Star Report: Zambia Compact | May 2020

Country Context

The Republic of Zambia is a landlocked country in south-central, sub-Saharan Africa. It gained independence from the United Kingdom in 1964 and has maintained relative political stability since that time.. Lusaka Province is home to the city of Lusaka, the national capital. The country has a wealth of natural resources, minerals, land, and wildlife. Zambia had one of the fastest growing economies in Africa from 1994 to 2014, with real GDP growth averaging roughly 6.7 percent per annum 1 . Despite this growth, widespread and extreme rural poverty and high unemployment levels remain significant problems, made worse by a high birth rate, a relatively high HIV/AIDS burden, market-distorting agricultural and energy policies, and growing government debt. In 2010, over 60 percent of Zambia’s population lived below the poverty line, and the country suffered from an HIV/AIDS prevalence rate over 14 percent 2 .

Zambia’s population, estimated at more than 16 million 3 , is richly diverse with a total of 73 distinct ethnic groups. Urbanization is a pressing development and economic growth issue across sub-Saharan Africa, and Zambia is no exception. Almost half of the country’s population is now concentrated in urban areas, including Lusaka, which has experienced rapid, and often unplanned, urban and peri-urban growth. 4 At independence in 1964, the population of Lusaka was just over 100,000, or less than 4 percent of the country’s population. But by 2011, Lusaka was home to more than 1.8 million people—over 10 percent of Zambia’s total population—and the city’s population was projected to more than double by 2035. 5  This rapid population growth in Lusaka has occurred without complementary investments in infrastructure, including water supply and sanitation. 6

MCC’s engagement with Zambia dates back to 2004. As one of the first countries to be selected for a threshold program, Zambia partnered with MCC to reduce opportunities for corruption in three government entities (Ministry of Lands, Zambia Revenue Authority, and the Immigration Department of the Ministry of Home Affairs), reduce administrative barriers to business and investment, and improve border management of trade. The $22.7 million threshold program, implemented by the U.S. Agency for International Development, was signed in 2006 and concluded in 2009. Achievements included establishing a one-stop shop that automated procedures for business registration and tax payment, reducing processing times for customs operations, and developing a Corruption Prevention Toolkit for the Anti-Corruption Commission. 7  The positive and productive experience of the threshold program demonstrated Zambia’s ability to successfully partner with MCC.

Developing a Compact

The MCC Board of Directors selected Zambia as eligible to develop a compact in December 2008. MCC and the GOZ then conducted a nationwide analysis to identify the main factors that were limiting inclusive growth in the country. The analysis of binding constraints in Zambia was completed in 2011, before MCC had established current constraints analysis guidance and standards. For this analysis, the GOZ proposed and MCC assented to applying an “Inclusive Growth Diagnostics” framework. 8  Operationally, this analysis (1) aimed to identify constraints to more inclusive growth and significant poverty reduction, and (2) also attempted to answer the question of why Zambia’s growth rate had not accelerated in recent years.

This analysis identified three binding constraints: 1) the low quality of human capital; 2) poor infrastructure services, including electricity, rail transportation and rural and peri-urban water; and 3) coordination failures where the country fails to provide sufficient complementary goods and services to help private investors be profitable and competitive, such as lack of investment in infrastructure in high return areas. In consultation with the Government of Zambia, MCC ultimately selected the binding constraint of water and sanitation in rural and peri-urban areas to underpin the compact.

While difficult to attribute the identification of this particular constraint exclusively to the use of the “Inclusive Growth Diagnostics” framework, using this framework arguably placed greater emphasis on poor target beneficiaries than would have otherwise been the case. 9  The binding constraint of water and sanitation in rural and peri-urban areas, was supported by key findings, including low water consumption by rural households, low water and sanitation availability in peri-urban areas, outbreaks of waterborne and water-related disease, and high time costs of obtaining water. Moreover, relieving the binding constraint of water and sanitation in rural and peri-urban areas had the potential to foster both more inclusive and more rapid growth.

The GOZ conducted a targeted consultative process to disseminate the findings of the constraints analysis. They engaged with more than five hundred individuals from government, the private sector, civil society, and donor organizations. Feedback from these consultations resulted in high levels of consensus and a list of six prioritized sectors that were key to Zambia’s economic development. Following an extensive internal and external peer review process, MCC and the GOZ decided to focus solely on the GOZ’s capacity to provide necessary water supply, sanitation, and drainage services within urban and peri-urban areas of the capital city of Lusaka. 10 Though the interconnectedness of the water supply network implied that a substantial proportion of Lusaka’s residents would benefit from the project, MCC’s investment included previously unserved consumers, extending water distribution lines to a number of Lusaka’s peri-urban areas (see section below, “Moving Water to the Consumer”).

The constraints analysis and consultative process demonstrated that without significant investment in the overstretched and under-resourced water sector, the rapid urbanization of Lusaka would continue to risk the health and lives of vulnerable people, leading to loss of productivity and wage earnings. Further, this analysis concluded that without substantial investment within the water sector, Zambia would not meet the United Nations Millennium Development Goal to reduce the proportion of people without sustainable access to safe drinking water by 50 percent by 2015. Zambia also lagged behind its peers in water supply coverage to its population, with cities (including Lusaka) experiencing serious water shortages. The GOZ and MCC thus designed a single-sector compact to address the water, sanitation, and drainage issues within Lusaka through major infrastructure improvements and institutional strengthening. This included both the water utility—Lusaka Water and Sewerage Company (LWSC)—that is the provincial utility responsible for the management of Lusaka’s water and sanitation assets and for the provision of water and sanitation services, and the local city council—Lusaka City Council (LCC)—whose responsibilities include maintaining Lusaka’s drainage assets and managing solid waste.

MCC and the GOZ signed the $354.8 million MCC Zambia Compact on May 10, 2012. At signing, the compact was MCC’s largest urban and water compact. MCC’s support of Lusaka’s water sector offered the opportunity to profoundly affect the city’s and country’s development, and efforts to build a healthier and more productive Zambian society. Following the signing, the GOZ created Millennium Challenge Account–Zambia (MCA) to implement the compact. 11  The compact entered into force on November 15, 2013.

At a Glance

  • Original Amount at Compact Signing:
    $354.8 million
  • Amount spent:
    $332.1 million
  • Signed:
    May 10, 2012
  • Entry Into Force:
    November 15, 2013
  • Closed:
    November 15, 2018

Estimated benefits at the time of investment correspond to $292.6 million of project funds, where cost-benefit analysis was conducted:

  • 1,241,959Estimated beneficiaries at the time of signing over 20 years
  • $229.8 millionEstimated net benefits at the time of signing over 20 years

Overview of Economic Rate of Return (ERR) and Beneficiaries

Activity   Estimated Economic Rate of Return over 20 years Estimated beneficiaries over 20 years Estimated total benefits over 20 years
Project level At the time of signing 13.7% 1,241,959 $229.8 million
Updated (August 2013 – at Entry Into Force (EIF)) 12 17.0% 13 1,230,413 $292.1 million
Updated ERR (March 2019) 13.7% 1,199,962 $258.3 million
At compact closure 9.7% 1,199,962 $240.9 million

At the time of signing and at Entry Into Force, MCC calculated one ERR encompassing the compact’s two activities, the Infrastructure Activity and the Institutional Strengthening Activity. MCC’s initial economic model accounted for the benefits of reduced exposure to waterborne diseases from contaminated drinking water and flood waters, reduced flooding damages, lower costs of providing water when non-revenue water is reduced, and the impact on women and children of reduced time spent collecting water.

The August 2013 ERR version reflected refinements in MCC’s methodology regarding the opportunity cost of time and incorporated newer data sources. Incorporating newer data sources also increased the estimate of overall benefits; on net, these changes increased the ERR from 13.7 to 17 percent.

In March 2019, based on implementation experience to date, MCC introduced more moderate projections of adoption rates, 14 reducing these from 100 percent to 80 percent. This revised figure was viewed as ambitious but still achievable. That change, coupled with higher costs associated with investments in improved drainage, caused the ERR to decrease to 13.7 percent.

Finally, the closeout ERR incorporated a number of revisions and refinements:

  • Due to widespread contamination of the water supply that was not discovered until implementation, all health-related benefits were zeroed out, leaving only time savings benefits.
  • Updated wage data from the latest Zambia Labor Force Survey (2017 vs 2013) increased the ERR slightly.
  • Two benefit streams in the original ERR relating to improvements in the central pumping system and pipe network were omitted from the closeout ERR due to newly-emergent measurement or data collection problems:
    • Estimated benefits from increased supply due to reductions in non-revenue water
    • Time savings associated with overall improvement in reliability of water supply

These benefit streams were replaced with an estimate of the value of lost water associated with the possible failure of the central pumping system; this value is more easily evaluated via monitoring of asset maintenance.

  • Finally, MCC first computed an ERR for the Institutional Strengthening Activity at closeout since data had newly become available to support a corresponding ERR calculation. 15  Under the (conservative) assumption that the Institutional Strengthening Activity would bring about only small increases in asset lifetimes, the ERR of the Institutional Strengthening Activity is 19 percent.

In MCC’s early days, ERR calculations for infrastructure investments assumed optimal maintenance of MCC-financed assets. MCC has found, however, that suboptimal maintenance is often the root cause of problems which its investments in new or rehabilitated infrastructure aim to solve. This realization has led, in turn, to more conservative expectations and assumptions concerning future maintenance spending by partner countries in MCC’s economic analysis. In Zambia, for instance, the original ERR calculations made somewhat optimistic assumptions regarding the maintenance of assets installed by MCC and the corresponding trajectory of benefits over time. In the closeout ERR, in contrast, the magnitude of the ERR varies depending on assumptions about the adequacy of maintenance to sustain benefits over time. 16

The MCC Zambia Compact is projected to have 1,199,962 beneficiaries in Compact Year 20, of whom nearly three-fourths are poor. The average beneficiary benefits by $169 in present value terms over an estimated 20-year economic life of the compact’s Lusaka Water Supply, Sanitation and Drainage Project. Overall, the Project had a 9.7 percent ERR at compact closure.

  • 1. CIA World Factbook.
  • 2. 2010 Zambia Census,
  • 3. Republic of Zambia, Central Statistical Office,
  • 4. CIA World Factbook.
  • 5. Central Statistical Office, Republic of Zambia projected increase of population from 2011 to 2035 as reported on
  • 6. Sanitation refers to both sewer services and on-site solutions (including pit latrines and septic tanks).
  • 7. MCC Zambia Threshold Program Final Status Report,
  • 8. The methodology is set forth in Elena Ianchovichina and Susanna Lundstrom (2008), “What are the Constraints to Inclusive Growth in Zambia?” (Policy Note; Report No. 44286-ZM).
  • 9. For example, following the approach in the source cited in note 9 above.
  • 10. The compact largely addressed peri-urban areas. Although urban water was not identified as binding during the constraints analysis, some urban investments were built into the project due to both (a) the connected nature of water, sewer, and drain networks that make it infeasible to totally isolate urban from peri-urban areas, and (b) the importance of urban areas to the utility’s revenue model.
  • 11. Under MCC’s country ownership model, governments receiving MCC assistance are responsible for implementing the MCC-funded programs. Partner governments establish units known as accountable entities referred to as MCAs to manage implementation for compact projects.
  • 12. For discussion of the ERR update at EIF, see the Explanation of Results subsection of the Project Results section.
  • 13. These figures are from
  • 14. The adoption rate is the percentage of eligible households who choose to connect to the new water supply and sewerage infrastructure.
  • 15. MCC has recently increased its focus on cost-benefit analysis of policy and institutional reform interventions and developed new methodologies for this work. For the Zambia closeout ERR developed a standalone estimate of the benefits associated with the compact’s Institutional Strengthening Activity.
  • 16. Alternative assumptions regarding the quality of maintenance and the evolution of benefits would change the Zambia Project ERR as follows:  If benefits fell linearly to zero over 30 years, the ERR decreases to 3.8%.  If benefits fell to zero over 20 years, the ERR decreases to -1.5%.
  • 17. Ministerial Statement on Water Resources Management by Honorable Dora Siliya, M.P., May 2016
  • 18. The Water Resources Management Authority’s objective is to promote and adopt a dynamic, gender-sensitive, integrated, interactive, participatory and multisector approach to water resource management and development that includes human, land, environmental and socio-economic considerations, especially poverty reduction and the elimination of waterborne diseases, including malaria.
  • 19. Water Supply Investment Master Plan: Investment Strategy Report, Jan 2011.
  • 20. Ibid.
  • 21. Non-revenue water is treated water that goes unpaid for. There are two main categories of non-revenue water: (a) water that is lost through leaks and broken pipes (physical losses), and (b) water that goes unbilled or unpaid for due to issues such as inaccurate water meters, water theft, poor management of billing records, and the like (commercial losses).
  • 22. The idea of adequate water quality refers to delivering water to consumers that meets drinking water standards.
  • 23. Final Sanitation Master Plan, Lusaka, Zambia. June 24, 2011.
  • 24. Study on Comprehensive Urban Development Plan for the City of Lusaka in the Republic of Zambia, 25.
  • 26.
  • 27. LWSC is also responsible for the water supply in the towns of Kafue, Chongwe and Luanga. The Water Supply Investment Master Plan therefore also included an additional six projects spread across these three towns, bringing the estimated total costs of all the projects outlined in the Plan to $815 million.
  • 28. The Water Supply Investment Master Plan does not elaborate on the 20 percent of households with access to safe water but lacking a household connection to the municipal supply. Presumably this 20 percent includes (a) households who choose not to connect to the municipal water supply in their neighborhood (e.g., perhaps because they prefer their existing private borehole well, because of affordability considerations, etc.), as well as (b) households in neighborhoods that lack the option of household-level connections but are served by community water kiosks connected to the municipal supply.
  • 29. To contextualize these statistics on non-revenue water (NRW): Using performance data from the International Benchmarking Network for Water and Sanitation Utilities (IBNET, at, the World Bank reported that NRW averages around 35 percent for developing countries. However, underreporting and geographic coverage gaps in the IBNET database led the authors to estimate that the true overall NRW level for the developing world is closer to 40-50 percent. The report further suggested that cutting these losses in half is an attainable target; the best-performing developing world utilities achieve NRW levels below 25 percent. See Kingdom, B.; Roland, L.; and P. Marin. (2006) The challenge of reducing non-revenue water (NRW) in developing countries – how the private sector can help: a look at performance-based service contracting. Water Supply and Sanitation Sector Board discussion paper no. 8. Washington, D.C.: World Bank. According to the Water Supply Investment Master Plan referenced in footnote 26, the Zambian independent utility regulator (NWASCO) considers NRW levels above 25 percent to be “unacceptable,” 20-25 percent to be “acceptable,” and below 20 percent to be “good.”
  • 30. A “just-in-time redesign” is a last-minute change where technical details are adjusted shortly before construction begins. Ideally, plans and engineering designs are developed ahead of time, to allow for optimum planning, efficiency, and coordination of various project components.
  • 31. Resettlement refers both to physical displacement (relocation or loss of shelter) and to economic displacement (loss of assets or access to assets that leads to loss of income sources or other means of livelihood) as a result of project-related land acquisition or restrictions on land use. It can be either permanent or temporary depending on the circumstances. Resettlement is considered involuntary when affected persons or communities do not have the right to refuse land acquisition or restrictions on land use that result in physical or economic displacement. This occurs in cases of (i) lawful expropriation or temporary or permanent restrictions on land use and (ii) negotiated settlements in which the buyer can resort to expropriation or impose legal restrictions on land use if negotiations with the seller fail. See International Finance Corporation. (2012). Performance Standard 5 Land Acquisition and Involuntary Resettlement, retrievable from:
  • 32. A project-affected person (“PAP”) is an individual or a family (household) that loses a home, land, or business interests because of project-required land acquisition. Any given resettlement impact could affect one or more people depending on whether it is registered for an individual, a household, a business, or other entity (such as a church or other organization).
  • 33. Throughout the livelihood restoration process, gender expertise and targeted support were extended to mitigate the particular risks that female project-affected people faced retaining control of their compensation within their households and investing in new opportunities.
  • 34. The 30 percent target was drawn from a Southern African Development Community (SADC) protocol. That protocol is now outdated. However many countries use 30 percent as a target for women’s representation in politics, and a number of companies have followed suit for board and executive level representation.
  • 35. World Economic Forum, 2016. The Future of Jobs, Table 14.
  • 36. A borehole well is a narrow shaft drilled vertically into the ground. It allows for pumping (extraction) and/or sampling of groundwater.
  • 37. Water Supply Investment Master Plan: Investment Strategy Report, Jan 2011.
  • 38. The compact did not fund private plumbing. Property owners had to cover the expense of installing any necessary pipes and hardware to connect their building with the new water pipes at their plot, as well as paying the utility’s water connection fees.
  • 39. As mentioned in the context of water connections, the compact did not fund private plumbing. This policy also applied to sewer connections. Property owners had to cover the expense of installing toilets, water closets, and any necessary pipes and hardware to connect their building with the new sewer line at their plot, as well as paying the utility’s sewerage connection fees.  Through the Innovation Grant Program (see the Institutional Strengthening section, below), the compact did support the creation of a small revolving loan fund to help finance household connections to the sanitation network.
  • 40. After the new sewage treatment plan comes online, it is expected that Kaunda Square will provide additional treatment capacity for heavy flows during the wet season.
  • 41. In Lusaka, especially in the peri-urban areas, the toilet is often installed in a small outbuilding constructed for the purpose. Unless the toilet uses pour-flush, a water connection is necessary. In peri-urban areas that never had water or sewer lines before the compact, households required both water and sewer connection fees at the same time.
  • 42. These figures were calculated through compact-funded studies.
  • 43. The Public Health Act prohibits pit latrines and septic tanks within 200 feet of a sewer line. Residents must therefore connect to the sewer line.
  • 44. After one year with one of two planned trash traps in place, it became clear that LCC was not yet able to manage the operation of trash traps of this design. Rather than installing the second trash trap (of the same design, intended to work in concert with the first one to improve the environmental performance of the drainage system), the first trash trap was removed and the materials placed in storage. LCC will install both traps when they are prepared to manage them. The operationalization of an autonomous solid waste management company (discussed in the Assistance to Lusaka City Council subsection, below) is expected to reduce the trash load, which should make it easier for LCC to operate and maintain the trash traps.
  • 45. The drainage works were not fully completed due to performance problems with the contractor, which had significant cash flow problems and filed for protection from creditors in December 2018.
  • 46. Total length of transmission lines constructed and rehabilitated. This indicator is tied to strengthening Water Supply.
  • 47. Total number of connections with operating meter/ total number of connections, expressed in percentage
  • 48. In year four of compact implementation, after works were underway, consultants used billing and system input data from LWSC to estimate the total baseline NRW at 56.8 percent. In the same analysis, it was estimated that the total NRW could be reduced to 41.3 percent by the end of the project, suggesting that the original target of 34 percent may have been overly ambitious.
  • 49. This indicator includes estimates total quarterly water production from the Iolanda water treatment plant (40% production) and the 120+ boreholes around Lusaka (60% production). The indicator is also reported on by LWSC and per the data quality review this indicator is estimated because there are no bulk water meters at Iolanda or at most boreholes.
  • 50. A negative completion rate requires some explanation. The compact sought to increase water produced from 23.09 million cubic meters per quarter to 24.63 million cubic meters per quarter, an increase of 1.54 million cubic meters. However, water production at compact close sat at 18.85 million cubic meters, a decrease of 4.24 million cubic meters compared to the baseline.  Dividing the actual decrease (-4.24) by the targeted increase (1.54) and converting to percent generates a completion rate of -274 percent. 
  • 51. This indicator is reported by LWSC on a quarterly basis and has fluctuated throughout the compact. It is an average for all districts of Lusaka; the number of hours of water supply can vary dramatically by neighborhood and due to inconsistent availability of electricity (e.g., load shedding during the dry season) affects the continuity of service, but no data are available on the frequency and duration of power outages at baseline or over the course of the compact, so their impact on the performance measured by this indicator is unknown.
  • 52. A negative completion rate requires some explanation. The compact sought to increase the city-wide average availability of water service by 4 hours daily, from 18 to 22 hours per day. However, water service stood at 17 hours per day at compact close, a decrease of 1 hour daily.  Dividing the actual decrease (-1) by the targeted increase (4) and converting to percent yields a completion rate of -25 percent.
  • 53. Total number of new water supply connections in the project area. These are household connections and do not include kiosk connections. This indicator is a subset of Meters installed/replaced and should not be aggregated up for reporting
  • 54. The target should have been revised to reflect rescoping early in the compact, reflecting that the work was completed. However, the erroneous target cannot now be retroactively corrected due to internal policy for transparency and accountability.
  • 55. The drainage works were not fully completed due to performance problems with the contractor, which had significant cash flow problems and filed for protection from creditors in December 2018.
  • 56. Cogswell, Lynne. 2008. Development of Sanitation Marketing Strategy and Hygiene Promotion Program for Peri-Urban Settlements of Lusaka, Zambia. Market Analysis report prepared for the World Bank Water and Sanitation Program / Africa Ministry of Local Government and Housing, Lusaka Water and Sewerage Company. The definition of “extreme poverty” used here was defined by Zambia’s Central Statistics Office in 2003 using local currency: K32,861 per month per adult (equivalent to $7/month per adult in 2003 dollars).
  • 57. In rotational staffing, employees are reassigned or “rotated” to a new position every few years. In organizations like the civil service with staffing needs across a wide geography, these rotations often involve a move from one city or region to another. Assignments typically have different job specifications and build flexibility rather than specialization or a linear progression of skills.
  • 58. It was not possible to estimate the relative proportion of physical and commercial losses when targets for non-revenue water (NRW) reduction were set early in the compact. As reported above under the explanation of results for the Infrastructure Activity, the final overall NRW reduction fell short of the target due to combination of implementation challenges and data quality issues.
  • 59. The National Water and Sanitation Council (NWASCO) is the independent utility regulator.
  • 60. Including the $11 million paid to clear arrears that were outstanding at the start of the compact, as required by a condition precedent.
  • 61. The outstanding arrears at the end of the compact reflected unpaid arrears identified in the last internal audit in October of 2017. The Government’s dependence on audits to trigger arears payments and comply with the ongoing condition precendent was the driver behind the move to legally empower LWSC to collect arrears directly.
  • 62. This assessment considered capacity for operations, maintenance, and capital improvement.
  • 63. Drainage Investment Plan for Priority Areas in Lusaka, Zambia, 2011, U.S. Army Corps of Engineers.
  • 64. A compact-funded Centers for Disease Control and Prevention report from May 2015 indicated that the total population in this area was 188,000 people.
  • 65. Bio-latrines are latrines connected to a biogas digester. The design minimizes blockage risks and the challenges of emptying the pit under the latrine, while providing primary treatment for sanitary waste and producing biogas that can be sold to nearby street vendors and businesses.
  • 66. Total annual operational revenues divided by total annual operating costs. This indicator helps assess the financial health and stability of the utility.
  • 67. Ultimately this contribution was paid by the Ministry of Finance due to budget constraints by LCC. As previously mentioned this condition was revised to also provide for solid waste management expenses in addition to drainage maintenance and repair given the decoupling of solid waste management from the LCC and establishment of a new Solid Waste Management Company.
  • 68. In neighborhoods that do not yet have sewer lines, suitably designed on-site sanitation options exist that can replace unlined pit latrines.
  • 69. Since groundwater is an unseen resource, it is harder to measure and easier to over-exploit than surface water. But if an accurate estimate of the natural recharge rate is available and the political will is there, it’s possible to balance withdrawals against recharge so as to avoid depleting the aquifer and compromising the future viability of the groundwater supply.
  • 70. Provided that LWSC maintains effective chlorination of the treated water supply, as enabled by MCC investments, there will be a measure of protection against microbial contamination of the groundwater. However, LWSC is unable to treat for nitrate contamination, which also comes from pit latrines. Prevention is the best option, and in the case of Lusaka this would entail eliminating unlined pit latrines and digging out decommissioned ones to remove the human waste that is the nitrate source.
  • 71. In February 2012, an Environmental and Social Impact Assessment (ESIA) noted elevated levels of nitrate in the groundwater from several borehole wells that are part of LWSC’s supply network. These wells also had microbiological contamination. The ESIA concluded that the nitrate source was pollution from pit latrines and other waste disposal activities. Due to coordination shortcomings at MCC, awareness of potential nitrate contamination challenges was lost until 2017 when an external evaluator, CDC, reported that they had measured elevated levels of nitrate in water supplied by LWSC to some areas of the city.