit Agreement (DCA).

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B. ACHIEVEMENT OF PROJECT OBJECTIVES

7. The project has only achieved some of its original objectives. The main achievement hasbeen in the area of policy reform, as the project was instrumental, together with other donors'support, in encouraging GRZ to continue implementation of the reform program in theagricultural sector. These included the liberalization of prices for all agricultural commoditiesincluding maize and fertilizer; elimination of monopoly rights to agricultural marketing grantedto the co-operative unions; removal of subsidies on agricultural inputs and outputs and on maizetransport and processing; the restructuring of MAFF, particularly, the gradual phasing out of theCo-operative Department formerly involved in agricultural marketing on behalf of GRZ, andfinancial sector reform. It has to be noted that Zambia's success in implementing the reformprogram came about as a result of various measures taken by Government, and ZAMPIPcontribution to this process through the inclusion of selected reform agenda as conditions forCredit effectiveness and disbursement, and through strict enforcement.

8. Unfortunately, the PIU failed to establish an effective monitoring and evaluation system(para. 0), and consequently, one has to rely on other sources of information to assessachievements of the project. The agricultural sector was generally depressed during most of theproject implementation period, but the project has helped to minimize the negative impact onboth the overall economy and the sector. The reform in the liberalization of markets and theencouragement of private sector participation in output and input trade is one of the majorachievements. Although the short and medium-term impact has been dampened by adverseweather conditions in subsequent years, the reforms has opened the way for a substantialdevelopment of agriculture, enabling the sector to adjust to changing national and internationaldemand, as well as enabling the private sector to position itself to play a critical role inagricultural development. In particular, the project provided timely assistance to prevent thecollapse of the maize market when this was privatized in 1992/93 (para. 0). In terms ofimproving marketing and processing infrastructure, the project made little impact, becauserelevant components were not implemented as intended.

9. None of the project components was implemented as intended at appraisal. The privatesector development component was only partially implemented, and achievements have beenmodest. A short-term loan for working capital, to be given to traders and other entrepreneurs,was effectively used only once, to purchase the bumper maize harvest of the 1992/93 season.Only 13 medium-term loans were provided, mainly for agricultural production and processing,but no loans were taken to acquire trucks or light vehicles (pick-ups) for transport in the ruralareas. The provision of technical assistance in business management to private co-operatives andenterprises did not materialize (para. 0). Out of the appraisal target of 1,000 km of roadrehabilitation (later revised to 910 km), only 550 km has been accomplished.

10. The market development and monitoring component was not implemented for two reasons:(i) the activities to establish the market information system were taken up by another project, theMarketing Management and Assistance Project (MMAP) with the assistance ofFAO/Government of Netherlands; and (ii) the improvement in standards and grading ofagricultural inputs and outputs was never initiated as ZABS was unable to secure a laboratorybuilding (para. 29).

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C. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THE PROJECT

General

11. The project started in the midst of fundamental economic and political changes in thecountry, including the advent of a new government and the consequent restructuring ofMinistries. Start-up and subsequent implementation of ZAMPIP coincided with the formulationand implementation of major programs and projects in the agriculture, roads and financialsectors. In the agriculture sector, MAFF, with the assistance of IDA and other donors formulatedand implemented a sector-wide program, the Agricultural Sector Investment Program (ASIP). Asector-wide roads program, Road Sector Investment Program (ROADSIP) was also formulatedand implemented by MOLG, MCT and MWS. The MCTI also formulated and implemented theEnterprise Development Project (EDP) during the implementation phase of ZAMPIP. Theseevents have adversely affected the pace of project implementation both directly and indirectly.

12. The preparation and subsequent implementation of ASIP, which aimed at incorporating allagricultural development programs under its umbrella, affected project implementation. Becauseof ASIP's sectoral approach, both MAFF and IDA tended to de-emphasize the independentidentity of ZAMPIP. During project supervision in November 1994, it was decided to integratethe project within ASIP, though the latter became effective only after about one year, i.e., inDecember 1995. Since implementation arrangement for ASIP was through the normal structureof the Ministry and all previous project implementation units were abolished, the PIU ofZAMPIP was abolished and one of the departments of the newly structured MAFF, MarketInfrastructure Development Branch of the Economic and market Development Department(EMMD) was given the responsibility of following up the project. Since the restructuring of theMinistry was delayed until mid-1998, implementation of the project suffered during this period.This situation signaled a diminished status and role of the project within MAFF, andconsequently led to increased negligence in fulfilling required tasks. For instance, only oneformal IDA supervision mission was carried out in 1995 and none in 1996, although 4 informalportfolio status updates were carried out by the task team during this period, and the jointGRZ/IDA mid-term review, expected to take place at the end of the third year of the project, wasnever undertaken. In addition, during this period, project responsibility in the World Bank wastransferred between Divisions, which also contributed to delays in project implementation.Likewise, the frequent changes in PCs and IDA Task Managers, five different individuals in eachcase, have had negative effects on project execution. The policy reform, private sectordevelopment and market development and monitoring activities of ZAMPIP were subsumedunder ASIP and ZAMPIP stopped implementing this aspect of the project after ASIP crediteffectiveness.

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13. In the road sector, soon after project effectiveness, responsibility for rural roads wastransferred from the Ministry of Works and Supply (MWS) to MLGH', and this led to delay inimplementation until the new executing agency was settled down. When the new executingagency was about to take full charge and provide guidance, a major sector-wide road programpreparation was launched. The government, through MLGH, embarked on the formulation andimplementation of an integrated road sector program, with the goal of facilitating economicgrowth and diversification (particularly in agriculture) through appropriate investments in roadinfrastructure and through sustainable system for the financing and management of the roadnetwork. This program envisaged to reform the road sector policy and institutional framework,including changes to the legal framework for road traffic management and strengthening andrefocusing the roles of sector institutions aimed at enhancing capacity, increasing efficiency ofthe use of resources and improving planning and implementation. The idea was to bring all roadprojects under a well integrated and coordinated system of management and to ensure thatsystems of road sector financing, maintenance and rehabilitation is put in place andimplemented. This created an expectation that the ZAMIP project will be part of the ROADSIPprogram and, therefore, MAFF paid little attention to the activities of the project.

14 In an attempt to foster private sector development, the MCTI formulated the EDP with thesupport of IDA. The EDP has a lot of similarity with the private sector development componentof ZAMPIP and it was touted as a viable and sound replacement of the ZAMPIP private sectordevelopment component. Similar to ZAMPIP, the EDP was designed to support the reform byassisting the private sector to play key role in economic growth of the country. It has a multi-purpose credit facility and a matching grant component to achieve it objectives. The majordifference between the two is, EDP is not targeted to agriculture and have components, such asMatching Grant Fund, that were not envisaged under ZAMPIP.. IDA management felt that theEDP can replace the ZAMPIP credit component and was eager to get the EDP effective than toimplement the credit component under the on-going ZAMPIP.

15. Because of the above new developments, the project was modified significantly in May1997 following decisions to: (i) integrate the market development and monitoring componentinto ASIP; (ii) close the line of credit and to transfer remaining funds to the road component; and(iii) gradually integrate the road component into ROADSIP. . Consequently, from mid-1997,ZAMPIP consisted only of the road component, but project management remained with MAFFuntil early 1999.

Private Sector Development

16. This comprised provision of: (i) short-term credit for working capital; (ii) term loans forpurchasing vehicles, hammer mills and establishing storage and workshop facilities; and (iii) TAin business management for private co-operatives and commercial enterprises.

17. The short-term credit was to support the maize trade, which was being liberalized. Loanoperations began soon after the project became effective, following the finalization of subsidiaryloan agreements between BOZ and three PCBs. Disbursement commenced with a short-term

The district councils of the MLGH were already responsible for the maintenance of rural roads. However,MLGH assumed total responsibility for rural roads development in 1995, and to this effect established a fuh4fledged rural roads development unit within its organizational structure.

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loan of K 3.1 billion (US$ 6.86 million), on-lent to large traders and millers to purchase maizeduring the second half of 1993. This loan has played an important role in transferring the maizetrade from the public to the private sector, and without it, the maize market would probably havebecome chaotic. During the maize marketing season of 1992/93, most co-operative unions hadalready collapsed, and this coincided with a bumper maize harvest. Without project funds, thesefactors would have seriously disrupted the maize market.

18. Demand for loans practically ceased in the following years due to high inflation andinterest rates, and depreciation of the Kwacha, making borrowing in local currency extremelyrisky. According to the subsidiary loan agreement, the PCBs were to borrow project funds fromBOZ at its base-lending rate, which was then below the lending rates of the PCBs. In 1994,however, the relationship between these interest rates had changed because BOZ raised its base-lending rate above that of PCBs as part of its measures to control money supply. This broughtlending operation to a halt, and PCBs requested a review of the subsidiary loan agreement.Accordingly, the agreement was reviewed and the DCA amended in October 1995.'

19. The changes to the subsidiary loan agreement allowed the PCBs to borrow from BOZ inKwacha or in foreign exchange at 80% of the base lending rate and at LIBOR, respectively, withan option to repay in foreign exchange or in Kwacha at the prevailing exchange rate. Themaximum loan size was also raised from US$ 100,000 to US$ 500,000. These changesencouraged PCBs to participate, and five PCBs had signed the revised subsidiary loan agreementwith BOZ at the end of 1996, and a further three in early 1997. These changes, and the fall ofBOZ base lending rate below the commercial lending rate, stimulated demand for credit, mainlyfor medium-term loans. By mid-1997, thirteen such loans, valued at US$ 4.05 million, had beenapproved to borrowers involved in food processing, grain storage, and the production of coffee,flowers and cotton. All term loans were for a period of three years, without regard for the natureof the activity or the gestation period, thus endangering loan repayment capacity of someborrowers. No loans were provided for vehicle purchase or for farm rehabilitation, as anticipatedat appraisal.

20. Due to the decline in lending of project funds from 1994 to 1996, IDA decided to close theline of credit in mid-1997 and to transfer remaining funds to the road component. Additionalreasons for this decision were (i) formulation of a private sector development/ credit project, theEnterprise Development Project, which became effective in March 1998, and (ii) satisfactoryprogress of the rural road component, at that time. AfDB also cancelled its line of credit andtransferred the funds to another on-going project in the country.

21. Paradoxically, the cancellation of the line of credit coincided with an increased demand forloans. At the time of cancellation, loan applications more than US$ 6.0 million were awaitingfinal approval by $OZ, and a larger volume was being processed by PCBs for submission toBOZ. The closure of the line of credit interrupted the momentum finally gained, and it is takingtime to revive it under the Enterprise Development Project. At the time, it was believed thatborrowers would easily redirect their demands towards this new project, underestimating thedifficulties caused by the abrupt closure of the line of credit under ZAMPIP. Some of the

The revised agreement between BOZ and PCBs was only signed in July 1996 due to delayed communication oa-the amendments by MOF or PIU to BOZ and PCBs.

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borrowers involved in export crops were financed by an agricultural export promotion project,supported by the European Investment Bank, but those dealing in non-export crops could notaccess this facility. The implementation of the EDP was also significantly delayed and the multi-purpose credit facility was not accessible to potential borrowers until 1999.

22. Moreover, PCBs did not access the project's revolving fund, which has been accumulatingthrough loan repayments, due to lack of information. This fund, now amounting to aboutK 4 billion, remains unutilized, and its value is decreasing continuously in foreign exchangeterms. BOZ has not attempted to protect the value of this fund either by converting it intoforeign exchange or lending it in Kwacha. PCBs reported that they were not aware that theycould access the revolving fund. The availability of the revolving fund has not been advertised,and BOZ belatedly started this in 1999 when the project was closing.

23. The provision of TA, on loan basis, to private cooperatives and enterprises was notimplemented because MOF was not able to sign loan agreements with private enterprises. Atappraisal, it was anticipated that the MOF would provide interest free loan to private enterprises,after having signed a loan agreement with them. MOF was inappropriately designated as theimplementing agency for this component, as the signing of subsidiary loan agreements withprivate enterprises was not in line with the Ministry's rules. Yet, such an agreement was made acondition for disbursement for this TA.

Rural Roads Rehabilitation and Maintenance

24. Through a Project Preparation Facility by IDA, a road survey in the three project provinceswas completed before the project became effective. In spite of this, road rehabilitation did notcommence until the end of 1995 mainly due to an institutional change in responsibility for ruralroads from the Ministry of Works and Supply to MLGH, and delay in fulfilling the DCAconditions for project disbursement, namely, the preparation of a policy statement on rural roads.Although the uncertainty about institutional responsibility for rural roads was recognized atappraisal, the issue was not resolved conclusively before effectiveness.

25. As appraised, the road component was expected to rehabilitate a total of 1,000 km of roads,of which 150 km were intended for emergency repairs of critical road segments, and theremainder 850 km were to be fully rehabilitated through labor-based contracts. Moreover, theproject proposed to train 18 local contractors in labor-based techniques of road rehabilitation andmaintenance. During implementation, a first phase road program consisting of 550 km ofcomplete rehabilitation was prepared by consultants, and awarded to six road contractors. Theconcept of emergency repairs was abandoned in favor of full rehabilitation, and the use oflabor-based technology was modified to include machine-based technology due to the lack ofcontractors available to undertake works on the scale required. The first phase roadrehabilitation program started in January 1996 and was successfully completed in December1997.

26. Although the rehabilitation work under the first phase road program began late, it wasaccomplished relatively quickly, in contrast to the credit component which was stalled at thattime. Hence, GRZ and IDA decided to transfer funds from the credit to the road component inorder to maintain the momentum gained in rehabilitating rural roads. A second phase road

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program was, therefore, prepared, consisting of the rehabilitation of 240 km of roads in Luapulaand Northern Provinces'; training of 36 labor-based maintenance contractors and six roadrehabilitation contractors; training of 24 works supervisors in district councils; and procurementof equipment for the labor-based rehabilitation contractors (Appendix B).

27. Consultants prepared the design of the phase-two road rehabilitation in Luapula andNorthern Provinces, 120 km in each Province, and procurement of civil works was advertised inMay 1998. However, contracts could not be awarded because the tender evaluation completedby MAFF was not acceptable to Zambian National Tender Board (ZNTB) and the ZNTBrecommendation was not acceptable to IDA. IDA, after careful review of thesubmissions/proposals made by the bidders and the evaluation reports of MAFF and that ofZNTB, concluded that the recommendation for the award of contract is inconsistent with the biddocument and requested re-evaluation of the bids, or re-tendering of the civil work again. In themeantime, the credit closing date approached and it was decided that the package be reviewedunder ROADSIP. Under ROADSIP, the bids were re-evaluated and IDA was able to issue noobjection to four lots of civil works and one engineering supervision contract with a total valueof US$4.0 million.

28. Contractors' training program was also not completed, due to unwarranted delays in theflow of funds. In November 1997, a three-month training course for the first group of labor-based road maintenance contractors started at the Roads Training School (RTS) in Lusaka. Twoother groups were to follow successively, but due to slow payment, RTS had to interrupt thetraining program several times, delaying completion until March 1999. By this time, 44contractors and 15 works supervisors had received classroom training, but missed theopportunity to obtain on-the-job application of their training through trail contracts, as envisagedunder the program. Considering that training costs were 100% reimbursable by IDA, the delaysin payments could only be attributed to mismanagement. It has been agreed that the on-the-jobtraining will be carried out under ROADSIP. Due to the delays, the project did not begin thetraining program for road rehabilitation contractors, but candidates have been selected andsuitable equipment has been imported. Class room training program not completed underZAMPIP will now be implemented under the ROADSIP and contractors may participate in thetrial contracts provided the ROADSIP signs the addendum to the original contract with theRoads Training School at the beginning of 2000.

Market Development and Monitoring

29. This component comprised two activities: (i) establishment of a market informationsystem, and (ii) improvements in standards and grading of agricultural inputs and outputs. Themarket information system was removed from the project because implementation of a newproject, the MMAP, had started in early 1993 with assistance from FAO/Government of theNetherlands. MMAP had similar objectives to ZAMPIP, and established an Agricultural MarketInformation Center (AMIC) within MAFF. Since its inception AMIC has been involved in thecollection, analysis and dissemination of market-related information. When MMAP's supportended in June 1997, AMIC was integrated into ASIP, and is now operating as a unit of MAFF.

In mid-1997, the road component was modified to expand its coverage countrywide.

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30. Regrettably, the establishment of grades and standards for agricultural inputs and outputsunder ZABS was not implemented. This was mainly due to the delay in securing a laboratorybuilding to house the equipment to be provided under the project. The PIU decided that asuitable building was a prerequisite to the procurement of equipment and materials, andrecruitment of TA personnel. As ZABS failed to secure a building, the component stalled, and inmid-1 997 was transferred to ASIP to be implemented under its 'Standards Sub-program'.

Policy Reform Package

31. Most of the policy reform targets had been met. These included liberalizing markets foragricultural inputs and outputs; removing price controls on agricultural outputs, particularly,maize and agricultural inputs; removal of subsidies on agricultural commodities, transport,inputs, etc., and providing a new legal framework for the cooperative movement. Soon after theproject started, the remaining reform objectives were achieved, including elimination of thetransport subsidy on maize, liberalization of the import and export of maize, and privatization ofmaize milling. One area where there has been policy backtracking is in the area of fertilizerimportation and distribution, where the government continues to intervene on grounds that theprivate sector has failed to fill the vacuum created as a result of the Government withdrawal.

Technical Assistance and Training

32. As designed, the project should have benefited from substantial TA inputs, but this did notmaterialize for a number of reasons. The TA for the private sector's business support was notimplemented because MOF failed to enter business dealings with the private sector (para. 22).The TA for marketing development was no longer required after this was taken up underMMAP. The long-term TA envisaged for rural roads was also not needed, because theestablishment of provincial rural road units under the Ministry of Works and Supply, for whichthe TA was provided, became unnecessary with the transfer of the component to MLGH. Themost important consultancies utilized under the project were: (i) the engineering supervision forrural roads, which provided satisfactory professional services in overseeing the rehabilitation of550 km of rural roads; (ii) the Project Co-ordinator (June 1994 to May 1996) and the ProjectEngineer (August 1995 to September 1999), who have both performed well.

33. ZAMPIP's main training program took place within the rural road component (para. 27).The project also funded a study tour in a few African countries to learn from their experience inagricultural marketing and labor-based rural road programs. Most of the market-related trainingand studies, envisaged under the project, were provided outside the project under MMAP.

Project Organization and Management

34. Project management was characterized by an anomalous arrangement whereby the PIU ofMAFF would coordinate all implementation activities, but there was no forum for theimplementing agencies to discuss, plan and determine project implementation policy. Theanomaly arises from the fact that the PIU's authority was not fully recognized by all theimplementing agencies. The SAR states that each implementing agency will be responsible forplanning, execution and reporting of their respective components and that implementation ofeach component will be independent. To stress the PIU's limited responsibility, the SAR points-

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out that "successful implementation of each component will not depend on the coordinating roleof PIU". Yet it was expected that each agency would cooperate with the PIU, withoutacknowledging the need for a policy level committee to deliberate periodically on projectmatters.

35. The lack of such a body appears to have reduced the sense of component ownership byother ministries, as the PIU (in MAFF) remained the focal point for all communication withIDA, for the flow of funds and procurement. In order to facilitate coordination with the MLGH,Roads Department, the Project Road Engineer was assigned to physically move to the RoadDepartment, carry the technical work with the Department and liaise with the MAFF foradministrative and financial matters. After the non-road components were integrated into ASIP,the project became effectively a 'road' project, yet management remained under MAFF untilearly 1999, when it was officially transferred to MLGH. The failure to complete the secondphase road program is mainly due to poor project management, and lack of communicationbetween PIU and MLGH. PIU's lax management worsened after ASIP became operational, andwas characterized by delayed replenishment of project accounts, irregular flow of funds, delaysin direct payments to suppliers and service providers, and delays in making withdrawalapplications to IDA. PIU's difficulties were further aggravated by inefficiencies in MAFF unitsconcerned with procurement, financial management and accounting.

36. The PIU had a slow start, operating under an economist seconded from MAFF, until afull-time PC (consultant) was appointed in June 1994, after which PIU performance improvedrapidly. However, this was short-lived because, following the PC's resignation after two years ofservice, MAFF implemented a new structure that abolished all PIUs and reverted theresponsibility of projected management to departments and branches within the new structure.Under the new arrangement, the project finance was under the Financial Management Unit,procurement under the Procurement and Supplies Unit and overall follow-up of the project wasunder the Infrastructure and Market Development Branch of MAFF. Officers in the Branch wereassigned to follow up the project as PC and, as civil servants, these officers did not receive thefinancial incentive, which had motivated the former PCs, nor were they of sufficient seniorityand experience to assume a major coordination responsibility. As a result, the performance ofthe PIU (vis-A-vis ZAMPIP) soon deteriorated. Moreover, ZAMPIP had at least five differentPCs.

37. Another management shortcoming has been the failure to establish a monitoring andevaluation system in line with project proposals, to monitor activities and evaluate their outcome.Consequently, there is insufficient documentation of project activities, rendering the evaluationof project impact difficult.

Procurement

38. The major procurement items under the project were all within the road component, andcomprised the first and second phase road rehabilitation contracts, and equipment for trainingand subsequent use by local contractors in labor-based roadwork. While no difficulty wasexperienced in awarding contracts for the first phase road program, serious problems arose in thecase of the second one. This was because the Zambia National Tender Board did not accept theinitial evaluation made by the project, and made alternative suggestions, which in turn were not

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acceptable to IDA. Resolution of these problems took about eight months, hence aggravating thedelay in finalizing plans and preventing implementation before the project closing date.Procurement of training equipment was also delayed due to late payment to the suppliers byMAFF.

Project Costs and Financing

39. Total project costs amounted to US$ 24.36 million, equivalent to about 36% of appraisalestimates. The lower costs were mainly due to major changes introduced to the project, whichentailed the transfer of components and donor funds to other projects. Total IDA disbursementamounted to US$ 21.11 million (64% of the credit) and about US$ 12.71 million remainundisbursed. IDA financed 87% of the total costs, and GRZ the remainingl3%.

D. PROJECT SUSTAINABILITY

40. Project sustainability can be discussed in the context of the limited accomplishment of theproject, or the extent to which initiatives under the project are being followed-up by public orprivate sector initiatives and the sustainability of the follow on initiatives. In terms ofsustainability of the limited activities carried out by the project, it is likely that most will besustainable. Under the private sector development component, although some borrowers haveexpressed concern about the inflexibility of the medium-term loans and some have requestedrescheduling of loan repayments, most production and processing enterprises supported by theproject are believed to be sustainable ventures. The sustainability of the roads component of theproject is uncertain, as the maintenance and rehabilitation of roads, as well as the fundingmechanisms, falls within the policy framework that is adopted and implemented under theROADSIP, which is not yet tested. The policy reform that took place over the years is alsolikely to be sustainable and there is very little risk of reversal in many of the areas.

41. While it is common to see successor operation to a completed project, the ZAMPIP isunusual in that three projects that virtually replaces it were prepared and implemented beforeproject completion. The objective's of these new projects were similar to that of the ZAMPIPand, therefore, the project is being sustained through public and private sector intervention and itis very likely that his will be sustained given the kind of preparatory work done to ensure thesustainability of all the three follow on projects that are on-going.

E. BANK PERFORMANCE

42. The Bank's decision to assist GRZ in the implementation of the economic reform programin the agricultural sector was a sensible initiative, which has led to a major reduction in publicsector involvement in marketing and processing of agricultural commodities. The Bank has alsobeen pro-active in identifying emerging issues and designing new programs/projects that areresponsive to the demands of the complex and dynamic situations that were emerging in Zambia.The sector approach was implemented in the health, education, road, and agriculture sectors.The Enterprise Development Project was also implemented to address issues pertaining tofinancial sector reform and financial services. All these are rather positive actions by the Bank

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and the Government, although it had, by necessity, to disrupt the implementation of individualon-going projects in each sector, such as ZAMPIP. In spite of this, however, overall Bankperformance has been partially satisfactory. This rating would have been judged deficient had itnot been for IDA's pro-activity in designing and implementing new and comprehensive programsin the areas discussed above, and achievements in introducing the policy reform measures andthe relatively satisfactory work done in the few areas where the project was implemented. Themain reasons for the partially satisfactory rating are weaknesses in project design (para. 7),particularly, in the organization and management arrangements for the project, lack of follow-upactions in response to changes that took place in the road sector and inadequate projectsupervision, although supervision performance had improved within the last two years of theproject. There were only eight supervision missions during the six years of implementation, verylow by IDA standards, and the composition of specialists was inappropriate. For instance, onlythree of these missions included a road engineer (two in 1997 and one in 1998), although ruralroad rehabilitation was an important component. The fact that ASIP was expected to embrace allMAFF activities, including ZAMPIP, does not justify the neglect of the project. Until ZAMPIP'scomponents were formally incorporated into ASIP in 1997, the project deserved supervision andmid-term review as is normally granted to any self-standing project.

F. BORROWER PERFORMANCE

43. The Borrower's determined implementation of the economic reform program in the initialyears of the project was commendable. Equally, GRZ's readiness to resolve difficulties relatingto the credit component helped to improve the flow of funds. However, in spite of theseaccomplishments, overall performance of the Borrower has also been deficient, largely becauseGRZ's commitment to the project has progressively declined with the formulation andimplementation of ASIP. This reduced commitment was exhibited by the elimination of the postof an independent PC, and secondment of several MAFF officials, with little managerialexperience to act as PCs. Moreover, the continuous difficulty in the flow of funds, particularlyin the final two years, was a reflection of MAFF's declining interest in the project. Due to theseshortcomings, the second phase road program was not implemented. GRZ should havetransferred project responsibility to MLGH when ZAMPIP became effectively a "road" project.

G. ASSESSMENT OF OUTCOME

44. The project has met only a limited part of its objectives. As already noted, most projectcomponents were either transferred to other new projects (ASIP, ROADSIP, EDP), orsubstantially modified during the course of implementation, with consequent effects on projectoutcome. The establishment of a market-based economy, with a liberalized agricultural sector,has largely been achieved. However, this has not led to sustained and increased agriculturalproduction, due to unseasonable weather conditions in the last few years. Many farmers,particularly small farmers, have yet to discern any tangible benefits. The policy packagesintroduced by the project has resulted in greater private sector participation, including increasedshare of agriculture in total export earnings and diversification of production. Albeit limited, thecredit extended under the project should contribute to increased agricultural production and

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foreign exchange earnings. The reduced road rehabilitation program is believed to haveimproved vehicle access in some parts of the three provinces. However, there are no data on thevolume and type of traffic using the project's roads, or the effect of road improvements ontransport charges and vehicle operating costs. At completion, the project was a totally differentand modest one, and the overall outcome compared to what had been planned is unsatisfactory.Environmentally, the project impact has been limited; being confined to existing roads, andhaving obliged contractors to reinstate borrow areas used for excavation of gravel.

H. FUTURE OPERATIONS

45. As stated in earlier paragraphs, the activities/components of ZAMPIP are being supportedby on-going projects.. The maintenance of roads improved by the project is now theresponsibility of the district councils. Since the roads were rehabilitated 2-3 years ago, there hasbeen no maintenance carried out, and it is estimated that at least one third are now in urgent needof maintenance. These roads are expected to be maintained under ROADSIP, but this does notprovide any assurance that resources for maintenance will continue. The fate of the project'sinvestments in rural roads will depend on ROADSIP's future program for maintaining ruralroads. EDP is supposed to provide credit facility for enterprises that qualify, but how much theagriculture sector will benefit from the new operation is hard to tell. ASIP is pursuing the policydialogue with Government, strengthening of the policy analytic capacity of the government andmarket information and monitoring. As these projects end, there is a need to review theappropriateness of a follow on operations.

I. LESSONS LEARNED

46. The main lessons that can be drawn from the implementation experience of the project are:

- In projects where there are several implementing agencies, it is appropriate tohave an inter-ministerial coordinating body, in which all the implementingagencies are represented, to discuss implementation progress and issues. Thelack of such an arrangement was one of the main causes for the poorimplementation of ZAMPIP.

- Unilateral closing of a project component, as experienced with the line ofcredit, is not advisable. This discourages both PCBs and borrowers alike fromdealing with similar credit schemes in the future, as they tend to loseconfidence in the institutions.

- Sufficient number of senior, competent, motivated, and project-specific staffare required for effective implementation of a project. Staff and other changes,which diffuse and reduce responsibilities for project management, will have anadverse effect on project performance. The project has suffered fromunsatisfactory management by MAFF, and to a lesser extent, MLGH inensuring a timely and adequate flow of funds to implement the project.

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Continuity in project management and in project supervision, in the side of theBank, is also very critical, and was lacking under this project.

Setting up a project monitoring and evaluation system and maintaining thesystem through out the project is critical in order to enable project managementto check and assess implementation. The neglect by the project in setting upthe monitoring and evaluation system as envisaged has resulted in poorassessment of implementation progress and, hindered assessment of impact.

Road maintenance design should include sufficient resources and practicalarrangements for maintenance and rehabilitation, and should address the issueof how these resources will be generated (or sustained) after projectcompletion. Without assured maintenance, the pre-project situation of severeneglect will recur within a few years, as observed under the project.

When decisions to implement national programs, instead of projects, is made, itis appropriate to fold existing self-standing projects into the national programwithin a reasonable period of time, to avoid the kind of neglect the ZAMPIPproject encountered.

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PART II: STATISTICAL TABLES

Table 1: Summary of Assessments

A. Achievement of objectives Substantial Partial Negligible Not Applicable() (4) (1 (4)

Macro policies ED Li[

Sector policies E Z LI]

Financial objectives l E E ]

Institutional development [j Ell

Physical objectives [ E El

Poverty reduction Fl I E

Gender issues E E E E

Other social objectives L E E ]

Environmental objectives [] El E9

Public sector management El l El ElPrivate sector development [IE ElOther (specify) E E E E

B. Project sustainability Likely Unlikely Uncertain(4) (4) (0

HighlyC. Bank performance satisfactory Satisfactory Deficient

(4) (i) (v)Identification E E EPreparation assistance El El ElAppraisal E E E

Supervision E l E

Overall, Bank performance is partially satisfactory for reasons explained in the text.

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HighlyD. Borrower performance Satisfactory Satisfactory Deficient

(0 (v) ()Preparation [ ZIImplementation 7 E1 1Covenant compliance [1 2 [1]Operation (if applicable) E n E

Highly HighlyE. Assessment of outcome satisfactory Satisfactory Unsatisfactory unsatisfactory

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TABLE 2: RELATED BANK LOANS/CREDITS

Loan/credit title Purpose Year of Statusapproval

Preceding operations

1. Coffee 11 Project Increase coffee production through 1986 Completedthe provision of modern technologyand credit

Following operations

1. Agricultural Sector Improving household food security, 1995 On-goingInvestment Program promoting better use of natural

resources, generating employmentand income, and increasing exportearnings

2. Enterprise Private sector modernization and 1997 On-goingDevelopment Project development by supporting

enterprises and financialintermediaries

3. Road Sector Improving management in the road 1997 On-goingInvestment Program sector, facilitate rehabilitation and

proper maintenance of roads

TABLE 3: PROJECT TIMETABLE

Steps in project cycle Date planned Date actual/latest estimate

Identification Oct.lNov. 1990 Oct./Nov. 1990

Preparation Jan./Feb. 1991 Jan./Feb. 1991

Pre-Appraisal Sept./Oct. 1991 Sept./Oct. 1991

Appraisal Jan./Feb. 1992 Jan./Feb. 1992

Negotiations May 18, 1992 July 17-26, 1992

Board presentation Sept. 8, 1992 Sept. 8, 1992

Signing Dec. 28, 1992 Dec. 28, 1992

Effectiveness May 28, 1993 May 28, 1993

Midterm review Mid-1996 Not carried out

Project completion June 30, 1999 June 30, 1999

Loan closing June 30, 1999 June 30, 1999

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TABLE 4: CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL(US$ million)

FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00

Appraisal estimate 2.00 8.00 16.00 22.00 28.00 31.00 33.00 -

Actual 0.79 7.63 8.61 11.77 18.93 20.24 21.04 21.11

Actual as % of estimate 40% 95% 54% 54% 68% 65% 64%

Date of final disbursement Disbursement not yet closed

TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION

KEY IMPLEMENTATION INDICATORS Unit Estimated Actual

RURAL ROADS

Road Study (priority roads) km 400-500 569Rehabilitation of Roads (Phase I) km 500 550Rehabilitation of Roads (Phase II) Km 240 0Rehabilitation Contractor Training Cntr. 6 0Maintenance (labor-based) Contractor Cntr. 36 36TrainingWorks Supervisors Supr. 24 16Labor based Trail Contracts km 120 0Technical Assistance

Project Engineer p/m not specified 50Study Tour "' ( 2 weeks) pers not specified 4Seminar (Ghana - 3 days) pers not specified 1Short Course (UK - one week) pers not specified 1Training Courses (3x3 months each) pers not specified 15-24Rehabilitation Equipment bl set 6 6Other Activities

Short-Term CreditTraders NO 991 23Fertilizer Traders No 630 0

Medium Term CreditTruck Purchase No 130 0Miscellaneous Loans No not specified 13

Notes:a/ Study tour to Lesotho, Kenya and Uganda to learn about labor-based approaches tcroadworksb/ Equipment for labor-based road rehabilitation contractors; each set comprises: one 4WD doublecab, two tractors, a roller, trailer, towedwater tanker with pump, and culvert rings. An additional 2WDdoublecab was purchased for district council supervision

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TABLE 6: KEY INDICATORS FOR PROJECT OPERATION

L Key operating indicators inSAR/President's Report Estimated Actual

NOT APPLICABLE

TABLE 7: STUDIES INCLUDED IN PROJECT

Purpose as definedStudy at appraisal/redefined Status Impact of study

1. Rural Roads Survey Identify first year road Completed under The Phase one project roadsprogram PPF 1992 were identified by this study

2. Maize Export Study Determine Zambia's export Completed under Indicated potential exportopportunities MMAP in 1994 markets

3. Assessment of the Identify main constraints of Completed in 1996 Study recommendationsconstraints to the disbursing the credit have been used to acceleratedisbursement of component credit disbursementZAMPIP funds

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TABLE 8A: PROJECT COSTS (US$ THOUSAND)

Appraisal estimate Actual/latestestimates

Item Local Foreign Total Totalcosts costs

1. Private Sector 20,448 10,520 30,968 10,847Development

2. Rural Roads Rehabilitation 3,620 10,915 14,535 10,035and Maintenance

3. Market Development and 90 1,590 1,680 1,547Monitoring

4. Technical Assistance 3,180 3,680 6,860 199

Physical Contingencies 373 1,212 1,585

Price Contingencies 9,623 2,744 12,372 -

Other Costs a/ - - - 1,732

TOTAL 37,334 30,666 68,000 24,360

' Consists of GRZ recurrent costs.

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TABLE 8B: PROJECT FINANCING (US$ MILLION)

Appraisal estimate Actual/latestestimate

Source Local Foreign Total Totalcosts costs

IDA 9.6 23.4 33.0 21.11

ADB 5.2 7.3 12.5 a/

GRZ 15.5 - 15.5 3.25

Commercial Banks 3.5 - 3.5 b

Beneficiaries 3.5 - 3.5 b/

TOTAL 37.3 30.7 68.0 24.36

a/ ADB has financed the salary of the Project Coordinator for about two years, butno details were available.

bl No details are available.

TABLE 9: ECONOMIC COSTS AND BENEFITS

The project was economically justified and considered viable if it would be implemented more or less asdesigned. At appraisal, an economic rate of return (ERR) of 24% was calculated for the project. Atcompletion, the project that emerged was a totally different one: only half of the road component and asmall fraction of the private sector development program were implemented. The marketing componentwas transferred to another project. Most of the project benefits were expected to accrue from the privatesector development program, particularly from improved transportation, which was partially achievedunder the project. In fact, the purchase of the vehicles expected under the private sector developmentprogram has not taken place, indicating either lack of demand or the inaccessibility of the credit facilityto potential borrowers. All these facts indicate that the economic impact envisaged at appraisal has notbeen achieved. On the other hand, it is difficult to recalculate the ERR of the project at projectcompletion, because there is no information that enables such calculation. The monitoring andevaluation system envisaged under the project was not established.

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TABLE 10: STATUS OF LEGAL COVENANTS

Original RevisedAgreement Section Covenant Present fulfillment fulfillment Description of covenant

type status date date Comments

CA text 3.07 (a) 4 NC 01/31/93 Appoint short-term consultants through the projectimplementation to assist with M&E

CA text 3.07 (b) 4 C 03/31/93 Submit to IDA an M&E plan

CA text 3.08 3 C 06/30/94 Submit to IDA copy of the maize export report Done under the MMACA text 3.09 7 C 1993/94 Liberalize export marketing of maizeCA text 3.10 7 C 01/31/93 Ensure that INDECO mills are allowed to

independently set the prices of maize mealCA text 3.11 7 C 10/31/92 Remove price controls on domestic. produced maizeCA text 4.01 1 CD End of The borrower shall fumish the Association an audit Consistently delayed

September report for the project no later than nine months afterof each year the end of each fiscal year

CA text 4.03 5 C Every Submit to IDA quarterly reports of interest rates,quarter ensure lending rates by the PCBs are positive

CA text 4.04 7 C 12/31/93 GRZ shall decontrol interest rates at all levelsCA Schedule (2) (b) (i) 5 C As a condition for disbursement, the borrower has to RRU not needed after

establish RRU and appointed an engineer in the transfer of responsibiliprovincial offices to MLGH and creation

of Road Department.

CA Schedule (2) (b) (iii) 5 C As a condition for disbursement, the Borrower has tosubmit to the Association a rural road policy statement

CA Schedule (2) (b) (iv) 5 C As a condition for disbursement, the Borrower has tosubmit to the Association detailed program and budgetfor the first year of the project

CA Schedule (2) (c) 5 C As a condition for disbursement, the Borrower has toinsure that PCBs shall enter into subsidiary loanagreement with GOZ

CA Schedule (2) (d) (i) 3 C As a condition for disbursement, the Borrower has tosubmit to the Association signed TA agreement withmarketing associations, cooperatives or mills

CA Schedule (2) (d) (ii) 7 C As a condition for disbursement, the Borrower has toprovide evidence that amendments satisfactory to theAssociation to the Agricultural Marketing Act 1989have been enacted

CA Schedule (2) (d) (iii) 7 C As a condition for disbursement, the Borrower has toprovide evidence satisfactory to the Association thatcooperatives will be allowed to operate withoutgovemment interference

Covenant Types Present StatusI Accounts/audit C = Complied with2 Counterpart funding CD = Compliance after Delay3 Management aspects of the project or of its executing agency NC = Not Complied with4 Monitoring, review and reporting CP = Complied with Partially5 Implementation6 Financial7 Policy actions

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Table 11: Compliance with Operational Manual StatementsStatement number and title Describe and comment on lack of compliance

There was compliance with the Applicable Operational Manual Statements.

TABLE 12: BANK RESOURCES: STAFF INPUTS

Stage of Planned Revised Actual'project cycle

Weeks US$ Weeks US$ Weeks US$(000)

Preparation to NA NA 74.8 44.7Appraisal

Appraisal and lending NA NA 85 230development

Negotiations through NA NA 12.8 36Board approval

Supervision NA NA 85.3 361.3

Completion NA NA NA 76.3

TOTAL 257.9 748.3

1) Including travel costs (direct costs)NA= Not available-not recorded in SAP/FACT System

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TABLE 13: BANK RESOURCES: MISSIONS'

Performance rating w

Stpge of Number Specialized Impkementati Develop-project cycle Month/ of Days in staff skills on ment Types of

Year persons field represented status objectives problems d

Preparation de 01-02/9 l

Pre-appraisal 09-10/91

Appraisal 01-02/92 7 126 C, E, E, E, E,EN, EN

Supervision 1 04/29/93 1 21 E S S PM, CF, L

Supervision 2 08/30/93 2 38 AS, E S S PM, CF, L

Supervision 3 06/26/94 2 28 AS, E S 5 PM

Supervision 4 11/14/94 2 34 E, F S X PM, L

Supervision 5 06/15/95 2 20 E, F 5 5 PM

Supervision 6 04-05/97 3 42 E, E, EN U S CF, FC, PM

Supervision 7 11/97 2 28 E, EN S S

Supervision 8 09/98 1 7 EN U S NR

Supervision 9 02-03/99 3 66 AS, E, F U S NR

Completion 09/99 2 28 E, EN N.A N.A. N.A.

AS = Agricultural Services Specialist; C Credit Specialist; E = Economist; EN = ERgineer; F = Financial AnalystW S = Satisfactory; HS = Highly Satisfactory; U = Unsatisfactory; HU =Highly Unsatisfactory; NR = Not Rated; N.A. = Not Applicable" CF = Counterpart Funds; FC = Financial Covenants; PM = Project Management; L = Legal Covenants; NR = Not Rated"'Prepared by the FAO/WB Cooperative ProgramdOnly partial supervision by a ROADSIP mission

In addition to these official or full supervision missions, a number of up-dating exercises were carried outthrough the preparation of portfolio status update.

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ZAMBIA

AGRICULTURAL MARKETING AND PROCESSING INFRASTRUCTUREPROJECT

(Cr. 2422-ZA)

APPENDIX A

AIDE MEMOIRE

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ZAMBIA


Cr. 2422-ZA

APPENDIX A

AIDE MEMOIRE

A. INTRODUCTION

1. A mission from the FAO/World Bank Cooperative Program (CP) visited Zambia over theperiod September 21 to October 5, 1999 to prepare an Implementation Completion Report (ICR)for the Zambia Agricultural Marketing and Processing Infrastructure Project (ZAMPIP). Themission comprised Messrs. Pietros Kidane (Mission Leader/Economist, CP) and TimJackson (Road Engineer, Consultant).

2. The mission worked with the two main implementing agencies, the Ministries ofAgriculture, Food and Fisheries (MAFF) and Local Government and Housing (MLGH), and alsothe Ministry of Finance (MOF), Bank of Zambia (BOZ), and participating commercialbanks (PCBs). Field visits were made to inspect roads rehabilitated by the project in Central,Lusaka and Southern provinces, and to hold discussions with district council officials, transportoperators, traders and farmers.

3. The mission acknowledges receipt from the Government of draft reports on credit androads, as a contribution towards the ICR and this aide memoire. The mission wishes to expressits appreciation to the Government of the Republic of Zambia (GRZ) for the co-operationextended throughout its stay. Preliminary findings and conclusions on the implementation of theproject are presented below, which are subject to confirmation by IDA management.

B. BACKGROUND

4. When GRZ decided to introduce market-oriented economic reforms in the late eighties, itbecame apparent that a number of support programs were needed to ensure success. Withinagriculture, the public sector dominated activities in marketing agricultural inputs and outputs,and processing of agricultural commodities. These activities were singled out for specialinterventions to create suitable conditions for private sector participation. ZAMPIP wasconceptualized within this context, and aimed to increase agricultural production by supportingthe reform program. To this end, the project proposed assistance in reforming the high y

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regulated financial sector, and inefficient maize marketing, fertilizer distribution, maize millingand rural transportation systems. Project components comprised:

- Private Sector Development, consisting of the provision of investment andworking capital credit for private enterprises, traders, farmers, road contractors,and road transport operators. This support was expected to enhance privatesector participation in agricultural input and output marketing, maize millingand rural transport. Newly privatized businesses were also to receive technicalassistance (TA) in corporate management.

- Rural Roads Rehabilitation and Maintenance, whose main thrust was torehabilitate 1,000 km of rural roads and to strengthen road maintenancecapacity in Southern, Lusaka and Central provinces.

- Market Development and Monitoring, consisting of the collection, analysisand dissemination of market information; provision of training to individualprivate traders; and establishment and monitoring of standards and grading formaize, animal feed and other agricultural commodities.

- Technical Assistance to support implementation of the above components.

- Policy Reform Package to expedite policy reforms already initiated, andensure, in particular, the decontrol of maize prices, elimination of maizemarketing subsidies, and privatization of maize mills.

5. The project, to be implemented over six years, was estimated to cost US$ 68.0 million(K 8,500 million), of which foreign exchange comprised about 45%. Some 51% of project costswere to be absorbed by the private sector development component, and 30% by the roadcomponent. The project was to be financed as follows: 49% IDA, 18% AfDB, 23% GRZ, and10% by commercial banks and beneficiaries.

6. The project was to be implemented by several existing agencies including: the RoadsDepartment of the Ministry of Works and Supply for the road component; MOF for the TA inbusiness management for private enterprises; BOZ and PCBs for the credit component; ZambiaBureau of Standards (ZABS) for standards and grading; and MAFF for market development,monitoring and training. These implementing agencies were to be responsible for planning,execution, monitoring and reporting for their respective components. Co-ordination of projectimplementation was to be carried out by the existing Project Implementation Unit (PIU) of thePlanning Division of MAFF. It was envisaged that an experienced Project Co-ordinator (PC)would be recruited as a consultant to head the PIU, and provide co-ordination, reporting,monitoring and financial control. The PC was to be supported by an economist, an accountantand other support staff. No inter-agency co-ordination body was foreseen under the project.

7. The project was approved on September 8, 1992, signed on December 28, 1992, anddeclared effective on May 28, 1993.

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C. PROJECT IMPLEMENTATION AND RESULTS

GENERAL

8. Project start-up activities coincided with important political and economic changes in thecountry, including the restructuring of Government. It also coincided with the conceptualizationand preparation of a major agricultural sector development program by MAFF and IDA, theAgricultural Sector Investment Program (ASIP). These events have greatly influenced projectimplementation and performance. For instance, responsibility for rural roads was transferredfrom the Ministry of Works and Supply to MLGH in November 1995, which entailed theamendment of the Development Credit Agreement, and delayed implementation until the newagency was fully integrated into the project.

9. Considerable uncertainty was also experienced with other components, when MAFF andIDA suggested that non-road components be incorporated into ASIP. This was decided duringsupervision in November 1994, whilst ASIP only became effective a year later, in December1995. This signaled a diminished role for ZAMPIP, and reduced project identity. There was oneformal IDA supervision' mission during 1995 and no mission during 1996, although 5 informalportfolio status updates were undertaken by the task teams during this period, and the mid-termreview, scheduled during 1996, was never undertaken. Moreover, project responsibility in theWorld Bank was transferred between divisions during this period. This impaired projectmomentum, already adversely affected by frequent changes in Project Coordinators and IDATask Managers.

10. In May 1997, the market development and monitoring component was integrated intoASIP. Simultaneously, the line of credit under the private sector development component wasclosed, and undisbursed funds transferred to the road component. Private sector credit needswere expected to be covered by the forthcoming Enterprise Development Project (Cr. 2955-ZA),approved later that year, and declared effective in March 1998. Therefore, since mid-1997,ZAMPIP activities were focused entirely on the road component, but project managementremained with the PIU in MAFF until early 1999. These arrangements have negatively affectedthe road component, as MAFF staff lost interest and motivation, and MLGH felt little ownershipof the project. The above points have resulted in difficult project implementation andunder-achievement, explained further in the following paragraphs.

PRIVATE SECTOR DEVELOPMENT

11. In order to support private sector involvement in marketing agricultural inputs andoutputs, and processing agricultural commodities, the project proposed to lend to privateindividuals and enterprises through PCBs, under the supervision of BOZ. Three types ofassistance were envisaged: (i) credit for working capital; (ii) term loans for purchasing vehicles,hammer mills, and establishing storage and workshops; and (iii) provision of TA in corporatemanagement for private co-operatives and commercial enterprises.

However, staff of the resident mission and IDA Task Managers carried out routine follow-up activities.

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12. Soon after effectiveness, the project secured subsidiary loan agreements between BOZand three PCBs, enabling lending to beneficiaries. About K 3.1 billion (US$ 6.85 million) werelent by the end of December 1993 to maize millers and traders for purchasing maize, effectivelysubstituting the co-operative unions, which had collapsed after the removal of subsidies. Maizemarketing would probably have become chaotic had project funds not been made available totraders borrowing from commercial banks. This first year lending experience in 1992-93coincided with a bumper maize harvest, and no guaranteed buying by co-operative unions, whichcombined to increase pressure on maize marketing. Most borrowers were medium-to-large scaleoperators, as small-scale traders could not access the credit line because of insufficient collateralto secure loans. Demand for short-term borrowing practically ceased in the following years asthe Kwacha depreciated and interest rates escalated, making Kwacha loans extremely risky.

13. Term lending in Kwacha was also slow to materialize because of the high risks associatedwith Kwacha loans, and stringent money supply measures introduced by BOZ, which impairedcontinuation of credit delivery. The project agreement required PCBs to borrow from BOZ at itsbase lending rate, which was below the rate of PCBs. However, in 1994, the BOZ base rate roseabove that of PCBs, and this brought lending operations to a standstill. PCBs demanded areview of the subsidiary loan agreement, which eventually took place in October 1995. Theagreed changes included: participation of all banks satisfying BOZ financial regulations;allowing borrowing by PCBs at 80% of the BOZ base rate for Kwacha and at LIBOR for foreignexchange; and increasing the maximum loan size from US$ 100,000 to US$ 500,000.

14. These changes, and the fall of BOZ base rate below the commercial lending rate in 1995,stimulated demand for credit under the term loans. By mid-1 997, thirteen such loans valued atUS$ 4.67 million had been approved and disbursed to borrowers involved in food processing,grain storage, and the production of coffee, flowers and cotton.

15. In mid-1997, GRZ and IDA decided to close the line of credit under ZAMPIP, and totransfer remaining funds to the road component. AfDB also cancelled its line of credit andtransferred the funds to another ongoing project in the country. Previous difficulties inimplementing this component were apparently the main reason for closing the credit. However,at this time, demand for term loans had gained momentum. In addition to loans alreadyprovided, a number of applications worth over US$ 6.0 million were awaiting final approval byBOZ, which had to be turned down. The PCBs also reported the receipt of more applications asthe line of credit was closing. The closure of the credit has interrupted the momentum finallygained, and it is taking time to revive it under the Enterprise Development Project. At the time,it was believed that borrowers would easily re-direct their demands towards this new project,underestimating their loss of confidence in the abrupt closure of the line of credit underZAMPIP. During this time, an agricultural export promotion project, supported by the EuropeanInvestment Bank, has given loans to some applicants involved in export crop production only.

16. The provision of TA to private co-operatives and enterprises was not implementedbecause MOF was not able to sign loan agreements with private enterprises. MOF wasinappropriately designated as the implementing agency for this component, as the signing ofsubsidiary loan agreements with private enterprises was not in line with the Ministry's rules.

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RURAL ROADS REHABILITATION AND MAINTENANCE

17. At project effectiveness, the rural roads rehabilitation and maintenance (RRRM)component was the most advanced in terms of preparedness for implementation. This wasbecause IDA pre-project financing, through the provision of a Project Preparation Facility (PPF),had enabled the completion of a survey in 1992, which had identified priority roads forimmediate rehabilitation. Despite this, road rehabilitation did not commence until the end of1995 due to: (i) an institutional change in responsibility for rural roads from the Ministry ofWorks and Supplies to MLGH; and (ii) a delay in fulfilling Development Credit Agreementconditions for project disbursement, notably the preparation of a policy statement on feederroads. For these reasons, the first phase road rehabilitation program, comprising 550 km of roadrehabilitation, began in January 1996, and was completed two years later, in December 1997.

18. During implementation, some adjustments were made to the RRRM component. Firstly,the original proposal for emergency road repairs, comprising 150 km of 'spot' improvements tocritical bottlenecks, was replaced by full rehabilitation of the 550 km of priority roads identifiedin the initial road survey. These priority roads, located in Central, Lusaka and Southernprovinces, varied in length from 20 to 130 km. Secondly, it was not possible to implement theproposed labor-based rehabilitation of 850 km due to the non-availability of labor-basedcontractors. Therefore, the first phase of road rehabilitation was executed by traditionalmachine-based contractors, under the supervision of engineering consultants engaged by theproject. The majority of these contractors were foreign, working in partnership with localcompanies. The rehabilitation works were completed efficiently, and to the required technicalstandards.

19. In order to reduce reliance on foreign contractors for roadworks, and enhance the localcontractor base, the project proposed the training of local contractors in labor-based roadtechnology. Hence, the second phase road rehabilitation program included: (i) rehabilitation of240 km of roads in Luapula and Northern provinces, and (ii) training of 44 labor-based roadmaintenance contractors and nine labor-based road rehabilitation contractors, as well as relevantsupervisors from the district councils. Classroom training for the road maintenance contractorswas carried out by the Road Training School (RTS) in Lusaka, in three batches, betweenNovember 1997 and March 1999. Each training course was scheduled for three months, butprolonged interruptions arose due to delays in payment to RTS, despite the fact that trainingcosts were 100% reimbursable by IDA. This classroom training should have been followed bypractical on-the-job training during trial contracts. However, due to the delays, these trialcontracts could not be implemented before the project closed.

20. Nine contractors were selected for training in labor-based road rehabilitation.Appropriate construction equipment was procured for training and subsequent transfer, on a hirepurchase basis, to six of the most successful contractors after completion of trial roadrehabilitation contracts. This training did not take place due to delay in procurement ofequipment necessary for training, and lack of funds to pay for the training course. For the samereasons, the second phase road rehabilitation of 240 km in Luapula and Northern provinces wasnot implemented. These delays were largely due to weaknesses in project managemerLt-

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particularly in the final two years of the project. During this period, PIU had been largelysubsumed into ASIP, together with most project components, except rural roads. Because ofthese shortcomings, the funds transferred in 1997 from the credit component to RRRM,remained unutilized.

MARKET DEVELOPMENT AND MONITORING

21. Two activities were to be established under this component: (i) a market informationsystem; and (ii) improvements in standards and grading of agricultural inputs and outputs. Themarket information system was excluded from the project because implementation of a newproject, the Marketing Management and Assistance Project (MMAP), had started in early 1993with assistance from FAO/Govermment of the Netherlands. MMAP had similar objectives toZAMPIP, and established an Agricultural Market Information Center (AMIC) within MAFF,which has undertaken the collection, analysis and dissemination of market-related information.When MMAP's support ended in June 1997, AMIC was integrated into ASIP, and is now fullyoperational.

22. Unfortunately, the establishment of grades and standards for agricultural inputs andoutputs under ZABS was not implemented. This was mainly due to the delay in securing alaboratory building to house the equipment to be provided under the project. The PIU decidedthat a suitable building was a prerequisite to procurement of equipment and materials, andrecruitment of TA personnel. As ZABS failed to secure a building, the component stalled, and inmid-1997 was transferred to ASIP to be implemented under its 'Standards Sub-program'.

TECHNICAL ASSISTANCE AND TRAINING

23. The project should have benefited from substantial TA inputs, which did not materializefor a number of reasons. The TA for the private sector component was to provide businessmanagement support to maize and fertilizer marketing enterprises. However, as mentionedearlier (para 0), this could not be effected because MOF could not enter business dealings withthe private sector. The TA for marketing development was no longer required after this wastaken up under MMAP. The long-term TA envisaged for rural roads was also not needed,because the establishment of provincial rural road units, for which the TA was provided, becameunnecessary.

24. The most important consultancies utilized under the project were: (i) the engineeringsupervision for rural roads, which provided satisfactory professional services in overseeing therehabilitation of 550 km of rural roads; (ii) the Project Co-ordinator (June 1994 to May 1996)and the Project Engineer (August 1995 to September 1999), who have both performed well.

25. ZAMPIP's main training program took place within the rural road component (para 19).The project also funded a study tour in a few African countries to learn from their experience inagricultural marketing and labor-based rural road programs. Most of the market-related trainingand studies, envisaged under the project, were provided under MMAP.

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POLICY REFORM PACKAGE

26. By the time the project became effective, most of the policy reform targets had been met.These included liberalizing price controls on maize and agricultural inputs, and removal ofsubsidies on agricultural commodities. Soon after the project started, the remaining reformobjectives were achieved, including elimination of the transport subsidy on maize, liberalizationof the import and export of maize, and privatization of maize milling. All policy reformpriorities were attained during the early years of the project.

ORGANIZATION AND MANAGEMENT

27. Although the project was to be implemented by several agencies, there was nomechanism for inter-agency co-ordination and management of the project. The PIU of MAFFwas given the overall responsibility for co-ordinating project implementation, and the PCbecame answerable to this Ministry. This arrangement has hindered the emergence of apolicy-level management body that represents all implementing agencies. Such an entity wouldhave provided a forum for discussion and approval of agreed policies and work plans. The lackof such a body appears to have reduced the sense of component ownership by other ministries, asthe PIU (in MAFF) remained the focal point for all communication with IDA, and the associatedflow of funds. After the non-road components were integrated into ASIP, the project effectivelybecame a 'road' project, yet management remained under MAFF until early 1999, when it wasofficially transferred to MLGH. The failure to complete the second phase road program ismainly attributable to poor project management, and lack of communication between PIU andMLGH. Examples of PIU's lax management are cited as: delayed replenishment of projectaccounts, irregular flow of counterpart funds, delays in direct payments to suppliers and serviceproviders, and delays in making withdrawal applications to IDA. PIU's difficulties were furtheraggravated by inefficiencies in MAFF units concerned with procurement, financial managementand accounting.

28. The PIU had a slow start, operating under an economist seconded from MAFF, until afull-time PC (consultant) was appointed in June 1994, after which PIU performance improvedrapidly. However, this was short-lived because, following his resignation after two years ofservice, MAFF decided to manage the project through its own staff, and a succession ofrelatively junior staff were again seconded as PCs. As civil servants, these officers did notreceive the financial incentive, which had motivated the former PC, nor were they of sufficientseniority and experience. As a result, the performance of the PIU (vis-a-vis ZAMPIP) soondeteriorated. During implementation, ZAMPIP had at least five different PCs.

29. Another management shortcoming has been the failure to establish a monitoring andevaluation system in line with project proposals, to monitor activities and evaluate their outcome.Therefore, there is insufficient documentation of project activities, rendering the evaluation ofproject impact difficult.

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PROCUREMENT

30. The major procurement items under the project were all within the road component, andcomprised the first and second phase road rehabilitation contracts, and equipment for trainingand subsequent use by local contractors in labor-based roadworks. While no difficulty wasexperienced in awarding contracts for the first phase road program, serious problems arose in thecase of the second phase roads. This was because the Zambia National Tender Board had notaccepted the initial evaluation made by the project, and made alternative suggestions, which inturn were not accepted by IDA. Resolution of these problems took about eight months, henceaggravating the delay in finalizing plans and preventing implementation before the projectclosing date. Procurement of training equipment was also delayed due to late payment to thesuppliers by PIU.

BORROWER AND IDA PERFORMANCE

31. Overall, the performance of both GRZ and IDA was less than had been anticipated.Firstly, GRZ commitment to the project appears to have progressively diminished duringimplementation, as the formulation of ASIP progressed and became effective. Signs of reducedcommitment were: (i) the elimination of the post of an independent PC and other project-specificPIU staff (e.g., the accountant); and (ii) delays in the provision of counterpart funds,replenishment of project accounts and in the procurement of goods and services. GRZ shouldhave transferred project responsibility to MLGH when ZAMPIP effectively became a 'road'project, to ensure this Ministry's commitment to the project. This would have improved theperformance of the road component, especially during the last two years of the project. On amore positive note, GRZ's readiness to amend the Development Credit Agreement to resolveimplementation difficulties should be recognized. In particular, the flexibility shown by GRZ inremoving bottlenecks that emerged in the provision of credit, markedly improved the flow ofcredit.

32. IDA's assistance to agricultural, marketing, processing and rural roads in support ofGRZ's transition to a market-based economy has been timely and appropriate. However, duringimplementation, project supervision was limited, and the composition of specialists was ofteninadequate. There were only eight full supervision missions during implementation, insufficientby IDA standards, and, only three of these included a road engineer. The absence of a mid-termreview represents a lost opportunity to address the main issues, which plagued the project in thefinal years. Moreover, the lack of an adequate co-ordination mechanism for implementingagencies represents a serious weakness in project design. At project completion, it has becomeclear that the decision to transfer funds from the line of credit to the road component, did notresult in increased road rehabilitation.

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PROJECT IMPACT

33. The failure to establish a monitoring and evaluation system, and the lack of systematicdata collection, do not allow a thorough analysis of project impact. However, the project hascontributed to agricultural and rural development in the country. During the 1992-93 maizemarketing season, the project helped prevent the collapse of the maize market by enabling theprivate sector to purchase the crop, thereby mitigating the effects of the disappearance ofco-operative unions from the market. The project also provided term credit to enterprises toproduce and/or process agricultural commodities, contributing to agricultural value-added, and toincreased foreign exchange earnings. Unfortunately, the credit to small-scale traders andentrepreneurs did not materialize due to lack of collateral requested by the PCBs. Although theproject accomplished only half the planned appraisal targets for road rehabilitation, the roadimprovements have had a positive impact. District council officials and local people reported anoticeable increase in vehicle traffic, particularly of small pickups and buses, as transportoperators are now more willing to use the improved roads to transport goods and people.

SUSTAINABILITY

34. Most of the private sector agricultural production and processing enterprises, whichborrowed from the project, are sustainable ventures. In contrast, the sustainability of the projectroaas is in serious doubt as there has been no road maintenance since their rehabilitation wascompleted 2-3 years ago. However, there is some prospect that their maintenance may beprovided under ROADSIP1 , and this is currently under discussion, but there is no clear timetablefor regular maintenance. There is considerable risk that the rehabilitated roads will soondeteriorate to their original poor condition unless this maintenance issue is addressedimmediately. There are also doubts about the sustainability of the credit revolving fund that hasbeen accumulated as loan repayments are made. These funds are being held by BOZ in aKwacha account, and are continuously losing value in US$ terms.

LESSONS LEARNED

35. The main lessons to be drawn from project implementation are:

- Project design should have included a policy and/or technical level co-ordinationentity that includes all implementing agencies, to approve work plans and ensureadherence to project objectives. Such an arrangement would also have reducedmiscommunication, and improved the sense of ownership and interest in projectcomponents.

ROADSIP is expected to maintain some 360 km of these roads for one season under trial contracts fer-labor-based maintenance contractors, as part of their training.

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Closing the line of credit, when this was finally gaining momentum through earlierproject initiatives, has discouraged both PCBs and borrowers who applied forinvestment credit. In retrospect, a preferable option would have been to continuedisbursement of credit funds to exhaustion, and integrate the road component intoROADSIP. This would have been consistent with GRZ and IDA's strategy tointegrate these activities into sectoral programs.

After the decision to exclude several non-road components in 1997, projectorganization and management should have been reviewed to ensure effectiveimplementation of remaining activities. This review would have determined thatMAFF was no longer the appropriate agency to manage a project concerned only withrural roads.

Frequent changes of PCs and IDA Task Managers have adversely affected projectperformance through differing approaches, delays in decision making andinterruptions in project activities.

Road rehabilitation programs must be guaranteed sufficient resources for subsequentmaintenance to ensure that rehabilitated roads will not fall back into disrepair,negating the intended benefits.

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ZAMBIA


Cr. 2422-ZA

APPENDIX B

REVIEW OF RURAL ROAD COMPONENT'

A. BACKGROUND

Introduction

1. This appendix reviews the project's road component, and begins with a summary of theintended objectives and costs at appraisal2 . The main activities and achievements duringimplementation are then described, including costs and follow-on arrangements at projectclosure. An assessment is made of the impact of the component, and lessons to be learned fromthe experience. Two sectoral programs in roads and agriculture are mentioned, which have bothaffected project performance and outcome. Information was derived from aide-memoires ofsupervision missions, reports of the Project Implementation Unit (PIU), and from missiondiscussions.

Scope and Objectives

1. Much of the annual maize harvest is stored in the open, and once the rainy season hasstarted, quality rapidly diminishes, resulting in substantial annual losses. In addition, fertilizer isoften delivered late in the season to rural areas, resulting in low crop yields. The poor conditionof rural roads is a major contributory factor to these problems, as many have deteriorated due todecades of maintenance neglect. With the removal of subsidies on inputs and transport, maizeproduction was expected to increase near the urbanized consumption centers, particularly inCentral, Lusaka and Southern provinces. The project's road component was therefore intendedto rehabilitate and maintain 1,000 km of rural roads serving the more important maize producingareas in these provinces. Later, in August 1997, the Development Credit Agreement (DCA) wasamended to cover the whole country.

1 Tim Jackson, Road Engineer, FAO/CP Consultant.2 Staff Appraisal Report (SAR), World Bank, July 1992.

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2. Through an IDA Project Preparation Facility (PPF), consultants were engaged to identify400-500 km of priority roads, and prepare a work plan. Their report, presented in 1993',presented a prioritized list of roads, summarized as follows:

US$ Roadkms million sections

Central 337 1.58 10Lusaka 71 0.50 3Southern 161 1.27 5

Total: 569 3.35 18

3. A major objective of the road component was to recruit and train small local contractors inlabor-based and equipment supported approaches to roadworks, and thereby reduce the country'sreliance on large-scale, foreign-owned road contractors using heavy machinery. This approachhad been successfully pioneered in Ghana. At appraisal, the road component comprised:

- Emergency Road Repair Program: 'spot' repairs along 150 km of roadsserving the most important maize and fertilizer depots to be implemented in thefirst two years. The repairs would be limited to critical road bottlenecks, suchas bridges, drainage structures and impassable road sections. Machine-basedcontractors, supervised by engineering consultants engaged by the projectwould execute these roadworks.

- Rehabilitation and Maintenance Program: full rehabilitation andmaintenance of 850 km of priority rural roads using labor-based technology(supported with equipment) during the remaining three years of the project. Itwas envisaged that these roadworks would be accomplished through small,locally-based contractors, trained and assisted by the project. It was assumedthat no regravelling would be required.

- Training Labor-Based Contractors: training, and equipping 18 localcontractors in labor-based techniques for road rehabilitation and maintenance.After training, it was expected that each contractor would be able to rehabilitate20 km of roads each year. An additional 60 km of road rehabilitation wasexpected to be accomplished during on-the-job training, and a further 120 kmduring trial road rehabilitation contracts.

4. Technical assistance for the component was to comprise three road engineers to manageRural Road Units (RRUs) in the three provinces, each for 55 months, one labor-intensivecontractor training specialist and a mechanic trainer each for five years, local road consultantsfor six person-months, six additional technical staff for RRUs.

1992-1993 Feeder Roads Crash Program Study, Final Project Report, MAFF, Lusaka, June 1993.

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5. These activities were expected to cost a total of US$ 20.0 million'. The mission notedinconsistencies between the description of works to be undertaken and component costs. Forexample, the costs for Class III road rehabilitation, to be undertaken by labor-based contractors,are all attributed to the first year of the project, whilst the text describes the work being done inthe last three years. This results in over two thirds of total component costs arising in the firstyear. Moreover, the 'emergency repairs' are based on a unit cost of US$ 20,000/km, which doesnot reflect the description of low-cost repairs to critical road bottlenecks.

6. A degree of institutional uncertainty was recognized at appraisal concerningimplementation of the road component. This arose because, at that time, Government wasplanning the transfer of responsibility for rural roads from the Ministry of Works andSupply (MOWS) to the Ministry of Local Government and Housing (MLGH), whichmaterialized in 1995. However, at appraisal, it was proposed that the component be executedthrough Rural Road Units, to be established in the Provincial Road Engineer's office of theRoads Department, in each of the three provinces. The delivery to IDA of an acceptable ruralroad policy statement by Government was made a condition of loan disbursement for thecomponent.

Related Programs

7. The early stages of project implementation coincided with the conceptualization andpreparation of two important sector programs supported by IDA: (i) the Agricultural SectorInvestment Program (ASIP), and (ii) the Road Sector Investment Program (ROADSIP). Theseprograms had a significant impact on ZAMPIP, particularly in relation to institutional aspects.All non-road components were integrated into ASIP in August 1997, which resulted in a declinein the status of PIU in the Ministry of Agriculture, Food and Fisheries (MAFF), and subsequentmanagerial deficiencies gave rise to delays in the flow of funds, disrupting Phase II activities.Under ROADSIP, the responsibility for feeder roads was transferred from MOWS to MLGH,which entailed amendment of the DCA, and substantially delayed implementation of the roadcomponent. Whilst the responsibility for rural roads was designated to MLGH, the projectretained control within MAFF, undermining interest and co-operation between these twoministries during implementation. The slow release of counterpart funds from MLGH may bedirectly attributed to this lack of component ownership.

B. IMPLEMENTATION

Summary

8. Overall performance of the road component has been disappointing. Despite theavailability of a list of priority roads in 1991, rehabilitation work only began at the end of 1995,nearly three years after the start of the project. The rehabilitation works took far too long tobegin, but were quickly accomplished through the services of the private sector. The main

Including physical and price contingencies; no detailed costs for the component were available to the mission;unit costs and phasing of activities are not presented in the SAR, nor is there reference to any supportingdocument (working paper).

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constraint has been the unsatisfactory performance of MAFF, and to a lesser extent MLGH, inensuring a timely flow of funds for these services. IDA was not proactive in addressing thefundamental causes of this inefficiency. In fact, the creation of ASIP, and the associated need tomake institutional changes, has been responsible for compounding the problems.

9. The main achievements by the road component are: (i) 550 km of roads were rehabilitatedbetween 1996-97, about half the original road rehabilitation target, utilizing half the fundsallocated, and (i) three classroom training courses in labor-based road maintenance were-conducted for 44 local contractors, and six sets of labor-based equipment were procured. Nocontractors were trained in labor-based road rehabilitation, and no maintenance was carried outon any roads rehabilitated by the project. Fortunately, the transfer of labor-based roadmaintenance activities to ROADSIP will enable a late start to be made on maintaining roadsrehabilitated under the project.

Initial Delays

Staffing and Institutional Aspects

10. The project became effective in May 1993, but a full-time Project Co-ordinator (PC) wasnot appointed until June 1994. There was considerable uncertainty, during this first year, overinstitutional responsibility for implementing the road component. The Roads Department wasreluctant to establish Rural Road Units in the provincial offices whilst-MLGH was in the processof establishing a Feeder Road Unit (FRU), which did not become a reality until November 1995.Following supervision in June 1994, it was decided that: (i) RRUs would not be required atprovincial level, and Roads Department would not be involved in project implementation;(ii) MAFF would be the implementing agency, with MLGH taking technical responsibility;(iii) MAFF would recruit a project engineer, in liaison with MLGH, to provide technicalassistance for the component. A Project Engineer (PE) was appointed in August 1995, with anoffice in the new Department of Infrastructure and Support Services (DISS) of MLGH.

Conditions for Disbursement

11. The submissions to IDA of an acceptable policy statement on rural roads, and a detailedbudget for the first year of implementation were both conditions for disbursement on the roadcomponent. In August 1994, consultant engineersI were appointed to update the initial roadstudy, prepare bidding documents, assist in the evaluation of bids and supervise the roadcontracts for the emergency rehabilitation (Phase I). In January 1995, the policy statement onfeeder roads was finally delivered and accepted by IDA, enabling component disbursement,some 22 months after project effectiveness.

Burrow-Binnie, Zambia.

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Supervision

IDA Supervision

12. A consulting firm hired by the government and full time project engineer supervised theroad component. From IDA side, engineers input was limited and this was provided late in theproject life, three years after the start of the project, when most of the Phase I road contracts hadbeen completed. Moreover, the absence of a mid-term review, originally scheduled for 1996,represents a lost opportunity to resolve the main issues, which plagued the project in the finalyears. It should have been recognized in 1997, when ZAMPIP effectively became a 'road'project, that a transfer of project responsibility from MAFF to MLGH was needed to ensure thisMinistry's commitment to the project. By the time this was eventually decided in January 1999,it was too late to complete the unfinished roadworks. Consequently, over US$ 6.0 million,transferred from the credit component in August 1997 to expedite roadworks, remainedunutilized.Engineering Supervision

13. The consultants, engaged by the project to supervise the roadworks, have providedsatisfactory professional services, and contractors have been obliged to execute the roadworks tothe required technical standards. The consultants were engaged from August 1994 to June 1999,when the project closed.

14. The Project Engineer (PE, consultant) has provided overall guidance to the program, andhis recruitment, and overlap with the first full-time Project Co-ordinator, provided an importantimpetus to the component after the long start-up delays of almost three years (May1993-November 1995). However, the working environment for PE began to deteriorate with thedeparture of the first PC in May 1996, and the start of ASIP in December 1995 (see para. 0). Bythis time, roadworks for Phase II were being planned, with expansion of road rehabilitation toLuapula and Northern provinces, and emphasis on enhancing the local contractor base,particularly in labor-based road maintenance. PE was employed from August 1995 to June 1999.

Flow of Funds

15. The PIU of MAFF was given the overall responsibility for co-ordinating projectimplementation. This arrangement has resulted in a reduced sense of component ownership byMLGH, as MAFF retained control over the flow of IDA funds. From August 1997, all activities,except the road component, were integrated into ASIP, but management remained under MAFFuntil January 1999, when it was officially transferred to MLGH. The failure to completePhase II is mainly attributable to poor management, and lack of communication between PIUand MLGH. Therefore, the road component was seriously disrupted through irregular flow offunds and long delays in direct payments to suppliers and service providers. These delays weredue to inefficiencies in procurement, financial management and accounting.

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Revised Project Targets

16. The priority roads identified by the road study were intended to provide the basis for initialroadworks, but were subsequently referred to as the 'Emergency Program'n, or Phase I. Duringthe procurement and implementation of these road contracts, it became evident that few localcontractors had the capacity to undertake works on this scale. Most local contractors wereunable to meet the procurement conditions2, and none had any experience in labor-basedtechniques. For these reasons, the program was amended in favor of machine-based contractors,with substantially higher unit costs (US$ 14,800/km) than had been estimated by the consultants(US$ 5,900/km). To reflect these factors, targets for the component were revised in August 1997as follows:

Phase I : Emergency Rehabilitationroads studysix road contracts (machine-based)

550 km in Central, Lusaka and Southern provinces

Phase Il: Rehabilation and Maintenancestudy tours (Lesotho, Kenya and Uganda)two road contracts (machine-based)

240 km in Luapula and Northern provincestraining:

36 labour-based maintenance contractors6 labour-based rehabilitation contractors62 directors of works (district councils)

equipment for rehabilitation contractors

Phase I: Emergency Rehabilitation

17. Accomplishments under Phase I are summarized as follows:

km districts US$ '000 contractsCentral 296 54% 4 4,594 2Lusaka 71 13% 1 1,190 1Southern 184 33% 2 2,446 3

550 100% 7 8,230 6

This reflects a misunderstanding: the road study was commissioned (before appraisal) to identify the initial workprogram; the term 'emergency' was introduced at appraisal for 'spot' improvements; the two activities are quitedifferent; in practice, no 'spot' improvements were undertaken.

2 Bid bonds, performance guarantees and minimum levels of equipment.

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Procurement of Road Contractors

18. For tendering, the consultants prepared a list of 16 roads totaling 585 km, varying in lengthfrom 1-120 km. Advertisements were placed in the national press in July 1995, and the ZambiaNational Tender Board (ZNTB) awarded contracts in September 1995 (soon after theappointment of PE). Disappointingly, only five of the 16 roads attracted bids from five largeconstruction companies. The total value of (lowest) bids was US$ 5.5 million, well in excess ofthe US$ 3.0 million consultant's estimate. ZNTB was authorized by IDA to enter directnegotiations with successful contractors to include most of the other smaller roads. IDAauthorized the transfer of funds from the 'other' category under civil works to make up theshortfall. Moreover, to facilitate counterpart finding by MLGH, which was becoming a seriousproblem, the 35% counterpart fund requirement specified in the DCA was reduced to 10%. Thefinal awards comprised six contracts awarded to four large contractors, three foreign owned, andone in partnership with a Zambian company. The six contracts to rehabilitate 550 km in sevendistricts had a total cost of US$ 8.2 million. Road lengths varied from 20-130 km, with unitcosts ranging from US$ 9,700-18,800/km (or US$ 14,900/km on average).

Contract Execution

19. Contractors were mobilized during November 1995 and five contracts were completed ayear later, by the end of December 1996. The sixth and final contract in Central province, startedin November 1996, and completed in December 1997. The technical standard of therehabilitation works (reported during supervision) was entirely satisfactory. The roadworks werehindered by the usual range of problems encountered during construction: disruption and damageby traffic', long hauls to borrow areas for suitable gravel, high rainfall, poor drainage and/or highwater table inhibiting the use of construction machinery, and shortage of water required forcompaction. Contractors were obliged to repair damage during the rainy season followingconstruction, but the mission observed that no maintenance has been carried out since then, aperiod of 2-3 years. Some of the more heavily trafficked roads are showing signs ofconsiderable deterioration, and unless maintenance is carried out soon, 'heavy' grading will beneeded to retain the correct road profile.

20. All priority roads identified by the consultants for rehabilitation were Class III feederroads, with a standard cross section comprising a compacted gravel carriageway of 5.0 m, with1.0 m shoulders and 0.6 m level difference between the drain inverts and the finished road crownbefore gravelling. However, in order to minimize costs, the contracts specified partialregravelling, according to the quality and thickness of existing in-situ gravel material. This ledto underestimates of regravelling requirements on some roads, and consequently, the consultantsrecommended full regravelling for the rehabilitation of roads in Phase IL.

Phase II: Rehabilitation and Maintenance

21. During supervision in April 1997, it was agreed to assimilate the project's non-roadcomponents into ASIP, and undisbursed credit funds of US$ 6.0 million were transferred to the

Delivery of fertiliser and collection of maize by heavy 30 ton trucks was a particular problem in the commercialfarming area of Mkushi, in Central province.

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road component. The road component was accordingly revised as Phase II, to include:(i) rehabilitation of 240 km in Luapula and Northern provinces, to be identified in consultationwith ROADSIP; (ii) a training program to improve the capacity of local contractors inlabor-based roadworks (including suitable equipment); and (iii) training of district council staffto supervise these contractors. The total costs for these Phase II activities were estimated atUS$ 5.9 million.

Training

22. Study Tour. In preparation for Phase II, a study tour was undertaken to Lesotho, Kenyaand Uganda to learn from their experience in implementing projects utilizing labor-basedapproaches to road rehabilitation and maintenance. The visit, organized with the assistance ofthe International Labor Organization (ILO), took place in July-August 1997, and included seniorPIU staff', an engineer from the MLGH Feeder Road Unit, and a potential small-scalecontractor. The trip proved extremely beneficial, and provided an opportunity to view anddiscuss the labor-based approach to roadworks, and it was decided to adopt this methodology forPhase II. Following this study tour, Phase II proposals were finalized, including theorganizational arrangements and costs for contractor training, equipment needs, and associatedtrial rehabilitation and maintenance contracts.

23. In early 1997, PE also attended a seminar on labor-based roadworks in Ghana. This wasorganized by ILO and took part in a short course on road construction and maintenance indeveloping countries at the Transport and Road Research Laboratory in the United Kingdom.

24. Labor-Based Road Maintenance Contractors and Works Supervisors. BetweenNovember 1997 to March 1999, the project financed three separate training courses, each ofthree months, which were conducted by the Roads Training School (RTS) in Lusaka. 44contractors from five provinces2 were trained in labor-based road maintenance along with workssupervisors from 15 district councils. These contractors were selected through interviews with233 applicants, which had responded to advertisements in the national press. The secondtraining course was interrupted for a period of four months due to delays in payment to RTS3 .This, in turn, delayed the start of the final course. For this reason, there was insufficient timebefore project closure to carry out the intended three month trial road maintenance contracts,providing on-the-job application of the classroom training. The total cost for this training wasUS$ 374,700. It has since been agreed, that these incomplete road maintenance activities will betaken up under ROADSIP, utilizing the equipment already procured by ZAMPIP (see paras 0and 0).

25. Labor-Based Road Rehabilitation Contractors. Following interviews with over 200applicants in November 1998, nine contractors were selected for the proposed training course inlabor-based road rehabilitation - three contractors each from Central, Lusaka and Southernprovinces respectively. The intention had been to start training in March 1999, but this wascancelled during supervision, as the project was due to close in June 1999. The expectation was

' The Acting Project Co-ordinator and the Project Engineer.2 The original three provinces of Central (11 contractors/4 districts), Lusaka (6/1) and Southem (9/4), and Luapula

(9/3) and northem (9/3) provinces.3 This delay was inexcusable because training costs were 100% reimbursable by IDA.

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that this activity would be taken up under ROADSIP, along with associated trial rehabilitationcontracts utilizing equipment procured by ZAMPIP for subsequent transfer to contractorsthrough hire purchase. At the time of the ICR, this is still under discussion between MLGH,MOWS and IDA.

Procurement

26. Road Contractors. For tendering, the consultants prepared a list of roads in four lotstotaling 238 km in Luapula (118 km) and Northern (120 km) provinces and advertisements wereplaced in the national press in May 1998. However, problems arose because the ZambiaNational Tender Board (ZNTB) did not accept the initial bid evaluation made by the project, andmade altemative suggestions which were not accepted by IDA. These problems took about eightmonths to resolve and two contracts with a total value of US$ 4.75 million were finally awardedin October 1999, to be financed under ROADSIP.

27. Labor-Based Equipment. Nine local contractors were selected for training in labor-basedroad rehabilitation, but this training was not carried out due to delays. However, six sets ofequipment weve procured, at a cost of about US$ 0.9 million. Each set (about US$ 120,000)comprises a 4WD vehicle for supervision, two tractors, a roller, a trailer, a towed water tankerwith pump, and culvert ring moulds. District councils also purchased an additional vehicle forsupervision.

28. Contracts for the purchase of tractors and vehicles, valued at US$ 0.45 million, were madein May-June 1998. These items were obtained through direct purchase under IAPSO', and werereceived in Zambia in early 1999. The vehicles are being stored by MAFF at their centralworkshops (Mount Makulu). At the time of the mission (October 1999), the tractors had notbeen released by the shipping agent due to a dispute over unpaid storage charges. A localcompany manufactured all the remaining items. Whilst the contract was awarded in September1998, the 30% advance payment (US$ 60,000) was not paid to the company for ten months, inJuly 1999. This serves to illustrate the financial mismanagement within MAFF/PIU at this time.The mission inspected all the imported equipment, and visited the factory where manufacturingwas in progress.

Costs

29. Total costs incurred during implementation of the road component were as follows:

UN agency for procurement.

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US$ '000Investment Costs

Vehicles and Equipment 28Engineering Supervision 298Phase I: Emergency Rehabilitation

- road study 67- road contracts 8,228

Phase Il: Rehabilitation and Maintenance- training courses/seminars 278- labor based equipment 1,000- study tour 6

sub total: 9,905Recurrent Costs

Salaries and Allowances 206Vehicles and Equipment O&M 25

sub total: 231Total: 10,137SAR: 20,033

Monitoring and Evaluation

30. Despite being a requirement in the DCA, the project failed to establish a monitoring andevaluation system. Consequently, there has been no systematic data collection to allow anassessment of the impact of the road component.

Transfer to ROADSIP

31. In February 1999, Government made a formal request for an extension of the component toJune 2001, but this was rejected by IDA on the grounds that most of the unfinished activitieswould be taken up under ROADSIP. Following discussions between MLGH and MOWS, it hasbeen agreed that ROADSIP will accommodate: (i) 240 km road rehabilitation in Luapula andNorthern provinces, and (ii) the trial contracts for the 36 labor-based road maintenancecontractors trained by ZAMPIP. The total cost of these activities is US$ 3.5 million, and tworoad rehabilitation contracts were awarded in October 1999 (240 km). The training of the sixlabor-based road rehabilitation contractors has yet to be decided, and is due for discussion duringthe mid-term review of ROADSIP, scheduled for October 1999.

C. IMPACT

Economic

32. As no monitoring or evaluation system was established by the project, no traffic or otherdata were available on which to assess the economic impact of the road component. At -

appraisal, the expected economic benefits from the improved roads were based on the following

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assumptions: (i) benefits to farmers arising from a 15% increase in agricultural production,(ii) benefits to transporters based on a 2.5% decrease in vehicle operating costs, and (iii) anoverall reduction in maize haulage. Since there was a revision in the length of road network to berehabilitated, this assumption is no more valid and, therefore, the expected economic benefitscould have not been realized. On the other hand, the benefits from the revised targets were notcalculated and there is no basis to assess the impact. Nonetheless, what has been observed is thatfarmers have not been using sufficient fertilizer, and expected agricultural output has not beenrealized; the anticipated decline in vehicle operation costs has not occurred because of the rapidincrease in fuel costs in recent years, and the project has not rehabilitated sufficient roads to havehad a marked impact on maize haulage.

33. The original target for rehabilitation was about 6300 km of rural roads (including spotimprovements). This was late revised to 790 Km of major road improvement work. Out of therevised road network for repair, the project has rehabilitated about 70% . Consequently, theproject's road improvements have benefited to a relatively small proportion of the total area andrural population. However, during field visits, district council officials and local people reporteda noticeable increase in vehicle traffic, particularly of small pickups and buses, as transportoperators are now more willing to use the improved roads to transport goods and people. Therehave been social benefits to the rural population served by the roads, the time saved in access tohealth services being especially valued. There has been an increase in the number of 'informal'markets along rehabilitated roads, as many of the former storage depots remain largely unusedsince the collapse of the subsidized marketing system.

34. Since the roads were rehabilitated 2-3 years ago, there has been no maintenance carriedout, and it is estimated that at least one third of the roads rehabilitated are now in urgent need ofmaintenance. Benefits are declining with each year this maintenance is neglected, and unlessaction is taken within the next 2-3 years, there will be practically no residual benefits.Unfortunately, large trucks (20 ton) are still widely used on rural roads to haul agricultural inputsand outputs, causing serious damage. The late delivery of fertilizer by these large trucks duringthe rainy season is especially damaging.

Environmental

35. All project road rehabilitation has been confined to existing roads, and no new constructionor major realignment has been carried out. Consequently, all works have been restricted toexisting rights-of-way. Contractors were obliged to reinstate borrow areas, used for excavationof gravel, to 'a ground shape and soil conditions suitable for re-establishment of indigenous plantvarieties'. This has minimized the likelihood of residual pools of stagnant water along roads,and associated health hazards. Improvements in road drainage have reduced the tendency ofneglected roads to accumulate water, and cause localized erosion damage. For these reasons, theroad component has not created any adverse effects on the environment.

Between 1995 and 1999, the price of diesel fuel has increased by 100%.

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D. SUSTAINABILITY

36. As has already been mentioned, there has been no maintenance of roads rehabilitated bythe project, and many of the busier routes have now deteriorated to the point where substantialinvestments will again be needed. On this basis, the project cannot claim to have madesustainable road improvements. Fortunately, ROADSIP has agreed to fund some 350 km of triallabor-based road contracts in Central and Lusaka provinces, which provides a belated start to thisessential work. However, this welcome initiative does not provide any assurance that resourcesfor maintenance will continue. It is important that future investments in rural roads should onlycommence when resources can be assured for subsequent maintenance.

E. LESSONS LEARNED

37. The following points highlight some lessons from implementation of the road component:

(i) Road Maintenance. Component design should include sufficient resourcesand practical arrangements for maintenance of the rehabilitated roads, andshould address the issue of how these resources will be generated (or sustained)after project completion. Without assured maintenance, the pre-projectsituation of severe neglect will recur within a few years, as observed under theproject. In short, investments in rural roads will have been largely wasted.Unfortunately, this fundamental sustainability issue plagues most rural roadimprovement programs.

(ii) Institutional Responsibility. Component design must define specificinstitutional arrangements for implementation, with the relevant agencieshaving adequate ownership and a reasonable degree of financial autonomy andcontrol. Such institutional arrangements should be a condition for loaneffectiveness, and not simply a condition for loan disbursements. The roadcomponent suffered from poor institutional arrangements, from the outset,which were recognized as uncertain at appraisal. This should not have beenleft 'undecided' at appraisal, as the SAR proposal was clearly not acceptable toMOWS at that time. Project effectiveness should have been delayed until thismatter had been resolved. This institutional issue should have been moreeffectively addressed during supervision (or mid-term review).

(iii) IDA Management. Complex projects with many components andimplementing institutions require regular supervision by suitable specialists,especially during the early years of implementation. IDA management shouldensure that the specified supervision plan drawn up at appraisal is carried out,or is suitably modified as required. In particular, a mid-term review must becarried out. The road component was adversely affected by IDA failure tocomply with these supervision requirements. For example: (i) there was noengineering specialist on any supervision missions during the first four years ofthe project, and (ii) the institutional problems relating to the road componentshould have been addressed, especially after 1997, when ZAMPIP effectivelv

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became a 'road' project. There was a lack of continuity in task management byIDA, with five different managers during project implementation.

(iv) Project Management. Sufficient numbers of senior, competent, motivated,and project-specific staff are required for effective implementation by projectmanagement. Staff and other changes, which diffuse and reduceresponsibilities for project management will have an adverse effect on projectperformance. The project has suffered from unsatisfactory management byMAFF, and to a lesser extent, MLGH in ensuring a timely and adequate flowof funds to implement the project. This was partly caused by the advent ofASIP in 1995, and the loss of a competent and project-specific (consultant) PCin 1996. There was also a serious lack of continuity in project management,with five PCs in total, with three after 1996 being without incentives andrelatively junior in rank. The Financial Management Unit in MAFF is singledout for particular criticism, causing delays in disbursements andreplenishments.

(v) Monitoring and Evaluation. Project monitoring and evaluation must beimplemented as designed to enable assessment of project impact andperformance. No monitoring or evaluation system was established by theproject, although specified as a requirement in the DCA. This oversight waslargely due to the absorption of ZAMPIP into ASIP, and the consequent loss offocus in project management. However, project supervision (or mid-termreview) should have addressed this matter.

(vi) Labor-Based Roadworks. Innovative approaches (labor-based roadworks)should be included in component design. However, caution should beexercised over targets, which should be conservative and based on realisticassumptions (in this case, local contracting capacity and labor availability). Atappraisal, there had been little previous experience of a labor-based approachto roadworks in Zambia, and design targets were unduly optimistic, based onexperience from Ghana. In retrospect, a mixture of both labor-based andmachine-based approaches would have been more realistic. The project hascontributed towards acceptance of labor-based roadworks, and other donorprojects are adopting this approach, endorsed by the National Roads Board andROADSIP.

(vii) Private Sector. Component design should maximize the involvement of theprivate sector in the execution of the roadworks, and reduce the role ofgovernment to policy, planning, supervision and control of resources. Thiselement of component design has proved successful, and engineering andcontractor services have implemented the required road rehabilitation works ina technically competent and efficient manner. Compared to earlier work, unitcosts have declined in response to competition and the scale of works.

(viii) Component Details. Project management requires a full understanding ofdesign assumptions, costs and phasing in order to implement a component

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successfully. There was insufficient information on these aspects in the SAR,and no supporting document (working paper) was made available to PIU/PE.

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