Report No. 26162-ZA Zambia Public Expenditure Management and Financial Accountability Review Country Procurement Assessment Review Annex, Volume III: November 2003 Financial Management Operational Quality and Knowledge Africa Region Document of the World Bank PS Permanent Secretary PSCAP Public ServiceCapacity Building Project PSI Pre-shipmentInspection PSRP PublicService ReformProgram PSU Procurementand Supply Unit RFP Requestfor Proposals RFQ Requestfor Quotation ROADSIP RoadSector Investment Program SADC Southem African DevelopmentCommunity SBD Standard BiddingDocuments SGS SurveillanceGenerale Suisse SI StatutoryInvestment SIDA Swedish InternationalDevelopmentAgency SME Small and MediumsizedEnterprises SOE State OwnedEnterprise SRP I1 SocialRecoveryProgramI1 TR Tender Regulations TTL Task Team Leader UNICITRAL UnitedNationsCommittee on InternationalTrade and Laws USAID UnitedStates Agency for InternationalDevelopment VAT Value Added Tax WBG wco World Bank Group World Customs Organization WTO World TradeOrganization ZACCI Zambia Association of Chambers of Commerce ZAM ZambianAssociationof Manufacturers ZAMIM ZambianInstituteof Management ZAMTEL The ZambiaTelecommunicationsCompanyLtd zcc ZBIC ZambiaInsuranceBusinessCollege Trust Zambian CompetitionCommission ZESCO Zambia Electricity SupplyCorporationLtd ZMK Kwacha ZNCB ZambianNationalCommercialBank ZNOC ZambiaNationalOil Company ZNTB ZambiaNationalTender Board ZRA ZambianRevenueAuthority ZTBA ZambiaTender BoardAct MAINREPORT PREFACE This country Procurement Assessment Review (CPAR) i s a joint undertaking between the Zambian Government and the World Bank to study and analyze the existing public procure- ment system in Zambia and to recommend suitable actions to improve the economy, effi- ciency, predictability and transparency o f the procurement processes. It provides Government with tools to make changes and to improve the public procurement system and institutional framework. It was conducted inJanuary 2002 and inMarch 2002 by a team comprising offi- cials from the Ministry o f Finance and National Planning, and a multidisciplinary Task Force representing various concerned organizations set up by that ministry, a team from Govern- ment's consultants (PLS RAMBOLL)and World Bank officials.* The CPAR will also be one o f three core reports contained in the Public Expenditure Management and Financial Ac- countability Report (PEMFAR) being preparedby Bank and government. The CPAR team interviewed government officials and representatives of private sector or- ganizations, major donors, business associations, training institutions andNGOs,just as it vis- ited Local Councils, District Offices and the site o f beneficiary projects in two locations. Other activities included a review o f tender processing at ZNTB for 14 cases o f large value procurement financed by government, a review o f contract practices for 10 cases o f procure- mentfinanced bythe Bank and document research. The Task Force conductedinternal meet- ings to collect data and formulate its recommendations. The CPAR team as a whole, including the Task Force, helda series of meetings to finalize thisreview. This report consists of the Main Report and Annexes. The Main Report presents the major findings and conclusions and relatedrecommendations, and an action planboth short and me- diumto longterm. The Annexes volume contains as Annex Ithe detailedreport, includingthe questionnaires, which discusses each o f the major issues in more details and i s meant for those readers who would want additional information on these issues. In addition, the main documents referredto inthe report are enclosed. ' The team was led by Subhash Dhingra Senior Procurement Specialist. Other team members were Narayanaswami Viswanathan (Consultant) and from the country office: Mushiba Nyamazana (Economist), Mehmaz Teymourian (Deputy Chief o f mission), Fenwick Chitalu (Financial Management Analyst), and Bwalya Mumba (Procurement Officer). The Government Team was led by Mr. David Diangamo, Chairperson / Permanent Secretary, Ministry o f Finance and Eco- nomic Planning supportedby government's consultants and the Task Force comprising, Mr.James Mulungushi, Director o f Planning, Mr. B Msimuko, Principal Budget Analyst, Mr. J. B. Makumba, Head o f Procurement Unit, Mr. N M Shamaila, Director o f Audits, Dr. Kabeta Muleya, Director General, M s S Zyambo, ADirector - Goods and Services, Mr Muyangwa Akolwa, Director - Works, Mr. J K Njolomba, Director - Inspection and Standards, Mr. G. Mwela, Former Director General, Mr. Joshua Banda, Director o f Procurement, Mr M K Simwanza, Director o f Procurement, Ms Clara Mangani, Assistant Warehouse Manager, Mr. P J Muyawala, Head o f Procurement, Mr. F M Silunduko, Head, Emmas- dale Campus, M s Betty Sombe, Director o f Finance, Mr. Richard Healey, President, Zambian Association o f Manufac- turers, M s Viola Mtamila, Chief Planner, Mr. Jason Songwe, Head o f Procurement Unit,Mr. S D Chibuye, Head o f Pro- curement Unit, Mr.E M Sikazwe, Principal State Counsel, Mr. Tenthani Banda, Director o f Administration, Mr. Wedex Ilunga, Technical Services Manager, ZMASIF, Mr. George Sikazwe, Procurement Manager, PSACAP, Mr Lwambe Mondoloka, Chairman, Association o f Consulting Engineers, and Dr S M Mashamba, Executive Secretary, National Re- construction Council. The PLS RAMBOLL team comprised Claus B. Nielsen (Trade Practice Expert), Claus Thomsen (Private Sector Expert), Soren Staugaard (Legal Expert) and Karen Sondergaard (Procurement Practice Expert). - 1 - PARTI EXECUTIVESUMMARY IBACKGROUND 1.01 Zambia's economy has not performed well over the past decade. During 1992-2000, av- erage annual economic growth averaged less than 1 percent inreal terms. Population growth has averaged 3 percent, implying a drop in per capita income. With per capita income esti- mated at about $320 in 1999, Zambia is one o f the poorest countries insub-Saharan Africa. Its economy i s undiversified, and depends heavily on mineral resources and exports, particularly copper, which generates over 70 percent o f the country's foreign exchange earnings. Zam- bia's foreign debt makes it one o f the world's most indebted states, which resulted inZambia qualifying for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative in De- cember 2000. The economic outlook worsened further in early 2002, when Anglo-American Plc, a major stakeholder in the copper mining industry, began withdrawing from Zambia. In this context and with little scope for increasing revenue, improving the efficiency and effec- tiveness o f public expenditures remains a key to reducing poverty. Development o f a well- functioning procurement system, based on transparency, competition, economy and effi- ciency, fairness, and accountability, i s critical2. 1.02 Importanceof Public Procurement in Zambia. Public procurement plays an impor- tant role inthe Zambian economy. The total volume o f public procurement in2001 was esti- mated at USD485 million, equivalent to 15 percent o f GDP -- this i s a higher proportion than the 10% estimated for most countries inAfrica. The Central Tender Committee (CTC) o f the Zambia National Tender Board (ZNTB) processed and approved procurement valued at 12 percent o f GDP while another 3 percent o f GDP was procured at a decentralizedlevelby min- istries and provincial administrations. If even a conservatively estimated 10% o f this cost could be saved through better procurement policies, practices and institutional arrangements, thiswould meana yearly gain to the exchequer ofthe order of$ 50 million. 1.03 Assistance to and Progress of Public Procurement Reform. Recognizing the im- portance o f efficient procurement for the national economy, public procurement system re- form has been on the Zambian government's agenda for almost a decade, during which a number o f donor-funded projects supported this agenda. The government adopted the Public A CountryProcurementAssessment Mission, led by Subhash Dhingra, was carried out in January 2002 and in March2002. The overall objective of the CPAR exercise is to start aprocess for the government and the World Bank to work together to improve the accountability, integrity, and transparency of the procurement processes and to reduce the scope for corruption. This exercise also provides the means to respond to the government's request to the World Bank to assist in developing plans for further reformingthe public pro- curement system. The CPAR will also be one of three core reports containedinthe Public Expenditure Man- agement and FinancialAccountability Report(PEMFAR) beingpreparedby Bank and government. - ii- Procurement Action Plan (1996) to (a) implement a plan completely decentralizing procure- ment to ministries; (b) facilitate decentralization, establish a cadre o f professional procure- ment staff, and support specialized training institutions in building cadre capacity; and (c) strengthen audit and oversight functions. The 1997 Country Procurement Assessment Report (CPAR) observed that the action plan implementation had moved slowly, particularly decen- tralization and establishment o f a procurement cadre. The current CPAR concludes that the action plan's overall objectives have still not been realized, inter alia, due to insufficient ef- forts by ZNTB. Though a number o f steps were initiated, plannedreforms in significant areas have not been efficiently implemented: 9 Improvement of procurement capacity in the Procurement and Supply Units (PSUs) has been slow. Inthe 1996 action plan, setting up the procurement cadre emerged as a crucial step for delegation of procurement authority to PSUs. The cadre needs a defined career path and an attractive salary structure linked with a well-developed training system. These improvements were not initiated, and the cadre was not created. The capacity inthe PSUs remains a problem except where ZNTB has seconded its staff to work in some ministries' PSUs. In such cases, the somewhat better capacity has enabled PSUs to achieve higher grades in the categorization system by which the ministries' procurement capacity i s rated. . Implementation of the Action Plan (1996) did not get adequate attention. Examples are: (a) little or no progress in delegation o f procurement authority over 6 years, as the ZNTB did not give a single ministryfull authority to conduct its own procurement, (b) partly because a procurement cadre was not created, procurement capacity building4was unsustainable, as recently trained staff left for other jobs, (c) a promised corruption survey, financed by the Bank, was not pursued, and (d) anti-corruption meas- ures remained under-funded. Preoccupied with managing procurement, the ZNTB did not focus on the 1996Action Plan. 1.04 Drafting of a Strategic Plan. Presently, in coordination with AfDB, the ZNTB has drafted a Strategic Plan (2002-2006) that envisages minor adjustments to legislation and dele- gation o f procurement authority but limitedto "certifying" all 51PSUs, over time, but not au- thorizing them to do all their own procurement. The strategy, coverage, and content o f this draft Strategic Plan could be enhanced as a result o f the current CPAR. 11.FINDINGSOFTHE CPAR 1.05 Gaps in the Public Procurement System's Intentions and Practices. A gap be- tween intentions and practice pervades various aspects o f Zambia's public procurement. De- spite a legal and institutional framework, weaknesses in its structure and content allow unde- sirable practices and procedures. While the ZNTB i s expected to enforce procurement rules, Delegation of procurement authority to all PSUs by 2002 did not materialize. O f 51 PSUs, 24 are not yet certified; the monetary thresholds for the remaining 27 are very low. The ZNTB is still involved in process- ing80 percent ofprocurement. inpractice, itis liberalinpermitting exceptions. A system to register suppliers for small-value procurement, for example, has flaws that could engender corrupt practices. While short-lists` are drafted on the basis o f the registration list, each short-list is subject to misuse to favor par- ticular firms. Further, the registration lists are not systematically updated nor are the means available to check the data applicants submit in registration forms. Moreover, the system i s liberally used for larger value items than intended. The ZNTB also has a significant supervi- sory role, but its preoccupation with processingprocurement prevents this. The existing sys- tem for handling complaints features a too-narrow scope and design, lacks independence from the ZNTB which is involved inthe procurement process, and it suffers from a perfunctory op- eration, causing supplier and contractor dissatisfactionto grow while malpractices continue. 1.06 The slow pace o f delegation o f authority to procure to the ministries and agencies i s partly due to ZNTB's lack o f confidence intheir capacity. But the there are also other reasons for persistent lack o f adequate interest inreform of public procurement. The lack o f interest in ministries and agencies to actively pursue even the limited program o f delegation o f procure- ment authority i s symptomatic o f underlying causes such as preference for a system o f dif- fused responsibility and accountability offered by the current lax systems and procedures and institutional arrangements. Any tightening o f the arrangements would affect the distribution o f rents be it ZNTB, senior officials or politicians. Though difficult to pindown in any coun- try, politicalinterferenceinpublic procurement inZambia is generally acknowledged. 1.07 This situation, combiningpoor legislationandprocurement practiceswith political inter- ference anduntrainedprocurement staff, fosters corrupt practices. Though the government has not initiated a survey on corruption financed by the World Bank some time ago, the CPAR noted a common perception in Zambia that substantial corruption i s associated with public procurement. Yet the Anti-Corruption Commission (ACC), and the OAG which have roles to play in curtailing corruption, have been hamperedby funding and little effective attention to their reports. 1.08 Legal and Institutional Weaknesses. The legal framework5 lacks robustness and fea- tures structural, and content, inadequacies. Basic principles o f procurement are not captured comprehensively. Further, aspects that should be in the Act are in the regulations or guide- lines and vice versa. The ZNTB's role i s not limited to oversight and policy functions, as it also must manage public procurement through CTC. Also, the neglected oversight functions include: (a) monitoring and gathering statistics on public procurement, (b) developing pro- curement capacities and capabilities, and (c) implementing public procurement reform. Professional procurement staff is required to support delegation of procurement authority. Where the ZNTB has seconded its staff to ministriesto operate procurement units with authority delegatedto them, such PSUs' procurement capacity is better. The legal framework is mainly based on the 1982 Zambia National Tender Board Act (ZTBA), which has limitedscope and unclear enforcement mechanisms. It provides for the establishment ofthe Zambia National Tender Board (ZNTB). - i v - 1.09 Weaknesses in Procurement Procedures and Practices. Two current practices also foster corruption and higher prices: using negotiations as an accepted procurement method and misusing the registration system for purchases from short-listed firms. Further, the ZNTB's capacity to resist ministry pressure promotes acceptance of less cost-efficient and corruption-prone procurement methods. Additionally, relatively low thresholds (USD 300,000 maximum for ministries inthe highest category for decentralization) lead to more costly pro- cured goods and civil works. These low thresholds cause ministries to split contracts into smaller sizes to avoid ZNTB involvement. The registration system i s then used to buy items beyond the monetary threshold that the registration system normally permits. 1.10 Weaknesses in Procurement Management. Inthe few departments where they do ex- ist, procurementfiles are often incomplete. Also, there are no instructions on how to structure an official procurement filing system and to maintain individual files. Without a proper filing system supporting papers (such as performance guarantees) are inadequate for good contract management. Poor contract management produces avoidable losses to government. Also, pro- curement planning as a tool for conducting efficient and economic procurement i s largely non-existent. Vital aspects o f procurement planning (packaging, selecting appropriate pro- curement method and type o f contract) are not planned early inthe procurement process. In- evitably, substantial delays inprocessing and inefficient "urgent" procurement actions result. 1.11 Inadequacies in Budget Allocation and Funds Release System. The funds allocated inthe budget for eachproject and each ministryoften are not fully released duringthe year6, and there are significant delays in the release o f even these small amounts. This seriously af- fects efficient project implementation, procurement, and contract management. Consequences o f the budget system's weaknesses include: (a) contractors' bills being held up for several months, delaying projects; (b) delayed payments incurring interest charges that are paid from a ministry's limited budget, further reducing funds for product payments, and (c) when con- tracts designated inforeign currencies have protractedpayment delays, exchange rate changes cause larger amounts o f local currency to be needed than originally planned. All this contrib- utes to higher procurement costs and avoidable losses to government. 1.12 Procurement Cadre. Even though a well-trained procurement cadre i s crucial to effi- cient procurement, there has beenno progress inefforts to set up such a cadre. Over 600 peo- ple have been trained inprocurement at different levels, but most have left their jobs, leaving untrained people in many positions. Trained staff leave because of the lack o f a career path, an unattractive salary structure, etc. ZNTB salaries are even lower than the Zambia Revenue Authority's. The ZNTB's staff and those in the ministries do not have defined career paths or a department responsible for managing the cadre and its capacity development. In the budget process, the funds allocated are often lower than the amounts required for good project pro- gress. The practice o f allocating a "nominal" 1 Kwacha for "tentative" projects further strains the budget for other projects when more than the allocated 1 Kwacha is finally released to such projects. - v - 1.13 Capacity Building. Procurement training institutions' exist, but need to upgrade their offerings to feature mid-career and specialized procurement training programs to supplement the supply management programs they currently conduct. 1.14 Anti-CorruptionCommission(ACC) and OAGHandicappedby InsufficientFund- ing and Salaries. The activities of the Anti-Corruption Commission and OAG are critical if Zambia i s to achieve a well-functioning, fair, and transparent procurement framework. Though President acted recently to strengthen the ACC to fight corruption by creating a spe- cial cell whose role would also include procurement issues, unattractive salaries and condi- tions o f service hamper its ability to attract and retain skilled personnel. OAG i s also under- funded and its reports remain inadequately acted upon. 111.MAINRECOMMENDATIONS FORTHE WAY FORWARD 1.15 Central to any recommendations that emerge is the need for a "champion" for the Re- form program as it should not be left to be an internal program within ZNTB. Besides, such a program that needs to tackle the various vested interests inthe status quo can only be tackled bypoliticalwill. 1.16 Given adequate attention to the above, the actions described below are priorities for im- proving the Zambian public procurement system. i. EstablishaProcurementReformTaskForce(HighLevelCommittee). SetupaHigh Level Committee that will be responsible for initiating and overseeing implementation of activities in the action plan developed by this CPAR. This Committee must have high- level members from, for example, ZNTB, MOFNP, ACC, and OAG, and members should not be allowed to appoint substitutes. The Committee should have a clear mandate and time frame for concluding its reform agenda. A ProcurementReform Implementation Unit (PFUU) should be created to manage day to day implementation of reforms and to act as the secretariat to the Task Force. This Unit should be separate from the ZNTB and should report to the Permanent Secretary inthe Ministry o f Finance. ii. Re-establishthePolicyandSupervisoryRoleofZNTBImmediately.Withoutwaiting for new procurement legislation (see below), prepare refocus ZNTB to its policy and regulatory role already required under existinglegislation. As the ZNTB Director General will manage the CTC untilits dissolution in3 years (see below), strengthen the secretariat o f ZNTB to support it inthis role by enhanced staffing (and possibly splitting it off from the current secretariat). Provide an adequate budget to support this objective. ' For example, the Zambian Institute of Management(ZAMIM) andZambia InsuranceBusinessCollegeTrust (ZBIC). - vi - iii. RevisetheLegalFramework.'Ideally,anewprocurement actwhose contentshouldbe guided by the UNCITRAL Model Law and by current international best practices. Among other things, it should provide for a new procurement authority and a complaints system based in the procurement authority but with a separate independent, part time, Appeals Body. A Cabinet Paper should be developed for the new legislation, which Par- liament should enact. New regulations and guidelines should be developed on the basis of the new act. Pursuant to its enactment, a new procurement authority should be estab- lished. A Director General and other staff for the new authority should be appointed to replace the ZNTB immediately on creation o f the Authority. The Authority's specialized functions should be described and developed indetail. iv. Finalizethe Plan for complete delegationof procurement authority. A phased, 3-year plan for complete delegation o f procurement authority should be developed. The plan would give full authority to ministries and agencies to conduct procurement without ref- erence to or approval by the ZNTB or CTC. Inthe short term, the plan should appoint one or two provinces as pilot provinces for full decentralization. On completion o f this proc- ess, CTC will cease to exist. v. Establisha ProfessionalProcurement Cadre. Define the composition o fthe cadre to be established and supporting measures, including funding an adequately attractive salary structure. Start implementing such measures givingthe cadre management function to the ZNTB until the new procurement authority (possibly called Zambian National Procure- ment Authority or ZNPA) comes into effect. The existing system o f secondment o f ZNTB staffto positions inPSUs directly managedby the Ministries and agencies should apply for all the staff inthe procurement cadre. A human resource database should be es- tablished with both cadre members' curriculum vitae and those applying for membership. A training action plan should be developed. vi. Re-design RegistrationList System. A revised Registration System should be defined. New guidelines shouldbe developedthat restrict its use to small-value contracts only. vii. Anti-Corruption Actions. The planned corruption survey should be implemented. Im- plementation should be coordinated with the Public Service Capacity Building Project (PSCAP). Anti-cormption clauses shouldbe included inthe standard biddingdocuments. viii. IntroduceProcurementPlanningand New Filing System. A manual onprocurement planning should be developed, containing clear instructions for introduction o f best prac- tices. Release o f budget funds from the budgetary system should be suitably linkedto re- s The Terms of Reference for the review of the legal and institutional framework, which i s currently being developedwith the AfDB, shouldberevisedto considerthe recommendationsofthe presentreport.The TOR shouldstate clearlythat revisionsofprocurement legislationshouldbuild onthe UNCITRAL Model Law. - vii - alistic procurementplans. A separateprocurement register shouldbe defined.Inaddition, instructions and guidelines should be developed for PSUs on establishingand maintain- ingaprocurement filing system. ix. Strengthen Training Programs and Training Institutions.A capacity assessment of traininginstitutions shouldbe carriedout. The needfor supplementary procurement train- ingprograms shouldbe defined.Requiredtrainingprogramsshouldbe developed andde- livered. - viii - TABLE OF CONTENTS MAINREPORT ........................................................................................................................ i PREFACE.......................................................................................................................... i PART I ...................................................................................................................................... .. 11 EXECUTIVE SUMMARY ...................................................................................................... ii PARTI1 ..................................................................................................................................... 1 MAINREPORT................................................................................................................ 1 1 INTRODUCTION . ................................................................................................................ 1 2 THE PUBLIC PROCUREMENT FRAMEWORK . .......................................................... 3 a. Legal and Institutional Framework ................................................................................. 3 b.Ongoing Legal andInstitutionalReforms....................................................................... 5 C. Assessment o fthe Legal and Institutional Framework ................................................. 6 d. Recommendations........................................................................................................ 11 3 PROCUREMENT PROCEDURESAND PRACTICES . ................................................ 14 a ProcurementProcedures............................................................................................... . 14 b.Assessment ofprocurement practices........................................................................... 16 c.Performanceon Bank-Assisted projects ....................................................................... 20 d.Recommendations........................................................................................................ 22 4 TRADE PRACTICES AND CUSTOMS . ........................................................................ 24 a The Zambian Trade Regime......................................................................................... . 24 b.MainRecommendations............................................................................................... 25 5 PRIVATE SECTOR COMMERCIAL PRACTICES . .................................................... 26 a. The Private Sector inZambia ....................................................................................... 26 b MainRecommendations............................................................................................... . 27 6 GENERAL R I S KASSESSMENT . .................................................................................... 28 7 RECOMMENDED ACTION PLAN . ............................................................................... 32 ACTION PLANMATRIX .................................................................................................... 35 SequencedActions Summarized by Major Categories .................................................... 35 Short Term ...................................................................................................................... 35 Mediumto long Term...................................................................................................... 38 - ix - ANNEXES (VOLUME11) ANNEX I- DETAILED REPORTincluding Questionnaires ANNEX I1- LIST OF MEMBERS OF THE TASK FORCE ANNEX I11-VOLUME OF PROCUREMENTINZAMBIA ANNEXIV-"CONTRACT REVIEW" OF WORLD BANKFUNDED PROJECTS ANNEX V -WORLD BANK PORTFOLIO ANNEX VI-LISTOF PEOPLEMET ANNEX VI1- DOCUMENTATION - x - PARTI1 MAINREPORT 1.INTRODUCTION 1.01 Background. Zambia's economy has not performed well over the past decade. During 1992-2000, average annual economic growth averaged less than 1percent inrealterms. Popu- lation growth has averaged 3 percent, implying a drop in per capita income With per capita income estimated at about $320 in 1999, Zambia i s one o f the poorest countries in sub- Saharan Africa. Its economy i s undiversified, and depends heavily on mineral resources and exports, particularly copper, which generates over 70 percent o f the country's foreign ex- change earnings.. Zambia's foreign debt makes it one o f the world's most indebted states, which resulted inZambia qualifying for debt reliefunder the Heavily IndebtedPoor Countries (HIPC) Initiative in December 2000. The economic outlook worsened further in early 2002, when Anglo-American Plc, a major stakeholder in the copper mining industry, began with- drawing from Zambia. 1.02 Importance of Public Procurement. Public procurement plays an important role inthe Zambian economy. The total volume o f public procurement i s estimated at 15 percent o f GDP: In2001,procurement o f a value equivalent to 12 percent o f GDP was approved by the Central Tender Committee (CTC) o f the ZNTB, and goods, works, and services o f a value estimated at 3 percent o f GDP were procured directly by ministries and provincial administra- tions. This i s a higher proportion than the 10% estimated for most countries in Africa. Al- though a survey on corruption for which the Bank provided financing has not beenperformed, it is generally accepted that various inadequacies inZambia's public procurement system con- tribute substantially to corruption. These inadequacies include poor legislation, political inter- ference, poor procurement practices, untrained staff, and inadequate pay to procurement staff. Inthis context, a well-functioning public procurement system ishighlyimportant. Soundpub- lic procurement policies are among the essential elements of good governance, and a well- functioning public procurement system contributes to better service delivery and economic development. 1.03 Assistance to Procurement Reform. Reform o f the public procurement system has been on the Zambian government's agenda for almost a decade. This goal has resulted in a number o f donor-funded projects, which have supported, and continue to support, the government's public procurement reform agenda. In 1993, the World Bank and the Zambian government agreed on a Financial and Legal Management Upgrading Project (FILMUP), which among other things, focused on improving the Zambian National Tender Board's and various minis- tries' procurement performance. In the mid-l990s, SIDA provided support for training and capacity building for improved public procurement. In ESAC I1 (the second economic and - 1 - social adjustment credit), strengthening and streamlining public procurement was an impor- tant element. The Public Service Capacity BuildingProject (PSCAP), which i s currently be- ing implemented, seeks to strengthen, among other things, the Office o f the Auditor General andthe ZNTB intheir roles of ensuring soundmanagement of public funds. 1.04 Government Action. In 1996, the Zambian government adoptedthe Public Procurement Action Plan (1996), which aimed to develop the human resources o f the public procurement system along with decentralizing procurement to various ministries and agencies and strengthening audit and oversight functions. In 1997, a World Bank Country ProcurementAs- sessment Review concluded that the action plan implementation had moved more slowly than expected, particularly with regard to the planned decentralization and the establishment of a cadre o f procurement professionals to support improved procurement activities. The current report concludes that, in many respects, the objectives o f the 1996 action plan still have not been realized. A number o f steps have been taken, but in significant areas, required reforms have not been implemented effectively, or reform results have not been lasting or have been otherwise insufficientg. 1.05 Objectives of the CPAR. Against this background, the main objective of the Country Procurement Assessment Review (CPAR) i s to provide the analytical basis for a dialogue on public procurement reform and to propose practical recommendations for short and long-term actions. To achieve this objective, the CPAR comprises: A review o f Zambia's public procurement structure, including the existing legal frame- work, organizational responsibilities, and capabilities and present procedures and prac- tices; A risk assessment specifically relatedto the Zambian public procurement system; Recommendations for reforms o f the public procurement system and o f trade and custom practices as well as private sector commercial practices; A review o f the country's trade practices, including customs and trade regulations and practices; and finally A review o fprivate sector commercial practices, includingcommercial regulations, regu- latory barriers andprivate sector procurement. 1.06 The CPAR was prepared in the context o f the Public Expenditure Management and Financial Accountability Report (PEMFAR). The PEMFAR report i s currently beingprepared by Bank and Government inthe context o f Poverty Reduction Strategy support credits which call for assessment o f a country's public financial accountability, including an assessment o f public expenditure, procurement, and financial systems before the development o f a Country Assistance Strategy and/or PRSC program inthe country. This CPAR report will form one of the Annexes o f this PEMFAR report, as will reports on the other subjects. However, the election o f a new political leadership in Zambia in December 2001, appearing determined to fight corruption, mayopen upnew possibilitiesfor the efficient implementation ofreforms - L - 2. THEPUBLICPROCUREMENT FRAMEWORK A. LEGAL AND INSTITUTIONAL FRAMEWORK 2.01 Legal Foundations. The legal framework for public procurement in Zambia comprises the Zambia National Tender Board Act (ZTBA) of 1982, the Tender Regulations (TR), and the Procurement Guidelines. The ZTBA provides for the establishment of the Zambia Na- tional Tender Board (ZNTB) and the Central Tender Committee (CTC) in the ZNTB. The Tender Regulations provide for the establishment o f tender committees invarious ministries, provinces and agencies. They also define basic procurement principles such as procurement methods. 2.02 Some aspects o f the regulations are supplemented by procurement guidelines. The ZNTB has issueda set o fprocurement guidelines(withthe status of circulars) for formal ten- ders inprocurement o f goods and services, consultancy services and civil works, and informal tenders. Inaddition, there are guidelines on general conditions for contracts and for supplier registration. 2.03 The National Tender Board and the Central Tender Committee. The Tender Board Act establishes the ZNTB as an autonomous institution and defines the functions o f the Board as those o f regulating, and controlling the procurement, o f goods and services for the govern- ment and parastatal bodies. Incanying out these tasks, the ZNTB may - through Ministryo f Finance - formulate rules and regulations governing procurement, regulate procedures for the award o f contracts, and formulate the conditions under which any rules and regulations gov- erning procurement may be varied or waived. 2.04 TR further defines the role o f the ZNTB to resolve conflicts in procurement matters. When a dispute arises between a tender committee and a contractor, either o f the parties may refer the dispute to the ZNTB for a decision. The legislation or regulations do not provide guidance on applying sanctions. Furthermore, the regulation does not prescribe a time limit for the disposal o f complaints, and the scope o f complaints i s limited to those between a ten- der committee and a contractor. The ZNTB's role o f complaints resolution conflicts with its direct involvement inprocurement processes. 2.05 The ZTBA authorizes the ZNTB to establish tender committees in ministries, parastatal organizations, and provinces. This system includes a Central Tender Committee (CTC), which i s explicitly mentioned in the ZTBA. The CTC and ZNTB are closely linked. They share the same location and secretariat, and some members o f the CTC are also members o f the ZNTB. CTC's role is to examine and authorize all procurement o f goods, works, and ser- vices in both government and parastatal bodies above specified monetary thresholds. The CTC meets once a week to review and approve the procurement issues prepared by the secre- tariat. These issues predominately concern (a) tenders o f a value that removes them from the - 3 - decentralized tender committees' authority, (b) approval o f waivers o f rules, and (c) approval o f variations to approved contracts. 2.06 Procurement and Supply Units. At the decentralized level (the ministries and agen- cies), the various tender committees are supported by secretariats called Procurement and Supply Units (PSUs). The ZNTB determines the monetary thresholds below which procure- ment may occur at the decentralized levelwithout prior CTC approval. These limits are based on criteria such as the PSUs' administrative capacity in terms o f human resources, office space, and equipment; budgets for daily operation; and experience and track records in pro- curement. 2.07 On this basis, the PSUs are placed inone o f four categories: A, ByC, or D. The PSUs in category C are presently allowed to independently conduct procurement up to a limit defined inZMK whose current equivalent is about USD300,000. The corresponding limitsfor PSUs incategory B and A are currently equivalent to USD 125,000 and USD 50,000, respectively. The PSUs incategory D are "not-certified" units. These PSUs can only procure independently up to a value currently equivalent to USD7,500. This system andthese monetary limitsmean that most public procurement must be done through the CTC in the ZNTB. This i s supported by the CPAR findings that 80 percent of approvals are handledby CTC and 20 percentby all decentralizedPSUs. Table 1.MonetaryThresholds applicableto CertificationCategoriesfor Procurement Support Units Category Certijkation Monetary threshold Number of PSUs A ZMK 200million (USD50,000) 17 B ZMK 500 million (USD 125,000) 4 C ZMK 1,200 million (USD300,000) 6 D "Not certified" 24 Total 51 2.08 At present there are 51 PSUs (two o f the nine provinces have PSUs). Almost half the PSUs are in category D and, thus, are not certified. Another 21 are inthe categories A and B (the two provinces are inCategory A). Only six PSUs are authorizedto carry out procurement up to a financial limit of about USD 300,000. Since the system began in 1996, not a single PSUhas been given full authority by the ZNTB to procure without any monetary limits. - 4 - B. ONGOINGLEGALAND INSTITUTIONAL REFORMS 2.09 As detailed above, there have been several attempts inrecent years to reform or improve the Zambian procurement framework in different respects, most often in connection with do- nor-funded projects. The status o f some issues follows. 2.10 Absence of Private Sector Involvement. As a part o f the Public Procurement Action Plan (1996), the Tender BoardAct was to be amended and a "Zambia Tender Advisory Coun- cil" introduced. The Council's intended functions included receiving views from organiza- tions and individuals connected with public procurement and making recommendationsto the ZNTB. The proposed Council would have a majority of representatives from various stake- holders outside government. The revised legislation (Bill) was sent to Parliament, but has never been enacted. 2.11 Little Progress in Delegation of Procurement Authority. An important objective o f the Public Procurement Action Plan (1996) was delegation o f procurement authority. A number o f PSUs were to be established inthe ministries and agencies, and the government intendedto gradually increase the monetary thresholds below which the PSUs would be allowed to carry out public procurement without central approval. The ZNTB now has a draft "Strategic Plan 2002 - 2006," which reaffirms that the ZNTB should not perform procurement, and the gov- ernment's shall continue this authority delegation process. However, the plan does not propose full delegation but limits it to "certification of all" PSUs into categories A to C should be achieved by 2003 withinthe relatedthresholds. 2.12 Stalled Capacity Building Plans. Another objective o f the Procurement Action Plan (1996) targeted the professional capacity problem inprocurement. The objective was to build a cadre of procurement professionals based on sound principles o f (a) a defined and ensured career path, (b) an attractive salary structure commensurate with the skills required and mar- ket conditions, and (c) the establishment o f a cadre management agency responsible for de- veloping the capacity o f the cadre staff to ensure adequate numbers o f skilled staff to satisfy demand, to find suitable placement for individual staff, and to develop capacity- and skills- buildingprograms at various stages in the career path. Further, no permanent cadre o f pro- curement professionals was established as originally intended. There has been no sustained progress increating capacity as staff were trained but did not stay on incivil service jobs. 2.13 Underfunded Anti-Corruption Measures. Traditionally, the political will to fight cor- ruption has not been strong in Zambia. However, this situation may now be changing. The 1996 Anti-Comption Commission Act first established the Anti-Corruption Commission (ACC) as an autonomous and strengthened institution that is not subject to the direction or control o f any person or authority but reports directly to the President. The ACC's functions include prevention measures and powers to investigate and prosecute independent o f the nor- mal channels o f administrative complaint. By the end o f 2000, the ACC had 184 professional - 5 - staff plus 62 support staff. However, its offices are spread throughout the country and lack infrastructural support for effectiveness, such as vehicles. 2.14 Following the election in December 2001, there are signs that the political leadership may be willing to implement a zero-tolerance policy towards corruption. The President has initiated the establishment o f a special Directorate in the ACC, which will, among other is- sues, investigate compliance with public sector procurement rules. The initiative will be coor- dinated with the ZNTB, the Office o f the Auditor General, and other stakeholders. C. ASSESSMENT OF THE LEGALAND INSTITUTIONALFRAMEWORK 2.15 Legal and Institutional Characteristicsfor a Good Public Procurement System. A good public procurement system strives for transparency, competition, economy and effi- ciency, and fairness and accountability. The analysis o f Zambia's system i s based on compari- son with the following desirable features: A clear, comprehensive, and transparent legalframework, characterized by the presence o f legal rules that are easily identifiable and govern all aspects of the procurement proc- ess; Clarity of functional responsibilities and accountabilities in the procurement function, which requires clear distinctions between those responsible for implementing procure- ment and those accountable for proper procurement rules inthe buyingentities as well as themeansto enforce these responsibilities and accountabilities; An institutionalframework that differentiatesbetweenthose carrying out the procurement function and those with oversight responsibilities, the latter o f which requires separation from operational procurement matters, functional independence, and adequate budget and staff to perform efficiently; Robust mechanisms of enforcement, in which rules and institutional arrangements are clearly established and duly supported by the proper means to enforcement; and A well-trained procurement staff; necessitating a continuous, focused, and targeted train- ingprogram. (a) Reform of LegalFramework 2.16 Needed Upgrading of Legal Framework A comprehensive legal framework for public procurement presently exists in Zambia. However, while the Tender Board Act defines the institutional framework, it does not specify the basic procurement principles o f a public pro- curement system, such as procurement methods, basic rights o f bidders, evaluation criteria, public bid opening, maintenance o f records, etc. Based on experience with the current legisla- tion, the ZNTB i s currently working with the AfDB to initiate a review o f the legal and insti- tutional framework. It would be advantageous to base an upgraded legal framework on some features of the UNCITRAL Model Law and current international best practices, as it would - 6 - thenmeet all the criteria spelled out above as well as the recommendationsarising from this CPAR. 2.17 Inadequate Oversight Functions. An independent oversight function in procurement serves to ensure public confidence inthe procurement system. Important tasks inthis respect are the monitoring o f public procurement policies and practices and contributions to the de- velopment o f these policies and practices. To prevent conflicts o f interest from emerging, ef- ficient oversight requiresthe total separation o f regulatory and overview functions from actual procurement, a clear mandate formulated in legislation, and the necessary powers to enforce legislative objectives. 2.18 The legal framework o f Zambian public procurement does not support this. Present leg- islation does not precisely describe the oversight functions relating to public procurement and there i s no clear separation between the implementing agencies and the oversight function. According to the TR, the Central Tender Committee "performs the functions o f the Board," and there is a significant overlap o f the CTC and ZNTB membership. The CTC and the ZNTB are also supported in their daily operations by a common secretariat; in practice, the functions o f the two are difficult to separate. The secretariat's Inspections and Standards De- partment represents an attempt to develop the oversight function. However, that function's development has been impededby requirements to inspect and categorize the decentralized PSUs and the resource demands o f examining and approving procurement cases for the CTC. Nevertheless, the current legal provisions do permit the ZNTB to define and implement its policy and regulatory roles, pending greater clarity being built into new legislation, as sug- gested above. 2.19 InsufBcient Information on the Volume of Public Procurement. In connection with inadequate oversight and monitoring functions, there is presently no single source that can identify the total volume o f public procurement. For the purposes o f the CPAR, the Central Tender Committee was able to compile information from which an overview o f centrally ap- proved procurement could be constructed. But such information does not form part o f the normal monitoring and review efforts o f the ZNTB. For the same reason, it was not possible for the ZNTB to provide the corresponding data at the de-centralized level. For a proper su- pervisory role, the ZNTB should obtain this and other relevant data to critically examine the performance of public procurement and take corrective measures. 2.20 Inadequate Complaints System and Unclear Enforcement Mechanisms. The ZNTB is defined inthe Tender Regulations as the authority that resolves conflicts inprocurement mat- ters but i s limitedto disputes betweentender committees and contractors. It does not cover the larger scope o f complaints, for example, by dissatisfied bidders. To ensure confidence in the objective, independent, and efficient handling o f complaints, coverage should be more com- prehensive and an independent office, removed from involvement in the actual procurement - 7 - process, should handle the complaints. However, due to the overlap o f membership in the ZNTB and CTC and the existence o f the joint secretariat of the two bodies, the ZNTB's inde- pendence in this respect i s questionable, at best. Furthermore, in present legislation, there i s no guidance as to what sanctions are available for the ZNTB. It is, therefore, at the Board's discretion to select and apply sanctions. Nor does legislation prescribe a time limit for the dis- posal o f complaints. The lack of an effective system for complaint handling i s reflected in complaints being made to various agencies, such as OAG and ACC. 2.21 Unclear Reporting Linkages for the ZNTB's Supervisory Functions. The Tender Board Act does not specify to whom the ZNTB reports on the outcome o f its activities. Ac- cording to part IV o f the ZTBA, concerning "Financial and Other Provisions," the ZNTB re- ports to the "minister," presumably MOFED. For the legislative framework to support trans- parency and accountability, three elements shouldbe clearly defined: what issues the ZNTB i s to report on, who should receive the report, and when the report should be submitted. This will provide focus for the report's content. @) Delegationof centralizationof ProcurementAuthority 2.22 Insufficient Delegation of ProcurementAuthority. Despite government commitment to delegate procurement authority, it has proceededvery slowly since 1996. Inreal terms, mone- tary thresholds beyond which the PSUs are authorized to carry out procurement have not in- creased since 1996. Furthermore, since the adoption o f the Procurement Reform Action Plan (1996), not a single PSUhas beengiven full authority to procure without financial limits. The low thresholds for delegated procurement authority have fostered a tendency to split the size o f contracts to remain below the threshold. While this avoided referring the proposal to the ZNTB for processing, it ledto sub-optimal purchase prices due to smaller procurement pack- ages and decreased competition from a limited number o f biddersbeing invitedto bid. 2.23 There are several reasons for the slow pace of delegation of procurement authority. Delegation o f procurement authority requires an efficient framework for monitoring and con- trol and procurement rules, and a professional staff, An analysis o f the ZNTB's inspection re- ports revealed that, inmany cases, the required professional staff is not inplace. Furthermore, at the provincial and district levels, the Tender Board Act and Tender Regulations are not fully known and understood, causing many cases of non-adherence. The staff responsible for procurement often has other functions as well, and there are examples o f tender committees not being established despite the ZNTB's recommendation to do so. Standardization of, for instance, localpurchase orders, also i s lacking as are proper filing systems. - 8 - 2.24 Full delegation o f procurement authority at the province level is unlikely to take place inthe short term because systems and resources to handle decentralizedprocurement are not inplace. However, according to the ZNTB, approximately 21professional procurement ex- perts are needed in the nine provinces. It should be possible to reach this target within 1 to 2 years. To stimulate the process, one or two provinces could be appointed as pilot provinces for full delegation o f authority. This would provide valuable experience and enable the le- gitimate experimentationwith different practical solutions to problems as they occurred. (c) ProcurementCadre and CapacityBuilding 2.25 Insufficient Training and Salaries for Procurement StafJ In spite o f government commitments in the Public Procurement Action Plan (1996), neither a cadre o f highly skilled procurement professionals nor a cadre management agency has been established. Neverthe- less, assisted by donor support, various activities have aimed to strengthen human resource procurement capacities. From 1998 to 2001, around 600 persons received procurement train- ing in ZBIC and ZAMIM at different levels, and a group o f 63 persons are currently being trained. 2.26 Even though training activities have been substantial, they have not efficiently ad- dressed the human resource problem inpublic procurement. This i s primarily due to the large share o f people who seek alternative employment opportunities after receiving procurement training. In 1998, the ZNTB defined the.demandfor trained procurement specialists inminis- tries and agencies as 157 positions. By June 2000, as many as 66 positions were vacant, and approximately half o f the 91 people employed by the ministries were not trained inprocure- mentat all. 2.27 The Importance of Pay Structure and Career Paths. The pay structure and career path for procurement professionals is, therefore, a key to the achievement o f a procurement cadre. Currently, the staff employed and seconded by the ZNTB receives better pay than those em- ployed as civil servants by the ministries. Eventhe ZNTB pay structure i s inadequate to retain staff. Its pay structure should be more competitive vis-a-vis wages in the private sector. The ZNTB's pay structure could be similar to that of other agencies with attractive salary struc- tures. 2.28 Needfor Training Capacity Assessment and Development of Relevant Training Pro- grams. Along with developing a procurement cadre, an assessment i s needed o f both the ca- pacity o f relevant training institutions and the content o f their courses as well as the funding available to implement training programs. At present, ZAMIM and ZBIC are the main train- ing providers inprocurement. Both institutions currentlyoffer the CIPS-based" training pro- '' CIPS is the Chartered Institute for Purchasing and Supply, an international education and qualification body basedinthe United Kingdom. - 9 - gram. Additional training programs can be developed based on the expertise and facilities available inthese institutions. 2.29 It i s relevant to supplement the CIPS training system with various mid-career courses, and those that focus on special issues relatedto public procurement. Special courses could be developed to cover procurement issues that traditionally are cause for concern and compli- cated to handle. Examples include procurement planning, procurement of consultancy ser- vices, the evaluation process, filing and documentation, contract management, development o f terms o f reference using the logical framework approach, anti-corruption measures, and donor procurement systems. (d) Anti-CorruptionMeasures 2.30 Perception of Corruption in relation to Procurement. In 1998, the World Bank funded a planned survey on the public perception of corruption. However, the initiative was stopped after the call for proposals to cany out the survey appeared in the media. Another survey i s now planned to be carried out within the framework o f the Public Service Capacity Building Project. Thus far, no survey o f the public perception of corruption has been carried out. 2.3 1 It i s the perception o f the private sector, however, that Corruption takes place inconnec- tion with public procurement, both in the evaluation o f tenders regarding short-listing and contracting, and in supervision o f civil works contracts. In general, the private sector per- ceives the procurement system as unfair and nontransparent. Many private enterprises choose not to present proposals for publicly tenderedjobs, as the enterprises do not believe that con- tracts are awarded on the basis o f a transparent procurement process. Potential suppliers re- ported to the CPAR team that it i s a common experience to participate ina publicized tender that i s subsequently cancelled, only to find the contract resurfaces later, already having been awarded to one o f the bidders without re-tendering. Some o f the contracts reviewed by the CPAR team (in the review o f 14 large contracts funded by government) exhibited the same phenomenon; the biddingprocess was "annulled" and then negotiated separately with one o f the bidders. 2.32 Insufficient Funding of Anti-Corruption Commission. Against this background, the activities o f the Anti-Corruption Commission are highly important if Zambia is to move to- wards a well-functioning, fair, and transparent procurement framework. The recent decision to establish a special directorate inthe ACC to investigate compliance with public sector pro- curementrules is a step inthe right direction. However, due to unattractive salaries and condi- tions for service, it i s difficult for the ACC to attract and retain skilledpersonnel and, ingen- eral, it has been seriously hampered in its activities due to funding described by the ACC as "erratic and inadequate" inits 1999 report. - 10- 2.33 Code of Conductfor Public Employees in Procurement. Other anti-corruption meas- ures are relevant. Precise definitions o f what i s expected o f a civil servant and what consti- tutes a conflict o f interest are prerequisites for effective enforcement of procurement regula- tions. There is no general Code o f Conduct for the Zambian public sector employees. The only guidance i s given in the General Orders that regulate all aspects o f public employment, which include a section on Conduct and Discipline but lack a general ban on conflicts o f in- terest, and in the Financial Regulations that regulate all aspects o f disbursement o f public money. A Code o f Conduct for procurement professionalswas developed as part o f the Public Procurement Action Plan (1996) but never implemented. It i s still appropriate to consider de- veloping a general code o f conduct for civil servants and for procurementprofessionals. D.RECOMMENDATIONS 2.34 With the objective o f promoting transparency, competition, economy and efficiency, and faimess and accountability inthe Zambian public procurement framework, the following i s recommended: (a) Reformof LegalFramework 2.35 The legal framework should be reformed inthe following key areas: An upgraded legalframework should be adopted, basedonthe UNCITRAL ModelLaw. The revisedprocurement act should contain the basic procurement principles o f a public procurement system, such as procurement methods, the precise circumstances that call for different procurement methods, basic rights o f bidders, evaluation criteria, public bid opening, price adjustment provisions, maintenance o f records, etc. It should cover the ob- jectives and functions of a new independent policy and regulatory procurement authority, say, the Zambia National Procurement Authority (ZNPA), to replace the ZNTB immedi- ately on creation o f ZNPA. Important functions o f ZNPA should be monitoring procure- ment policies and practices, developing and managing the procurement cadre, conducting capacity building and outreach to contractors, consultants, and suppliers to engender a greater share o f contracts to local organizations. A reliable reporting system should be established whereby ZNPA can obtain statistical information on procurement activities at all levels. ZNPA should establish benchmarks and performance indicators to keep track o f and measure the progress o f procurement re- form and quality o f actual procurement processes. The secretariats of the CTC and ZNPA should be physically separate. It i s expected that CTC secretariat will not be neededwhen decentralization i s completed in3 years. The au- thority's reporting obligations should be specified. The establishment o f an independent appeals body (part time) in conjunction with a well definedcomplaints system managedby ZNPA which will no longer have a conflict o f in- terest as ZNPA will not conduct any procurement. - 11 - (b) Delegationof ProcurementAuthority 2.36 A number o f steps should be taken to speed up the delegation o f procurement authority. Complete delegation o f procurement authority to the ministries in a phased manner over 3 years, as proposed below, is feasible if supporting measures are taken in a concertedmanner. These supporting measures include settingup the procurement cadre under the ZNTB's man- agement and positioning these personnel to the ministries (as ZNTB does at present except for staff hired directly by the ministries as civil servants) instead o f requiring them to recruit and train their own procurement staff, thus rapidly enhancing the training o f a cadre of procure- ment specialists, improving salaries, etc. The existing system o f categorizing and certifying PSUs for specified monetary thresholds should be phased out and replaced with full authori- zation to the ministries and agencies for procurement decisions. The plan for this change could be the following: Full authorization shouldbe given to the six PSUs incategory C inthe first year o f imple- mentation, to PSUs incategory A and B inthe second year, and to "not-certified" PSUs in the third year. The responsiblemanagement should be given a maximum o f 6 months' no- tice to enable them to assess the capacities needed and adjust the organization. Inparallelwith this, the "non-certified" PSUs (inministries and agencies, includingprov- inces) must be given 6 months' notice or more to prepare for complete decentralized au- thority. By the end o f the second year o f implementation, they should all be able to under- take procurement independent o f the CTC. To stimulate the decentralization process, one or two provinces should be appointed inthe short to mediumterm as pilot provinces for full delegation o f procurement authority. This would provide valuable experience. (c) ProcurementCadreand CapacityBuilding 2.37 A number o f human capacity problems should be addressed.The priorities are: A professional procurement cadre should be established based on the elements o f (a) a defined and ensured career path, (b) an attractive salary structure commensurate with the skills required and market conditions, (c) the establishment o f a cadre management agency responsible for developing the capacity o f cadre staff, (d) placement o f cadre staff into positions in PSUs based on matching experience and expertise with each PSU's re- quirements, and (e) the establishment of in-career capacity building programs managed bythe cadre managementagency. The cadre should be managed by thenewprocurement authority (ZNPA). To increase the competitiveness of salaries paid to procurement officials, the existing system o f staff secondment from the ZNTB should be expanded to cover all procurement staff working in ministries or agencies. Fundingfor salaries to the cadre should be im- proved to the level o f other agencies with attractive salaries. To identify opportunities to upgrade their ability to deliver mid-career training, training institutions should be assessed. Mid-career training programs should be developed - IL- (d) Anti-CorruptionMeasures 2.38 The following i s recommended: 0 Sufficient funding should be ensured for the Anti-Corruption Commission. The new Directorate o f the Anti-Corruption Commission, which i s to investigate, inter alia, compliance with public sector procurement rules, should employ procurement spe- cialists to assist with its tasks. 0 The functions and tasks o f the foreseen new Directorate in the ACC should be coordi- nated with the new redefined procurement authority to ensure exchange o f information and close cooperation inthe fight against corruption inprocurement. 0 public procurement tender procedures to use new anti-corruption clauses such as those usedby the World Bank inits standard biddingdocuments. 0 The corruption survey presently planned under the PSCAP project should be initiated immediately. - 13- 3. PROCUREMENTPROCEDURESAND PRACTICES A. PROCUREMENT PROCEDURES 3.0 1 Use of Standard Bidding Documents Not Mandatory. The Procurement Guidelines contain one set o f bidding documents for all types o f products. The use o f these bidding documents i s not mandatory. As inthe case o f the long list o f standard bidding documents o f the World Bank, Zambia also needs a wide range o f biddingdocuments to support the various types o fproducts and services to be procured. 3.02 Award Criteria The Tender Regulations do not detail the range and nature o f award criteria that should be applied inthe various tender methods nor do they detail the procedures for applying them. The only reference to award criteria inthe regulations i s inthe descriptions o f the tender committee's functions, where they specify "that the committee must ensure that the criteria used inevaluating tenders is fully consistent with informationgiven inthe tender documents." The Procurement Guidelines for services and goods do not provide any guidance on applying award criteria and arriving at the "lowest evaluated bidder." The guidelines for civil works, however, mention both a technical evaluation and a commercial evaluation, list- inga number o f standard criteria for each section. 3.03 Registration Systemfor Small ValueProcurement. Zambian public procurement relies on a registration list system for identifying and assessing the potential suppliers' qualifica- tions. The Tender Regulations require the Central Tender Committee to register suppliers o f goods, works, and services at the central level and the PSUs to register suppliers at the decen- tralized level. According to the Guidelines, this registration list assists the PSUs with market information and enables them to carry out "informal" procurement (below the monetary limit o f ZMK 30 million or about USD 7500) with diligence. The Guidelines provide for central registration o f suppliers that sell items o f general use for all public sectors at the CTUZNTB. Inaddition, all foreign firms are to be registeredat the ZNTB.Eachministry also requires a separate registration for items o f non-general use. This leads to multiple registrations for a supplier or contractor. Consultants are not required to be registered in areas such as quantity surveyors. 3.04 The ZNTBICTC list i s circulated to the purchasing ministries or agencies. Application forms are available at the National Tender Board and the PSUs. There i s a registration fee o f between ZMK 50,000 and ZMK 200,000 (equivalent to USD 12.50 to USD 50). Companies mustpay a fee to eachministryor agency where they request to be registered. Boththe ZNTB and PSU can refuse applications for registration. The basis for refusal i s not defined in detail. There i s no appeal, except to the ZNTB itself. - 14- 3.05 Tender Methods. The Tender Regulations and ProcurementGuidelines define a number o f different procurement methods. These methods differ in terms o f their openness to poten- tial suppliers. 3.06 A Formal Tender i s required to be advertised inthe Government Gazette and i s for con- tracts exceeding ZMK 30 million. It is equivalent to an "Open Tender," which i s open to all who respond to a national or international advertisement. There are no thresholds indicating when to advertise internationally. The Tender Regulations imply the Formal Tender to be the preferred procurement method. A Special Formal Tender i s an exception to the Formal Ten- der that is used where quotations are requested from a number of potential suppliers. The minimumnumber of quotations is not specified. An Informal Tender is not advertised. The contract value should not exceed ZMK 30 million for government bodies or ZMK 30 million for parastatals. The approving authority (CTC, Head o f Department inMinistry, etc.) depends on the value o f the contract concerned. For Informal Tenders, bids are required to be invited from at least three contractors or suppliers. Another recognized method o f procurement is ne- gotiation. The TR permits a tender committee to (i) authorize direct "negotiation" and, (ii) the Special Formal Tender procedure. These exemptions from the preferred Formal Tender method are on conditions that are broad and open for interpretation. For instance, negotiation and the Special Formal Tender may be allowed when civil works o f a "specialized and com- plex nature" are involved or "highly specialized" equipment i s to be obtained, or when the goods and services to be obtained are o f a "personal or professional nature" or "no acceptable tender from all formal tenders previously invited" has beenmade. 3.07 Single sourcing of consultancy services i s not mentioned in the Act but appears in the Guidelines. The criteria for allowing for single sourcing are broad; for example, the preferred company or consultants have a close association with similar projects, have specific expertise that i s not widely available, or have undertaken similar assignments before. Single sourcing i s not allowed for the procurement of civil works and goods. 3.08 No comprehensive list of procurement methods is de$ned. The various tender methods are not comprehensive enough. Also, the definitions o f the methods are scattered over differ- ent legislative documents. The UNCITRAL Model Law includes a comprehensive description o f procurement methods, which can serve as a benchmark for improving the current provi- sions. 3.09 Bid and Opening of Bid. To avoid malpractice, bids should be opened immediately af- ter the announced bid submission time. This important principle i s not clearly specified inthe procurement regulations. Inpractice, most bids are opened immediately after the expiry o f the deadline. However, delays o f as muchas a few days inthe opening o f bids do occur. - 15- B.ASSESSMENT OF PROCUREMENT PRACTICES 3.10 In assessing procurement practices, an important issue i s whether practices support a transparent, fair, and accountable procurement system, which promotes competition among suppliers. (a) RegulatoryFramework 3.11 Practices Differ from Formal Objectives. The Zambian public procurement system is characterized by a divergence between overall, formal legislation and objectives on the one hand and daily practices on the other hand. This divergence i s manifest inthe general appre- ciation o f procurement rules and; inparticular, the application o f tender methods, registration system, and the enforcement o f rules by the ZNTB, which waives its rules liberally. This di- vergence i s possible in large part because of the vagueness and imprecision o f important leg- islative and regulatory documents. The imprecision enables a number o f interpretations and the arbitrary application of procurement rules. Political interference and the weak will of the CTC and ZNTB to enforce their regulations also support this divergence. The result i s a pro- curement system that i s perceived among potential suppliers as unfair, ambiguous, nontrans- parent, and subject to misuse. 3.12 Informal Tender and Negotiations Widely Usedfor Procurement. Even though the. Tender Regulations imply that Formal Tenders should be the predominant tender method for larger value procurements, this i s not the predominant practice. On the contrary, both the In- formal Tender and negotiation methods are widely used. 3.13 While Informal Tenders are to be used only for small value contracts (not exceeding ZMK 30 million, equivalent to USD 7,500), it is a frequent practice for PSUs to seek CTC's waiver for Informal Tenders for larger value contracts. These are then awarded to registered suppliers using the Special Tender method. This circumvents the Formal Tender method re- quirement. Inpractice, CTC i s frequently unable to strictly enforce the rules and tends to bow to the pressure from the PSUs to allow the use o f Informal Tenders. This phenomenon was noticed even inthe 14 cases o f large-value procurement at the CTC reviewed for this CPAR. 3.14 Another frequent practice i s to "annul" a Formal Tender procedure mid-way during processing. Immediately thereafter, "negotiations are initiated with bidders from the very " tender that was annulled. This undesirablepractice o f annulmentfollowed by negotiations was observed also in the 14 large-value cases. This practice entails nontransparent procurement and works against fairness and competition. - 16- @) Inadequaciesand Misuse of the RegistrationSystem 3.15 Registration List System Considered Unfair and Nontransparent. Inall procurement, it is important for the procuring entity to evaluate bidders' qualifications and capacity to en- sure their ability to deliver the promised products. To prevent arbitrary decisions, it i s impor- tant that the procedures and criteria used to assess the qualifications o f the bidders are open and transparent. Tendering with initial pre-qualification and a subsequent short-listing o f bid- ders i s one way to achieve this. However, the Tender Regulations do not define these qualifi- cation methods, nor i s any guidance on these methods available. Instead, the registration list system described earlier i s used. While short-lists are drafted on the basis o f the registration list, each short-list i s subject to misuse to favor particular firms. Further, the registration lists are not systematically updated nor are the means available to check the data applicants submit in registration forms. Moreover, the registration system is used for much higher value con- tracts than the regulations intend. 3.16 This non-transparent system, which does not truly assess bidder qualifications, i s per- ceived as beingmisused or not used as intendedinestablishing short-lists. The fee for regis- tering as a potential supplier i s perceived as a tax, and the ministries see it as an important revenue generation activity. The system, as currently designed, i s a potential source for cor- ruptpractices. 3.17 The use o f the registration system i s widespread even though regulations require it to be limitedto small value items (commonly termed as a "shopping" method). Widespread use, including for larger value procurement than intended in the system, enhances the scope for corruption and also results incostlier procurement overall. (c) Administrationof Procurement Procedures 3.18 Insufficient Guidelines for Procurement of Consultancy Services The guidelines for consultancy services are, ina number o f respects, broad and imprecise. A proper definition o f "consultancy services" i s lackingwhile the criteria for selecting a method, identifyingbidders, and determining selection and evaluationprocesses are open to interpretation. For certainpro- fessions (surveyors, architects, etc.), the registration system described earlier i s used for short- listing consultants, in addition to "registers maintained by professional bodies o f members o f firms.'' The award process permits opening the best three technical proposals without regard to a minimumthreshold o f quality. Financialproposals are opened privately by a committee, a process which i s not "open" to the bidders.The criteriafor the single source selection method are imprecise and allow for liberal use of this method. In all consultancy contracts, negotia- tions are allowed without restrictions, both inregard to substantial elements o f the specifica- tions and for unit rates already offered. Such liberal access to negotiation presents a highrisk of collusion and non-equal treatment o fbidders. - 17- 3.19 For donor-funded consultancy contracts, donor procurement requirements are followed. Inpractice, much ofthe consultancy services procured with governmentfunds are for routine assignments such as architects, engineers, and quantity surveyors, where the registration sys- tem (with its attendant weaknesses) i s the primarybasis for short-listing. An earlier practice o f hiring civil sewants as preferred providers for consultancy services has been largely, though not completely, abandoned. Today, this practice is known to continue mainly for some gov- ernment-funded contracts. 3.20 Insufficient Proceduresfor Use of Domestic Preference System. The domestic prefer- ence system applies only for goods manufactured in Zambia (15 percent) or for imported goods held instock in Zambia (5 percent). The SMEs (small and mediumenterprises) receive a preference o f 25 percent for manufactured goods suppliedby them. No preference i s permit- ted for domestic civil works contractors. Inpractice, CTC and the ministries have difficulty applying these preferences as the means o f application are not described in any detail. The procedures also do not have provisions requiring a minimum domestic contribution by the manufacturer to be eligible for the preference. No data i s maintained on the impact of, or inci- dence of, the use o f the domestic preference system for goods manufactured, or goods im- ported and stocked for sale locally. 3.21 Insufficient Filing Systems. A number o f shortcomings characterize the present filing system o f public procurement. Files on procurement are not always maintained. Where they are maintained, they are not complete and vital documents (example, performance guarantees) are not readily available when needed. There i s no clear guidance on what data should be maintained in the filing system and its structure (as government has directed for other filing systems) and no special filing system has been developed for documentation linkedto the pro- curement process. There is a lack o f appreciation o f the importance o f and methods for main- taining files. The result i s files that are generally incomplete. A review o f World Bank-funded projects documented serious problems inmanaging procurement records. This situation also leads to ineffective contract management when vital documents, such as performance guarantees or the contract itself, cannot be found when required. 3.22 Insufficient Procurement Planning. Except inisolated ministries, which practice a sys- tem limitedto procurement "scheduling, the use o f procurement planning as a tool for con- ducting efficient and economic procurement i s largely non-existent. The CPAR team was ad- vised that procurement planning is not done as there is no certainty that the funds allocated will be available in full, or in time, when needed. While the funds problem affects contract scheduling, other vital aspects o f procurement planning (such as packaging, choosing the ap- propriate procurement method and type o f contract, etc.) are not taking place early inthe pro- curement process. Consequently, there were many cases where prior agreement on these as- pects was lacking, which caused delays; when the actual biddocuments were forwarded to the - 18- CTC, these choices were questioned. The guidelines are silent on the need for and importance o fprocurement planning, and on when and how it should be done. 3.23 This state o f affairs results ina large incidence o f "urgent" cases o f procurement. Inur- gent cases, suboptimal methods o f procurement must be used, undermining efficient and eco- nomic procurement. The review o f 14 large-value procurement contracts in the ZNTB re- vealed that valuable time (as much as 2 to 3 months) was often lost while ministries and the ZNTB discussed the choices made without due process. (d) Paymentsand Procedures 3.24 Unreliability in Release of Funds Allocated to Ministries in Budget The funds allo- cated inthe budget for each project for each ministry are generally not released to thefull ex- tent duringthe year. Also, there are significant delays inreleasing eventhe small amounts that the budgetoffice finally agreesto give. Statistics are not maintained, but it i s generally agreed that this occurs too often and seriously affects project implementation, efficient procurement, and contract management. This unreliable state o f affairs has several consequences, including: (a) contractors' bills are often held up for several months, which delays projects, makes con- tractors wary o f bidding on government contracts, and leads to higher prices, (b) delayed payments incur interest charges, which are paid from the ministry's limited budget, thereby further reducing the funds available for product payments, (c) when contracts are designated in foreign currency and payment delays are protracted, exchange rate changes have been knownto cause a larger amount o f local currency to be requiredthan was originally provided. 3.25 Further, in the budget process, the funds actually allocated are often lower than the amounts required for good project progress. Also prevalent inthe budget system i s a practice of allocating a "nominal" 1ZMK for "tentative" projects that "may" be approved during the budgetyear. While this allows suchtentative projects to be listed inthe budget papers for eli- gibility to use the budget funds duringthe year, it further strains the budget for other projects when more than the allocated 1 ZMK is finally released to such tentative projects. Subse- quently, it exacerbates the problem o f adequate and timely release o f funds. 3.26 External Payments Procedures. The use o f Letters o f Credit as a means o fpayment has declined both in the public and private sector since 1992, when restrictions on the use o f for- eign currency were abolished. Before then, it was mandatory to go through a central bank and open Letters o f Credit on all amounts above USD 5,000. Now it i s up to the buyer and seller to agree on the means o f payment. Opening an LC takes between 1 and 2 weeks. The proce- dure, as presentedby the banks, i s normal compared to practices inother countries. 3.27 An analysis conducted by the Office o f the Auditor General provided several reasons for the decline in the use of Letters of Credit, mainly relatedto goods imported by local agents - 19- that are contracted as suppliers. Such agents do not have their own financial resources and demand electronic money transfers to bank accounts abroad. The money i s then used for buy- ing goods and services. Second, electronic money transfers are preferred because the system makes it possible to evade taxes. Third, companies prefer electronic transfer because it en- ables easy and safe money laundering. For government-financed public procurement, the re- lease o f funds inthis way, instead o f with LCs directly to the foreign supplier, does occur, but a security i s obtained before such advances are paid. For payments financed by World Bank, the opening o f an L C i s facilitated by the World Bank by a system o f "direct commitment." For World Bank-funded projects, the incidence o f opening LCs without recourse to a direct commitment method i s low (statistics could not be obtained). Contrary to reports received by the CPARteam, delays by the World Bank infacilitating the opening of LCs through provid- ing direct commitment were not found. Another reason attributed by some projects for lesss use o f LCs, i s the high cost in terms o f bank charges. The commercial banks do not find it possible to charge lesser than they do. 3.28 Bonds and Guarantees. Bank guarantees normally give a better security for the buyer than do bonds. However, this requirement prevents a number o f smaller companies from par- ticipating in public tenders because, for guarantees, banks require collateral, often in cash, which i s difficult for such companies to provide. On the other hand, bonds are riskier as their encashment is not unconditional. Government regulations require that performance guarantees and guarantees for advances released should be obtained. However, govemment does permit the use of bonds inplace of bank guarantees due to liquidity problems. PSUs do attempt to encash these bonds but data was not available. It was reported that bonds are accepted infi-e- quently by most government agencies. However, as mentioned earlier, these documents are often filed improperly and may not be available when needed. C. PERFORMANCE ONBANK-ASSISTEDPROJECTS 3.29 The current active portfolio comprises 14 operations with total commitments o f USD 463 million. Of this, USD 199.5 million has been disbursed by end o f FY02. The Country Portfolio Performance Review for Zambia notes that project performance improved slightly since end o f FY 2001 as there are now only two problemprojects compared to five then.'' 3.30 Recently a number o f procurement-related reviews have been conducted for various reasons. An Independent Procurement Review (IPR) was conducted in 1999 by a consulting firm (Ws Crown Agents). Ex-post Procurement and Statement o f Expenditure (SOE) Re- views were conducted (a) inJune 2001 for the HSSP and (b) inAugust 2001 for four other " At the end of FY 2001 (June 2001), there were five problemprojects:UrbanRestructuringand Water Supply Project (URWPS), Environment Support Program (ESP), Road Sector Investment Program Support Project (ROADSIP), Health Sector SupportProject (HSSP), andthe Power RehabilitationProgram(PRP). At the end of FY 2002 (June 2002), there are two problem projects:ESP and HSSP as two operations have been closed, andPRP performancehas beenupgradedto satisfactory - 20 - projects12. In February 2002, the Bank conducted a procurement review o f 10 selected con- tracts that were subject to IDA prior review. All these reviews point to similar deficiencies in procurement capacity, procurement management, filing and documentation, and contract management. 3.31 Inthe case of one project (HSSP), cases of misprocurement were identified and re- ported to government. In the same project, it was discovered that the Special Account was used repeatedly to finance ineligible expenditures. Due to its improper uses o f the shopping method, the project was advised to suspend this procurement method and use the National Competitive Biddingprocedure instead. However, such serious irregularities were not noted inotherprojects. 3.32 For all projects, the common problems included: (a) lack o f files and documentation; (b) bidopening procedures, etc., not rigorously followed; (c) prior review clearances not ob- tained intime; (d) deficiencies inimportant features o f bid documents; (e) poor contract man- agement, including release o f advances without guarantees; (f) deficiencies o f capacity and capability in contractor firms awarded civil works contracts; and (g) cost overruns coupled with time overruns. 3.33 All these reports drew attention to inadequacies in the capacities of the PSUs. The inadequacies included (a) understaffing, (b) inadequate exposure to and training in procure- ment, (c) inadequate knowledge o f filing needs and contract management issues, (d) lack o f procurement planning and its use for efficient procurement, and (e) insufficient clarity in institutional and organizational arrangements affecting the capacity o f PSUs to perform effec- tively. 3.34 The slow pace o f delegation o f authority to procure to the ministries and agencies i s partly due to ZNTB's lack o f confidence intheir capacity. But the there are also other reasons for persistent lack o f adequate interest inreform o f public procurement. The lack o f interest in ministries and agencies to actively pursue even the limitedprogram o f delegation o f procure- ment authority i s symptomatic o f underlyingcauses such as preference for a system o f dif- fused responsibility and accountability offered by the current lax systems and procedures and institutional arrangements. Any tightening o f the arrangements would affect the distribution of rents be it ZNTB, senior officials or politicians. Though difficult to pin down in any coun- try, politicalinterference inpublic procurement inZambia is generally acknowledged. '* Agricultural Sector Investment Program (ASIP), Economic Recovery and Investment Promotion Credit (ERIPTA), ROADSIP, and Social RecoveryI1Project (SRP 11). -21 - D.RECOMMENDATIONS (a) Improvethe RegulatoryFramework 3.35 The following i s recommended for the regulatory framework: The different tender methods and the precise conditions for their use shouldbe adequately described in a revised procurement act, and not in the regulations. In this connection, a list of procurement methods should be defined consistent with the UNCITRAL Model Law All applicable award criteria to determine the lowest evaluated bidder should be defined in an act. Their disclosure as part of the bidding documents should be mandatory. The principles for pre- andpost-qualification should also be described inthe procurement act. The new procurement act should set very stringent criteria and conditions for negotiation. Recourse to "annulment" followed by negotiations should be banned. Consistent with the revised legal framework, action should be taken to recast the regula- tions and guidelines governing public procurement. Regulations should elaborate the de- tails on the process and the technical details separately for civil works, goods, and consul- tancy services. Regulations should clearly specify that bid opening must take place im- mediately after the deadline for bid submission. Domestic price preference for civil works contracts should be introduced with eligibility requirements similar to the provisions inBank guidelines. For manufacturedgoods, a cri- teria o f minimum value added should be introduced. The price preference for (a) im- ported goods held in stock in Zambia should be abolished as this represents a subsidy with limitedlasting impact on domestic capability generation, and (b) goods produced by Zambian SMEs should be reviewed as the desired objectives are better achieved by other means. Requirementsregarding documentation andfiling shouldbe addressed inthe revisedpro- curement act, and the Procurement Authority should develop detailed instructions for fil- ing, including a checklist to beusedbythe PSUs. (b) Improvethe RegistrationSystem 3.36 Regarding the system for identifying qualified bidders, the following i s recommended: 0 The registration system for identifying potential bidders should be redesigned with the objective of (a) restricting the use o f the system to only very small value items (below the equivalent o f USD 7500) and (b) providing effective means for administration, enforce- ment, andmonitoringo f the system. Private sector representatives should be involvedinreviewing the registration list system. The registration fee should be less expensive and reflect more directly the actual cost o f registration. - 22 - (c) Enhancethe AdministrationofProcurement Procedures 3.37 The administration o f procurementprocedures should be reformed in a numbero f ways: 0 CTC should enforce the use o fprocurement method and related thresholds much more rigorously and only allow waivers ina few well-justified cases. 0 A full set o f standard bidding documents should be developed. The use o f standard bid- ding documents shouldbe mandatory. 0 For the documentfiling system, a procurement register separate from the main register in each ministry should be established, containing a complete set o f documentation for pro- curement activities in one place. The proposed new procurement authority should de- velop detailed instructions for filing, includinga checklist to be usedby the PSUs. 0 A manual on procurement planning should be developed. The system o f procurement planning should be enforced. Methods o f procurement, packaging, etc., should be defined and agreed to well before the procurement process begins and should then be followed. Release o f budget funds from the budgetary system should be suitably linked to realistic procurement plans (d) FacilitatePaymentsand Guarantees 3.38 The present practices for payments and guarantees call for certainreforms: 0 The system o f allocation and release offunds to ministries under the government's budget should be modified to improve reliability and adequate availability of timely re- sources. 0 The use ofLetters of Credit should be mandatory for procurement above a certain value. 0 In lieu of bank guarantees for bid security and performance guarantees, bonds may be allowed for small enterprises when it can be assessed that they are easily encashable. To secure the interest o f the procuring entity, bank guarantees should be mandatory for lar- ger contracts. - 23 - 4. TRADEPRACTICESAND CUSTOMS A. THE ZAMBIAN TRADE REGIME 4.01 Procurement Issues. A central procurement issue in relation to trade is the application o f transparent and internationally recognized customs and trade procedures, which allow the effective import and export o f goods. A modern customs administrationmustbe able to facili- tate trade flows through smooth import and export procedures and, at the same time, fulfill its role as a key revenue generator to the state budget. 4.02 Trade Policy. Zambia has adopted most o f the international standards in terms o f trade policies and customs regulations. As a member o f COMESA (Common Market o f Eastern and Southern Africa), Zambia has moved ahead o f other member states in adopting tariff re- ductions o f up to 80 percent on most tradable commodities. Zambia is also a member o f SADC (Southem African Development Community) and has bilateral trade agreements with South Africa and Zimbabwe. Furthermore, Zambia has trade agreements with the European Unionand the United States o f America. 4.03 TarijJi and Taxes. Zambia has consistently followed a policy o f reducing tariff levels, with significant rate reductions taking place in 1996. The current rates o f customs duty range between zero and 25 percent, with 15 percent as the most common rate. In general, a 5 per- cent rate applies to raw materials, a 15 percent rate to intermediate goods, and a 25 percent rate to finished products and luxury goods. In addition, there i s a limited list o f duty-free goods including, among other items, books, fertilizers, and primary forms o f rubber and steel. The VAT rate i s 17.5 percent. 4.04 Registration of Traders. All traders, including foreign firms using a national agent, mustbe registered. A prospective company must register with the Registrar o f Companies at the Ministry o f Commerce, Trade, and Industry. After that, a Certificate o f Incorporation i s issued. Within Customs, an identification number is allocated to traders who import, export, or transport goods. The import licensing system has been abolished. However, a certification procedure i s applied for certain goods. Import certificates to clear goods are issued both to importers themselves and to customs brokers. 4.05 Organization and Human Resources. The Customs Department i s part o f the Zambian Revenue Agency (ZRA). Customs has 32 local offices and 8 regional offices located across the country, staffed with approximately 500 staff members. The staff inlower grades is pro- vided with only 3 weeks o f training upon recruitment, whereas higher-grade officers with university degrees receive 4 weeks. There are incidents where newly recruited staff musthan- dle work all alone. - 24 - 4.06 Computerized Customs System. In 1998, the computerized customs system, ASY- CUDA, was introduced. It includes all functions needed ina modern customs operation. Ver- sion 2 o f ASYCUDA i s currently inplace, and the latest version, ASYCUDA++, will be in- troduced later in 2002. This version will reduce direct interaction between the customs bro- ker/trader and the customs officer, thereby significantly reducing the risk o f corruption. ASYCUDA includes an automatic risk analysis module that supports the identification and selection o f consignments, which represent a higher risk and, therefore, should be controlled further. Due to inadequate training, the riskanalysis module is not beingproperly used, lead- ingto a highpercentage of consignments (30-50 percent) beinginspected. This causes delays and increases procurement leadtime. 4.07 Under-invoicing and Forged Invoices. The incidence o f under-invoicing and forged invoices i s not higher than in other countries, but should be controlled to boost revenues and reduce organized customs and tax fraud. Inthis context, the Customs Department has intro- duced post-entry control as a supplement to the traditional transaction control at the border. However, to ensure effectiveness, the department is contemplating a more advanced system o f integrating this control with VAT andprofit tax audits for which it currently does not have the expertise. B.MAINRECOMMENDATIONS 4.08 As most international standards interms o f trade policies and customs regulations have been adopted, and customs and licensing procedures are generally transparent, the following are recommended: Basic trainingfor customs officers should be increased at all levels. This would support effectiveness of both private and public sector procurement when goods are imported. Newly recruited officers needmore comprehensive introduction andtraining. Implementation o f A S Y C U D A H should be continued and supported by training. The use o f the system's risk analysis module should be ensured to minimize corruption and lower the currently too-high inspection rates, which slow customs clearance. This step would also prevent revenue lost due to poor e-mail connections. International assistance should be requested to improve ZRA's capacity to reduce under- invoicing andforged invoices. Control efforts directed towards under-invoicing should be integrated with VAT control and audit o f profit tax. Training capacity should be strengthened, and training should be provided for customs officers for carrying out efficient investigations o f under-invoicing. - 25 - 5. PRIVATE SECTOR COMMERCIALPRACTICES A. THE PRIVATE SECTOR INZAMBIA 5.01 Competitiveness in a Liberalizing Economy. The competitiveness o f major parts o f Zambia's private sector has beenimproving steadily since the early 1990s, when Zambia took several significant steps towards a more liberal economy, including privatization o f ineffi- cient, state-owned enterprises. Privatization has culminated inrecent years with privatization o f the mining sector. However, the recent decision o f Anglo American to withdraw from Zambia is a seZTBAck inthe private sector. 5.02 Private Sector Organizations. There are two major private sector organizations in Zambia: The Zambia Association o f Chambers o f Commerce (ZACCI) and the Zambian As- sociation o f Manufacturers (ZAM). Together, they represent most o f the enterprises in the formal private sector. 5.03 Private Sector Growth. Private sector employment has been growing since 1994 and continues to grow, but at a lower rate. At the same time, the private sector production i s ex- panding. Private sector output, in general, seems to rise faster than employment, pointing to increased competitiveness and a more sustainable private sector. 5.04 Regulation of CommercialPractices. The Competition and Fair Trading Act o f 1994 i s the basic legal foundation for regulating commercial activities in Zambia. The Act covers anti-competitive practices, mergers and take-overs, trade agreements, anti-competitive trade- practices by associations, criteria for controlling monopolies and concentration o f economic power, and consumer welfare protection. The Act established basic regulations, and neither enterprises nor their organizations find significant flaws in the regulation or have immediate suggestions for any amendments to the regulations. 5.05 Institutional Support to Implement Commercial Regional. The organization set up to implement the Act i s the Zambian Competition Commission (ZCC), an autonomous corporate body under the Ministry of Commerce, Trade, and Industry.According to the ZCC, its limited resources make it difficult to exercise its powers. Many cases are not pursueddue to the lack o f staff. 5.06 Private Sector Procurement and Procurement Procedures. The volume o f private sec- tor procurement cannot be estimated on the basis o f the available data. Also difficult to esti- mate is the quantitative contribution o f the domestic private sector to public procurement. In- dustry estimates the volume of private sector procurement at well below that of public pro- curement. For the majority o f companies, there are no formal procedures for procurement, particularly among SMEs. Some large companies, especially the "privatized parastatals," have comprehensive and efficient procurement procedures. - 26 - 5.07 Professionalism and Capacity Building. There is room, and the need, for Zambian sup- pliers to be professionalized to meet the demands o f procuring enterprises. The professional- ism and sustainability of suppliers is a major issue for Zambian private sector procurement. Some suppliers are professionalinterms o f good business practices, but many are not. 5.08 Private sector procurement systems and procedures There also are considerable defi- ciencies in general understanding and recognition o f the procurement process. Zambian pri- vate sector procurementprocedures can be grouped as (a) those with no formal procedures for procurement, that is, the majority o f companies, especially SMEs, and (b) "frontrunners" in private sector procurement, which applies to some large companies with comprehensive, effi- cient procurement procedures, especially "privatized parastatals." 5.09 However, procurement practices are company-specific and range from simple direct purchase/contracting, to short-listing for quotations, and open tendering, including intema- tional biddingprocesses. Open tender i s more common for goods than for works. The larger the purchase, the more likely it i s that an open or international tender procedure is applied. INCOTERMS are frequently used, with CIF and FOBbeing the most common. Multinational companies follow corporate rules and procedures, and they commonly buy only from corpo- rate-approved suppliers. 5.10 Purchasing and procurement is not generally recognized as a profession, and there i s room for greater professionalization o f the purchasing, supply, and procurement function in private enterprises. Relatedproblems are unrealistic calculations and promises regarding what suppliers believe they can deliver; failure to deliver the promised goods or services, both in terms of under-deliverance and over-deliverance with claims for extra payment; and non- compliance with time schedules for delivery. There i s also little understanding o f the payment procedures agreed upon. Many suppliers insist on different procedures o f payment than those originally agreedinthe contract once they deliver the goods. B. MAINRECOMMENDATIONS 5.1 1 The following are recommended: 0 Training in good business practices could be made available to Zambian enterprises. A training program could be developed and launched in cooperation with private sector in- stitutions such as ZACCI, ZAM and Zambian Enterprise Network Association through donor support. 0 Development o f good business practices in the Zambian business community could be furthered by facilitating the development of a code o f ethics for good business practices. ZACCI, ZAM and Zambian Enterprise Network Association should be involved in this work. - 27 - 6. GENERALRISKASSESSMENT 6.01 In achieving a well-functioning public procurement system, the government should focus on managing the following risks: No. - Riskto be managed What can happen How can it happen Riskmitigation 1 Institutional frame- 0 Faith ingovem- Oversight role o f 0 Definition o f a new work lacks separa- ment's procure- ZNTB unclear in institutionalframe- tion between imple- ment system can- terms o f tasks work that clearly menting agencies and not be built or andday-today separates those who oversight function maintained performance carry out and ap- 0 Decentralization 0 Role o f CTC vis- prove procurement slowed down a-vis the ZNTB from those with pol- unclear icy andoversight re- sponsibility 0 Conflict o f inter- est due to overlap o f members 2 Enforcement by 0 Implementing 0 Eventhough re- Provide fundingfor OAG, ACC, and agencies don't re- ports document institutions procurement author- ceive direction lack o f apprecia- ityremains weak neededfor imple- tion of procure- Revise the Audit partly due to lack o f mentation ment rules, it i s Act to strengthen funding mandate o f OAG of- 0 General belief in not remedied fice the system not 0 Practitioners tend builtor maintained to choose own Strengthen institu- because a breach interpretationo f tional llnkages be- o f rules has no rules tween OAG/ACC consequence andprocurement au- 0 Those tempted to thority with regular 0 Corruption contin- misuse the sys- meetings o f agen- ues tem to their own cies' CEOs benefit not pun- 0 Eventhough re- form plans exist, ished they will not be ef- 0 Reformplannot fectively imple- coordinated, mentedbecause leading to fund- implementing in- ingprovided on a stitutions (OAG, project-by- pro- ACC, ZNTB) do ject basis instead not have sufficient o f a total pro- andconstant flow grambasis o f funds to operate 3 Legal instruments - Enforcement 0 Various guide- Review o f legal act, regulations, and weakened with dif- lines developed framework guidelines inade- ferent practices by different quate and used insuf- developing due to PSUS ficiently lack o f clarity and authority inrules - 28 - - YO.Riskto be managed What can happen How can it happen Riskmitigation 4 Lack o f faithinthe B Companies choose B Late payments Government to im- government's pro- not to work for continue prove budgeting curement systemby government be- Registration sys- process to ensure the private sector cause o f late pay- D availability o f funds ments andnon- tem not transpar- ent for payments transparency inthe Review o f registra- biddingprocess, D Bids rejected on tion system which provides arbitrarybasis less competition Useofshort- listinginstead o f B Companies that work with the gov- open tendering ernment calculate on large contracts higher prices to compensate for late payments, etc. B Companies col- lude, preventing real competition and increasing prices 5 Lack o f ability to Pay structure un- Procurement Establishment of retain staff even changed and cadre staff continue to cadre, includingca- though manyhave not fully developed be hired as civil reer path andcom- been trained asplanned. High servants petitive and ade- staff turnover con- quate pay structure tinues andtrained The pay structure o fprocurement based o n a gant- staff go to private staff linkedto the aided system such as sector, where pay civil serve reform the ZR4. is 5-10 times better program, making ZNTB seconds pro- 0 Difficult to attract a short-term solu- fessional procure- the rightpeople for tion unlikely ment staff to im- trainingbecause prove the quality o f skill improvements procurement proce- not linkedto pro- dures andprocesses motion andbetter Pay 0 Decentralization slowed down due to lack o f capacity inthe PSUs - 29 - - No. Riskto be managed What can happen How can it happen Riskmitigation 6 Lack o f faith and Complaints sent to Needto improve 0 Reviewof legal confusionregarding the wrong office the complaints framework and de- theprocedures and andnot addressed systemgenerally velopment o f new possibilitiesfor par- intime agreedon, but complaints system ties involved inbid- new independent enshrined inan act dingto file com- Biddersstop com- institution han- plaints plainingdueto fear o fnot being dlingcomplaints short-listed inthe not identified future 0 Bidders seek solu- tions through al- ternative means - 7 Slow pace o f decen- 0 Management o f 0 Lackofpro- Establishment o f the tralization -PSUs not theministries and curement capac- cadre and all posi- givenhigher author- agencies cannot be itycontinues as a tions inPSUs filled ity to handlepro- held 100percent problem inthe curementwithout responsible for PSUs 0 Abolishment o fthe continuous approval their procurement PSUcategorization of CTC operation because Norealcom- systemwith a de- o f constant CTC mitmentto de- clared target o f 3 involvement inap- centralization years. provals policy at political levelbecauseo f Fullauthority given to six PSUsby end 0 Contracts split to desire to be able avoid referral to to influence and o f 2002 the CTC control contract 0 Fullauthority given to remainingPSUs 0 Procurement more awards through costly to handle for the present sys- from 2003-2004. the government tem. 0 Monitoring system builtwithinnew 0 Procurement slowed down procurement author- ity to ensureen- forcement ofpro- curement legislation 6.02 The table below rates the likelihood of the government's ability to manage risks, with 4 representing highrisk; 3, medium risk; 2, low risk; and 1, no risk. Riskto be managed Indicative assessment of risk notbeingmanaged Institutional framework lacks separationbetweenimplementing 3 agencies and oversight function Enforcement o fprocurement rules remains weak, partly due to 4 lack o f hnding Legal instruments(acts, regulations, and guidelines) are unclear 3 andinadeauatelv used Lack o f faith inthe government's procurement system inthe pri- 3 vate sector Lack o f ability to retainprocurement staff even though manyhave 4 beentrained - 30 - Riskto be managed Indicativeassessmentof risk not beingmanaged Lack of faith ineffects and confusionregardingpossibilities of 3 filing complaints Slow pace of procurementdecentralization 4 6.03 The risk profile can be categorized as medium to high because o f the need to adjust basic procurement system elements such as the institutional and legal frameworks. Incombi- nationwith the lack of funding, this i s a highrisk factor. -31 - 7. RECOMMENDEDACTION PLAN 7.01 Central to any recommendations that emerge i s the need for a "champion" for the Re- form program as it should not be left to be an intemal program within ZNTB. Besides, such a program that needs to tackle the various vested interests inthe status quo can only be tackled bypoliticalwill. 7.02 The actions described below are o f major importance for the improvement of the Zambian public procurement system. (See also the fully developed action plan in the AC- TION PLANMATRIX at Annex A1 and A 2). Actions inthe Short Term 1. Establish a Procurement Reform Task Force (High Level Committee). Members should be appointedto a steering committee that will be responsible for initiating and su- pervising the implementation o f the activities in the action plan. The committee must have high-level members Erom, for example, ZNTB, MOFED, ACC, and OAG. The members should not be allowed to appoint substitutes. The committee should have a clear mandate and time Erame inwhich to conclude its reform agenda. To support this work, a Procurement Reform Implementation Unit (PRIU) should be established. It should be re- sponsible to the Permanent Secretary. Ministryo f Finance and NationalPlanning. 2. Finalizethe Planfor complete delegationof procurement authority. Develop a 3-year plan for the full delegation o f procurement authority, divided into phases. The plan would give ministries and agencies full authority to conduct procurement without any reference to or approval by ZNTB or CTC. Inthe short term, the plan should appoint one or two provinces as pilot provinces for full delegation o fprocurement authority. 3. Re-establishthe ZNTB's Policy and Supervisory Role Immediately.Without waiting for new procurement legislation, prepare the structure o f the ZNTB for this role, which i s already requiredunder existing legislation. As the DGo f ZNTB will manage the CTC un- til its dissolution in3 years (see below), strengthen the secretariat of ZNTB to support it inthis role byenhanced staffing (and possibly splittingit off from the current secretariat). Provide an adequatebudget to support this objective. 4. DefineTOR for Revision of Legal Framework. The Terms o f Reference for the review o f the legal and institutional framework, which i s currently being developed with the AfDB, should be revised to consider the present report's recommendations. The TOR should state clearly that procurement legislation revisions should build on the UN- CITRAL Model Law and current intemational best practices. - 32 - 5. Revision of LegalFramework.A new procurement act should be developed, based on the UNCITRAL Model Law and current international best practices. Among other things, it should containprovisions for the new procurement authority and a complaints system, managed by the procurement authority but with a separate independent, part time, Ap- peals Body. A Cabinet Paper should be developed for the new legislation, and Parliament should enact the legislation. New regulations and guidelines should be developed on the basis o f the new act. 6. Prepare Establishment of Professional Procurement Cadre. Define the composition o f the cadre to be established and measures for its adoption. Start implementing the measures with the cadre's management function given to the ZNTB until the new pro- curement authority (possibly called Zambian National Procurement Authority -ZNPA) i s established. 7. Re-design of Registration List System. A revised Registration System should be de- fined. New guidelines should be developed whichrestrict its use to small-value contracts only. 8. Implementationof Corruption Survey. The planned corruption survey should be im- plemented. Implementation shouldbe coordinated with the PSCAP project. 9. Establish a Procurement Filing System in PSUs. A separate procurement register should be defined. Instructions and guidelines on establishing and maintaining a pro- curement filing system should be developed for the PSUs. Actions inthe Mediumto LongerTerm 1. Establish New ProcurementAuthority. A Director General and other staff for the new Authority should be appointed. The specialized functions o f the Authority should be de- fined and developed in detail. Simultaneously with establishment o f ZNPA, ZNTB should be abolished. Also establish a part time and independentAppeals body. 2. Continue Implementationof Planfor complete delegation of procurementauthority. The 3-year plan should be monitored for effective implementation. Delays, as inthe past, should not be allowed. 3. Develop the Capacity of the Procurement Cadre. A secondment system for the pro- curement cadre staff should be developed. A human resource database with the CVs o f cadre members and those applying for membership should be established. A training ac- tion plan shouldbe developed and upgraded. - 33 - 4. Develop Manualon Procurement Planning.A manual onprocurementplanning should be developed, containing clear instructions for the introduction o f best practices. Release of budget funds from the budgetary system should be suitably linked to realistic procure- mentplans 5. Strengthen Training Programs and Training Institutions.A capacity assessment of training institutions should be carried out. The need for supplementary procurement train- ingprograms should be defined. Requiredtraining programs should be developed and de- livered. 6. IntroduceAnti-Corruption Clauses. New anti-comption clauses should be introduced inthe standardbiddingdocuments. - 34 - ACTIONPLANMATRIX Annex A 1.Short Term SEQUENCEDACTIONS SUMMARIZEDBY MAJOR CATEGORIES - SHORT TERM Issue RecommendedAction Timing Responsible From To 1. EstablishPro- Appoint aHighLevel Committee, whichwill May2003 May 2003 MOFNP curement Re- beresponsible for initiatingand overseeingthe form Task Force implementationofthe activities inthe Action and an Imple- Plan.The Committeemusthavehigh-level mentationUnit membersfrom, for example, ZNTB, MOFNP, ACC, andAOG. The members shouldnot be allowedto appoint substitutes.The Committee will be supportedby aProcurementReform ImplementationUnit locatedinandresponsi- bleto PS Ministry of FinanceandNational Planning. 2. Finalizenew 1 Developplanfor full decentralization of Nov.2003 Feb.2004 MOFNPZNTB decentralization procurementinphases. plan 8 Appoint one or two provincesinfirst year as Feb.2004 April 2004 ZNTB pilot provinces for full decentralization. 8 Communicateplanto ministriesand agen- Feb.2004 April 2004 MOFNPiZNTB cies and explainthe plan's implementation andtheir responsibility. 3. Re-establish . Without waiting for new procurementlegis- Dec.2003 Feb.2004 MOFNPENTB policy and su- lation, preparethe structureof the ZNTB for pervisoryrole of this role and define the tasks. the ZNTB as re- 1 Preparethe budget for the ZNTB to carry Dec. 2003 Dec. 2003 ZNTB/MOFNP . sponsiblefor out relevant role and ensure availability of public procure- funds. ment policy and ZNTB to focus primarily on itspolicy and Dec. 2003 Jan. 2004 MOFNPENTB regulation regulatoryrole immediately.Strengthenthe department responsiblefor supportto ZNTB for its regulatoryfunctions, pendingcom- plete decentralization of ZNTBKTC ap- provalfunctionson procurement. 1 Define and developspecializedfunctions July 2004 Oct. 2004 MOFNPENTB matchingtasks, such as monitoring of pro- curement, data collectionon procurement activities, performanceindicatorsand benchmarks, law drafting, draftingregula- tions andguidelines, andmanagement and development ofthe cadre, and conduct out- reachto private sector for closer involve- ment. - 35 - Issue RecommendedAction Timing Responsible From To 4. Revise legal 1 Reviseterms ofreference, already draftedin Nov. 2003 Dec. 2003 ZNTB/MOFNP framework cooperationwith AfDB, andclearly state that the revisionofthe procurementlegisla- tion shouldbuild onthe UNCITRALModel Law interms of contentandterminology. Developnew procurementlaw basedon March Sept. 2004 DGZNTB UNCITRAL Model Lawthat provides for 2004 the new procurementauthority, complaints function, andarevisedpricepreferencesys- temwith morerobustcriteria. 1 DevelopCabinetPaper for new legislation. Oct. 2004 Nov. 2004 ZNTB/ MOFNP 1 ObtainParliamentapprovalofnew legisla- Jan. 2005 Feb.2005 MOFNP/ZNTB tion, set upZNPA, and disbandZNTB. 1 Developnew regulationsbasedonthe new March May 2005 DGofNew procurementlaw. 2005 Procurement Authority 1 Developnew guidelinesbasedon new law March May 2005 DG ofNew Prc- andregulations. 2005 curementAu- thority 1Preparenew versions of standard bidding June2005 Oct. 2005 DG ofNew documents andincorporateanti- corruption Procurement clauses. Authority _ _ _ _ _ ~ 5. Establishthe 1Describeand definethe cadre: level of skills Dec. 2003 March ZNTB professional for entry, code of conduct, salary structure, 2004 procurement career path, and role of the cadre adminis- cadre trator (the procurement authority). Developsecondment system for the pro- March June 2004 ZNTB curementcadrebasedon attractive salary 2004 system, administeredby the procurement authorityto replacethe current system of mixedcivil servants andpersonnel seconded by ZNTB. I DevelopHR databasewith the curriculaof July 2004 Sept. 2004 ZNTB cadre members andthose applyingfor entry. Sept. 2004 I Identify andregister cadre members who July 2004 ZNTB can enter the cadre without further training. July 2004 I Developupgradingandtrainingactionplan ZNTB for bothcadre members andpotentialmem- May 2004 bersto ensure developmentandmainte- nance. - 36 - Issue RecommendedAction Timing Responsible From To 6. Streamlinethe 1Streamlinethe existingregistrationsystem. Dec. 2003 Aug. 200~ ZNTB guidelines and operationofthe registrationsys- 1Developrevisedguidelines for the operation Aug. 2004 Oct.2003 ZNTB tem ofthe registrationsystem. 1Implementthe improvedsystem and ensure Feb. 2004 Sept. 200' ZNTB informationto stakeholders. 7. Establishsepa- 1Develop: March Sept. 200~ ZNTB rateprocure- -- Instructionsand Concept for separateprocurementregister 2004 ment filing sys- guidelinesto PSUs con- tems inPSUs cemingestablishmentand maintenanceof procurement filing system. E. Developmanu- 1Develop: Jan. 2005 July 2005 ZNTB als on (a) pro- - Manualswith clear instructionsandtools curementplan- for introducingbest practicesfor (a) pro- ningand (b) curementplanningand (b) contractman- contract man- agement agement - Mandatorytraining sessions inthe subjects for procurementcadremembersandcon- tract managersfrom ministries andagen- cies. 9. Enhanceeffec- 1Strengthenthe mandate andthe fundingof Ongoing AGICabinet of- tivenessandre- the OAGoffice as suggestedearlier bythe fice portingfrom PAC, and Improvetimeliness of OAG's OAG yearlyreport. 10. Reducedelays 1"The following shouldbe coordinatedwith Oct. 2003 Jan. 2004 MOFNP ingovemment the recommendationscomingout ofthe Fi- payments nancialAccountabilityAssessment Review: - Change actual release of funds to match the appropriationof funds inthe budget and reduce the delays ingovemmentpayments." 11. Conductanti- 1"The following shouldbe coordinatedwith Oct. 2003 MOFNP corruptionsur- the PSCAPproject: vey - Ensure implementationofplannedanti- corruptionsurvey." 12. Involveprivate 1Informthe private sector ofthe actionplan. Oct. 2003 Ongoing MOFNPIZNTB sector inpro- 1Involveprivatesector inwork groups I Ministry of curement re- where suitable. Commerce, form Trade and Indus- try - 37 - MEDIUMTO LONGTERM Annex A 2. Mediumto LongTerm Issue RecommendedAction Timing Responsible From To 1. Set up ZNPA 1Set up ZNPA Feb. 2005 March2005 MOFNP andDevelopand .Set up the Appeals Bodyuponenact- Feb2005 July 2005 MOFNP establishnew in- ment of legislationbasedonUN- dependent Ap- CITRAL Model Law provisionsthat peals body au- mandate anew, independent,part-time thority appeals bodyto complementthe role of complaints handlinggivento the new ProcurementAuthority. 2. Implementanti- 1Introducenew anti-corruptionclauses Jan. 2005 July 2005 Procurement corruption inthe standardbiddingdocuments. Authority I clauses MOFNP 3. Createtraining .Performacapacity assessment oftrain- July 2004 Nov. 2004 ZNTB programsand inginstitutions.Agree onacapacity conduct capacity buildingactionplanfar each institution assessmentof with clear targets. Providefundingfor . traininginstitu- upgradedactivities andinvestmentin tions equipmentlfacilitiesifneeded. Definethe trainingprogramsneededto July 2004 Nov. 2004 ZNTB supplementthe existingCIPS program, for example,mid-careertrainingpro- grams. Visit internationaltraining institutionsto collect informationon other types oftraining programs. 1Developand deliver trainingprograms. Nov. 2004 Ongoing ZNTB 4. Strengthen ca- 1Developa new licensingsystem for Nov. 2003 March2004 ZRA pacityof clearing clearingagents. agents . Developa2-3 day trainingprogramfor Jan. 2004 March2004 ZRA clearingagents. Participationshouldbe mandatory for agents to keeptheir li- cense. 1Deliverthe training. Apr. 2004 June 2004 ZRA 1Developguidelines and instructionsto Sept. 2004 Dec. 2004 ZRA clearing agents. - 38 - Issue RecommendedAction Timing Responsible From To ~~~~ ~~ 5. Strengthen ca- . Revise current training programs and Sept. 2003 Dec. 2003 ZRA pacity o f customs develop more training on: officers - Basic customs procedures and use o f -- ASYCUDA system ASYCUDA's riskanalysis module Physical inspection requirements, corruption prevention, and disap- pearance of goods . -- Reduction of under-invoicing Improvement of duty-drawback system. Deliver the training program. Jan. 2004 Dec. 2004 ZRA 6. Implement Implement ASYCUDA++ and increase Jan. 2004 Dec. 2004 ZRA . ASYCUDA++ the processingfee to USD5 per decla- ration. Developtraining inuse o f new system. June 2004 Nov. 2004 ZRA m Deliver training. Dec. 2004 Ongoing ZRA 7. Develop training Develop a training program in Sept. 2003 June 2004 Ministryof ingoodbusiness cooperation with ZACCI and Z A M on: Commerce, practices for the Good business practices and ethics Trade, and In- private sector ----Purchasing, supply, and procurement dustry Financial management Effective communication with cus- tomers andpublic authorities. 8. Improve com- . Examinebarriers in commercial regu- Sept. 2003 Sept. 2004 Ministryof mercial regula- lations and identify measuresto im- Commerce, tions prove regulatory practices. Trade, and In- dustry - 39 -