81816 ZAMBIA'S JOBS CHALLENGE REALITIES ON THE GROUND October 2013 Issue 2 ZAMBIA ECONOMIC BRIEF ZAMBIA'S JOBS CHALLENGE REALITIES ON THE GROUND • THE WORLD BANK October 2013 Issue 2 © 2013 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street NW Washington, DC 20433 USA All rights reserved This report was prepared by the staff of the Africa Region Poverty Reduction and Economic Management. The findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank’s Board of Executive Direc- tors or the countries they represent. The report was designed, edited, and typeset by Communications Development Incorporated, Washington, DC. Cover: Musa Mwamutanda Photo: Jumbe Ngoma Contents Foreword   v Acknowledgments   vi Executive summary   vii Section 1 Recent economic developments   1 Zambia shares robust growth and capital inflows with other Sub-Saharan economies    1 Zambia’s economy: Recent concerns about economic management    3 Selected financial sector developments    6 Medium-term outlook: Good prospects but considerable risks    9 Section 2  Jobs challenge: Realities on the ground    13 Improving earnings from work is an important development priority    13 Labor force is growing fast and will stay young for a long time    14 Current employment patterns are similar to other agrarian economies    15 Employment profile does not appear to be changing fast enough    17 Unemployment is mainly an urban youth issue    18 A large number of working Zambians are poor and concentrated in farming    19 Some youth issues deserve special attention    19 Summary of findings and policy implications    26 Annex A Economic data   29 Annex B  Basic definitions of labor force and employment    33 Annex C  Labor force participation, employment, and unemployment    34 Annex D  Determinants of wages in wage employment sector    40 Notes   42 References   45 Boxes 1.1 Movement in world metal and copper prices    2 1.2 Interest rate caps in South Africa    7 1.3 Evolution of nontraditional exports    10 2.1 What do youth want? A qualitative study of youth employment and unemployment in Zambia   13 2.2 Waiting to get into a university    19 2.3 Jobs in agriculture and poverty reduction    20 iii Zambia Economic brief—Jobs challenge: realities on the ground 2.4 What jobs do youth want to be in?    21 2.5 Getting a job is about who you know: “Wako ni wako” culture    22 2.6 Skills matter for increasing agricultural productivity    23 2.7 Targeting girls can pay off    28 Figures 1.1 Real GDP growth and prospects, 2001–15    1 1.2 Net capital inflows to Sub-Saharan Africa and Zambia, 2008–13    2 1.3 Foreign direct investment inflows by sector, 2011    3 1.4 Copper production, 2005–13   4 1.5 Net savings and genuine savings, 1997–2011    5 1.6 Stock of external debt since the Multilateral Debt Relief Initiative, 2006–13    5 1.7 Ex-post lending and deposit rates, 2008–12    7 1.8 Interest rate spread and net interest margin, 2002–11    8 1.9 Decomposition of bank interest rate spreads, 2008–12    8 1.10 Current account balance and international reserves, 2008–13    11 2.1 Zambia’s population is young, similar to other Sub-Saharan countries    14 2.2 Zambia’s population is estimated to almost double by 2030, even with declining levels in fertility   14 2.3 Zambia’s population will remain young in the coming decades    15 2.4 Overview of employment in 2010 (thousands)    15 2.5 Wage employment grows with per capita income    16 2.6 Public sector employs more highly educated people than private sector    17 2.7 Changes in the economy’s structure from 1994 to 2012    18 2.8 Unemployment rate by age for rural and urban areas    18 2.9 Girls, urban youth, and youth with senior secondary education are more likely to be inactive   19 2.10 Distribution of working poor and nonpoor by employment category    20 2.11 Transitions into employment differ in rural and urban areas    21 2.12 Employment outcomes for youth depend on opportunities    23 2.13 More than half of youth have primary education or less    24 2.14 School enrollment by wealth    24 2.15 Zambian grade 6 students underperform in literacy and mathematics compared with other southern and eastern African countries    25 Tables 1.1 Utilization of the sovereign bond proceeds    6 1.2 GDP growth projections, by main sectors, 2013–15    11 A.1 GDP growth, by main sectors, 2004–12    29 A.2 Central government finances, 2008–13    30 A.3 Selected balance of payment indicators, 2008–13    31 A.4 Zambia’s top 10 trading partners in 2011    32 C.1 Labor force participation, employment, and unemployment, by gender, location, age, and education level    34 C.2 Employment by economic sector    37 C.3 Labor force participation, employment, and unemployment, by province and stratum 38 C.4 Economic activity of Zambians ages 15–35 and 36–64    39 iv Foreword I am pleased to share this Zambia Economic in urban areas, from relatively better off Brief with a focus section on jobs. This sec- families who can afford to wait for jobs they ond Brief is part of a series of short economic desire. Therefore unemployment per se is a updates produced twice a year by the World lesser challenge in Zambia. Bank. Each Brief includes two sections: the We juxtapose these facts against the sce- Bank’s assessment of recent economic devel- nario where Zambia’s labor force is growing opments and outlook in the short to medium fast, currently at more than 130,000 new term, and its analysis on a specific develop- entrants a year. But formal jobs are grow- ment topic or theme. ing very slowly. Meanwhile, the ranks of the This Brief comes at a time when Zambia working poor continue to swell as youth from is continuing to experience robust economic poor families and rural areas keep getting growth but economic management is becom- absorbed in the jobs their parents were in— ing more challenging. The execution of the largely farming and home businesses. These 2013 budget highlights some of these chal- youth do not have the educational qualifica- lenges: the capacity to use costly foreign debt tions to improve their choices. This situation efficiently and keep personnel costs low so points toward the need to improve access to that essential spending on health and edu- good quality basic education, which will go a cation services for the poor is not crowded long way in not only supporting the country’s out. The government rightly understands the growth but also improving earnings from importance of maintaining macroeconomic work, particularly for the working poor. stability that has served the country well in We expect these Briefs to support evi- the past decade. dence-based policy debate in the country. The jobs section of the Brief shines a In that spirit the Brief has generally stayed light on what lies underneath Zambia’s lower away from making specific policy prescrip- middle-­ i ncome status. We find that most tions. We hope that the findings of the Brief Zambians are employed, working on farms, will generate a healthy debate in the coun- in nonfarm home businesses, and in wage try on policies and interventions needed to jobs. Yet a large number of them remain meet Zambia’s jobs challenge, which by all mired in poverty because their earnings accounts is rather huge. from work are low. So, while creating formal private sector jobs is a priority, an equally important development priority is to improve the living standards and earnings of working Zambians by boosting their productivity in agriculture, nonfarm self-employment, and Kundhavi Kadiresan formal employment. And who and where Country Director for Zambia are the unemployed? They are mostly youth The World Bank v Acknowledgments The second Zambia Economic Brief has been Kate Bridges, Louise Fox, Nalini Kumar, prepared by the Poverty Reduction and Eco- Samuel Maimbo, Dino Merotto, and Jumbe nomic Management Unit of the World Bank Ngoma. Peer reviewers were Kathleen Beegle Country Office in Lusaka. The team was and Deon Filmer. Kate Bridges, Victoria led by Praveen Kumar and included Gun- Cabral, Martha Mando, and Jumbe Ngoma hild Berg, Allen Dennis, Indira Ekanayake, organized dissemination events. Kutemba Asumani Guloba, Edna Kabala, Julia Philipp, Kambole provided administrative support Sangeeta Raja, Dena Ringold, and Katia Her- to the team. Kundhavi Kadiresan, Country rera Sosa. Dena Ringold led the subteam that Director, Zambia, and John Panzer, Sector worked on the youth employment and skills Manager, AFTP1 unit, provided overall guid- issues. The Zambia Institute for Policy Analy- ance and advice. sis and Research carried out a qualitative The report was edited and laid out by study on youth employment. Valuable com- a team at Communications Development ments were received at various stages from Incorporated, led by Bruce Ross-Larson. vi Executive summary Recent economic developments A large gap has emerged between avail- Zambia shares its robust economic growth able resources and likely spending in 2013. and capital inflows in the past few years with The government is responding with a full other Sub-Saharan countries, growth sup- range of adjustments, including cutting ported by high commodity prices that while recurrent spending (such as on travel and declining are still at historical high levels. motor vehicles), cutting capital projects, and High commodity prices have induced large stepping up revenue collection. Even after foreign direct investment (FDI) flows, mainly these efforts the fiscal deficit is expected in extractive industries but also in services to be higher than the budgeted 4.5 percent sector, supporting growth. Zambia’s min- of GDP. The government is exploring addi- ing sector has benefited from FDI, receiving tional external and domestic borrowing to almost $1 billion in 2011 alone. close the gap. In 2013 Zambia’s real GDP is projected The government has raised fuel prices and to grow 6.0  percent, much lower than the reduced maize and fertilizer subsidies, but the initially projected 7.8  percent. Despite medium-term fiscal impact of these initiatives a rebound in copper output and large is uncertain. These reforms aimed to create increases in public spending, contracting space for expanding better targeted spend- agriculture output (in at least two major ing programs. But the fiscal benefits of a fuel corps: maize and cotton) of about 7.4 percent price increase could erode if retail prices are will bring down growth in 2013. The final not periodically adjusted to reflect shifts in growth outcome will also depend on how the the world price of oil and in the k­ wacha–dol- much larger-than-planned fiscal deficit is lar exchange rate. Similarly, fiscal benefits of financed during the rest of 2013. the reduction in maize subsidies are uncer- The 2013 budget has come under stress tain, because the government has not decided due to several unplanned expenditures and on the quantity and price of maize to be pur- a shortfall in revenue collection. Additional chased by the Food Reserve Agency. expenditures include public sector wage External debt grew rapidly after 2006, but awards (0.8  percent of GDP), accumulated its use and management need strengthening. fuel supply losses not initially budgeted for The stock of external debt rose from $1.1 bil- (1.0  percent of GDP), and expected higher lion in 2007 to $3.4 billion in 2012 (a 192 per- spending on the Farm Input Supply Pro- cent nominal increase). The composition gram (0.4 percent of GDP). In addition, Food of external debt is also changing. Zambia’s Reserve Agency loans guaranteed by the gov- attainment of lower middle-income status ernment in 2012 (0.8 percent of GDP) are due has reduced access to funding on highly con- to be repaid. Preliminary data on domestic cessional terms, even as its financial choices tax collection for the first half of 2013 suggests have expanded. This has led to an increase in an estimated shortfall of 1.0 percent of GDP. nonconcessional borrowing since 2011. vii Zambia Economic brief—Jobs challenge: realities on the ground One year after it was issued, most of the Underpinning the projected medium-term proceeds of the $750 million sovereign bond growth are favorable external and domestic from 2012 are yet to be used. All the pro- developments. China’s strengthening econ- ceeds were allocated to projects in the 2012 omy (Zambia’s largest trading partner) bodes and 2013 budgets, but most of these projects well for Zambia’s metal trade. The strong have not taken off. Apart from using bor- foreign direct investment flows to mining in rowed money on projects with high rates of recent years are expected to continue boost- return, the government needs to improve its ing growth. public financial management and debt man- Zambia’s expected robust growth not- agement to deal with the risks of fast growing withstanding, serious external risks remain. external debt. Especially important among these risks are Since 2012 began, the Bank of Zambia has fast-declining copper prices. The economy instituted several important policy changes can absorb moderate declines in copper affecting the financial sector. One such prices, but steeper declines will hurt the change is the introduction of interest rate country. Indeed, planned mining invest- caps for both commercial banks and micro- ments could be delayed or even ­ canceled— finance institutions to control high lending slow ing­ const r uct ion and reducing rates in Zambia’s credit market. The interest government ­ revenues—with consequences rate caps have greatly affected the business for infrastructure investment and potentially strategies of commercial banks and micro- leading to macroinstability as the kwacha finance institutions. Based on other coun- depreciates (or reserves are depleted). tries’ experiences, interest rate caps would In addition, Zambia’s economy has seen likely curtail lending to small and medium far too many unexpected policy changes enterprises, especially for unsecured loans. in recent years. Persistent and even esca- Effective lending rates had been declin- lating perceptions of an uncertain policy ing since 2009, while deposit rates remained environment could weaken investment, unchanged. As a result, interest rate thereby reducing GDP growth. Further, the spreads—the difference between effective risks of fiscal slips could undermine mac- lending and deposit rates—fell to 10.3  per- roeconomic stability and undo some of the cent in 2012 from 15.0 percent in 2009. The country’s recent hard-earned gains. Fiscal decline in interest rate spreads is explained policy remains on a sustainable trajectory, largely by the decline in overhead costs. but escalating recurrent and off-budget Profit margins in the banking system remain expenses must be reined in. Major global high. Interest rate spreads can be reduced credit rating agencies have a negative out- further by increasing efficiency (to reduce look for Zambia. overheads) and competition (to put pressure on profit margins). Jobs challenge and realities on the ground Zambia’s gross international reserves Section 2 develops the following messages, declined sharply in 2013, from $3.0 billion in drawing mainly on the Living Conditions December 2012 to $2.5 billion (2.8 months of Monitoring Survey data and using other prospective import cover) in April 2013. The research including cross-country findings outflows were driven by mainly the Bank of of the World Development Report 2013 (World Zambia’s direct support for the oil import bill Bank 2012b): and debt-servicing obligations. But a stop to • Zambia’s population and labor force is Bank of Zambia direct financing of the oil young and growing fast. The population import bill and the tightened monetary pol- is projected to almost double by 2030 and icy conditions have halted a further decline hit 140  million by 2100. In 2010 about in reserves. 130,000 young workers were added to the Medium-term prospects for Zambia’s eco- labor force; in 2030 about 300,000 will be nomic growth remain good but are subject added. to evenly balanced risks emanating from • The current structure of the economy global uncertainties and macroeconomic and sources of growth are such that for- management. GDP growth is expected to mal wage jobs are being created slowly. average more than 7  percent over 2013–15. This pace is nowhere close to being able to viii absorb the new cohorts of youth that are These objectives require multifaceted and entering the labor market. long-term policies and government interven- • A large number of Zambians are already tions. This Brief does not provide recom- working because they cannot afford to mendations for achieving these objectives. not work. Therefore unemployment per However, to stimulate debate some commen- se is less of a developmental concern. But tary is included on current policies and pol- a large number of working Zambians are icy directions suggested. poor; actually working adults are more Creating formal jobs in the private sector likely to be poor than the nonworking. The is rightly accorded top priority in govern- working poor are concentrated mostly in ment policy and strategy documents. The farming and to a lesser extent in nonfarm government’s general approach is to provide self-employment. It is a development prior- an enabling environment for the private sec- ity to improve the earnings of the working tor and address constraints to growth. This poor by improving their productivity. is a sound approach. But as a resource-rich • Apart from agriculture, nonfarm self- country Zambia faces pressures on com- employment in the form of home busi- petitiveness due to an abundance of foreign nesses is an important source of jobs, exchange. Zambia’s urban centers are not yet much larger than the small and medium dynamic centers for creating wage jobs in the enterprises. private sector unlike the experience of suc- • Zambia’s public sector is relatively large. cessful countries across the developing world. Statistical analysis shows that public sec- As large consumption agglomerates Zambia’s tor wages, particularly in parastatals, urban centers attract migrant labor from are higher than in the private sector for rural areas, but the migrants get absorbed in similar education, location, gender, and largely petty commerce activities. This Brief experience. suggests an approach to create conditions for • Enrollment ratios in basic education have light manufacturing to grow. grown, but schooling is not translating For wage employment, understanding the into skills. Basic education is the founda- technical and vocational education sector is a tion for skill building and hence improved priority for future skills development. While productivity, but its quality is poor. The Zambia is looking to expand technical and poor, rural youth, and girls are particu- vocational education, and such expansion larly disadvantaged in terms of access to is often seen as the solution to high youth good quality basic education. unemployment, little is known about the cur- The above findings should shape Zambia’s rent system, its quality, and the employment efforts to tackle the jobs challenge. Sustained trajectories of its graduates. International attention should be given to achieving the experience underscores the importance of following objectives: accelerating the pace of the governance of technical and vocational growth of formal jobs in the private sector, training, and close partnerships with private improving smallholder productivity in agri- sector employers. culture, providing a supportive environment On smallholder productivity, maize subsi- for nonfarm home businesses, and improv- dies that are the cornerstone of government’s ing access to good quality basic education. agricultural policy and spending do not ben- Youth, particularly the urban unem- efit smallholders enough and are also subject ployed, will benefit from overall efforts to to leakages. Public sector investments would improve the broad environment for jobs. But be important to driving agricultural growth the poor youth, particularly girls in rural and intensifying smallholder agriculture. areas, may not benefit much because they Productivity growth in smallholder agricul- are unable to transcend the barriers of pov- ture would also require attention to access erty, gender, and location. Disadvantaged to credit so that farmers can mechanize and youth would need to be better equipped to apply appropriate amount of fertilizers. Farm seize opportunities created by improving blocks are also given a good deal of attention the jobs environment. Fundamentally, this by the government. Experience with farm involves providing equitable opportunities blocks is limited so far and a careful ex-ante for improving their basic skills. economic analysis of farm blocks is suggested. ix Zambia Economic brief—Jobs challenge: realities on the ground Home businesses and microenterprises are for the poor, would address a major con- generally grouped together as informal enter- straint to improvements in self-employment prises. And informality, generally associated and productivity in agriculture, small enter- with lower productivity, has been a consider- prises, and formal sector employment. But able policy concern in Zambia. The general how learning outcomes can be improved policy approach toward informal enterprises needs to be understood so that school- is to bring them under regulation. Given their ing translates into skills. Further analysis importance to employment and job creation, is needed to understand whether Zambia’s home businesses and microenterprises need poor performance in learning assessments greater support from the government. Initia- is due to inputs (lack of qualified teachers, tives that address the most important con- overcrowded classrooms), issues with service straints to creating a business such as access delivery (incentives for teachers to provide to finance and space to work could be cost- quality education), or other factors. effective. More analysis is needed to under- There is a need to address the gaps in stand these constraints in Zambia. There is access to basic education and prevent drop- also a need to understand how youth learn outs through targeted programs for children skills on the job and what other interventions at risk of not starting or finishing school. can increase the skills of youth working in While boosting skills is a longer term agenda, agriculture and self-employment. targeted interventions to support the transi- Improving foundational skills in basic tions of girls, the poor, and inactive youth education and expanding access to second- into jobs can improve opportunities for more ary education and skills training, especially marginalized groups over the shorter term. x Section 1 Recent economic developments Zambia shares robust growth and region’s economies. Overall, Sub-Saharan capital inflows with other Sub-Saharan Africa is forecast to grow an average of more economies than 5 percent a year over 2013–15: 4.9 per- Despite weakness in the global economy, cent in 2013 and gradually strengthening to growth in Sub-Saharan Africa remains robust 5.4 percent by 2015 (World Bank 2013b). (figure 1.1), supported by resilient domestic Increased investment f lows have sup- demand and commodity prices that, while ported Sub-Saharan Africa’s—including­ declining, are still historically high (box 1.1). Zambia’s — growth per formance, w ith In 2012 the region’s growth was estimated at ­ investment-to-GDP ratios increasing an aver- 4.4 percent. Excluding South Africa, its larg- age of 0.5 percentage points a year over the est economy, the region’s economies grew a past decade. In 2012 net private capital flows robust 5.4 percent—more than the develop- to the region reached $58.8 billion, with for- ing country average of 5.0 percent. About a eign direct investment (FDI) accounting for quarter of Sub-Saharan countries (includ- $32.1 billion; they are projected to rise to a ing Zambia) grew at least 7  percent, and record $67.5 billion in 2013 (figure 1.2). The several are among the world’s fastest grow- region’s resilient FDI flows in 2012 reflect ing. Medium-term growth prospects remain still-high commodity prices. In that year sev- strong and should be supported by a pick- eral mines were expanded, and new ones up in the global economy, high commodity were built. Prospecting yielded major gas dis- prices (expected to stay above average), and coveries along Africa’s east coast. New, com- investment in the productive capacity of the mercially viable oil wells were drilled in West Figure Real GDP growth and prospects, 2001–15 1.1 Developing countries (excluding China) Sub-Saharan Africa Sub-Saharan Africa (excluding South Africa) Zambia Real GDP growth, percentage change 8 6 4 2 0 –2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (forecast) (forecast) (forecast) Source: World Bank DEC Prospects Group. 1 Zambia Economic brief—Jobs challenge: realities on the ground Box Movement in world metal and copper prices 1.1 Despite the recent moderate pick-up in the global economy, prices of most industrial commodities have fallen. Metal prices, measured by the World Bank Metal Price Index, have declined 25 percent from post-crisis highs and 7 percent since February 2013. Prices of copper—Zambia’s main export—declined 14 percent from mid-February 2013 to mid-June and 27.5 percent from the post-crisis peak in 2011. From a historical perspective copper prices remain high—some 315 percent higher in nominal terms than they were a decade ago (box figure). Box figure Global copper prices and World Bank Metal Price Index, January 1995–May 2013 Copper World Bank Metal Price Index 12,500 250 Real metal price index (2005 = 100) Increased investment 10,000 200 flows have supported $ per metric ton 7,500 150 Sub-Saharan Africa’s— 5,000 100 including Zambia’s— 2,500 50 growth performance 0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 The price weakness reflects both moderate growth in demand and a strong supply response, results of increased investments over the past few years, induced by high prices. In metal markets new projects in Latin America (Chile, Peru), Africa (Zambia, Democratic Republic of Congo), and Asia (China, Mongolia) have placed substantial downward pressure on metal prices, even as sales have strengthened in line with the pick-up in output. Most base metals are in excess supply for 2013, which is likely to exert further downward pressure. Copper is in good supply, as evidenced by large stocks at the London Metal Exchange and Shanghai Metal Exchange (4 percent of annual consumption for copper). Combined stocks of copper at these exchanges increased 52 percent in the first three months of the year. Financial and real assets like commodities have been affected by interest rate fluctuations as well, induced by expansionary monetary policy. Indeed, part of the run-up in metal prices over the past several years can be attributed to very low global interest rates, which have reduced the cost of borrowing money in order to hold large inventories of industrial metals. This metals “carry trade” contributed to a remarkable increase in global inventories, even as metal prices hit record highs (rising inventories are normally associated with weak demand and falling prices). A normalization of interest rates, as the quantitative easing in the United States tapers off, could change the economics of this carry trade, resulting in a steep decline in metal prices. Recent U.S. Federal Reserve statements that led to a sell-off in global financial markets in May and June also contributed to the price decline. Source: World Bank DEC Prospects Group. Figure Net capital inflows to Sub-Saharan Africa and Zambia, 2008 –13 1.2 Sub-Saharan Africa Zambia Net foreign direct investment in ows Net foreign direct investment in ows Other capital in ows Other capital in ows 150 1.5 100 1.0 $ billions $ billions 50 0.5 0 0.0 2008 2009 2010 2011 2012 2013 (estimate) (forecast) Source: Authors’ computations and World Bank DEC Prospects Group. 2 and East Africa, and numerous countries dis- table  A.1 and see table 1.2 below). Recent covered new mineral deposits. indications signal a contraction in two major Although extractives dominate in the crops—maize, at –11 percent, and cotton, at value of FDI, the services sector, notably in –48 percent (current market prices)—in the infrastructure-related projects in construc- 2012/13 season. The contraction in maize tion, transportation, electricity, telecommu- output is due to erratic rain patterns and an nications, and water, has been expanding. In attack of army worms. addition, some larger economies with a grow- Production indicators point toward a ing middle class, such as Ghana, Kenya, Nige- recovery in copper output, as the rebound in ria, and South Africa, are attracting more production during the fourth quarter of 2012 FDI flows to their rapidly expanding con- spilled into the new year (figure 1.4). Prelimi- sumer sector (retail and consumer banking). nary data for the first half of 2013 indicate In 2013 real GDP is Capital inflows to Zambia have remained increasing capacity in existing mines. At the projected to grow resilient, with net FDI and portfolio invest- same time, new mines (Luashya-Muliashi ments growing steadily over 2009–12, from and Konoko) have opened recently, boosting 6.0 percent, much $305  million to an estimated $1.1  billion. production. This trend will likely continue as Growth was especially strong in the sec- the new mines hit their production potential. lower than the initially ond half of 2012. FDI inflows continue to The high and growing mining output is projected 7.8 percent be directed mainly at mining, with finan- not fully reflected in the national accounts cial institutions, wholesale trade, real estate estimates of growth and nominal output. activities, and communications also contrib- National accounts estimates use 1994 as the uting (figure  1.3). Australia, Canada, and base year. But the structure of the economy the United Kingdom contribute the most has since changed considerably, with mining FDI inflows to Zambia, consistent with inves- having a much larger share. A planned rebas- tor composition in mining (Bank of Zambia ing of national accounts estimates could sub- 2012). stantially increase the share of mining value added and raise GDP at current prices. Zambia’s economy: Recent concerns about economic management Fiscal management is a cause for concern The 2013 budget has come under stress due Copper production continues to grow to several unplanned expenditures and a Zambia’s economy is poised to grow slower shortfall in revenue collection. Preliminary in 2013 than earlier projected. In 2013 real data (based on January–July 2013 budget GDP is projected to grow 6.0 percent, much outturn) point to additional expenditure lower than the initially projected 7.8 percent. arising from accumulated fuel supply losses Despite a rebound in copper output and not initially budgeted for (1 percent of GDP), strong growth in the public sector, contrac- public sector wage awards (0.8  percent of tion in agricultural output by about 7.4 per- GDP),1 and expected higher spending on the cent will bring growth down in 2013 (annex Farm Input Supply Program (0.4  percent).2 Figure Foreign direct investment inflows by sector, 2011 1.3 Other Manufacturing Finance and insurance Electricity, gas, and steam Accommodation and food Construction Agriculture, forestry, and shing Information and communications Real estate activities Wholesale and retail trade Deposit-taking corporations Mining and quarrying –0.25 0.00 0.25 0.50 0.75 1.00 $ billions Source: Bank of Zambia 2012. 3 Zambia Economic brief—Jobs challenge: realities on the ground Figure Copper production, 2005–13 1.4 Copper production Global copper price 250 10,000 200 8,000 Million metric tons $ per metric ton 150 6,000 100 4,000 50 2,000 The fiscal deficit is 0 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 expected to be higher Source: Bank of Zambia; authors’ computations. than budgeted In addition, Food Reserve Agency loans reforms aimed to create space for expand- guaranteed by the government in 2012 ing better targeted spending programs. (0.8  percent of GDP) are due to be repaid. Before the fuel prices were raised, there was Preliminary data on domestic tax collection an implicit subsidy equal to the difference up to July 2013 suggest an expected shortfall between the pump price and the fuel cost. 3 of 1 percent of GDP for the year. Except for The government paid more than 754 billion the pay-as-you-earn tax and value-added tax kwacha ($147  million) in 2012 toward the on imports, major revenue bases are likely fuel subsidy (0.7  percent of GDP) and has to underperform. Particularly, mining rev- so far paid 1.22  billion kwacha ($227  mil- enue (company income tax) is projected to lion) in 2013 to clear the outstanding bill. be 0.9 percent of GDP lower than initial esti- And the removal of the maize subsidy could mates (annex table A.2). reduce the Food Reserve Agency budget Consequently, a large gap has emerged overrun, which has averaged 1.1 percent of between available resources and likely GDP since 2010. But the fiscal benefits of spending in 2013. The government is a fuel price increase could erode quickly responding with a full range of adjustments if no mechanism is put in place to periodi- and measures, including cutting recurrent cally adjust retail prices to reflect changes spending (such as on travel and motor vehi- in the world price of oil and in the dol- cles), cutting capital spending, and step- lar–kwacha exchange rate. Similarly, fiscal ping up revenue collection. To close the benefits of the reduction in maize subsidies gap, the government will cut the budget for are uncertain, because the government has the second half of 2013 by 20  percent for not decided on the quantity and price of the priority sectors (education, health, agri- maize to be purchased by the Food Reserve culture, water and sanitation, and defense Agency. and security) and 50 percent for other sec- tors. The capital budget is projected to drop Copper windfall has not contributed much to 5.7  percent of GDP from the budgeted to building human capital 7.2 percent. In addition, the Food Reserve The large public sector wage award of 2013 Agency debt will be rolled over as an appro- will likely cast a long shadow, cutting into priate repayment schedule is negotiated. public investment in human and physical Even after these efforts the fiscal deficit is capital. Indeed, while Zambia’s mining rev- expected to be higher than budgeted. The enues have grown, they have gone mostly government is exploring additional exter- to consumption instead of human capital nal and domestic borrowing to close the investment. After adjusting for net national deficit. savings, human capital investment has clearly The government has raised fuel prices not kept pace with resource depletion (fig- and reduced maize and fertilizer subsi- ure 1.5).4 The gap between genuine and net dies, but the medium-term fiscal impacts national savings has grown large in recent of these initiatives are uncertain. These years, compared with that in 2004. 4 Figure Net savings and genuine savings, 1997–2011 1.5 Net savings Genuine savings 30 20 Percent of GNI 10 0 –10 –20 While public 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Authors’ computations based on World Bank (2012a). investment has been ramped up, it is External debt has grown rapidly but its use these projects have been delayed or are yet and management need strengthening to take off. There is a need to have economi- yet to be matched External debt has been growing rapidly since cally viable and “ready to go and implement” with the selection 2006, when the Multilateral Debt Relief Ini- projects before deciding on how much and tiative substantially reduced Zambia’s debt when to borrow, particularly on nonconces- of high-return (figure 1.6). The stock of external debt rose sional terms. projects and efficient from $1.1  billion in 2007 to $3.4  billion in Zambia’s capacity for project appraisal, 2012 (a 192 percent nominal increase). The public financial management (PFM), and implementation composition of external debt is also chang- debt management requires further strength- ing. Zambia’s attainment of lower middle- ening. As noted by the first Economic Brief income status has reduced access to funding (World Bank 2012c), while public investment on highly concessional terms, even as its has been ramped up, it is yet to be matched financial choices have expanded. 5 This has with the selection of high-return projects led to an increase in nonconcessional bor- and efficient implementation. Since the early rowing since 2011. Between June 2011 2000s Zambia has embarked on a series of and May 2013 the government borrowed PFM reforms, yet the current systems face $1.61  billion on nonconcessional terms— several weaknesses. Several reports have indi- including a $750 million sovereign bond in cated that PFM systems require strengthen- September 2012. ing—including budget processes (planning, Most of the proceeds of the $750 million allocation, execution, monitoring, report- sovereign bond have yet to be used (table 1.1). ing), public investment management, cash While the proceeds were allocated to proj- management, public procurement, debt ects in the 2012 and 2013 budgets, several of management, and internal audit and control Figure Stock of external debt since the Multilateral Debt Relief Initiative, 2006 –13 1.6 5 Stock of external debt ($ billions) Stock of external debt (percent of GDP) 25 4 20 Percent of GDP 3 15 $ billions 2 10 1 5 0 0 2006 2007 2008 2009 2010 2011 2012 2013 (projected) Source: Zambian authorities, IMF, and World Bank estimates. 5 Zambia Economic brief—Jobs challenge: realities on the ground Table Utilization of the sovereign bond proceeds 1.1 Expected Project Fiscal year $ millions absorption Comment Kafue Gorge lower project 2012 186.0 Q4 2013 Yet to start Kitwe-Chingola road 2013 100.0 Q1 2013 Implementation commenced Roads re-financing “Formula 1” 2012 145.0 Q4 2012 Payment done Itezhi Tezhi hydropower equity injection 2012 36.0 Q4 2013 SI33 implementation challenges Other ZESCO projects 2013 33.0 Q4 2014 Yet to start Link Zambia roads project (Pave Zambia) 2013 65.0 Q1 2013 implementation commenced Railway 2013 120.0 Q4 2013 Yet to start Private sector support project (Access to credit-DBZ) 2013 20.0 Not yet accessed by private sector Rehabilitation of university teaching Hospital 2013 29.4 Q4 2013 Yet to start The interest rate caps Discount premium 14.2 have greatly affected Transaction costs 1.4 Total 750.0 the business strategies Source: Ministry of Finance. of commercial banks and microfinance (World Bank 2010, 2013c; Government of of these policy changes. This section briefly Zambia 2008, 2012a, 2013). The Ministry of considers the setting of interest rate caps and institutions Finance has formulated a five-year strategic provides an early read on emerging issues. plan to address these areas. With increased access to nonconcessional Interest rate caps borrowing, a prudent debt management In January 2013 the Bank of Zambia intro- approach is critical for managing the chang- duced interest rate caps for both commercial ing composition of public debt. With the banks and microfinance institutions to con- public and publicly guaranteed debt stock trol high lending rates in the domestic credit at 28 percent of GDP in 2012, Zambia’s pub- market. The interest rate caps, linked to the lic debt dynamics are sustainable, given the Bank of Zambia policy rate (at 9.75 percent), current size and evolution of the domestic are 18.75  percent for commercial banks, debt stock. But the growing external noncon- 30  percent for payroll lenders, and 42  per- cessional debt portfolio implies higher risk cent for development-oriented microfinance exposure—through currency, liquidity, and institutions (MFIs). According to the Bank of exchange rate risks. Zambia should give pri- Zambia classification, 10 of 32 MFIs are clas- ority to developing a debt-management strat- sified as development-oriented lenders. egy with a strong focus on managing the risk The interest rate caps have greatly affected exposure of potential variations in the cost of the business strategies of commercial banks debt servicing and its impact on the budget and MFIs. Commercial banks that are lend- and the size of the debt. It should also give ing to small and medium enterprises (SMEs) priority to identifying how cost and risk vary and piloting new products are reassessing with the changes in the composition of the their business plans. Some have already dis- debt. continued lending to SMEs, as interest rates charged for SME loans, especially those not Selected financial sector developments secured by collateral, are typically above the Since 2012 began, the Bank of Zambia has regulatory interest rate ceiling. At the end of instituted several important policy changes 2012 commercial banks’ SME lending port- affecting the financial sector. These changes folio totaled the equivalent of $480 million include revising minimum capital require- for 14,000 loans, $20 million of it unsecured. ments for banks, rebasing the national cur- The interest rate caps are expected to curtail rency, banning the use of foreign currency lending to SMEs, especially for unsecured for domestic transactions through statutory loans, as in South Africa (box 1.2). instrument (SI) 33, and setting interest rate Lending by development-oriented MFIs caps on loans. SI 55 has recently been issued has also been affected since the caps were to monitor balance of payments transactions. introduced. These MFIs have changed their It is still too early to assess the full impacts business model by introducing “assessment 6 Box Interest rate caps in South Africa 1.2 Several countries have introduced interest rate caps but with varying designs. The caps in South Africa, similar to those in Zambia, are linked to the repo rate but differentiated by the type of lending product rather than the type of institution. Differentiation by product allows lenders to charge higher interest rates for riskier transactions, such as unsecured loans or developmental credit agreements. Despite curtailing predatory lending in the formal sector, interest rate caps have led to an increase in informal lending, which is outside the National Credit Regulator’s control. In addition, South Africa shows that financial institutions take advantage of interest rate caps by classifying more loans as short-term transactions for which higher interest rates can be charged rather than entering into longer term credit agreements. The repo rate’s recent drop has tight- ened the current caps considerably, and several financial institutions appear to have limited their lending, even where the caps were not previously binding, such as in mortgage lending. Source: Authors. Zambia’s interest rate spreads remain fees” and other charges to overcome the at the end of 2012, leaving a difference of caps. This new practice is reducing trans- about 3 percentage points. Deposit rates have structurally higher parency in the pricing of MFI loans, which remained constant at about 2  percent since will prove especially challenging due to 2008. And consequently, interest rate spreads than those of their low financial literacy. In addition, MFIs are fell to 10.3 percent in 2012 from 15.0 percent peers, even though forced to reduce operating costs. In many in 2009 (figure 1.7). An appropriate approach cases they are considering cutting staff, post- to interest rates is to look at spreads and see they have been poning investments in information technol- how they can be brought down. declining since 2009 ogy systems, and closing branches, especially in rural areas, which cost more to maintain. Drivers of high interest rate spreads Recently established MFIs have yet to reach Zambia’s interest rate spreads remain struc- economies of scale, and smaller MFIs estab- turally higher than those of their peers, even lished by private parties might not survive though they have been declining since 2009 under current conditions. This is expected (Feyen and Kibuuka 2012).7 Over the last to affect outreach, the type of financial decade both Zambia’s interest rate spreads products MFIs offer, and loan terms and and its net interest margin have hovered conditions. above the 90th percentile of the world distri- Even in the absence of any interest rate bution and have compared poorly against the caps Zambia’s effective lending rates had regional group benchmark (figure 1.8).8 been declining since 2009, while deposit rates Interest rate spread decomposition for remained unchanged.6 The lending rate for 2008–12 reveals several interesting drivers the banking system, 17.4  percent in 2009, of Zambia’s high interest rate spreads.9 Fig- declined to 12.3  percent in 2012. Lending ure 1.9 shows that: rates must also be compared with the Treasury • Overheads are the largest component of bill rate (91 days), which can be interpreted as the Zambian spreads, but their impact has the “risk-free” return on capital, of 9.4 percent almost halved since 2009, when the global Figure Ex-post lending and deposit rates, 2008 –12 1.7 Lending rate Deposit rate 20 15 Percent of GNI 10 5 0 2008 2009 2010 2011 2012 Source: Individual banking statements from Zambian banks and World Bank staff calculations. 7 Zambia Economic brief—Jobs challenge: realities on the ground Figure Interest rate spread and net interest margin, 2002–11 1.8 Lending–deposit spread Zambia Sub-Saharan Africa median Expected median 30 20 Percent 10 Interest rate spreads 0 can be reduced further 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 by increasing efficiency Net interest spread Zambia Sub-Saharan Africa median Expected median and competition 15 10 Percent 5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Authors’ calculations based on data from Zambian authorities. Figure Decomposition of bank interest rate spreads, 2008 –12 1.9 Reserves Overheads Provisions Pro ts 20 15 Percent 10 5 0 2008 2009 2010 2011 2012 Source: Individual banking statements from Zambian banks and World Bank staff calculations. financial crisis put pressure on bank over- component of the spreads. Taxes make heads and provisions. Trends in staff pay- up a large percentage of the profit mar- ment, notably the easing of a previously gin. The corporate tax rate for banking tight labor market, explain much of the institutions fell from 40  percent in 2008 decline. Even so, salaries remain high and to 35 percent in April 2012, which would continue to drive overheads. have a positive impact on spreads. • Higher provisioning to counter the effects • Reserves have dropped steadily over the of the global financial crisis has fallen sub- last five years, also lowering the spreads. stantially—and in turn reduced spreads. Interest rate spreads can be reduced fur- • Profit margins have fluctuated, but they ther by increasing efficiency (to reduce over- remain high and are the second largest heads) and competition (to put pressure on 8 profit margins). Given the size of Zambia’s of the oil import bill and the tightened mon- financial system ($6.6  billion at the end of etary policy conditions have halted a further 2012), reaping full economies of scale is a decline in reserves. challenge. Facilitating bank expansion into underserved segments of the market by Medium-term outlook: Good prospects improving the financial infrastructure, par- but considerable risks ticularly the credit bureau and the collateral Medium-term prospects for Zambia’s eco- regime, would reduce risk and thus allow nomic growth remain good but are subject to banks to lower interest rates. Broadening the evenly balanced risks emanating from global credit bureau would allow more competition uncertainties and macroeconomic manage- among banks for the lowest risk borrowers. ment. GDP growth is expected to average In addition, the shortage of skilled labor is more than 7 percent over 2013–15 (table 1.2). Medium-term driving up salaries in the financial sector. Underpinning the projected medium-term prospects for Zambia’s Reducing that shortage by expanding train- growth are favorable external and domestic ing programs for the financial sector can go developments. China’s strengthening econ- economic growth a long way toward lowering overheads and omy bodes well for Zambia’s metal trade. The interest rate spreads. strong FDI flows to mining in recent years remain good, but are expected to continue boosting growth. serious external risks External position is generally sound but Aggregate demand is also expected to reserves need to grow continue boosting growth. Rising consumer remain, including fast- Zambia’s current account has traditionally spending, along with increased capital spend- declining copper prices been characterized by large surpluses on mer- ing (both private and public), will lead to an chandise trade and deficits on services trade increase in imports. Expected increases in and net income. But in the past two years exports should compensate for this, leading imports have grown at a faster pace compared to a positive net export contribution to GDP with exports (annex table A.3). In 2012 the growth. Fiscal policy is expected to remain import bill grew 25 percent, with petroleum expansionary, contributing to higher growth imports (accounting for about 12  percent) prospects. In addition, recent real wage growing more than 70  percent. Growing increases (for both the public and private sec- demand in mining (which grew 25 percent, tors) will support household consumption, consuming more than 35  percent of total the largest contributor to aggregate demand. petroleum product imports), increased vehi- Household domestic spending should also cle imports (which grew 40  percent), and benefit from a stable macroeconomic envi- electricity load shedding accounted for the ronment (average inf lation expected at growth in petroleum products in 2012, par- 7–8  percent), lower real interest rates, and ticularly the second half. An interesting fea- increased access to consumer credit. Indeed, ture of Zambia’s trade is the recent surge in with rising incomes, the increase in personal nontraditional exports (box 1.3). Some of the loans is expected to continue over 2013–15. increase comes from maize exports that are (The share of personal loans in total loans not likely to be sustained once subsidies are increased from 40 percent in 2010 to 50 per- withdrawn, but there are other agro-­ products cent in 2012.) that have the potential to grow. China remained Zambia’s largest trading partner, Serious external risks remain with copper and nontraditional exports lead- Zambia’s expected robust growth notwith- ing the way (annex table A.4). standing, serious external risks remain. The Bank of Zambia’s net foreign exchange Especially important among these risks are sales totaled $517 million in April 2013, with fast-declining copper prices. The economy gross international reserves having declined can absorb moderate declines in copper to $2.5 billion from $3.0 billion in December prices, but steeper declines will hurt the 2012 (figure 1.10 and annex table A.3). The country. Indeed, planned mining investments outflows were driven mainly by the Bank of could be delayed or even c slowing ­ anceled—­ Zambia’s direct support for the oil import bill construction and reducing government and debt-servicing obligations. But the April ­ revenues—with consequences for infrastruc- 2013 stop to Bank of Zambia direct financing ture investment and potentially leading to 9 Zambia Economic brief—Jobs challenge: realities on the ground Box Evolution of nontraditional exports 1.3 Nontraditional merchandise exports surged to more than 70 percent in 2012 (box figure 1). And growth has been impressive, above 32 percent, since 2010. Also in 2012, nontraditional exports contributed more than 30 percent of merchandise exports (30.4 percent) for the first time since 2003. But despite the gains this contribution is still below the 38 percent in 2003— when copper exports were still very low (box figure 2). Box figure 1 Growth in nontraditional exports, 2001–12 Nontraditional exports Annual growth 3 75 Percentage change 2 50 $ billions 1 25 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bank of Zambia. Box figure 2 Recent diversification in merchandise exports, 2000–12 Traditional exports Nontraditional exports 10 8 6 $ billions 4 2 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Zambian authorities and IMF estimates. Zambia’s surge in nontraditional exports since 2010 has been driven largely by maize, copper wire, cane sugar, gemstones, cotton yarn, and tobacco, which from 2010 to 2012 contributed about half of these exports. In 2012 wood exports stood at $183 million, up substantially from $14 million in 2011, due largely to exports to the Democratic Republic of Congo and Malawi. For maize a combination of surplus stocks and favorable prices (subsidized) could have increased exports to neighboring countries, such as Namibia, Tanzania, and Zimbabwe. A large jump in gemstone exports to Belgium, Singapore, and South Africa accounted for the high growth of this export base. Also notable was the 2012 surge in exports to South Africa of animal, fish, and plant products not for human consumption. Source: World Bank 2013b. macroinstability as the kwacha depreciates more consumption-driven (less metal-inten- (or reserves are depleted). sive). Another external risk is the expected The steeper decline could be acceler- rise in interest rates as the U.S. Federal ated by both supply-side factors (new mines Reserve begins to taper off its quantitative being opened globally) and weaker demand easing. This rise will not only have carry- from high-income countries and China trade effects on metal prices (see box 1.1) but (which accounts for more than half of Zam- also raise the cost of borrowing in interna- bia’s exports). China is already rebalanc- tional markets for developing countries like ing its growth model—from export-  and Zambia. Indeed, steep rises in the cost of investment-­ led (more metal-intensive) to borrowing could price developing economies 10 Figure Current account balance and international reserves, 2008 –13 1.10 Current account balance International reserves 10 4.0 Months of prospective imports 5 3.5 Percent of GDP 0 3.0 –5 2.5 –10 2.0 Persistent and even 2008 2009 2010 2011 2012 2013 (preliminary) (projected) escalating perceptions Source: Authors and the Bank of Zambia. of an uncertain policy Table GDP growth projections, by main sectors, 2013–15 environment could 1.2 Percent, unless otherwise stated weaken investment, Indicator 2013 2014 2015 thereby reducing Primary sector 0.1 7.6 6.8 Agriculture, forestry, and fishing –7.4 3.3 5.6 GDP growth Mining and quarrying 12.0 13.1 8.2 Secondary sector 9.1 10.5 10.9 Manufacturing 6.5 6.6 5.9 Electricity, gas, and water 4.0 11.6 18.1 Construction 12.0 11.0 11.0 Tertiary sector 6.6 6.8 6.4 Wholesale and retail 3.8 4.5 5.0 Restaurants, bars, and hotels 12.0 11.0 10.0 Transport, storage, and communications 11.8 13.4 10.2 Financial institutions and insurance 8.0 5.0 5.0 Real estate and business services 3.0 3.0 3.0 GDP 6.0 7.3 7.5 Memorandum item (billions of kwacha) GDP (current market prices) 120,952.0 139,113.0 158,275.0 Source: Zambian authorities, IMF, and World Bank staff estimates. out of international credit markets, reduc- perceptions of an uncertain policy environ- ing their ability to raise long-term capital to ment could weaken investment, thereby finance much-needed infrastructure projects reducing GDP growth. Further, the risks so that they can improve their competitive- of fiscal slips could undermine macroeco- ness and raise potential output. The World nomic stability and undo some of the coun- Bank estimates that the resulting decline in try’s recent hard-earned gains. Fiscal policy developing country investment could reduce remains on a sustainable trajectory, but esca- GDP growth as much as 0.6  percentage lating recurrent and off-budget expenses points a year after three years, as part of the must be reined in. Major global credit rating adjustment to higher capital costs. agencies have a negative outlook for Zambia. Despite good projections for the short to Perceptions of an uncertain policy environment medium term, Zambia’s economy still faces In addition, Zambia’s economy has seen large development challenges. The slow far too many unexpected policy changes in structural transformation implies that the recent years, the latest being the Bank of economy still relies on copper, especially for Zambia balance of payments monitoring SI foreign exchange earnings and government 55 of 2013. Persistent and even escalating revenues. While rapid growth is welcome, the 11 Zambia Economic brief—Jobs challenge: realities on the ground copper-dependent growth model has been poverty are related in Zambia and how long- unable to create enough productive jobs, for- term solutions to twin challenges of creating mal or informal. The growth has also failed jobs and reducing poverty could lie in improv- to make a real dent in poverty. The next sec- ing smallholder productivity and improving tion shines light on how employment and access to good quality basic education. 12 Section 2 Jobs challenge: Realities on the ground Improving earnings from work is an and education, and when such jobs are not important development priority forthcoming, it can breed discontentment. The issue of jobs is important to all Zam- This section places priority on improving bians and discussions about how to create the living standards and earnings of work- jobs and reduce unemployment pervade the ing Zambians by improving their productiv- media, policy documents, and debates. In ity in agriculture, nonfarm self-employment, the 2013 Afrobarometer Survey “unemploy- and the formal sector. This is a development ment” topped the list of the most important priority because a majority of Zambians are problems facing Zambia that the government already working; they cannot afford to be should address, with 19 percent respondents unemployed. Moreover, the Zambian labor choosing it (Afrobarometer 2013). This situa- force is growing fast and the pace at which tion has not changed much from 2009 when formal wage jobs are growing will not be fast unemployment was ranked the second biggest enough to absorb the new cohorts of youth problem, after “farming and agriculture.” that are entering the labor market. Creat- People care about jobs because earnings ing formal private sector jobs—by creating from work are generally the biggest share of a business environment for the private sec- their incomes. Living standards improve as tor to grow—is, and will be, important. But labor earnings improve. For poor Zambians, equally important is to ensure that the con- improving labor earnings could lead them ditions are in place so that “work pays off out of poverty. Jobs are also important for the (better)” in agriculture as well as in nonfarm psychological well-being of people and social self-employment. cohesion (World Bank 2012b). Later, this sec- This section also places emphasis on tion reports reactions of young people, col- improving access to, and quality of, basic edu- lected as part of a qualitative study (box 2.1). cation that “is an absolute priority given that The study shows that the youth want to get skill building is cumulative and basic educa- into jobs in line with the level of their skills tion forms the foundation on which much What do youth want? Box A qualitative study of youth employment and unemployment in Zambia 2.1 To have a richer picture of what the kinds of employment that Zambian youth aspire to are, and their experiences in different types of work and unemployment, a rapid qualitative assessment was undertaken in April 2013. The survey, conducted by the Zambian Institute for Policy Analysis and Research, included focus groups and interviews with 68 young people in four districts of the Eastern and Lusaka provinces, covering rural and urban areas. The survey captured a diverse range of experiences, including men and women ages 15–24 in wage employment, self-employment, farming, unemployment, and students. While not nationally representative, the study complements the quantitative picture in this section with insights into the opportunities and barriers that youth face in finding employment and moving between jobs. Source: Authors. 13 Zambia Economic brief—Jobs challenge: realities on the ground of the later path of skill acquisition rests” Labor force is growing fast and will (World Bank 2012b). The poor, rural youth, stay young for a long time and girls are specifically identified as prior- Zambia’s population is overwhelmingly ity targets when it comes to improving access young, similar to other Sub-Saharan coun- to good quality basic education. These dis- tries, and the youth make up a large share advantaged sections are not in a position to of the labor force (figure 2.1). Africa is benefit from an improvement in the general experiencing a youth bulge, and Zambia is environment for jobs creation by the private no exception. According to 2010 estimates, sector because they are unable to transcend 82 percent of the population (roughly 5 mil- the barriers of poverty, location, and gender. lion people) is 35 or younger, and 66  per- This section draws largely on 2010 Living cent (about 3 million) is 24 or younger (CSO Even if fertility Conditions Monitoring Survey (LCMS) data 2010b). At 62  percent, youth (ages 15–35) to draw out salient facts—the realities on also make up a large share of the total labor declines, Zambia’s the ground—about employment, youth, and force.10 The young population is a result of population is poverty in Zambia (CSO 2010b). In the end the persistently high fertility rate in Zambia a brief contrast is made between “the reali- and the accompanying strong population estimated to almost ties on the ground” and current policy direc- growth (World Bank forthcoming a). double by 2030 tion and debate. Some recommendations are Zambia’s population and labor force will made on accelerating formal jobs creation continue to grow fast in the coming decades. by the private sector, increasing smallholder Even if fertility declines, Zambia’s popula- agricultural productivity, improving the envi- tion is estimated to almost double by 2030 ronment for home businesses, and enhanc- (figure  2.2). A young age structure creates ing access to basic education for the youth powerful momentum for future population based on available research and lessons from growth because the youth are either in their other countries. reproductive years or will soon enter them. Figure Zambia’s population is young, similar to other Sub-Saharan countries 2.1 Uganda Zambia Mozambique Zimbabwe Rwanda Ghana 0 10 20 30 40 50 60 70 Share of total population age 24 or younger Source: United Nations, Department of Economic and Social Affairs, Population Division 2011. Zambia’s population is estimated to almost double by 2030, even with declining Figure levels in fertility 2.2 150 Millions of people 100 50 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Source: World Bank forthcoming a. 14 Under reasonable assumptions the working- current population of the country.12 The age population would also almost double to youth bulge is often seen as an opportunity more than 12 million in 2030. Assuming that that can drive dynamism and competitive- the current ratio of labor force to working- ness. But without a sharp and sustained drop age population persists, the number of work- in fertility and with that a decline in the ers added to the labor force would go up dependency ratio, the opportunity of a youth from about 130,000 in 2010 to more than bulge could be lost. Currently, that drop is 180,000 in 2020 and 300,000 in 2030. not likely to happen and so the youth bulge And Zambia’s population and labor force presents serious challenges. will stay young, presenting challenges and opportunities (figure  2.3). Declining fertil- Current employment patterns are ity will only affect the age distribution of the similar to other agrarian economies Without a sharp population if it can be sustained over a long In 2010 Zambia’s population was slightly and sustained drop period of time.11 An estimated 15.5 million more than 13 million, about 7 million being Zambians will be entering the youth popula- of working age (figure  2.4; annex  C).13 in fertility and with tion between 2011 and 2040, more than the About 5  million people (71  percent of the that a decline in the Figure Zambia’s population will remain young in the coming decades dependency ratio, the 2.3 Female Male opportunity of a youth 2010 2040 100+ bulge could be lost 95–99 90–94 85–89 80–84 75–79 70–74 65–69 60–64 55–59 50–54 45–49 40–44 35–39 30–34 25–29 20–24 15–19 10–14 5–9 0–4 20 10 0 10 20 20 10 0 10 20 Percent Percent Source: World Bank forthcoming a. Figure Overview of employment in 2010 (thousands) 2.4 Total population 13,020 Working-age population 7,021 Labor force 4,998 Employed Unemployed 4,574 425 Nonfarm Wage Agriculture employment self-employment 3,042 770 762 Formal Formal Rural Urban Informal nonpublic public sector 284 478 192 sector 307 272 Note: The numbers reported in the figure are statistical estimates and not based on a direct count (as in a census). “Formal” refers to employment in enterprises with more than five employees. In the discussion that follows “nonfarm self-employment” is used interchangeably with “home businesses.” Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). 15 Zambia Economic brief—Jobs challenge: realities on the ground working-age population, or the labor force keeps them in farming. Many youth enter the participation rate) were in the labor force— labor force working on family farms before that is, they were either working or looking moving into wage or self-employment. Simi- for work. There is a significant difference in larly, for women it is the lower mobility due participation rates between rural and urban to family and other obligations that keeps areas. In rural areas about 78 percent of the them on farm. Data show that a larger share working-age population was in the labor of women workers (74  percent) is on farms force, while only 61  percent was in urban than men (59 percent). areas (annex table C.1). The lower participa- Nonfarm self-employment (home busi- tion rate in urban areas is explained largely nesses) is an important source of employ- by the low rate for the youth and women. ment. It constitutes about 17  percent of Despite high Zambia has employment patterns simi- total employment and almost half of total lar to other agrarian economies. The share nonfarm employment, though concen- urbanization, farming of wage employment differs greatly across trated mainly in urban areas. This category is the main occupation countries and generally indicates a country’s includes people who run home businesses, development level (figure 2.5). The lower as their main activity, with no hired employ- of Zambians, with share of wage employment and higher share ment.16 Analysis from other Sub-Saharan about 68 percent of farming characterize agrarian economies. countries shows that home businesses pro- More than 80  percent of employment in vide an important avenue for people who are of the labor force Zambia is nonwage. In this, Zambia does not prepared to leave agriculture but cannot find differ much from its Sub-Saharan peers. wage employment (World Bank forthcoming Despite high urbanization, farming is b). Besides home businesses, a sizable share the main occupation of Zambians.14 In 2010 of wage employees (about a quarter) works about 4.5  million people were working in in microenterprises.17 Most microenterprises Zambia, with about 68  percent in farming, share characteristics of informality with including fishing and forestry. Manufactur- home businesses, such as lack of registration ing employed only about 3.2  percent, and as a firm, lack of social security coverage for mining 1.5 percent. There is sizable activity the employees, and being outside the pur- in the services sector (25 percent of the total view of labor regulation. employment), almost a fourth of which is gov- While small and medium enterprises are ernment services (annex table C.2).15 There often looked upon as the source of jobs and is very little nonfarm activity in rural areas; employment, home businesses and micro- only about 14 percent of rural employment enterprises actually play a much bigger role is in nonfarm activities, of which 2.8 percent- in employing people in Zambia as in most age points are the public sector. developing countries and even middle- And farming is not necessarily an occu- income countries. They contribute 67  per- pation of choice for those working in it. In cent of employment in industrial activities many cases, particularly for the youth, it is (annex table C.2). Commerce activities are the absence of alternative opportunities that almost entirely made up of home businesses Figure Wage employment grows with per capita income 2.5 100 Wage employment (share of total) 75 50 25 0 0 2 4 6 8 10 12 Ln GDP per capita Source: Authors’ calculations based on wage employment data from World Bank (2012b) and per capita income data from World Bank (2012a). 16 and microenterprises (93  percent). Com- government and by more than 50 percent in mon industrial activities include producing the parastatal sector (annex D).18 If the pub- charcoal, milling, making thatched roofs, lic sector generally pays higher wages than producing wood and iron products, and con- the private sector and demands more univer- struction. Common services sector activities sity graduates than the private sector, it could include vending, making and selling food be encouraging the youth to pursue univer- products, transport, and personal services. sity degrees and then wait out for public sec- Larger enterprises with more than five tor jobs (see box 2.4 below). employees (called formal in this section) account for about 13 percent of total employ- Employment profile does not appear ment. Almost all formal wage employment is to be changing fast enough in urban areas, where it forms about a third Zambia’s economy has been showing some The public sector of total employment. These levels are gen- structural change, if a slow one. In fast-­ accounted for erally in line with the rest of Sub-Saharan growing developing economies rapid growth Africa. is often accompanied by a structural change about 47 percent The public sector is an important source in the economy where the nonagricultural of employment. It accounted for about 6 per- labor force grows at a much faster pace than of formal wage cent of total employment and 47 percent of the agricultural labor force.19 The structure employment in 2010 formal wage employment in 2010. The public of economy also changes with industries and sector employs many more people with post- services accounting for a larger share of the secondary education than the private sector output. In Zambia over the past 20 years the does (figure  2.6). Public sector work may combined share of industries and services has demand postsecondary skills more than that grown slightly more than 10 percent, a rather in the private sector. The figure also indi- slow pace of structural change (figure 2.7).20 cates that the university education system It is difficult to say how fast the structure particularly appears to be feeding mainly to of jobs is changing in Zambia, but formal the public sector and not the private sector. jobs creation appears to be very slow. The The public sector, particularly the quasi- quality of data is not good enough to esti- government sector, also appears to be pay- mate how many jobs are being created and in ing higher wages than the private sector what sector.21 Looking at aggregate employ- for similar education, location, gender, and ment data, the 2008 Labour Force Survey experience. An econometric analysis of recorded a net employment increase of about determinants of wages shows that being in 475,000 over 2005–08, but only 3.3 percent of the public sector improves wages received the increase was in formal employment (CSO for similar education, location, gender, and 2010a). These numbers depict a very slow rate experience by about 17 percent in the central of net increase in formal jobs, roughly 5,000 Figure Public sector employs more highly educated people than private sector 2.6 University and higher Postsecondary technical Senior secondary completed Junior secondary completed Primary completed Primary incomplete No education 100 75 Percent 50 25 0 Public Private Other Employment sector of those in wage employment Note: Public sector includes government, quasi-government, and international organization workers; other includes nongovernmental organization workers, household employers and employees, and the like. Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). 17 Zambia Economic brief—Jobs challenge: realities on the ground Figure Changes in the economy’s structure from 1994 to 2012 2.7 Tertiary sector Secondary sector Primary sector 100 75 Percent 50 25 Urban youth 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 overwhelmingly Note: See annex table C.2 for definition of primary, secondary, and tertiary sectors. Source: Authors’ presentation of data obtained from Zambian authorities. comprise the ranks a year, or about 1 percent a year. In compari- of urban youth were unemployed, compared of unemployed son, real GDP expanded over 2003–08 at an with just 4.4 percent in the rural areas. average rate of 5.7 percent.22 These numbers The unemployment rate is highest for show that, given the current structure of the youth who have completed senior secondary economy and the nature of growth, formal education, perhaps explained by that better jobs are being created at a much slower pace educated youth, especially in urban areas, than economic growth.23 have more resources and can afford to be unemployed while waiting for opportuni- Unemployment is mainly an urban ties in wage employment (Guarcello, Kov- youth issue rova, and Lyon 2012). In comparison, less Unemployment in Zambia is an issue, educated youth with fewer resources cannot but afflicting mainly the urban youth. In opt out of working and are likely to work on 2010 about 8.5  percent of Zambians in the family farms or in home businesses. Indeed, working-age group reported themselves unemployment is considerably higher among as un­employed. 24 There was a significant nonpoor youth (16 percent), compared with urban–rural difference, with the urban poor youth (9 percent). unemployment rate at 19.6  percent, more About 17  percent of youth are inactive— than six times the rural rate of 3.1 percent. neither working nor studying. Urban girls are And unemployment is concentrated among more likely to be inactive than urban boys: young people. Combining age and urban– 41  percent of urban girls are inactive, com- rural location, urban youth overwhelmingly pared with 24  percent of urban boys. The comprise the ranks of unemployed (fig- trend of inactive youth by education level ure 2.8). In the 15–35 age group 27.4 percent is similar to the pattern of unemployment. Figure Unemployment rate by age for rural and urban areas 2.8 Rural areas Urban areas 60 40 Percent 20 0 15 20 25 30 35 40 45 50 55 60 64 Age Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). 18 Inactivity is highest among those who com- and improvement in land rights can affect pleted senior secondary education, and farmers’ labor productivity. Several of decreases for both higher and lower educa- these same factors are also fundamental for tion levels, further suggesting that youth with enhancing off-farm jobs and diversifying higher education can afford to be unem- family incomes. ployed (figure 2.9). But it could also be due to In low-income countries growth in agri- that some students who have completed senior culture is associated with larger reductions secondary education wait one year before they in poverty than in other sectors of the econ- start university education (box 2.2). omy (World Bank 2012b). Since 1700 almost every example of mass poverty reduction has A large number of working Zambians begun with an increase in agricultural pro- are poor and concentrated in farming ductivity (box 2.3). Farming accounts for A large number of working adults remain The much lower concentration of poor in about 81 percent of mired in poverty.25 In fact, working adults are the nonfarm home business sector is notable. more likely to be poor than the nonworking. Evidence shows that in many countries this the working poor In the 36–64 age group 62 percent of those sector has played an important role in mov- working are poor, compared with 56 percent ing people out of poverty. In Bangladesh and of nonworking. Working poor are concen- Uganda the shift in primary economic activ- trated in farming, which accounts for about ity from agriculture to a nonfarm business 81 percent of the working poor (figure 2.10). contributed substantially to poverty reduc- For those employed in agriculture, to tion over the last decade (World Bank forth- escape poverty they must derive greater earn- coming b). ings from their work. Research shows that an increase in labor earnings plays a big role Some youth issues deserve in reducing poverty. In farming, apart from special attention individual characteristics of farmers such as Youth employment issues present additional education, improvements in other factors of dimensions. Youth have aspirations for their production such as better access to input-out- future. Educated young Zambians want to put markets, infrastructure improvements, work outside of agriculture in wage and Girls, urban youth, and youth with senior secondary education are more likely Figure to be inactive 2.9 Male Female Urban Rural University and higher Postsecondary technical Senior secondary completed Junior secondary completed Primary completed Primary incomplete No education Total 0 10 20 30 40 50 Percent Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). Box Waiting to get into a university 2.2 Asaph Zulu is a bright young Zambian who passed grade 12 in February 2013, coming out near the top in the Lusaka area, with sterling grades scoring a “1” on seven of his eight courses and a “2” on the other, based on a scale of 1 to 9, with 1 being the highest. Asaph comes from a large poor family headed by his mother. He wants to be a doctor but cannot pay for university fees. He has to wait to get a bursary and cannot start college until September 2014. Meanwhile he is working at a gas station trying to support his family. If and when he ultimately starts going to the university, it would have been almost two years since he wrote his grade 12 examinations. He is worried that his academic skills might deteriorate waiting so long to start university. Source: Authors. 19 Zambia Economic brief—Jobs challenge: realities on the ground Figure Distribution of working poor and nonpoor by employment category 2.10 Wage employment 7% Nonfarm self-employment 13% Wage employment 35% Agriculture 43% Agriculture 81% Nonfarm self-employment Most youth expressed 22% interest in working Poor Nonpoor in the public sector, Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). largely because Box Jobs in agriculture and poverty reduction of perceptions of 2.3 The largest poverty reductions documented are associated with jobs in agriculture. China in the 1980s and Vietnam in the 1990s job security and testify to the importance of agricultural productivity and forces unleashed by land reform, investments in rural infrastructure, and higher pay off-farm job opportunities. In rural China poverty reduction was associated with off-farm activities tended to those who had benefited from increased farm incomes and by obtaining more education. Furthermore, easier access to off-farm employment and opportunities for migration reduced the exposure of households to income shocks. A similar pattern of events has been docu- mented in other Asian and Sub-Saharan countries. Whereas poverty reduction in rural areas is associated with diversification into nonfarm activities, in Sub-Saharan Africa it may be more closely associated with increase in farm productivity. Source: World Bank 2012b. self-employment. They face difficult transi- Youth face barriers in getting into jobs and tions from school to work, and they also lack changing them experience and social networks. Specifically Transitions from school into productive in Zambia, youth cite gender discrimina- employment are challenging for young Zam- tion, tribalism, nepotism, and corruption as bians. Such transitions are not direct. Some obstacles to getting jobs. Youth also face bar- youth never attend school in the first place or riers to mobility across types of jobs and from drop out before finishing, some work and study rural to urban areas. at the same time, and others delay starting to work and continue their education. Although What youth want to do the LCMS data do not allow for adequate anal- Youth often find themselves in jobs other ysis of youth who are working and studying at than ones they would want to be in (box 2.4). the same time, qualitative studies suggest that Many work in self-employment to comple- it is common (World Bank 2008; ZIPAR 2013). ment working in agriculture, or as a bridge Many start working at a young age: 6 percent while looking for a wage job. The qualita- of children ages 5–14 work and do not attend tive study found that while some ended up school, and another 23 percent combine school in self-employment as a choice, for most it is and work.26 The transition into employment the inability to find a job, the desire to finan- looks different in rural and urban areas (fig- cially support their families, and the need for ure 2.11). Rural youth leave school and enter further education that leads them into self- into employment younger than urban youth, employment. The study also found that most while more urban youth are unemployed or youth expressed interest in working in the inactive as they wait to get into desired jobs. public sector, largely because of perceptions Transitions across types of jobs are also of job security and higher pay. These aspira- slow. Few youth move among agriculture, tions may drive interest among youth to gain nonfarm self-employment, and wage employ- academic credentials, rather than seek tech- ment as they get older, though urban youth nical and vocational education. are more likely to do so. Less than 3 percent of 20 Box What jobs do youth want to be in? 2.4 Most youth are not satisfied in their current job Most participants were not satisfied with their current jobs mainly due to low incomes and poor working conditions, for those in wage employment, and lack of capital for those in self-employment. As a result, all participants indicated that they were looking for work elsewhere. They are self-employed for various reasons “I chose self-employment because of the insecurity in wage employment. . . . It took me about one year and six months to settle in self-employment.” A young entrepreneur (urban) “I have worked before. But I decided to be in business. It took me four years to settle.” A young entrepreneur (urban) “Sitting idle troubled me, so I started to start doing gardening in 2010.” A young entrepreneur (rural) “I was not earning anything to support my family, and I planned to further my education. So I decided to do various jobs.” A young married volunteer (rural) Many youth perceive “I did not choose [to be in self-employment]. It is because I failed to find a job.” A young entrepreneur (urban) the allocation of jobs Youth in rural areas combine family farming with other activities to make ends meet to be unfair, based “I help out at home, and attend to my field where I have a piece of land to grow food for my own consumption.” A young woman in farming self-employment (rural) on gender, nepotism, “I prepare to attend to my garden where I grow vegetables for sell. I water and weed my vegetables in morning. Thereafter, usu- ally in the afternoon I get to the Boma (town center) to look for work.” A young woman in farming self-employment (rural) and connections Most youth want to work in the public sector rather than merit Participants in the qualitative study were asked which industries or companies they would want to work in. Most participants indicated that they would want to work in public sector jobs, especially in health and education. “I would like to work in the health industry because I want to work for and help people.” A young female full-time student (urban) “The Ministry of Gender or Youth and Child Development because I have a passion for young people.” A young female entre- preneur who makes beads and earrings (urban) “The Ministry of Commerce, Trade and Industry because of the passion I have for business.” A young self-employed male engaged in poultry and data entry (urban) “I would like to work in a mine procurement department so that I learn because I want to open my own mine.” A young female entrepreneur (urban) “The Ministry of Science and Technology because I have a passion for computers.” A young male entrepreneur who runs a barber­shop “I want to work for the Central Statistical Office. This is because I did some surveys with the institution, and I was inspired by the money they gave me.” A young male barbershop owner “Ministry of Education because there is more time to do other things.” A young male employed to sell beef products (urban) Source: ZIPAR 2013. Figure Transitions into employment differ in rural and urban areas 2.11 Employed Full-time student Unemployed Not in labor force or education Rural areas Urban areas 100 100 75 75 Percent Percent 50 50 25 25 0 0 15 20 25 30 35 15 20 25 30 35 Age Age Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). youth in the LCMS responded that they had rural and urban areas. Most rural youth start changed jobs in the last 12 months. This low working in agriculture, and it remains their mobility is due partly to low mobility between primary activity over time. In contrast, as 21 Zambia Economic brief—Jobs challenge: realities on the ground urban youth get older, participation in home explained, “I have tried to get a job, but only businesses and wage employment rises, while relatives are being employed.” Perceptions that in agriculture falls. of discrimination are widespread, including Youth depend on many resources when concerns about tribalism and nepotism. Oth- searching for jobs. Most youth find out about ers, especially women, indicated that they job opportunities from friends and relatives, were discriminated because of their gender and newspapers, electronic media, posters, or appearance. Young women especially cited social media (Facebook), and text messages discrimination and sexual harassment as are also sources of information. While there part of the job search. Respondents relayed were no distinct differences in sources of examples of employers or recruitment offi- labor market information between young cers requesting sexual favors or monetary Living in an urban men and women, there were noticeable dif- bribes in exchange for employment. ferences between urban and rural areas. area and being a Information from friends, relatives, post- Opportunities for skills development for man improves an ers, and radio were common in both rural youth, particularly for girls, are unequal and urban areas. Access to television, social Youth employment patterns largely mimic individual’s chances media, and newspapers is more prevalent in those for adults in the labor force, indicat- of wage employment, the urban areas. ing that youth find it hard to transcend cir- Many youth perceive the allocation of jobs cumstances such as location, gender, and while living in a rural to be unfair, based on gender, nepotism, household poverty status (annex table C.4). area and being a and connections rather than merit. Respon- And these circumstances largely determine dents in the qualitative survey explained how the opportunities available to youth. Living woman reduces them people get jobs in their communities. In all in an urban area and being a man improves areas, getting jobs is about “who you know” an individual’s chances of wage employ- instead of “what you know” (box 2.5). Many ment, while living in a rural area and being respondents believed that they needed to a woman reduces them. Access to education know someone to get a job. A young woman is also dependent on these circumstances Box Getting a job is about who you know: “Wako ni wako” culture 2.5 James, 24 years old, spends his mornings volunteering at the Nyimba District Hospital and helping pregnant women, and his afternoons running a hair salon with his wife and sister-in-law. He wants to further his education by going to college while also adequately supporting his wife and four children. Not satisfied with his current situation, he is still looking for a regular paid job. He has applied to several employers but with no success. But he says most people get jobs through relatives and being known, and he does not feel connected enough to get one. He is aware of the Citizen’s Economic Empowerment Fund for entrepreneurship, but he feels it only benefits the privileged with connections. For Daniel, a 23-year-old unemployed Chongwe resident who has done a management course, getting a job is also about who you know. “If I don’t know anyone, I won’t get the job,” he said emphatically, when asked about barriers or obstacles to securing a job. To overcome this obstacle, he believes that people should be recruited on merit. He also believes that tertiary education fees should be lowered to enable more young people to access higher education. Both James and Daniel are examples of the “wako ni wako” culture, which literally means “your kind is your own.” The wako ni wako culture is currently practiced to various degrees in organizational recruitment and selection procedures, both public and private. It refers to recruitment based on friendships, family ties, and tribe or political affiliation without regard for qualifications. And it was one of the main reasons cited by most of the young people who participated in the focus groups for not getting jobs. John is a Chipata-based unemployed 24-year-old who failed mathematics at grade 12. “I feel as if people are laughing at me because I don’t have a job,” he says when asked how he felt about being unemployed. “You feel as if you are not useful to the world.” He has worked before, at a seasonal job with one of the tobacco companies in Chipata. To get this job, he had to pay a bribe to the recruiting officer—50,000 kwacha. Had he been unable to pay the bribe, he would not have got the job. To John, the job market in Chipata is limited, and thus leads to corruption. He suggests that the once vibrant Luangwa Industries, which used to manufacture bicycles, should be reopened to increase employment opportunities for young people like him. Source: ZIPAR 2013. 22 (World Bank 2012c). Figure 2.12 depicts the Many youth drop out of school due to stark contrast in employment outcomes for a financial constraints. Half of youth who rural girl with little education from a poor dropped out before completing primary and household with those of an urban boy with secondary school identified lack of financial some postsecondary education from a non- resources as the main obstacle to continuing poor household. their education. The gross enrollment rate in Basic skills are important for building the last grade of primary schooling is 118 per- human capital. These skills include numer- cent (because of the large number of over-age acy, literacy, and behavioral skills that allow students) but it drops to 87  percent for the young people to interact successfully and first year of junior secondary and to 40 per- perform on the job (World Bank 2012b, cent by the end of senior secondary school. forthcoming b). They are also important for Starting at the junior secondary level, schools Many youth drop raising agricultural productivity, as well as are permitted to charge fees, making it out of school due to for productivity in home businesses and wage harder to continue education, particularly for employment (box 2.6). students from poor households. Additionally, financial constraints Most youth enter the labor force with lim- junior and senior secondary schools are more ited education and skills. Access to education likely to be located near urban areas, limiting measured by enrollments has been improving access for those who live in rural areas. rapidly. Enrollments in grades 1–12 rose from Very few poor youth benefit from govern- 2.6 million students in 2004 to 3.6 million in ment spending on secondary and tertiary 2010 (World Bank 2012d). But outcomes have education. For secondary education the been poor. Roughly 30 percent of youth (or share of beneficiary students rises rapidly 1.5 million) have no education at all or have with wealth, and for tertiary education the not completed primary school (grades 1–7), vast majority of beneficiaries (more than and another 28  percent have no schooling 85 percent) are in the top quintile by wealth beyond primary school (figure 2.13).27 (figure 2.14). Figure Employment outcomes for youth depend on opportunities 2.12 Agriculture Nonfarm household enterprises Wage employment 100 75 Percent 50 25 0 Female with no education or Male with some incomplete primary from a postsecondary education from a poor household in a rural area nonpoor household in an urban area Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). Box Skills matter for increasing agricultural productivity 2.6 Basic literacy plays a key role in increasing agricultural productivity in both developing and developed countries (Fuglie 2010; Himanshu 2006). Primary and secondary education has a highly significant positive effect on agricultural productivity, based on a panel of 65 countries over 1961–2002 (Reimers and Klasen 2011). This is because farmers with more education are more likely to adopt modern technologies, make better use of inputs, choose technologies more effectively, and respond more rapidly to changes, like market and weather conditions (Schultz 1988). Additionally, modern information and communication technologies are changing the nature of the skills required for agriculture, as information (from agriculture techniques to price and market access) is obtained by radio, television, Internet, and mobile services. These changes suggest that foundational skills, literacy, and numeracy will have larger impacts on agricultural productivity amid rapid technical change. Source: World Bank forthcoming b. 23 Zambia Economic brief—Jobs challenge: realities on the ground Figure More than half of youth have primary education or less 2.13 Postsecondary Junior or senior secondary completed Primary completed No education or primary incomplete 0 10 20 30 40 50 Girls face steeper Percent barriers to staying in Source: Authors’ calculations based on Living Conditions Monitoring Survey data from CSO (2010b). school, largely due to Figure School enrollment by wealth family considerations, 2.14 Richest quintile Quintile 4 Quintile 3 Quintile 2 Poorest quintile and thus are more 100 Quintile participation (percent) likely to have no 75 or incomplete primary education 50 25 0 Basic Secondary Tertiary Source: Cuesta, Kabaso, and Suarez-Becerra 2012. Financial constraints limit the education Even for those students who stay in school, outcomes for the poor youth. More than half the quality of education is poor. Zambian of youth in the bottom consumption quintile students underperform in both reading and have no education or incomplete primary mathematics compared with their peers in schooling and only 0.2 percent have educa- other countries (figure  2.15). Most Zam- tion beyond the senior secondary level. In bian grade 6 students did not reach mini- contrast, only 8 percent of youth in the top mum standards for functional literacy or quintile have no education or incomplete pri- numeracy on the 2007 Southern and East- mary education and 22 percent have educa- ern Africa Consortium for Monitoring Edu- tion beyond senior secondary (CSO 2010b). cation Quality (SACMEQ) III assessment: Girls face steeper barriers to staying in 73 percent of Zambian grade 6 students do school, largely due to family considerations, not score beyond “basic literacy” (levels 1–3) and thus are more likely to have no or incom- and 92  percent do not score beyond “basic plete primary education. A fifth of girls iden- numeracy” (levels 1–3).28 Among SACMEQ- tified pregnancy, marriage, and health as tested countries, Zambia ranked 13th of 14 in reasons for leaving school, in contrast with reading and last in math.29 Further, Zambia’s just 4  percent of boys (CSO 2010b). Fam- student performance has not improved over ily obligations and social norms shape girls’ time, even declining slightly compared with decisions about education and work (World other countries.30 Bank 2011). Early marriage is common in Learning deficits are especially severe for Zambia, as 26 percent of female youth ages the poor, rural youth, and girls. Students 15–24 are married. A 2002 study found that from households in the lowest welfare quartile 42 percent of women in ages 20–24 were mar- scored more than half a standard deviation ried by the age of 18 (UNICEF 2005). below their counterparts from households in 24 Zambian grade 6 students underperform in literacy and mathematics Figure compared with other southern and eastern African countries 2.15 Literacy Levels 1 to 3 Levels 4 to 5 Levels 6 to 8 100 Percent of grade 6 students scoring on literacy level 75 50 25 Zambian students 0 underperform in o bia i s nd ia a ius s a e a ue da ca r w lle rie iba ny an ibi bw th an fri ala an biq ila rit m he Ke tsw am so nt nz nz ba hA Ug az Za M both reading and au am yc ou Le Za Ta N m Sw Bo M ut Se lc Zi oz So Al M Mathematics mathematics compared Levels 1 to 3 Levels 4 to 5 Levels 6 to 8 with their peers in 100 other countries scoring on mathematics level Percent of grade 6 students 75 50 25 0 ius a i s a s Sw ia nd a we ca ue da o bia r w lle rie iba ibi ny an th an fri ala an biq ila rit m b he Ke tsw am so nt nz nz ba hA az Ug Za M au am yc ou Le Za Ta N m Bo M ut Se lc Zi oz So Al M Source: Hungi and others 2010. the top quartile.31 More than half of grade and have higher incomes, but it is not clear 6 students from the top quartile scored at or if their skills are in short supply. Completing above level 4 on SACMEQ III literacy exams, postsecondary technical education greatly while only 17  percent of students from the enhances a Zambian graduate’s probability bottom quartile did. In both reading and of accessing wage employment—85 percent mathematics, students in Lusaka performed of youth with postsecondary technical edu- the best, while students in the Southern cation are in wage employment. More than province, where more than three-quarters of a third of youth in wage employment have people are rural, performed the worst. And some postsecondary education, and roughly girls do slightly worse than boys. Differences two-thirds have completed at least senior sec- in test scores mount as inequalities add up. ondary school. In contrast, the vast majority For example, a boy from Lusaka whose house- of youth with primary education or less work hold belongs to the top 25 percent by socio- in agriculture. economic status would score on average 84 In the qualitative survey youth mentioned points more in math than a girl in the South- the absence of job vacancies as more of an ern province whose family belongs to the bot- issue than a skills gap (ZIPAR 2013). Employ- tom 25 percent by socioeconomic status. ers generally do not cite skills as a top obsta- cle in enterprise surveys. Only 10 percent of It is not clear if youth with postsecondary firms in the 2008 Investment Climate Assess- education are in short supply ment, rated skills as a major constraint to Youth with postsecondary and tertiary educa- their business, compared with 36 percent of tion have a larger share of wage employment firms in 2003 (World Bank 2009). Similarly, 25 Zambia Economic brief—Jobs challenge: realities on the ground more than 40  percent of the respondents • Apart from agriculture, nonfarm self- to the Zambia Large Business Survey and employment in the form of home busi- 65 percent to the Zambia Small Business Sur- nesses is an important source of jobs, vey think that adequate educated workforce much larger than small and medium does not present an obstacle for business. enterprises. Firms identified access to finance and infra- • Zambia’s public sector is relatively large. structure as more pressing issues.32 Statistical analysis shows that public sec- But there is evidence that some specific tor wages, particularly in parastatals, skills may be in short supply. Firms and are higher than in the private sector for industry representatives in a recent survey similar education, location, gender, and identified “a lack of modern relevant skills experience. among higher education graduates” as a con- • Enrollment ratios in basic education have cern, especially in the construction, manu- grown, but schooling is not translating facturing, and mining sectors (Moono and into skills. Basic education is the founda- Rankin 2012). Coverage of technical and tion for skill building and hence improved vocational education and universities is low, productivity, but its quality is poor. The and connections between educational institu- poor, rural youth, and girls are particu- tions and private sector employers are weak. larly disadvantaged in terms of access to This may be because the Zambian education good quality basic education. system has been traditionally geared toward The above findings should shape Zambia’s preparing graduates for employment in the efforts to tackle the jobs challenge. Sustained public sector, where the many youth in wage attention should be given to achieving the employment work. following objectives: accelerating the pace of growth of formal jobs in the private sector, Summary of findings and policy improving smallholder productivity in agri- implications culture, providing a supportive environment This section arrived at the following main for nonfarm home businesses, and improv- findings—the realities on the ground— ing access to good quality basic education. about Zambia’s jobs challenge: Youth, particularly the urban unem- • Zambia’s population and labor force is ployed, will benefit from overall efforts to young and growing fast. The population improve the broad environment for jobs. But is projected to almost double by 2030 and the poor youth, particularly girls in rural hit 140  million by 2100. In 2010 about areas, may not benefit much because they 130,000 young workers were added to the are unable to transcend the barriers of pov- labor force; in 2030 about 300,000 will be erty, gender, and location. Disadvantaged added. youth would need to be better equipped to • The current structure of the economy seize opportunities created by improving and sources of growth are such that for- the jobs environment. Fundamentally, this mal wage jobs are being created slowly. involves providing equitable opportunities This pace is nowhere close to being able to for improving their basic skills. absorb the new cohorts of youth that are These objectives require multifaceted and entering the labor market. long-term policies and government interven- • A large number of Zambians are already tions. This Brief does not provide recom- working because they cannot afford to mendations for achieving these objectives. not work. Therefore unemployment per However, to stimulate debate the following se is less of a developmental concern. But paragraphs comment on current policies and a large number of working Zambians are suggest directions that could be explored in poor; actually working adults are more light of experience of other countries. likely to be poor than the nonworking. The working poor are concentrated mostly in Formal jobs in the private sector farming and to a lesser extent in nonfarm Creating formal jobs in the private sec- self-employment. It is a development prior- tor is accorded top priority in government ity to improve the earnings of the working policy and strategy documents. The govern- poor by improving their productivity. ment’s general approach is to provide an 26 enabling environment for the private sector Smallholder productivity and address constraints to growth (see, for Zambia is often seen having a high avail- example, Government of Zambia 2012b). ability of land relative to the population, This is a sound approach. But as a resource- but average farm size is smaller than two rich country Zambia faces pressures on com- hectares. 34 So, technological change that petitiveness due to an abundance of foreign enhances yields, particularly of cereals, exchange. Zambia’s urban centers are not yet would be the desired policy goal. Public sec- dynamic centers for creating wage jobs in the tor investments would be important to driv- private sector unlike the experience of suc- ing agricultural growth and intensifying cessful countries across the developing world. smallholder agriculture. Public support is As large consumption agglomerates Zambia’s needed for technology generation and trans- urban centers attract migrant labor from fer. This could be through promoting part- rural areas, but the migrants get absorbed in nerships with the private and international largely petty commerce activities. Zambia’s agricultural research system while protecting urbanization experience appears to be simi- the interests of small members. Productivity lar to some other resource-rich developing growth in smallholder agriculture would also countries who have found it hard to benefit require attention to access to credit so that from urbanization (Jedwab 2012). farmers can mechanize and apply appropri- One approach could be to create condi- ate amount of fertilizers. tions for light manufacturing to grow faster. Maize subsidies are the cornerstone of Light manufacturing (including agribusi- the government’s agricultural policy and ness) has been an important stepping stone spending. Research shows that these sub- toward economic diversification in most eco- sidies mostly benefit large farms, through nomically successful developing countries. direct employment creation and income In Africa, Ethiopia has been successful in effects. And because of leakages, the employ- expanding production of leather products ment creation effect of subsidies is weaker for exports. A recent World Bank study on than alternative uses of subsidies. Recently, light manufacturing in Zambia examined the government has shown a willingness to industry-specific constraints to growth in reconsider agricultural subsidies. It is sug- leather products, wood products, metal gested that the government produce a policy products, apparel, and agribusiness (Dinh paper on reorienting the fertilizer subsidies 2013). 33 The study concluded that tackling toward alternative public spending such as the agricultural reform agenda is funda- rural roads and small-scale irrigation and on mental to developing light manufacturing targeting subsidies only to remote and small in Zambia because agriculture is the source farms. of inputs for leather, wood, and agribusiness As part of creating employment in agricul- industries. Improving trade logistics is also ture, the government has also given a good crucial for industries such as metal products deal of attention to farm blocks. 35 Experi- where inputs are procured from outside the ence with farm blocks is limited so far. An country. appraisal of the Mkushi project shows that For wage employment, understanding the only 50 new jobs were created at full devel- technical and vocational education sector opment, which is low for 2,500 hectares. It is is a priority for future skills development. suggested that farm blocks should be subject While Zambia is looking to expand tech- to a careful ex-ante economic analysis that nical and vocational education, and such would cover, among other things, the cost of expansion is often seen as the solution to public support (including the imputed values high youth unemployment, little is known of special access to land, water, and infra- about the current system, its quality, and the structure) per job created. employment trajectories of its graduates. International experience underscores the Nonfarm self-employment importance of the governance of technical Home businesses and microenterprises are and vocational training, and close partner- generally grouped together as informal ships with private sector employers (World enterprises. And informality, generally asso- Bank 2012b). ciated with lower productivity, has been a 27 Zambia Economic brief—Jobs challenge: realities on the ground Box Targeting girls can pay off 2.7 In Uganda the Empowerment and Livelihood for Adolescents program, operated by the nongovernmental organization BRAC, provides girls ages 14–20 with life-skills training to reduce risky health behaviors and vocational skills to start small businesses. The program significantly improved HIV- and pregnancy-related knowledge and reduced corresponding risky activities, and raised the likelihood of girls being engaged in income-generating activities by 35 percent, driven mainly by self-employment. Since the program is not based in the classroom, it can also target girls who have dropped out of the labor force. The two program elements complement each other, and are at least as successful as programs that exclusively target life skills or vocational skills. With the cost per girl in year two of the program at only 0.54 percent of household income at baseline, the program is a low-cost and scalable intervention that enables young girls to improve their life outcomes. Source: Bandiera and others 2012. considerable policy concern in Zambia. The learning outcomes can be improved needs general policy approach toward informal to be understood so that schooling trans- enterprises is to bring them under regula- lates into skills. Further analysis is needed tion. But regulation neither stops newer to understand whether Zambia’s poor per- businesses from being created nor improves formance in learning assessments is due productivity of those brought under regu- to inputs (lack of qualified teachers, over- lation. Given their importance to employ- crowded classrooms), issues with service ment and job creation, home businesses and delivery (incentives for teachers to provide microenterprises need greater support from quality education), or other factors. There is the government. Initiatives that address the a need to address the gaps in access to basic most important constraints on creating a education and prevent dropouts through business such as access to finance and space targeted programs for children at risk of not to work could be cost-effective (World Bank starting or finishing school. forthcoming  b). More analysis is, however, Targeted interventions to support the needed to understand these constraints in transitions of girls, the poor, and inactive Zambia. youth into jobs can improve opportunities for There is also a need to understand how more marginalized groups over the shorter youth learn skills on the job and what other term. Such programs can include initiatives interventions can increase the skills of youth to ease barriers to entry for youth, including working in agriculture and self-employment. internships, apprenticeships, and training Apprenticeships can be an important source programs. Recent evaluations of targeted of skill-building on the job for home busi- training programs for girls in Uganda show nesses, but there is a need for more informa- that job and skills training programs focused tion about how this works in Zambia. on girls can improve employment outcomes for girls through empowerment and skills Access to good quality basic education for development (box 2.7). the youth Improving foundational skills in basic edu- Data cation and expanding access to secondary To design and implement policies and inter- education and skills training, especially for ventions to address the jobs challenge, good the poor, would address a major constraint to data on labor force and economic activity improvements in self-employment and pro- are needed at regular intervals. Currently ductivity in agriculture, small enterprises, the availability and quality of data is patchy. and formal sector employment (Iancho­ This is an area for sustained attention of the vichina and Lundstrom 2008). But how government. 28 Annex A Economic data Table GDP growth, by main sectors, 2004 –12 A.1 Constant price = 1994; percent, unless otherwise stated 2012 Indicator 2004–08 2009 2010 2011 (preliminary) Primary sector 3.7 12.4 10.2 2.2 3.1 Agriculture, forestry, and fishing 1.8 7.2 6.6 8.0 7.1 Mining and quarrying 7.1 20.2 15.2 –5.2 –2.7 Secondary sector 9.0 4.9 6.5 8.5 10.1 Manufacturing 4.0 0.5 4.2 8.0 7.2 Electricity, gas, and water 2.8 6.8 7.4 8.2 4.1 Construction 17.2 8.3 8.1 8.9 13.6 Tertiary sectora 6.1 3.8 6.6 7.8 7.3 Wholesale and retail 3.8 2.2 4.2 7.5 4.0 Restaurants, bars, and hotels 9.9 –13.9 10.2 7.9 –2.6 Transport, storage, and communications 14.9 7.6 14.9 13.7 12.8 Financial institutions and insurance 4.1 8.5 6.0 4.9 12.0 Real estate and business services 3.3 2.8 3.0 2.9 2.9 GDPb 5.8 6.0 7.6 6.8 7.2 GDP (less mining) 5.7 4.8 6.8 8.2 8.2 GNI 4.5 17.4 1.5 9.8 8.0 Memorandum items GDP at current market prices (billions of kwacha) 39,525.9 64,615.6 77,666.6 93,344.4 105,983.0 GNI at current market prices (billions of kwacha) 35,363.7 62,684.6 71,128.0 87,730.3 100,211.8 Nominal GDP per capita (U.S. dollars) 810.7 1,092.5 1,224.9 1,408.6 1,469.1 Nominal GNI per capita (U.S. dollars) 724.7 1,059.9 1,121.8 1,323.8 1,389.1 a. Includes community, social, and personal services and others. b. Includes taxes (less financial intermediary services indirectly measured). Source: Zambian authorities, IMF, and World Bank staff estimates. 29 Zambia Economic brief—Jobs challenge: realities on the ground Table Central government finances, 2008 –13 A.2 Percent of GDP, unless otherwise stated January–July 2013 2012 2012 2013 (percent of 2008 2009 2010 2011 (budget) (preliminary) (budget) budget) Revenue 23.0 18.9 19.6 21.7 20.8 23.2 21.7 50.5 Tax 17.6 14.6 16.4 19.3 16.5 18.2 17.9 57.2 Income taxes 8.5 7.5 8.9 11.4 8.0 9.7 9.0 62.9 Value-added tax 4.0 3.8 4.1 4.3 4.5 4.5 5.0 52.9 Excise taxes 2.6 1.6 1.8 1.8 2.0 2.1 2.1 49.2 Customs duties 2.4 1.7 1.6 1.8 2.1 1.9 1.7 49.6 Nontax 1.3 1.4 1.4 1.6 2.5 2.9 2.6 53.5 Grants 4.1 2.9 1.8 0.8 1.8 2.1 1.3 17.2 Expenditure 23.9 21.3 22.6 23.9 24.6 26.3 25.8 53.5 Current expenditure 20.4 17.9 19.4 19.7 17.3 19.6 18.6 59.6 Out of which wages and salaries 8.2 8.2 8.1 7.9 8.2 8.9 9.1 53.8 Out of which interest payments 1.7 1.6 1.8 1.2 1.6 1.6 1.7 42.7 Out of which fertilizer support program 0.8 0.9 0.8 1.0 0.5 0.8 0.4 77.5 Out of which Strategic Food Reserve 0.1 0.3 1.6 1.8 0.3 0.3 0.2 43.3 Out of which fuel subsidy 0.0 0.0 0.1 0.3 0.0 0.7 0.0 122,393.4 Capital expenditure 3.5 3.4 3.2 4.2 7.3 6.7 7.2 37.8 Overall balance (including grants)a –1.5 –2.4 –3.1 –1.2 –4.1 –4.8 –4.5 72.8 Financing 1.5 2.4 3.1 1.2 4.1 4.8 4.5 72.8 External (net) 0.5 –0.1 0.3 1.2 3.0 3.7 2.9 48.2 Domestic (net) 1.1 2.5 2.7 0.0 1.1 1.1 1.5 119.6 Memorandum items Primary balance 0.2 –0.8 –1.3 0.0 –2.5 –3.2 –2.8 90.7 Mining revenues 1.9 1.0 1.9 5.5 3.7 3.8 4.0 38.7 Stock of external debt 9.4 10.8 9.1 10.2 16.3 Stock of domestic debt, net 10.5 12.1 12.9 11.6 11.4 a. Includes fiscal measures, overfinancing, and budget carryovers. Source: Ministry of Finance, IMF, and World Bank estimates. 30 Table Selected balance of payment indicators, 2008 –13 A.3 $ millions, unless otherwise stated 2012 2013 2008 2009 2010 2011 (preliminary) (projected) Current account –1,049.5 538.4 1,144.7 705.4 9.9 –830.0 Trade balance 404.4 905.6 2,704.0 2,206.0 1,452.0 901.0 Exports 4,958.7 4,319.0 7,414.0 8,660.0 9,413.0 10,259.0 Out of which copper 3,684.5 3,179.3 5,767.9 6,660.2 6,294.0 6,646.0 Out of which nontraditional exports 876.2 899.7 1,190.0 1,596.6 2,712.2 3034.2 Imports –4,554.3 –3,413.4 –4,710.0 –6,454.0 –7,961.0 –9,358.0 Out of which petroleum –815.6 –535.8 –618.1 –530.5 –931.0 –1,025.0 Services (net) –615.4 –464.5 –628.1 –723.6 –770.1 –832.0 Income (net) –1,398.6 –418.7 –1,363.0 –1,155.0 –1,126.0 –1,323.0 Current transfers (net) 560.1 516.0 431.8 378.0 454.0 424.0 Capital and financial account 1,046.1 –782.0 –1,301.8 –480.9 645.7 428.0 Capital account 230.0 237.3 149.7 151.3 222.7 101.0 Financial account 816.1 –1,019.4 –1,451.5 –632.2 423.0 327.0 Out of which FDI and portfolio investments 932.6 350.4 707.5 1,181.0 1,880.0 2,192.0 Overall balance 12.7 540.1 115.0 202.0 727.0 –401.0 Financing: change in NIR (minus indicates an increase) –12.7 –540.1 –115.0 –202.0 –727.0 401.0 Memorandum items Current account (percent of GDP) –7.2 3.8 7.1 3.7 0.0 –3.7 Gross international reserves 976 1,758 1,896 2,167 2,457 2,368 in months of prospective imports cover 2.8 3.7 3.0 2.8 2.8 2.4 GDP ($ millions) 14,493.6 14,011.3 16,170.0 19,204.0 20,590.0 22,239.0 FDI is foreign direct investment; NIR is net international reserves. Source: Zambian authorities and IMF estimates. 31 Zambia Economic brief—Jobs challenge: realities on the ground Table Zambia’s top 10 trading partners in 2011 A.4 Percentage of trade Rank Total Importsa Exportsb Nontraditional exportsb 1 China (32.1) South Africa (35.8) China (44.7) China (12.5) 2 South Africa (26.0) Congo, Dem. Rep. (18.6) Korea, Rep. (8.1) Zimbabwe (9.9) 3 Korea, Rep. (4.9) China (9.9) Saudi Arabia (6.3) Belgium (6.8) 4 Saudi Arabia (3.7) Kuwait (4.7) South Africa (6.0) Malawi (5.2) 5 Egypt, Arab Rep. (3.6) India (3.5) Egypt, Arab Rep. (5.7) South Africa (5.2) 6 Italy (3.3) United Arab Emirates (3.4) Italy (5.0) Tanzania (2.6) 7 India (3.0) United Kingdom (2.7) Zimbabwe (3.5) Germany (2.4) 8 Zimbabwe (2.9) Japan (2.1) Belgium (2.4) United States (2.2) 9 Belgium (1.7) Kenya (1.8) Namibia (2.1) United Kingdom (2.2) 10 United States (1.6) United States (1.4) India (2.1) Japan (2.1) a. Includes fiscal measures, overfinancing, and budget carryovers. Source: Ministry of Finance, IMF, and World Bank estimates. 32 Annex B Basic definitions of labor force and employment Section 2 uses survey data from the “Eco- “usually employed” which uses a reference nomic Activity” module of 2010 LCMS (CSO period of 12 months. 2010b). The following definitions were used: Unemployed: Those people of working age Labor force (economically active persons): The who are not working but looking for work or number of people of working age (ages 15–64) means to do business. who are employed or who are unemployed Wage employment: People who reported and available for work in the last seven days themselves as in wage employment (employed before the survey day (the reference period). by someone on fixed monthly, weekly, or Employed: Those people of working age daily wages or salary) or as an employer or who performed some work for pay, profit, bar- partner, or a domestic employee. ter, or family gain in reference period. This Nonwage employment: People who are self- definition corresponds to that of “currently employed (running a business and using no employed” in the 2008 Labour Force Survey hired labor), are in farming, fishing, or for- (CSO 2010a). The Labour Force Survey uses estry, are pieceworkers, or are unpaid family another measurement of employment called workers. 33 Annex C Labor force participation, employment, and unemployment Labor force participation, employment, and unemployment, Table by gender, location, age, and education level C.1 Employment Rural nonfarm Urban nonfarm Wage employment in agriculture self-employment self‑employment in < 5 Percent Thousands Percent Thousands Percent Thousands Percent Thousands Gender Female 73.5 1,701 6.3 145 9.8 226 3.1 72 Male 59.3 1,340 6.2 140 11.2 252 5.3 120 Area of residence Rural 86.3 2,805 8.7 283 0.0 0 1.1 36 Urban 16.9 224 0.0 0 36.7 484 12.0 158 Age range 15 to 24 77.2 800 8.6 89 6.3 65 3.9 41 25 to 35 60.5 1,028 6.5 111 12.2 207 5.2 89 36 to 64 66.1 1,215 4.6 84 11.2 205 3.4 62 Highest level of education completed No education 89.3 422 4.8 23 3.5 16 1.7 8 Primary incomplete 84.9 997 6.6 78 5.1 59 2.2 26 Primary completed 77.5 904 7.0 82 9.0 105 3.4 40 Junior secondary completed 59.2 532 7.4 67 17.2 154 6.1 55 Senior secondary completed 32.9 159 5.0 24 22.0 106 8.9 43 Postsecondary technical 6.7 15 1.4 3 12.3 27 6.4 14 University and higher 6.9 11 0.7 1 7.7 12 4.0 6 Total 66.5 3,042 6.2 284 10.4 478 4.2 192 34 Labor force Employment Unemployment participation rate (labor rate rate Wage employment in Wage employment in force as a share of (as share of (as a share of > 5 nonpublic sector > 5 public sector Total working-age population) labor force) labor force) Percent Thousands Percent Thousands Percent Thousands Percent Percent Percent 3.2 75 4.1 96 100.0 2,314 69.6 91.3 8.7 10.3 232 7.8 176 100.0 2,260 72.9 91.7 8.3 1.1 37 2.8 92 100.0 3,252 77.8 96.9 3.1 20.7 273 13.7 182 100.0 1,321 60.6 80.4 19.6 2.8 29 1.2 13 100.0 1,037 43.7 81.9 18.1 8.8 149 6.8 116 100.0 1,700 88.4 92.2 7.8 7.0 128 7.7 142 100.0 1,837 92.7 97.3 2.7 0.6 3 0.1 1 100.0 472 91.3 96.0 4.0 1.0 11 0.3 3 100.0 1,175 72.0 96.2 3.8 2.2 25 0.8 10 100.0 1,166 65.5 94.1 5.9 7.3 66 2.8 25 100.0 899 62.2 90.2 9.8 20.3 98 10.9 52 100.0 483 82.6 75.1 24.9 28.0 61 45.2 99 100.0 219 73.5 91.1 8.9 28.1 45 52.6 84 100.0 160 84.4 95.4 4.6 6.7 307 5.9 272 100.0 4,574 71.2 91.5 8.5 35 Zambia Economic brief—Jobs challenge: realities on the ground Table Employment by economic sector C.2 Agriculture Rural nonfarm self-employment Urban nonfarm self-employment Percent Thousands Percent Thousands Percent Thousands Total primary sector 100.0 3,042 3.5 10 0.8 4 Total secondary sector 0.0 0 20.8 59 18.6 89 Total tertiary sector 0.0 0 75.8 215 80.6 385 Total 100.0 3,042 100.0 284 100.0 478 Primary sector Agriculture and fishing 100.0 3,042 0.0 0 0.0 0 Mining 0.0 0 3.5 10 0.8 4 Secondary sector Manufacturing 0.0 0 16.2 46 9.7 46 Electricity and utilities 0.0 0 0.0 0 0.2 1 Construction 0.0 0 4.5 13 8.8 42 Tertiary sector Commerce 0.0 0 58.3 166 59.0 282 Transportation, storage, and communication 0.0 0 6.0 17 4.3 20 Financial, insurance, and real estate 0.0 0 0.1 0 1.7 8 Public administration services 0.0 0 2.2 6 1.3 6 Other services 0.0 0 9.2 26 14.3 68 Total 100.0 3,042 100.0 284 100.0 478 36 Wage employment Wage employment Wage employment in < 5 in > 5 nonpublic sector in > 5 public sector Total Percent Thousands Percent Thousands Percent Thousands Percent Thousands 2.3 4 15.4 47 5.6 15 69.9 3,122 9.9 19 19.7 61 8.3 23 5.1 250 87.8 169 64.9 199 86.1 234 25.0 1,202 100.0 192 100.0 307 100.0 272 100.0 4,574 0.7 1 0.0 0 3.7 10 68.4 3,053 1.6 3 15.4 47 1.9 5 1.5 69 6.7 13 12.3 38 5.8 16 3.2 159 0.0 0 0.5 1 1.3 3 0.1 6 3.2 6 6.9 21 1.3 3 1.8 86 19.6 38 12.2 37 0.6 2 10.4 524 16.6 32 14.0 43 4.3 12 2.6 124 1.3 2 5.0 15 4.4 12 0.8 38 11.1 21 15.1 46 72.6 197 6.1 277 39.3 75 18.7 57 4.2 11 5.1 238 100.0 192 100.0 307 100.0 272 100.0 4,574 37 Zambia Economic brief—Jobs challenge: realities on the ground Table Labor force participation, employment, and unemployment, by province and stratum C.3 Percent Composition of employment (working-age population) Labor force participation Formal wage rate (as a Employment Unemployment Rural employment Formal wage share of rate rate nonfarm self- Urban self- Informal wage nonpublic employment working-age (as a share of (as a share of Agriculture employment employment employment sector public sector Total population) labor force) labor force) Province Central 73.3 7.1 7.2 2.9 3.7 5.7 100.0 71.8 93.1 6.9 Copperbelt 35.1 2.0 24.7 9.4 18.7 10.2 100.0 62.5 79.4 20.6 Eastern 84.5 6.9 2.8 1.5 1.9 2.4 100.0 82.2 97.5 2.5 Luapula 80.9 10.9 3.3 0.9 0.8 3.2 100.0 77.7 96.4 3.6 Lusaka 17.9 3.9 31.0 13.3 21.3 12.6 100.0 61.2 84.3 15.7 Northern 83.4 6.2 4.3 1.2 1.3 3.6 100.0 76.4 96.7 3.3 North Western 79.3 4.3 5.5 1.8 4.2 4.9 100.0 68.5 94.5 5.5 Southern 71.6 7.5 7.6 3.1 4.3 5.8 100.0 73.5 92.6 7.4 Western 81.4 7.5 3.5 1.9 1.4 4.4 100.0 74.9 95.0 5.0 Total 66.5 6.2 10.4 4.2 6.7 5.9 100.0 71.2 91.5 8.5 Stratum Small scale agricultural 88.4 7.6 0.0 0.9 0.9 2.3 100.0 78.8 97.2 2.8 Medium scale agricultural 88.6 7.0 0.0 1.2 0.6 2.6 100.0 72.5 96.5 3.5 Large scale agricultural 92.4 5.3 0.0 0.2 0.2 1.9 100.0 69.6 96.2 3.8 Nonagriculture rural 49.8 28.1 0.0 4.3 5.9 12.0 100.0 67.6 92.3 7.7 Low-cost urban 19.7 0.0 39.6 12.8 18.1 9.8 100.0 61.1 80.4 19.6 Medium-cost urban 10.2 0.0 30.7 8.9 26.6 23.6 100.0 58.9 80.0 20.0 High-cost urban 8.0 0.0 25.5 11.2 29.6 25.6 100.0 60.4 81.8 18.2 Total 66.5 6.2 10.4 4.2 6.7 5.9 100.0 71.2 91.5 8.5 38 Table Economic activity of Zambians ages 15–35 and 36 – 64 C.4 Percent Ages 15–35 Ages 36–64 Male Female Total Male Female Total Area of residence Rural 60.9 60.1 60.5 61.6 65.4 63.5 Urban 39.1 39.9 39.5 38.4 34.6 36.5 Total 100.0 100.0 100.0 100.0 100.0 100.0 Employment status Employed 54.9 54.5 54.7 94.3 86.1 90.2 Unemployed 7.7 7.3 7.5 2.2 2.8 2.5 Full-time student 32.5 24.8 28.5 0.1 0.3 0.2 Not in labor force or education 4.9 13.4 9.4 3.3 10.8 7.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 Employment sector Agriculture 58.3 72.7 65.8 58.6 73.0 65.6 Nonfarm self-employment 18.7 15.5 17.0 14.9 16.4 15.6 Wage employment 22.9 11.9 17.2 26.5 10.6 18.8 Total 100.0 100.0 100.0 100.0 100.0 100.0 39 Annex D Determinants of wages in wage employment sector An econometric model was estimated to Potential experience is defined as age minus understand what explains the variation of years of schooling minus 5. Percentage wages among wage employees. Dummy vari- impact on earnings is calculated as ables were used for the highest education 100 * (exp(beta – 0.5 * Var(beta)) – 1). level (omitted variable no education), size The preferred specification (3) shows that of the business (omitted variable size less having a university education increases wages than 5), employment sectors (omitted vari- by 422 percent and being in the central gov- able private sector), gender (omitted vari- ernment by 17  percent everything else the able female), and location (omitted rural). same. 40 OLS regression Percentage impact on earnings (1) (2) (3) (1) (2) (3) Variables ln_earnings ln_earnings ln_earnings ln_earnings ln_earnings ln_earnings Dprimary 0.240*** 0.179*** 0.100* 18.0% 11.0% 2.6% (0.0632) (0.0580) (0.0591) 0.149 0.149 0.149 Dsecondary 0.988*** 0.840*** 0.629*** 143.5% 110.0% 70.1% (0.0552) (0.0545) (0.0544) 0.196 0.196 0.196 Dpostsec 2.052*** 1.800*** 1.546*** 660.8% 491.4% 358.7% (0.0665) (0.0705) (0.0691) 0.0455 0.0455 0.0455 Duniversity 2.216*** 1.943*** 1.666*** 804.3% 588.2% 421.7% (0.0611) (0.0707) (0.0650) 0.0281 0.0281 0.0281 experience 0.0344*** 0.0306*** 0.0274*** (0.00501) (0.00494) (0.00459) 220.7 220.7 220.7 experience2 –0.000386*** –0.000343*** –0.000343*** (0.000112) (0.000108) (0.000102) 629,828 629,828 629,828 Dcentralgov3 0.251*** 0.271*** 14.4% 16.7% (0.0440) (0.0402) 0.233 0.233 Dlocalgov3 0.121* 0.0406 11.6% 3.0% (0.0714) (0.0727) 0.0227 0.0227 Dquasigov3 0.517*** 0.442*** 64.3% 52.4% (0.0658) (0.0587) 0.0414 0.0414 Dintorg3 0.620*** 0.437*** 85.6% 54.5% (0.225) (0.159) 0.00351 0.00351 Dothersector3 –0.322*** –0.114** –31.7% –15.9% (0.0434) (0.0470) 0.118 0.118 Dmale 0.213*** 9.2% (0.0319) 0.250 Durban 0.137*** 1.4% (0.0505) 0.247 Dformal 0.484*** 45.8% (0.0381) 0.214 Constant 12.02*** 12.18*** 11.78*** (0.0694) (0.0693) (0.0762) Observations 7,649 7,529 7,459 R-squared 0.430 0.460 0.499 Note: Standard errors in parentheses, variance below. 41 Notes 1. By July 2013, 54  percent of the wage 7. Cross-country comparisons draw from budget was spent, yet the significant World Bank databases, which contain public sector wage award will take differences in country reporting and effect only in mid-September 2013. In coverage. As such, the comparisons are March 2013 the government awarded only illustrative. The expected median is public sector workers salary increases based on a global regression model with (effective mid-September 2013) that country characteristics as explanatory exceed the 2013 public sector wage variables. budget by 18 percent in nominal terms 8. The interest rate spread is the difference and the 2012 budget by 46 percent. The between the reported weighted lending wage bill is expected to grow another base rate and the 30-day deposit rate. 1.3  percent of GDP in 2014 as the full The net interest margin is the average effect of the 2013 wage negotiations of net interest income as a percentage of comes into effect. the earning assets of commercial banks. 2. By July 2013 the Farmer Input Support 9. For additional information on interest Program had exhausted 78  percent of rate spread decompositions, see Randall the 2013 budget and yet expectations are (1998), Beck and others (2010), and Beck that the program will be scaled up. and Fuchs (2004). 3. This subsidy is generally not budgeted 10. In the discussion that follows, “youth” upfront, but losses in fuel supply are and “young people” refer to peoples accommodated through the supplemen- ages 15–35, unless otherwise noted. The tary budget. labor force is defined using the working- 4. Adjusted net savings are equal to net age population between ages 15 and 64 national savings plus education spend- (annex B). ing but minus energy depletion, mineral 11. Demographic projections are based depletion, and net forest depletion. on World Bank (forthcoming a), and 5. Zambia remains eligible for World Bank using fertility assumptions based on the concessional financing under Interna- medium-fertility variant of the United tional Development Association terms. Nations, Department of Economic and But its increasing gross national income Social Affairs, Population Division per capita implies that it is soon likely (2011), which assumes a fertility rate to graduate to International Bank for decline from 6.2 children per woman in Reconstruction and Development terms. 2010 to 2.82 children per woman in 2100. 6. Effective lending rates are calculated 12. Estimated number of youth turning as the ratio of interest income to loans; 15 between 2011 and 2040, based on effective deposit rates are calculated as United Nations medium-fertility variant the ratio of interest expenses to deposits. projections. 42 13. This section uses LCMS 2010 data multiple jobs on part of the youth. The to estimate various measures of eco- total number of self-employed and home nomic activity such as participation businesses is most likely much higher if rate, employment, and unemployment. second jobs are also counted. Another source for labor force statistics 17. For the purpose of this section we for Zambia is the Labour Force Surveys; define microenterprises as those where the latest available Labour Force Sur- the organization has fewer than five veys data are for 2008 (CSO 2010a). This employees. section uses definitions of labor force, 18. This statistical exercise is based on a employment, and unemployment that sample of about 7,500 respondent wage are similar to the LFS 2008 (see annex B) employees. Data are from 2010, and but estimates may differ slightly. These wages in the public and the private sec- differences are generally not material tor could have changed since then. to broad conclusions presented in this 19. This shift derives mainly from an section. Some researchers have pointed increase in agricultural productivity that out that in a low-income country labor sustains higher standards of living. and employment estimates developed 20. As mentioned in section  1, the Cen- from household surveys such as the tral Statistical Office is in the process LCMS 2010 are sensitive to the type of of rebasing national accounts. It is questions, their framing, recall periods, likely that the share of primary sector and computation methods (World Bank (which includes mining) will go up after 2013a). For example, while a seven-day rebasing. reference period is an international stan- 21. Using Labour Force Survey data for com- dard, using it in a low-income country puting employment growth and analyz- will underestimate, and possibly distort, ing change in employment structure has analysis of employment outcomes such to be treated with caution. For example, as unemployment and household liveli- employment data by industry show huge hoods. These findings should be kept swings between 2005 and 2008 that do in mind while interpreting and using not look plausible. data reported in this section. The main 22. This means a formal employment “elas- advantage of using LCMS data is that it ticity” of growth less than 0.2. allows linking poverty status of house- 23. These data relate to 2008. As section 1 holds with economic activity, allowing a discussed, manufacturing and services much richer picture of the poverty and have grown fast in the past few years. employment dynamic. And it is likely that growth of formal jobs 14. Zambia’s urbanization rate is 40 percent has accelerated in the past five years. But compared with 37  percent for the rest still the base of formal employment is of Sub-Saharan Africa. Employment in too small to make a big dent in the over- agriculture ranges from 18  percent in all employment structure in the near Lusaka province to 85  percent in East- future. ern province. Except for the Lusaka 24. This unemployment rate is high when and Copperbelt provinces, all other compared with Sub-Saharan peers, such provinces have more than 70  percent as Ghana (5.2 percent in 2005), Mozam- of employment in agriculture (annex bique (1.8  percent in 2008), Rwanda table C.3). (0.9  percent in 2010), and Uganda 15. Construction is often looked on as a (0.7  percent in 2010). Zambia’s high source of job growth, with its share in unemployment rate is perhaps explained total employment a rather small 1.8 per- by the higher rate of urbanization. cent. Most of the construction jobs are 25. In the discussion that follows, a real per in self-employment or informal wage capita consumption aggregate is used categories. to assess poverty status, according to an 16. Zambians often work in multiple jobs as urban and rural poverty line (180,551 a mixed livelihood strategy. The quali- kwacha per month per adult equivalent tative study also records evidence of and 146,054 kwacha per month per adult 43 Zambia Economic brief—Jobs challenge: realities on the ground equivalent, respectively). For a more operations using addition and subtrac- detailed description of the methodology, tion, fractions, and units of measure- see World Bank (2012d), 115–17. ment” (Hungi and others 2010). 26. See www.ucw-project.org/Pages/Tables. 30. Based on comparisons of SACMEQ aspx?id=1393, based on CSO (2010a). I, II, and III. SACMEQ I and II can be 27. Zambia’s education system comprises accessed at www.sacmeq.org. primary (grades 1–7), junior second- 31. Socioeconomic status in the SACMEQ ary (grades 8–9), and senior secondary is defined based on assets, parents’ (grades 10–12). Primary education is education levels, and housing materials compulsory. (Hungi and others 2010). 28. SACMEQ III results are based on assess- 32. Note that the challenge of interpreting ments covering a nationally representa- enterprise survey results is that it is not tive sample of grade 6 students attending possible to know whether skills were a mainstream registered primary schools. constraint for those firms that failed or Mean literacy and numeracy scores in that never started in the first place. Zambia on SACMEQ III are 434 and 435 33. The constraints approach is general and (Hungi and others 2010). Both are more can be applied to other industries. than three-quarters of a standard devia- 34. This subsection is based on World Bank tion below the mean scores for literacy (2013d). (512) and numeracy (510) across all par- 35. Farm blocks are a special public-private ticipating countries. partnership in which the government 29. Basic literacy is defined as being able to offers land to a foreign or domestic “interpret meaning in a short and sim- investor and assists with related invest- ple text”; basic numeracy is measured ments in roads, utilities, and perhaps as being able to perform “multistep marketing or processing facilities. 44 References Afrobarometer. 2013. “The Performance of Dinh, Hinh T. 2013. Light Manufacturing the PF Government in the Past One Year: in Zambia: Job Creation and Prosperity in a Results from the Afrobarometer Round Resource-Based Economy. Washington, DC: 5 Survey in Zambia, 04 July 2013.” www. 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