MCA-ZAMBIA'S CONSTRAINTS ANALYSIS ROAD SHOW

UNCLAS SECTION 01 OF 02 LUSAKA 000937 SIPDIS E.O. 12958: N/A TAGS: ECON EAID KMCA ZA SUBJECT: MCA-ZAMBIA'S CONSTRAINTS ANALYSIS ROAD SHOW REF: LUSAKA 206 LUSAKA 00000937 001.2 OF 002 SUMMARY -------------- ¶1. (U) Zambia's Millenium Challenge Account office (MCA-Z) presented its preliminary constraints analysis (CA) results in a whirlwind 15-day road show to government and private sector stakeholders. The report includes separate employability and business environment analyses, and concludes that economic growth is constrained by the poor health, education and low productivity of the Zambian workforce, by underdeveloped infrastructure services, and by coordination failures. The MCA-Z team also presented its compact project selection criteria and timeline. In addition to general MCC selection criteria, the MCA-Z team presented project selection criteria which it developed using lessons learned from previous compact country plans successes and challenges. MCA-Z has an ambitious timeline for project identification and selection, with proposal outlines due December 11. End Summary. MCA-Z CONSTRAINTS ANALYSIS -------------- ¶2. (U) From November 23 to December 11, MCA-Z National Coordinator Bob Liebenthal and Deputy Coordinator Pam Bwalya barnstormed sector advisory groups (SAG) that represent government and private sector stakeholders across Zambia's economic and social sectors to present their preliminary CA results. The CA is a key step in country compact development. At a trade and industry SAG meeting on December 3, one of 15 SAGs that the team visited, Bwalya explained that the MCA-Z CA team adopted a World Bank study on the constraints to inclusive growth in Zambia as a key reference document, explaining that MCC encourages the use of existing studies to avoid "reinventing the wheel." ¶3. (U) MCA-Z analyzed why Zambia's economic growth has been constrained, and what is constraining current growth from being more inclusive and resulting in greater poverty reduction in the country. The constraints analysis included both an employability analysis, in which they examined the factors determining the qualitative supply of labor, and a business environment analyis, which includes a study of both the access to and demand for finance, and factors determining economic rates of return. ¶4. (U) The preliminary results show that Zambia suffers from both employability and business environment constraints. Labor constraints include poor health status, low education levels, and low productivity levels, especially in agriculture. The CA also found that a scarcity of specialized skills in the workforce was a binding constraint on economich growth. Poor infrastructure services, especially in electricity, water and sanitation, rural feeder roads, and railway transport, constrain economic growth. The team highlighted high transport costs due to road conditions and fuel prices as a binding constraint. Finally, Zambia suffers from coordination and information failures, which constitutes a binding constraint as those failures lead to high indirect costs in business, undermining Zambia's ability to innovate and become more competitive in world markets. PROJECT SELECTION -- CRITERIA AND TIMELINE -------------- ¶5. (U) The MCA-Z team discussed MCC project selection criteria and the next steps in the compact development process. Bwalya also explained additional criteria that the MCA-Z team developed using lessons learned from previous compact country plans. The MCA-Z team plans to elicit project proposals from across stakeholder groups that not only meet MCC criteria, but are generally larger than USD 50 million and have had some preparatory work done, can leverage other financing, either from the private sector or other donors, and address binding constraints identified in the CA. The team is looking to choose approximately six projects for submission to the MCC as part of Zambia's compact. ¶6. (U) MCA-Z has an ambitious timeline for project submission and selection. Projects were due on December 11, the last scheduled day of the CA road show. MCA-Z plans to start consultations with members of parliament, local chiefs, and other stakeholders in late December, and to select up to six projects for concept paper preparation. They intend to get Cabinet approval by mid-January, and submit proposals to MCC by January 22. As of December 3, MCA-Z had received no proposals. SAGs were meeting ahead of the deadline to try to create proposals that would fit the MCA-Z criteria. A donor representative who attended a follow-on trade and industry SAG meeting on December 10 told Econoff that the group was LUSAKA 00000937 002.2 OF 002 hard-pressed to meet the deadline, and so their proposals were short on detail and overlap with existing assistance programs. COMMENT -------------- ¶7. (SBU) The MCA-Z team has set an ambitious timeline for themselves. They have made significant progress since opening the MCA-Z office in summer 2009, and were quick to produce a CA. However, many of the stakeholders at the SAG meetings were somewhat unaware of the MCA-Z compact development process before the briefing. MCA-Z will be hard-pressed to maintain its pace, receive quality project proposals and prepare concept papers for approval by Cabinet and submission to MCC by January. BOOTH