Zimbabwe

Staff Costs: Staff costs have taken account of the proposed staff rationalization plan which would reduce the staff compliment (mainly general hands) by 764, and the recruitment of new staff under civil service norms in required skill areas. No provision made for retrenchment as these costs would be paid by the Ministry of Social Services, or for higher salary costs should the decision be taken to remove staff from the civil service.

Macroeconomic Setting. Zimbabwe's GDP increased an average of 2.7% per year through the 1980s, while population grew at 3.2% per year. An Economic Structural Adjustment Program was instituted in 1990, and by 1996, the exchange rate and most consumer prices were market determined; domestic marketing was liberalized; many controls on wages, investment and the labor market were eliminated; the civil service was downsized; and non-interest budgetary expenditures were reduced by 7.6%. The economy is now more competitive and the investment environment more favorable than five years ago, and recent growth of agricultural and mineral exports and tourism has been rapid. The benefits of structural reform have been hampered, however, by droughts and the persistence of high fiscal deficits, in the range of 8-11% of GDP. Poverty, less prevalent in Zimbabwe than in many sub-Saharan countries, is largely rural; 81% of the poor live in communal and resettlement areas, on environmentally fragile, drought-prone lands, threatened in some areas by unsustainable farming practices. AIDS, currently infecting 30% of the sexually active population, is worsening acute malnutrition and the under-five mortality rate, and is straining social services. While estimates of poverty differ, it is likely to have increased over 1990-95, due to drought-induced food insecurity, and a decline in real urban wages.

The project will (i) support the preparation and initial implementation of sub-sectoral strategic plans--defining 'core' functions, re-organization needs, and approaches toward sustainable service delivery-- by the MoLA Departments for agricultural research, extension, and veterinary services; (ii) facilitate the planning, implementation, and evaluation of pilot efforts to commercialize, out-source, or privatize selected public agricultural services; (iii) finance competitive and collaborative research and advisory services geared toward support of smallholder agriculture; (iv) provide support and essential equipment to improve the immediate effectiveness and client-responsiveness of essential agricultural services; and (v) finance analysis and consensus-building on outstanding and emerging policy issues. Support will also be provided for the preparation of a medium-term framework for priority expenditures and support programs in agriculture.

The project will improve MoLA's management of human resources. Through training and through the reallocation and/or retrenchment of selected staff, project will assist in bringing MoLA's human resources to their appropriate quantity and quality to perform core functions. The project will also support the design and implementation of improved financial and accounting systems and practices within MoLA including their decentralization to departmental and provincial/research station levels. It will strengthen MoLA's use of information technology. The project will improve the quality of MoLA's institutional reform process by supporting the development of stakeholder advisory panels for the technical departments and through the conduct of periodic beneficiary and staff assessments.

The Ministry of Lands and Agriculture will have overall responsibility for the implementation of the project and for reporting to Government, IDA, and the co-financing agencies. The implementation of the various components and sub-components will be the responsibility of the Department of Research and Specialist Services (DR&SS), Department of Veterinary Services (DVS), AGRITEX, the Agricultural Research Council (ARC) and the Policy and Planning Division and Finance and Administration Division of MoLA headquarters. Some agricultural research, extension, and agricultural policy analysis will be contracted to universities, private organizations, and other non-governmental agencies.

The efficiency benefits will derive from several sources. First, considerable improvements will be made in the analysis. and prioritization of MoLA services and expenditures. A determination will be made of the 'core' functions which the Ministry needs to provide versus those functions which can more efficiently be performed by the private and other non-governmental sectors. Further analysis will be done on the patterns and effectiveness of public expenditures in agriculture. Second, MoLA's staff and facilities would be rationalized and its organizational system streamlined so as to focus activity on the performance of' these 'core' functions and to eliminate the current duplication of some functions and structures. Third, improved systems for financial, human, information and asset management will be introduced within MoLA. Fourth, MoLA's technical departments will be subjected to increased competitive and client pressures to improve efficiency and service as a result of their efforts to introduce user charges and wider ASMP-supported efforts to facilitate greater private and other non-governmental provision of selected services.

The strengthening of Gender Focal Points and the increased application of diagnostic participatory methods by technical department staff will likely lead to a greater awareness of and attention to the special constraints faced by women farmers and farmers operating in low potential, drought-prone areas. The gender composition of the technical service field staff (especially extension and livestock officers) will be addressed within MoLA's human resource development strategy. While a majority of Zimbabwe's farmers are women, only 10% of the extension field staff are women. Another prospective social issue is the impact of redundancies which may result from the service rationalization process. Specific provision has been made within the financing of the ASMP for staff retrenchment packages. This will be financed by one of the co-financing agencies.

Risk:
Internal MoLA and Departmental resistance to organizational change, withdrawal from non-core functions, and eliminate overlapping functions between Departments.
Risk Minimization Measure:
Planned involvement of central and provincial staff in strategic planning and other task force work; linking project training and other capacity strengthening efforts to effective strategic planning/rationalization; encouragement of staff to leave civil service to take up out-sourced/non-core functions on a private basis

The project will also support pilot and other efforts to commercialize or contract-out selected services, introduce user fees and, possibly, privatize services currently provided by the public technical departments. This will involve the analysis of unit costs for public service delivery, a review of client willingness to pay, the design of appropriate pricing structures or contracting methods, and other business management practices. Among those services likely to be involved in the piloting of commercialization will be dairy services, meat grading, seed services, veterinary wildlife services, and irrigation and dam design. Among those services for which out-sourcing will be piloted will be tsetse baiting services.

In recent years the overall enabling environment for the agricultural sector has shifted under the rubric of the Economic Structural Adjustment Program. Important changes have included the liberalization of foreign exchange markets and external trade, the commercialization and privatization of agricultural parastatals, and the easing of regulations governing private agribusiness. During much of the ESAP, however, there was very little change in the policies and approaches governing the provision of agricultural services, especially research, extension, and veterinary services. Despite reductions in the budgetary resources available for public agricultural services, inadequate attention was given to prioritizing such services, achieving greater efficiencies in their delivery, and generally ensuring most effective use of available resources. The result, in many instances, has been a considerable reduction in service quality and outreach and in the financial sustainability of service functions and units.

The ASMP would have two broad components: (i) rationalization and effectiveness of services and policy-making; and (ii) efficient resource management. The first component would finance: (a) research and consultations on emerging or outstanding policy and regulatory issues, (b) the preparation of medium-term strategic institutional plans for MoLA's technical service departments, (c) agricultural research and advisory services through a competitive grant system, (d) the resumption of priority on-farm research programs, (e) equipment and facilities to enhance livestock disease surveillance/control and veterinary field services, (f) improved mobility and methods for extension staff, (g) the design, implementation, and evaluation of pilot and other efforts to contract out or commercialize 'public' services, and (h) the preparation of a framework for a longer term sectoral investment program.

Employment generation through labor intensive maintenance contracts, estimated to generate at least 40,000 permanent jobs.

MoTE would have the overall responsibility for the implementation of the proposed project. It is anticipated that ZiNaRa would manage all aspects of the Road Fund. A PMU, which in principle would be established within the Ministry to administer the larger program, would also manage the rehabilitation and development components of the project. This would eventually lead, provided that adequate terms of service can be arranged, to transfer of critical functions to the proposed Roads Section in MoTE and, particularly with regard to capacity building efforts, to permanent organizations including the Roads Technical School, ZiNaRa and private organizations. The Road Sector Reform Steering Committee (RSRSC) would continue to play an advisory role to MoTE particularly with regard to priorities for rehabilitation and new development.

The main objective of Zimbabwe Railways Restructuring Project (ZPRP) would be to support the restructuring and privatization of the railways in Zimbabwe in the expectation that this process would lead to substantial improvements in the railways' operating efficiency, cost effectiveness, quality of service and, consequently, to increase the railways' share of the freight market. A better performing railway in Zimbabwe would, in turn, contribute to: (a) making the Zimbabwean economy globally more competitive; (b) revitalizing and strengthening the international and regional rail corridors (viz., Congo-Zambia-Zimbabwe-South Africa or Mozambique to the ports in Durban, Beira or Maputo and the regional routes linking the main business centers viz., Johannesburg, Bulawayo, Harare, and Lusaka); and (c) enabling the railways to become financially self-sustainable and capable of contributing towards reducing the Government's budgetary deficit.

The focus of ZRRP will be on assisting GOZ in completing the restructuring and privatization process and would comprise three components: (i) restructuring and privatization; (ii) staff rationalization; and (iii) regulatory framework.

Restructuring and Privatization. This component would support: (a) advisory services at all stages of the restructuring of the railways and privatization/concessioning process for the infrastructure and maintenance assets, and operating services; (b) legal services for the transfer of assets and take over by concessionaires/private partners/new incorporated companies; and (c) legal and advisory services for the winding up of NRZ. The main features of restructuring and privatization are discussed in previous paragraphs.

Staff to be Restructured. This component would finance NRZ's liability for immediate lump sum payments and would comprise: (a) severance payments; and (b) NRZ's liability for one third commutation of static pension. This component is estimated to cost about US$76 million. However, the lump sum amount in the hands of staff is taxable, the tax element estimated to be about US$20 million. The tax element would either have to be waived or financed.internally. The total IDA financing would, therefore, amount to US$56 million. The Project component would not finance: (a) liability of the Pension Fund both for the one third commutation of the static pension and monthly pensions of the remaining two thirds of the static pension; and (b) NRZ's liability for the monthly payments of the two thirds static pension. These will be financed by GOZ.

In spite of heavy investment and technical assistance in the past, the performance of most railways in sub-Saharan Africa has been characterized by inefficiency, loss of market share, back-log of infrastructure maintenance, and consequently, by huge recurring losses. It is quite apparent that a parastatal framework within which most railways currently operate - inadequate authority, motivation, commitment, accountability, continuing government interference, and politically-motivated investment and operating decisions -is inappropriate for a competitive and commercial environment. Therefore, private participation in the operation and management of railways is essential for improving their performance and making them operate as financially self-sustaining entities. GOZ's commitment to privatizing the railways in Zimbabwe has been the main motivating factor in the Bank agreeing to support GOZ through ZRRP.

Every railway in the sub-Saharan African region is overstaffed (some to the extent of about 200 to 300 percent). Whether managed as it is or through private participation, the railways and ports are unlikely to become financially viable unless surplus staff is retired/retrenched. Even though such an act is politically unpleasant and difficult to implement, the proposed Project staff rationalization would be designed as a key component with the full backing of GOZ.

Railway managements generally find it difficult to effectively manage commercial operations while simultaneously restructuring/privatizing the system. Separation of these tasks can lead to better implementation. The Project would, therefore, support assigning the disposal of left-over assets to NRZ, while transferring the actual operations to the newly incorporated companies/concessionaires.

A change in the legislative framework affecting the railways and ports is important as most past legislation were generally restrictive of their autonomy, particularly with regard to its organizational restructuring, commercialization, and privatization. In the current case of NRZ, the Railways Act has already been modified to facilitate transfer of infrastructure assets to GOZ, concessioning of infrastructure and other assets, raising of funds from the private sector, and licensing of more than one operator. GOZ is also taking action to process legislation to facilitate setting up an autonomous regulatory body.[Note: Lessons learned from completed and ongoing projects financed by the Bank and other development agencies.]

In 1998, Zimbabwe's peak power demand was about 1,950 MW and total energy supply 11,506 GWh, of which about 40% was imported. There has been no new generation project of any magnitude in the last 15 years, (Hwange having been initiated prior to independence). The country's demand for electricity is forecast to increase on average by about 3% per year over the next 10 years. In addition, the existing import contracts totaling 650 MW will terminate at the end of 2003. Meeting Zimbabwe's future power sector needs over the next decade will require capital expenditures of around US $1.5 to 2 billion for generation, transmission and distribution facilities. The recently completed review of ZESA's system development plan (SDP) recommended that the least cost development sequence would include a competitively bid private development of Hwange Power Plant Extension (Unit 7&8) as the next domestic capacity addition, combined with continued import of about 800-1000 MW. The timing of Hwange Expansion will be mainly impacted by the available quantity (MW) and duration of power imports from South Africa beyond the existing contracted amount and the price and terms of supply. The available quantity and duration of power imports is also considered one of the key factors in determining the Hwange asset sales structure, i.e., whether the transaction should be confined to the existing assets only or if it should cover both privatization and expansion at the outset.

Preparation of a new Electricity Act hat would be more suitable for: (i) implementing a vertically and horizontally unbundled industry structure where competition may be gradually introduced; (ii) establishing a separate regulatory agency independent of Government that can approve tariffs and introduce competition in the sector based on a clear framework of rules; (iii) establishing a rural electrification fund/agency that can promote rural electrification and provide capital cost subsidies in a manner that allows for sustained gains in access. The work on the new Act and a complementary Repeal Act that would annul the 1985 Act is in progress. The Repeal Act would also allow for the transfer of assets from a state authority to a private limited corporation and the formation of separate successor companies. It is expected that the new Acts would be presented for Parliament approval in July 2000 and that they would be enacted by September 2000.

A strategy to privatize sector operating companies in a competitive and transparent manner beginning first with generation and then distribution. Work on the privatization of Hwange Power Station as the first transaction in the privatization process has begun.

World Bank involvement in the program/project would facilitate:
2. A transparent and credible privatization process that would improve the resilience of the overall reform process, and also have a major demonstration effect on broader parastatal privatization.

Phase I 2001-2003
(i) Establishing an operating regulatory institution and market-oriented legislative framework; (ii) corporatization and unbundling of ZESA to functional successor companies; (iii) privatization of major generation assets; (iv) establishing a separate fund/agency for rural electrification; (v) urgent infrastructure investments.

Phase II 2003-2005
(i) Regulatory institution's operations broadened and consolidated; (ii) privatization of distribution companies; (iii) introduction of some wholesale choice; (iv) fully functional rural electrification agency and fund in operation; (v) further transmission and distribution investments.

Phase III 2005-2008
Completion of privatization of generation and distribution businesses; (ii) ZESA's role rationalized to system operator and transmission owner; (iii) regulatory body focus on regulation of power pool and promotion of competition throughout the power industry.

Phase X (Anytime between 2001 and 2008)
(i) Facilitating (through Guarantee and/or associated World Bank Group support) the financial closure of private sector investments in the sector, in particular, in distribution privatization; (ii) essential pre-privatization investments in facilities rehabilitation, necessary transmission connections, etc. (The assistance in this phase will be provided as needed during the entire Program).

Recent lessons emerging from the Asian experience underscore the importance of fundamental sector reform as a basis to ensure the long-term financial sustainability and efficiency gains in the power sector. It indicates that private involvement in the absence of a sound regulatory framework and long-term regulatory mandate to increase competition can be unwise. The problems experienced include: (i) assets privatized in a manner which neither maximizes sales proceeds to the Government nor improves supply efficiency; (ii) excessive need for government guarantees to support and backstop private investments. Piecemeal solutions such as increasing the tariffs alone and/or signing a performance contract with non-performing parastatal utilities have also proved to be unsuccessful. The Power Reform Program has therefore been designed to fundamentally transform the way in which the sector is organized and regulated. Important elements of the program are: (i) creating a suitable legal framework; (ii) establishing an independent regulatory institution, (iii) unbundling the power industry into functionally separate corporate entities, (iv) privatizing using a transparent and competitive process, (v) implementing adequate tariff increases to ensure financial viability of the power enterprises, and (vi) rationalizing retail tariff structure to achieve economic efficiency.

The Government Action Plan would be supported by the World Bank through a Programmatic Structural Adjustment Credit (PSAC). The PSAC provides a strategic framework within which a series of three adjustment credits (SAC III, SAC IV and SAC V) would provide the financial assistance needed for implementing the government Action Plan over a three-year period covering 1999-2001. Each individual SAC would provide support for a program of step-by-step reforms in the area of budgetary management, public enterprise reform and privatization, financial sector reform, land reform and social safety nets. Movement in all areas is necessary for restoring confidence and a positive path of development.

The main elements of the strategy supported by the Fiscal Restructuring Credit include: […]
- elimination of losses of public enterprises and acceleration of privatization to reduce the government domestic debt;

Reduction in Health Spending: Zimbabwe's economy has experienced severe fluctuations over the last eight years. Although the 1991 economic structural adjustment program liberalized the economy, continued budgeting constraints led to strains on the health sector and on the poor . High budget deficits fueled inflation and led to growing interest payments, which in turn contributed to declines in real health spending and real wages for health workers in the '90's.

The effects of real declines in recurrent spending have been felt throughout the system, but preventive and outreach programs appear to have been among the hardest hit. Real earnings for health workers declined by nearly 30 percent between 1991 and 1995; some of this loss was recovered in wage increases in 1997. Although health workers were protected from retrenchments, reductions in Ministry of Health and Child Welfare (MOHCW) administration and maintenance staff reduced efficiency and added to morale problems.

Failure to Increase and Motivate Human Resources: In addition to the economic downturn's effect on staff salaries, the lack of improved civil service conditions could very well prevent much progress in addressing staff's low morale, frequent turnover and less-then adequate working environment. Civil service reform will need to be expedited,

Memorandum of Economic and Financial Policies (July 16, 1999)

The civil service pay award for 1999, including a midyear supplementary, has been limited to 42 percent. By accelerating the retrenchment program, the government will contain the wage bill to under 12 percent of GDP in 1999.

The process of restructuring the civil service will continue and the number of personnel will be cut from 163,986 at the end of 1998 to 149,600 at the end of 1999

The privatization and divestiture program will be accelerated, with a view to

(a) attracting sufficient fiscal revenues to reduce the domestic debt to sustainable levels over a three-year period;
(b) building market confidence'by sending a strong signal to the markets that the government is committed to a market economy;
(c) promoting indigenisation and increasing share prices of the privatized companies by creating extra liquidity (through retiring treasury-bills); and
(d) improving economic efficiency by attracting foreign direct investment which will bring in new technology and management skills.

The government will proceed with the sale of its interests in the enterprises indicated in Table 2. In doing so, it will rely on competitive public tendering and bidding procedures.

In addition, a Broadcasting, Postal and Telecommunications Bill to prepare for the privatization of the telecommunications wing of PTC has been approved by cabinet and will be submitted to Parliament by September 1999. The postal wing will be commercialized. Timetables for the privatization of Air Zimbabwe, ZISCO, the National Railways of Zimbabwe, the Cold Storage Company, and the Forestry Commission will be developed by the time of the first programme review.

Cap on size of civil service
End-September 1999: 152,020
End-December 1999: 149,600

Sale of government shares in or liquidation of enterprises as specified:
End-September 1999: The sale of 30 percent of ZIMRE shares held by the government; the sale of all subsidiaries in the Zimbabwe Development Corporation and its dissolution; and the sale of the Zimbabwe State Trading Corporation; and liquidation of the Central Purchasing Authority
End-December 1999: The sale of all remaining government holdings in Hwange Colliery

The 1999 budget takes into account increases in income tax thresholds and a widening of tax bands, removal of the development levy, and suspension of a temporary surcharge of 2½ percent on the regular sales tax. On the other hand, excise duties have been raised and withholding taxes on capital gains introduced.

Preparations for the introduction of a value-added tax (VAT) are proceeding. Extensive consultations with the private sector are about to commence with a view to adoption of the tax by 2001.

In June 1997, the government imposed controls on maize-meal prices in response to concerns about the adverse social impact of rapidly rising food prices. Retail prices were raised by 20 percent in June and a further 20 percent in July. An independent report sponsored by the World Bank on the marketing of basic foods will shortly be finalized and, unless it indicates the presence of widespread oligopolistic practices, the price controls on maize-meal will be removed by the end of the year. The government has no intention of imposing price controls on any other commodities.