Mid-term evaluation of the USAID funded Zambia privatization project : final report

Mid-term evaluation covers the period 1992-3/96. Following a slow start, which is not uncommon for privatization programs of this kind, the project is on track to achieve and exceed all of its substantial goals and objectives. The Government of Zambia (GRZ), USAID, the Zambia Privatization Agency (ZPA), as well as the prime contractor -- the Center for Financial Engineering in Development, Inc. (CFED) -- and the major subcontractors have performed strongly, especially given the serious initial constraints: ZPA and CFED personnel turnover at the senior levels, political constraints (ZIMCO), the initial indecisiveness of the ZPA Board, and serious overall logistical constraints. If the project maintains its momentum, it could become one of USAID's most successful private sector initiatives in recent years. As of 9/95, 31 companies had been privatized (vs. a life-of-project target of 50-75) under the ZPA program. Since the start of the CFED contract (2/94) trough 9/95, sales agreements had been concluded for 22 companies (vs. a life of contract target of 50). In addition, 6 companies were dissolved or liquidated. As of 10/95, privatization sales had raised some $26 million for the GRZ. ZPA marketing and promotion activities have correctly focused on both general investment promotion and individual company marketing and, despite a highly inadequate budget, have recorded notable achievements in both. Efforts have been professional, cost-effective, and have generated direct buyer interest. ZPA's public awareness program has been a key factor in selling the privatization program to Zambian citizens; informing the public about privatization objectives and strategies was particularly crucial during the program's early stages. Efforts included: World Bank-funded radio programs; information brochures in seven regional languages and English; wide distribution a ZPA marketing brochure; television, radio, and print advertising; an essay competition; public fora on privatization; and radio and television talk shows. On-the job training of ZPA counterparts by CFED has led to significant skills transfer. This on-the-job training has related to the entire "transactions chain," including: valuation methodologies and assessments; cash-flow analysis and net present value (NPV); business plans development and assessments; advertising and promotion of companies; ZPA Board submissions and presentations; scoring and ranking of bids; and transactions negotiations. Formal training has included: highly effective workshops in negotiation skills by Ostrer and Associates, resulting in a solid cadre of independent negotiators; a CFED training program which has sharpened the privatization and transactions skills of ZPA staff; and third-country training of key ZPA staff and other Zambian officials. Other success factors have included: (1) strong political support withing the GRZ and strong support from key donors such as USAID and the World Bank, both of which played a key role in liquidating ZIMCO, the holding company for many of the parastatals, which, until its liquidation, was an obstacle to the privatization process; (2) recruiting a top level Chief Executive; (3) a supportive legal/regulatory framework, along with a transparent divestiture process and the linkage of privatization to other macroeconomic and regulatory reforms; and (4) various implementation factors, such as the establishment of ambitious and specific targets and the emphasis on transaction results; the existence of a broad base of Zambian support through local stakeholder participation in various steps of the privatization process, and greater openness to foreign investment than in the past. A few critical policy issues require further attention: minimizing asset stripping; cleaning up enterprise liabilities that may prevent companies from being privatized unless their debts are written down; minimizing the costs of paying severance to retrenched workers; and overcoming shortages of capital and liquidity.