private sector support to climate resilience in zambia · annual agricultural loan :key features of...

Private Sector Support to Climate Resilience in Zambia

Strengthening the capacity of the private sector to build climate resilience March 2013 For public release

www.pwc.com

PwC

Access to Finance

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1/8/2014 Private Sector Support to Climate Resilience in Zambia

NB: Names of institutions, companies, projects and products in the report have been replaced with letters e.g. Company A, B, C or Product 1, 2 3 in order to maintain confidentiality of the entities, projects and products involved.

PwC

Access to Finance Overview

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Sector (s) Climate Smart Agricultural Finance

Support Required • Concessional credit line to named banks (Companies A, B and C)

• Grant funds for extension service start up/ potential cost share with Banks

Climate Resilience Rational

Increased resilience of household,

communities to climate variability and climate

Strengthened adaptive capacities

Climate responsive investments approaches

identified and implemented

Scalability of the intervention

Provides access to finance and or markets

to vulnerable communities

Enables use of innovative technologies

Water retention / management

Agriculture under climate change

conditions

Soil retention/ vegetation cover

management

PwC


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1/8/2014

Access to Finance Context

Target Market Segment: Small holder farmers (less than 2

hectares) Background

• Agriculture contributes approx 20% to the Zambian GDP, and employs 60% of the national

population

• 85% of those working in agriculture are small or emergent farmers

• Zanaco estimates smallholder farmer base to be 2.3 million

• Difficult for smallholder farmers to access finance

• Intervention links Access to Finance with climate smart agriculture practices

Growing urban middle class driving demand for horticultural products

Commercial demand for agricultural produce, demand for soya produce in Zambia oustripping demand

Export opportunities into the region (South Africa, Zim, Malawi, Tanzania and DRC)

Commercial opportunity for Lenders

Company A

Company AU

Company B

Company AB

Private Sector interest :

PwC

Access to Finance Annual Agricultural Loan: Key Features

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• Target client: Smallholder and Emergent Farmers

• Agriculture Finance offered to clients at 16% p.a. when the loan adheres to climate change criteria such as investment in:

• Efficient irrigation technologies

• Greenhouse technologies

• Drought resistant multi-cropping systems – such as fish farming, livestock, poultry or game to diversify from mono-cropping with maize

• Solar technologies – such as solar pumps and solar drier beds

• Terms and conditions of the loan tied to responsible behavior. Clients engaged in 'climate-smart' activities that contribute to national food security objectives, enhance resilience of agricultural systems and natural ecosystems, and have the potential to deliver mitigation benefits – i.e. charcoal burning & deforestation are notable to access the loan

• Partnership with iDE, based on their Farmer Business Advisor model and methodology

• Farmer Business Advisor to provide extension services to farmer, remunerated through commissions – dependent on farmers performance, from

• Financial institutions on successful loan repayments

• Agro dealers from inputs are sourced

• Aggregators

• Proposal to pilot this intervention with other interventions in particular, soya production and weather based insurance.

PwC

Access to Finance Annual Agricultural Loan :Key features of the loan

• The annual loan of K3 million will be payable in two 6 monthly instalments at an interest rate of 16%p.a.

• The loan assumes weather based insurance will be incorporated as part of the loan, thereby increasing the loan draw down amount by the insurance premiums (8% of value insured). The premiums will be paid directly to the insurance provider by the financial institution.

• A one off facilitation fee of 0.5% of the value of the loan will be payable by all borrowers on application.

• The K3 million can be used for either assets finance or working capital in any proportion - however for asset finance , supplies would need to be procured from pre-approved suppliers only.

• Farmers are not required to provide any cash or asset collateral when applying for their loan, subject to them fulfilling the necessary requirements as set by the financial institution and verified by the FBA.

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PwC

Access to Finance Annual Agricultural Loan: Key Features

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Criteria Details

Average cash loan size K3,000,000 (includes assets finance and working capital)

Loan tenure 12 months

No. of instalments 2 instalments – based on the assumption that farmers would use the financing to facilitate two crop cycles in a year (rain-fed and irrigated)

Interest rate 16%

Loan facilitation fees 0.5% of loan value

Loan default rate 2% of the number of farmers

Annual cost per field staff Year 1: K333.3 million – based on an estimate of US $200,000 p.a for 3 field staff salaries, management and operational costs

Commission to FBA’s 2% of principle loan value on full repayment

Insurance costs 8% of principle loan value which would be added to the cash loan value

Incremental cash costs for financial institutions 30% of iDE annual costs

Exchange rate K5,000/US $ - assumed a constant over the 5 years

Inflation Ignored

Taxation Ignored

Efficiency rate for field staff 50% over the 5 year period as estimated below:

Yr1 Yr2 Yr3 Yr4 Yr5

Average number of technical assistance field staff – iDE or

similar NGO’s

3 5 8 12 15

Field staff to FBA ratio 1:10 1:12 1:13 1:14 1:15

Average number of FBA’s 30 60 100 167 231

FBA to famer ratio 1:100 1:100 1:100 1:120 1:30

Estimated number of farmers 3,000 6,000 10,000 20,000 30,000

Annual cost (US $) for technical assistance – assuming 50%

efficiency rate over the 5 year period

$200,000 $333,333 $533,333 $800,000 $1,000,000

Average cost (US $) of providing technical assistance per

farmer

67 56 53 40 33

[Sensitive information has been removed.] TBA TBA TBA TBA TBA

PwC

Access to Finance Annual Agricultural Loan : Lending Process

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Key

Line of credit to financial institution Working capital disbursement to individual farmers

Payment for monitoring and CSA training to FBA’s Supply of inputs to individual farmers

Delivery of technical training, initial loan and input requests

Harvested crop

Provision of training and initial screening process Payment for harvested produce

Inputs supply information Repayment of loans to financial institutions

Payment for inputs Commission on input sale, sale of produce and financial institution

PwC

Access to Finance Adaptation Rational

It is assumed that the Access to Finance intervention could provide agricultural finance for a variety of ‘climate smart’ agricultural interventions – potentially realising the following benefits.

• Ability to diversify and invest in year round crops thereby reducing smallholders’ dependence on single rain fed commodities (maize) resulting in increased resilience.

• Improve resilience to drought by using improved crop varieties and seed.

• Increase in rainwater infiltration and reduced soil erosion through the use of sustainable land management practices

• Improved soil fertility through the use of organic matter

• Improved synthetic fertilizer application methods would result in reduction in quantities required.

• Increased pest resilience through provision of habitat for predators which prevent pest out breaks.

• Effective agro forestry could prevent land degradation, improve microclimate and increase ecosystem stability.

• Improved grazing land and pastures could enhancing livestock productively and resilience to drought to enhance social security for vulnerable communities.

• Diversified and zero waste integrated food-energy systems would provide sustainable energy sources and prevent

deforestation.

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PwC

Access to Finance Annual Agricultural Loan: Cash Flow

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[Sensitive information has been removed.]

PwC

Access to Finance Challenges

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• Financial institutions not prepared to pay for extension services, which is critical for the A2F model to work.

• Securing consistent supply of high quality seeds and farm inputs to enhance productivity.

• Formalising agreements with climate resilient equipment providers (i.e. greenhouses, drip irrigation system suppliers) to provide, train farmers on instillation of equipment, and provide reliable access to spare parts (i.e. irrigation piping) when needed.

• Company AC has raised concerns about the intervention being managed by the banks – initially were concerned how this model would work with banks rather than micro finance institutions. However, initial discussions with Banks have been positive and follow meetings including Company AC and the banks being scheduled.

PwC

Climate-Smart Soya Production

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PwC

Climate-Smart Soya Production Overview

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Sector (s) Agriculture / Water

Support Required • Technical & programme start up support from IFC, Financial institutions and potentially off-takers

• Potential Private Sector interest: Company H, Company I













conditions


management

PwC


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1/8/2014

Climate-Smart Soya Production Context

Target Market Segment: Small holder farmers (less than 2

hectares) Background


population


• Company A estimates smallholder farmer base to be 2.3 million

• Difficult for smallholder farmers to access market to sell produce

• Intervention based on climate smart agriculture practices

Commercial demand for agricultural produce, demand for soya produce in Zambia oustripping demand

Export opportunities into the region (South Africa, Zim, Malawi, Tanzania and DRC)

Commercial opportunity to for off-takers to leverage smallholder farmers

Increased productivity for small holder farmers

Company H

Company I

Company S


PwC

Climate-Smart Soya Production Market Demand

Soya bean market self sufficient – Zambia

The oil market is large enough to absorb all of the oil produced in-country. 390,000 tonnes in 2009/10

Production has grown despite volatility as market has grown

Market growth due to demand for poultry feed – 90,000 tones in 2009/10, this expected to continue to rise

Market growth due to demand for livestock feed. Company H unable to procure all of their soy requirements locally in 2011. Required 100,000 tonnes, had to import 10,000 tonnes

Zambia is a net exporter and is well place to import to Malwai, Zimbabwe, SA & DRC (all net importers as of 2009/10

Value add opportunities – soyabean meal, cake, soyabean oil and soya milk.

Local demand driven by demand for livestock and poultry feed. Commoditisation of soy produce risks lower prices. Farmers accessing the market at a lower level of the value chain

Volatility in price and demand – in 2008 Company R were unable to sell on Soy stock due to a price slump


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1/8/2014

PwC

Climate-Smart Soya Production Production opportunities

Soya bean market self sufficient - Zambia

Production has grown despite volatility as market has grown

No cap on production, and large areas of agricultural land

Opportunity to leverage CSA farming to maximise soy yields for smallholders to access the market.

Currently commercial farmers responsible for approx 85% production - grow the market by planting more area rather than increasing yields


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1/8/2014

PwC

Climate-Smart Soya Production Market Demand (000’s tonnes)

0

50 000

100 000

150 000

200 000

250 000

2009/10 2010/11

National consumption

Production

Company H onlyconsumption


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1/8/2014

PwC

Climate-Smart Soya Production IFC Support

Credit line to farmers for ‘climate-smart soya’, via the banks (who are the PPCR recipients)

Concessional funding to agricultural producers to develop extension services and logistical networks

Grant funding to NGO’s, such as company AC to develop and roll out the Farm Business Advisor (FBA) model targeted specifically as smallholder climate-smart soya


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1/8/2014

PwC

Climate-Smart Soya Production Small/Emergent Farmers: Key Features

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• Target client: Smallholder and Emergent Farmers (who belong to a co-operative)

Large scale Soya off-takers

Small holder farmers supported to use ‘climate smart’ agricultural methods to grow soya for sale to off-takers

• Terms and conditions being part of the scheme tied to responsible behavior. Clients engaged in activities that contribute to deforestation or climate variability – i.e .charcoal burning & deforestation are notable to access the loan. Similarly those who do not comply to the Soya standards can have their ability to sell stock to the aggregator restricted.

• Aggregated soya produce sold to the off-takers by the Farmer Business Advisor (FBA). FBA receives commission from the off-taker.

• Partnership with company AC, based on Farmer Business Advisor model and methodology

• Farmer Business Advisor to provide extension services to farmer, remunerated through commissions – dependent on farmers performance, from

• Financial institutions on successful loan repayments

• Agro dealers from inputs are sourced

• Aggregators

• Opportunity to pilot carbon market / Payment for ecosystem service mitigation methodologies for soil and tree carbon sequestration benefits of ‘climate-smart’ agricultural production.

PwC

Climate-Smart Soya Production Soya Commercials: Assumptions

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Criteria Details

Soya (Conservation) Maize (Conventional) Maize (Conservation)

Price per tonne of produce – US $ US $540 US $200 US $200

Price per kg of produce - Kwacha 2,700 1,000 1,000

Average yield – Kg/ha 2,000 2,500 5,000

Area planted 1ha 1ha 1ha

Input costs Based on ZNFU enterprise budget

Labour cost 12,200 per man day

Transportation costs to collection depot –

Farmer

US $0.20 per km/tonne for 75km

Transportation costs to processing facility –

Off taker

US $0.20 per km/tonne for 360km

Weather based insurance premiums 8% of the crop value

Exchange rate K5,000/US $ - assumed a constant over the 5 years

Inflation Ignored

Taxation Ignored

PwC

Climate-Smart Soya Production Extension service support: leverage A2F Structure

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Key

Line of credit to financial institution Working capital disbursement to individual farmers

Payment for monitoring and CSA training to FBA’s Supply of inputs to individual farmers

Delivery of technical training, initial loan and input requests

Harvested crop

Provision of training and initial screening process Payment for harvested produce

Inputs supply information Repayment of loans to financial institutions

Payment for inputs Commission on input sale, sale of produce and financial institution

PwC

Climate-Smart Soya Production Adaptation Rational

• Soya produced through ‘climate smart’ systems such as the ‘double-up’ legume systems. This involves growing perennial pigeon pea along with annual legumes such as soya beans . After harvesting the legumes, farmers plant maize in or beside the rows of pigeon peas and then harvest both. Farmers can use different types of pigeon pea, depending on how much grain they need for food and leaves and stems for animal feed or manure. They can also change the timing and arrangement of planting to favour the maize or the legume. Nutrient- and protein-rich, pigeon peas can persist into the drier months, after maize stocks have been exhausted, and they can substantially improve families’ diets.

• Additional resilience benefits of the system include:

• Perennials are more resilient to harsh environmental conditions – as via long roots can access to more of the soil’s nutrients and water

• Use of agro forestry systems and cover crops can reducing soil erosion, transfer organic inputs to soil microorganisms, increasing levels of soil organic carbon, and increase water holding capacity of soils.

• Mitigation: carbon is sequestered in perennials and soils above the baseline levels.

• Higher yields due to nutrient replenishment in soils: a well managed 2 hectare plot can produced 200 bags of maize

• Increased resilience of communities to climate variability and climate change – via both the effective management of soil quality and the potential to realise additional benefits from carbon sequestration in trees and soils via carbon markets or payment for ecosystem service schemes

• Cash crops provide a revenue basis via which farmers can access new technologies, such as treddle pumps, drip irrigation or greenhouse technologies via the combination of the Soya and Access to Finance interventions.

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PwC

Climate-Smart Soya Production Small Holders Farmers: Cash Flow

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Summary cash flow per farmer - Soya1-Oct-13 1-Nov-13 1-Dec-13 1-Jan-14 1-Feb-14 1-Mar-14 1-Apr-14 30-May-14 1-Jun-14 1-Jul-14 1-Aug-14 1-Sep-14

ZMK October November December January February March April May June July August September Total

Revenue - - - - - - - 5,400,000 - - - - 5,400,000

Other income -

Total cash inflows - - - - - - - 5,400,000 - - - - 5,400,000

Seed - 672,000 - - - - - - - - - - 672,000

Fertilizer - - 356,000 - - - - - - - - - 356,000

Chemicals - 311,900 50,456 50,456 - - - - - - - - 412,813

Labour - 256,200 128,100 128,100 - - 341,600 - - - - - 854,000

Ploughing costs - 250,000 - - - - - - - - - - 250,000

Packaging materials - - - - - - - 80,000 - - - - 80,000

Transport - - - - - - - 150,000 - - - - 150,000

Insurance 432,000 432,000

Total cash outflows - 1,922,100 534,556 178,556 - - 341,600 230,000 - - - - 3,206,813

Net cash flows / funding requirements - (1,922,100) (534,556) (178,556) - - (341,600) 5,170,000 - - - - 2,193,188

Cash brought forward - - (1,922,100) (2,456,656) (2,635,213) (2,635,213) (2,635,213) (2,976,813) 2,193,188 2,193,188 2,193,188 2,193,188 -

Cash carried forward - (1,922,100) (2,456,656) (2,635,213) (2,635,213) (2,635,213) (2,976,813) 2,193,188 2,193,188 2,193,188 2,193,188 2,193,188 2,193,188

Internal Rate of Return 194%

Payback 7 months

Breakeven price - ZmK/kg 1,603.41

Breakeven yield - Tonnes/ha 1.19

Return on Intestment 68%

PwC

Climate-Smart Soya Production Challenges

• Provision of reliable and high quality technical training and assistance to smallholder farmers is essential. Organizing large numbers of smallholder farmers in remote rural areas to receive this training will be a key challenge for the project to overcome. Forming operational partnerships with NGOs already actively working with smallholders can help to overcome this

• Securing consistent supply of high quality seeds and farm inputs. This could be achieved through production of seeds by lead farmers using irrigated systems. This a model being promoted by Company AC with support from Company S.

• Formalising agreements with climate resilient equipment providers (i.e. greenhouses,drip irrigation system suppliers) to provide, train farmers on instillation of equipment, and provide reliable access to spare parts (i.e. irrigation piping) when needed. Potential partners include agribusinesses.

Formalised agreement with working capital and asset finance providers (see A2F intervention). Examples can be learnt from the smallholder asset financing arrangements being implemented by Company C.

• As in the short run much of the soya production itself (i.e not soya seed production) will occur on rainfed systems, there is still a significant risk of drought impacting yields. Opportunity to apply micro-insurance products being designed by Micro-ensure specifically for Soya in the identified pilot region. This will reduce risk to asset finance providers as well as farmers taking out any loans, and could enable lower rates of lending (to be explored in more detail in the A2F intervention).

• There is a risk that margins will be kept low if soya is sold as commodity (say livestock feed), one way to increase margins is to link soya to a value add product.

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PwC

Energy Efficient Cookstoves

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PwC

Energy Efficient Cookstoves Overview

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Sector (s) Energy

Support Required • IFC investment to scale up Programme B to install energy efficient cook stoves – particularly in any locations where the Programmatic Integrated Intervention will be

implemented













conditions


management

PwC


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1/8/2014

Energy Efficient Cookstoves Context

Target Market Segment: Community recipients of stoves Background

• In 2006 Government of Zambia set itself a target for 100% access to modern fuels by 2030

• 2012, 84% of all households rely on biomass (wood and charcoal) for cooking

• 2009 – 0.4% of population reliant on solid fuels used improved cooking stoves

• 3 Rocks project to install 50, 00 energy efficient cook stoves across Zambia, at no cost to

end-users.

• $40 installation, $5 according to location

• Early evidence suggests usage levels up to 90%

December 2012: 24,000 stoves installed and 16,000 on order

Potential to deliver large Greenhouse Gas emissions reductions. Approx 3 tonnes of CO2 per stove p/a

Not financially viable until CER prices rise closer to 4-5 euros a metric ton

Company AE

Company AG

Company AD


PwC

Energy Efficient Cook stoves

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Fixed Wood

Grate

Cast Iron Drip

Pan

Galvanized

Outer Body

Stainless Steel

Flat Front Face for

Durability and

Ease of Installation

Existing cooking method: Final Stove Design:

Bricked and

Cemented in for

permanence.

PwC

Energy Efficient Cookstoves Adaptation Rational

• The project has the potential deliver significant Greenhouse Gas (GHG) emissions reductions of approximately 3 tonnes of CO2 equivalent per stove per annum, resulting in an expected 660 thousand tonnes of Certified Emission Reductions (CERs) in total over the entire accreditation period Production of biomass by perennials means they are better at reducing soil erosion, transferring organic inputs to soil microorganisms and increasing the amount of carbon stored in the soil. (early evidence suggest 90% usage)

• Reduce market for charcoal and associated deforestation

• Reduction of excessive environmental degradation and emissions

• Reduce the negative - health effects of indoor smoke released by burning solid fuels included 8,700 deaths from pneumonia, COPD and lung cancer in Zambia.

• Other health-related impacts associated with biomass cooking include: burns and scalds from open fires or semi-open stoves; risk of injury and violence (primarily to women) while collecting wood; and missed time from school for older children involved in fuel collection.

• Reduction in time spent collecting solid fuel which also imposes opportunity costs that constrain socio-economic development generally

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PwC

Energy Efficient Cookstoves Current status & challenges

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Stoves Ordered

Stoves installed

Stoves Installed per week

% of households regularly using the installed stove

As of 1/11/2012 > 38,000 24,000 1,000 85% - 90%

Appears to be successful and proven project with an established distribution network such as Company AE should offer itself for further investment to build it to scale.

• In order for this intervention to break even, carbon needs to be priced at around $7 a metric ton

However, significant challenges related to the carbon market remain:

• End of October 2012 CERs for December settlement had dropped 46 percent in the month to 1.17 euros ($1.52) a metric ton.

• CER prices had even fallen to an all-time low of 71 euro cents a ton on October 25th

• projects in developing nations requested near-record levels of new offsets and demand in Europe remains muted by low levels of economic production.

• In the current climate it is therefore unlikely that this project will have the potential for the IFC to derive a satisfactory return on their investment.

• As vulnerable rural Zambian communities will not have sufficient disposable income to cover the costs of the stove, this intervention is dependent on the carbon market – which is currently does not make this a viable option.

PwC

Tourism and wildlife land use

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PwC

Tourism and wildlife based land use Overview

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Sector (s) Natural Capital

Support Required • IFC Advisory services to address regulatory and institutional frame work challenges

• Facilitate anchor investment in tourism and wildlife based land use













conditions


management

PwC


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1/8/2014

Wildlife based land use Context

Target Market Segment: Private investors & rural communities - Private/Community joint ventures

Background

• Approximately 60% of Zambia’s population live in Rural areas

• Agriculture accounts for 91% of usually working population in rural areas

• Agriculture vulnerable to climate change

• National Parks and Game Management Areas face severe challenges maintaining game stock and

biodiversity

• ZAWA underfunded, and low in resource resulting in communities not realising full benefits

from natural resources

Potential to develop a Namibia scale game industry (see below)

Namibia: 16 – 26 million kgs game produced annually on private ranches. 315,000 kg on conservancies

Consumptive Tourism can provide the economic driver to restock game and increase biodiversity

Provides opportunity for rural communities to develop community/private business partnerships

Stakeholder E

Company AK

Stakeholder C


PwC

Wildlife based land use Potential Anchor Investment

Community/Private Partnerships

• Conservancy / Community Trust model of game ranching

• Community empowered to choose their own private sector partners

• Investment of land (customary tenure ) from the community

• Community realise revenue from the partnership

• Conservancies to run as commercial entities

• Organisations such as TNC and Grassroots trust facilitate community interactions and capacity building activities within communities to negotiate, evaluate tenders and work effectively with private sector investors

Company AK

• Have worked in Kasempe Lunga Luwishi GMA (beside Kafue National Park)

• Proposing themselves to be selected by the community to run a hunting bloc (4000 sq m). Looking to move towards non-consumptive tourism

• Business investment and returns framework to be negotiated in partnership with community

• Proposes that the remainder of the GMA is split into 1o game ranching blocks – all structured to generate income for communities and restock game

• Potential benefits – upgrade the value of Kafue National Park and reduction of poverty

Company AN

Currently negotiating with Traditional Leadership and respective communities

• Community to own 50% shareholding through registered Community Trust

• Consumptive and non-consumptive tourism

• Intended to provide a platform for education, and to integrate into agricultural (conservation farming) initiatives


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1/8/2014

PwC


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1/8/2014

Tourism Context

Target Market Segment: Background

• Approximately 60% of Zambia’s population live in Rural areas

• Agriculture accounts for 91% of usually working population in rural areas

• Agriculture vulnerable to climate change

• National Parks and Game Management Areas face severe challenges maintaining game stock and

biodiversity

• ZAWA underfunded, and low in resource resulting in communities not realising full benefits

from natural resources

Investment climate for tourism is a barrier to investment

Marketing of Zambia – to attract larger tourism volumes required

Infrastructure (roads, services) required to support tourism industry

Potential for Zambia to be the jewel of Africa

Company AJ


Private investors & rural communities

PwC

Tourism and wildlife based land use – investment facilitation: Key Features

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• Target client: Private Sector Investors (no investors prepared to invest in KNP currently identified)

ZAWA & Kafue National Park Investors

• Investment Generation – Advisory Service to provide ‘investment facilitation services’

• Stakeholder engagement and structuring of investment to incorporate climate resilience benefits as part of the investment design (commitment to community capacity building, empowered to realise benefits of land use)

• Marketing

• Managing potential investors

• Regulatory & Policy changes

• Regulatory changes to be considered

• Tourism concession leases to be no less than 30 years, with option to extend for 20 years with minimal leases

• Depleted GMA’s to be concessioned out for a period no less than 99 years

• Depleted GMA’s to be re-designated to allow for game ranching

• Wildlife user rights devolved to communities

• Support the inception of a Tourism Authority (50 % private sector, 50% public sector –with an independent chair) to drive national Tourism strategy. Introduce tourism levy that can be re-invested into Zambian marketing and skills development

PwC

Tourism and wildlife based land use – investment facilitation: Key Features

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Proposed Anchor investments

• Commercial eco –lodge at the Lake Itezhi-Tezhi site identified in the KNP Business Plan-

• Training school for the community – to build appropriate capacity within the communities to be able to take advantage of spin off tourism potential

• Capacity building component

• Demonstration of successful investment in Tourism in KNP

• Private Sector interest : horse riding safaris

• Depleted GMA’s re designated to allow for game ranching or Open Areas close to GMA’s

• Wildlife user rights devolved to communities

• High demand for bush meat as prestige product in urban areas (Lusaka, Copperbelt, Livingstone) – ability for private sector to respond to market demand

• Communities able to lease land to private investor for game ranching and hunting and benefit as shareholders – but needs to be clear community mandate and management plan

• Zawa to take regulatory role – would need central funding

• Private Sector interest: wildlife producers associations

PwC

Tourism and wildlife based land use – IFC methodology :Investment Generation Approach (IGA)

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Scoping and Diagnostics Phase 1

Opportunity Creation Phase 2

Outreach Phase 3

Procurement Phase 4

Investment Phase 5

Post-Investment Phase 6

Stakeholder Dialogue

Investor Mobilization

Investment Climate

Improvement

PwC

Tourism and wildlife based land use – investment facilitation: Adaptation Rational

• National parks provide vital ‘Eco services ‘ to the nation, and need to be protected and well managed in order to protect these natural assets in the long run

• Tourism providing alternative and additional livelihoods for the rural poor

• Tourism providing a positive economic catalyst into the locality – generating additional business opportunities for local communities (for example, spin off tourism activities and suppliers)

• Well managed wildlife based land use, providing positive land usage and demonstration of good wildlife management

• Wildlife is more resilient to climate variability than livestock

• Positive land use – which is also commercially more lucrative for communities, in particular if the communities have a real stake in the wildlife based land use

• Reduced vulnerability to the negative impacts of climate change, due to diversified livelihoods.

• Ability for communities to be able to generate more revenue than currently from tourism and wildlife based land use

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PwC

Tourism and wildlife based land use – investment facilitation : Challenges

Tourism

• Challenge proposing tourism investment under the PPCR programme

• Institutional frame work is not conducive to investment – business is difficult to set up and the investment climate is uncertain

• wilderness safaris associations are pulling out

• horse riding safaris – lost $6 million investment

• None of the larger hotels interviewed would consider KNP as an investment destination at the moment

• Low market demand for Zambia tourism (short stop destination )

• Short leases - average 10 years, cause uncertainty

• Infrastructure issues

• High cost of domestic travel - roads are not sufficient and petrol stations/rest stops not available

• Air travel expensive and has only 6 months to make a profit

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PwC

Tourism and wildlife based land use – investment facilitation : Challenges

Wild life based land use

• ZAWA currently incentivised to maximise income from hunting – revenue split to communities slow and limited the percentage splits (community incentivised to poach)

• ZAWA needs central funding to enable them to move to regulatory rather than operational role.

• Proposed project partially adheres to the PPCR results framework – challenge as to whether this intervention is a climate change adaptation project

• Depleted GMA would be concessioned out as a hunting block – as hunting is the economic engine to restock and manage game. Challenge justifying trophy hunting under PPCR funds

• State ownership of game restricts commercial potential – licence cost are in effect high taxes

• High urban demand for illegal bush meat driving poaching industry

• Over settlement into GMA’s

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PwC

Agro Processing

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PwC

Agro Processing Overview

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Sector (s) Agriculture

Support Required Investment into private sector enabling small holder farmers access the agricultural value chain (Company O, Company R)













conditions


management

PwC


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1/8/2014

Agro Processing Key Features

Target Market Segment: Urban markets, Regional and International markets

Description


population


• Growing demand in urban areas for horticultural produce

• Company N has grown 300% and Company O’s challenge is finding quality produce not the

market

Opportunity to export Zambian goods internationally –

marketing and accreditation needed

Large regional demand for products such as cassava

Zambia Diaspora providing international market for village chicken, soups and related products

Company N

Company O


PwC

Agro Processing Key Features (model assumes Comaco/It’s Wild as partner)

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• Target client: Agro Processing – private sector (Company N and Company O– but these do not provide extension services)

• Company N (Private arm of Company R) provides access to markets to farmers – responsible for taking inventory into supply chain

• Communities in vulnerable areas targeted to work with and terms and conditions agreed with and by-laws set up for compliance

• Specifically defined community has to agree to comply to by laws, annual compliance check with key stakeholders including ZAWA

• Market Incentives used to drive effective land use planning

• Compliance results in premium prices

• Lack of compliance results in a drop in prices

• Community Service Centres – providing extension services and acting as trading centres, typically funded by grants – opportunity to investigate whether these services can be commercialised/or incentivised.

• Potential opportunity to partner Community Service Centres with additional private sector businesses such as Company O

PwC

Agro Processing Adaptation Rational

• Access to markets for rural smallholder farmers

• Compliance to conservation farming techniques, anti-poaching and anti – charcoal programmes. Designed to address and mitigate poaching, deforestation and drive the adoption of conservation farming.

• Use of market forces to drive people’s behavior and incentivize positive behaviours

• Use of agro forestry systems and cover crops can reducing soil erosion, transfer organic inputs to soil microorganisms, increasing levels of soil organic carbon, and increase water holding capacity of soils.

• Mitigation: carbon is sequestered in perennials and soils above the baseline levels and opportunity for company to realise revenue via the carbon markets.

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PwC

Agro Processing Challenges

• Comaco do not plan to move any operations into the Kafue National Park area until 2014

• Resource and scalability issues – would like to investigate potential partnership between Sylva Foods and Comaco

• Successful Agro Processing intervention may lead to further GMA encroachment as people move into the areas towards economic activity

• Agro processing plans currently are in the Eastern province – difficult to move produce there, a centralised location (say Lusaka) would need to be considered

• Communities engaged need to buy into the concept and be prepared to comply

• Extension Services staff need to be extremely high calibre

• Risk that if goods are linked to corporations who are less concerned about compliance and more concerned about produce – they may undermine the underlying principles

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PwC

REDD +

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PwC

REDD+ Overview

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Sector (s) Natural Capital/Agriculture/Finance/Water(technologies)

Support Required













conditions


management

PwC


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1/8/2014

REDD+ Context

Commercial opportunity: Carbon market opportunities, supported by climate smart

agriculture interventions

Description

• Zambia’s national deforestation rate approx 1.5% per annum and set to accelerate

• Deforestation exacerbates biophysical and socio-economic vulnerability

• REDD+ - addresses deforestation plus additional activities which can enhance sequestration of carbon in forest stocks and landscapes

REDD+ intervention could bring the following benefits:

Reduction in crop area affected by floods and

droughts in similar intensity events

Increased private sector investment in climate-resilient activities

Vulnerable Social Groups effectively participate in climate resilient activities

Diversified agriculture introduced in pilot site

Company V

Company AI

Company AV


•Increased private sector investment in climate-resilient activities in the two sub-basins •Increased private sector investment in climate-resilient activities in the two sub-basins •Increased private sector investment in climate-resilient activities in the two sub-basins •Increased private sector investment in climate-resilient activities in the two sub-basins

PwC

REDD + Key Features

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The project will address the issues identified above through the implementation of the following REDD+ interventions:

• Degraded forest areas will be replanted with a suitable mixture of indigenous tree species. This will result in the regeneration of the forest and improve the richness of species found in the forests. This process will be implemented and managed by employees sourced from the local communities.

• Agro-forestry and sustainable agriculture techniques will be transferred to local communities who will be assisted with the implementation of these techniques. Markets will be developed to provide sustainable revenue for the produce from these projects

• The harvesting of timber for charcoal will be managed and controlled to ensure that this is done in a sustainable manner. This will ensure that the income derived from charcoal is maintained while the impact on the protected areas is reduced.

• The project will implement plans and procedures to reduce both the frequency and impact of fires in the protected areas. The development of these plans and procedures will be done in conjunction with the local communities who will be employed to implement and maintain them.

T

PwC

REDD + Key Features

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The project will address the issues identified above through the implementation of the following REDD+ interventions:

• Development of plans to better manage the retention and storage of water in the rainy season. This will allow for better utilisation of scarce water resources in the dry season, thereby reducing pressure on the forest for fodder.

• The project developer will develop plans to ensure the sustainable harvesting of non-timber forestry products (NTFP) – such as honey – to the benefit of the local community

• Local communities will be supported in the development of ecotourism products. Markets for the sale of these products will be improved due to the increased levels of ecotourism and the plans will be developed after consultation with private tour operators.

• Other community projects related to infrastructure, job creation, alternative livelihoods, renewable energy, health and education will be implemented with a focus on understanding climate change and readying the community to cope and manage with the impacts of climate change

T

PwC

Company V REDD + model Key Features


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1/8/2014

PwC

REDD + Adaptation Rational

• The project will lead to the rehabilitation of the biodiversity of a vast natural area and the generation of value from its wild fauna and flora resources, the generation of carbon revenue and the harvesting of sustainable non-timber forestry products.

• This will further lead to improved levels of carbon sequestration and carbon stocks, improved soil fertility and maintenance, water retention, watershed protection and hydrological regulation.

• The project area is strategic for biodiversity conservation, being habitat for a wide range of animals within Zambia. These include all of the large charismatic mammal species (except for rhino which has already been hunted to local extinction). Carnivores, including lion, leopard, cheetah, wild dog and hyena, still survive within the project area, albeit it in very limited numbers due to high levels of poaching and widespread snaring as these animals have absolutely no value to the local population at present.

• The project area also comprises habitat for rare antelope species, such as the sable and roan antelope, but undoubtedly its most critical and unique value is that it covers one of Africa’s oldest and most important elephant migration corridors between the Chobe region of Northern Botswana and the Kafue region of Zambia.

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PwC

REDD + Adaptation Rational

• The project area is also home to some rare endemic avian species, such as the black-cheeked lovebird.

• Comprehensive monitoring of key indicator species and of ecosystem structure and function will be established from the outset of the project.

• The Sisheke District lies at the heart of the severely depleted and overexploited teak heartland of Southern Africa.

• Non-timber plant species will be encouraged at the outset and during the early years to allow development of NTFPs for local and export markets. These species are also selected for the additional ecosystem service functions that they provide, including, for instance, suppression of lower storey weeds (which reduces competition with planted tree species), improvement in fire management (through suppression/ physical breaks), and biodiversity enhancement

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PwC

REDD + Challenges

What would prevent this intervention from working

(See critical success factors and technical & market risks section above)

Does this intervention provide any challenge to the World Bank or PPCR frameworks?

REDD+ is primarily recognised as mitigation mechanism (although with significant adaptation co-benefits)

Zambia has not been identified as a participant country in any of the WB mitigation funds through the CIFs. As such there may be challenge raised as to why a carbon market linked REDD+ project opportunity is being promoted through the PPCR, which is primarily to support adaptation interventions.

The key WB fund for the support of REDD+ is the Forest Carbon Partnership Facility (FCPF). Zambia is not a participant in this programme. (although Zambia is a member of the UN-REDD programme).

Another challenge will be to see how a project level activity will fit within the development of the national REDD+ strategy.

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PwC

REDD + Challenges

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What mitigation to the challenges would IFC need to consider if they were to progress with this intervention

The IFC may want to consider development of complimentary payment for performance approaches to reward the mitigation benefits of ‘climate-smart’ agricultural interventions. CSA is recognised as primarily an food security / adaptation mechanism, with mitigation co-benefits.

Successfully supporting CSA interventions in deforestation hotspots could provide a means for climate resilient and sustainable intensification of agricultural lands, reducing pressure on forest resources from ‘slash and burn’ or swidden agricultural practices.

Innovation in this space could contribute to the development of holistic ‘ landscape’ approaches to land management to maximise food security, adaptation and mitigation benefits. In this way, IFC support could indirectly support REDD+ project and national programme objectives without direct finance.

PwC

Integrated intervention

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PwC

Integrated Intervention Overview

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Sector (s) Natural Capital/Agriculture/Finance/Water(technologies)

Support Required To support programmatically the start up and management of the integrated interventions.

To be used as a catalyst for further climate change adaptation innovation













conditions


management

PwC

Integrated Intervention Key Features

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• Pilot site to be located in the Greater Kafue National Park Area

• Depleted GMA’s - location of pilot sites

• Access to Finance, Soya Intervention, Agro processing – Bilili Springs

• Wildlife based land use - Namwala (?) – need to ensure it is not oversettled

• Tourism – anchor investment - Lake Itezhi Tezhi

• Phased approach

• Managed by a single Programme Management Office (grant funded)

• Direct IFC Funding recipient

• Access to funding – loan

• Agro processing - grant

• Indirect IFC benefits or advisory beneficiary

- Soya, Tourism, Wildlife based land use

PwC

Integrated Intervention Adaptation Rational

• Interventions that address the multiple causes of deforestation and poaching

• To serve as a catalyst to change in behaviours of communities – incentivised by the market

• Rejuvenation of depleted GMA’s

• Soil quality

• Agricultural yields

• Game management

• Natural resource management – forests, vegetation cover

• Enhanced ability for communities to benefit from diversified livelihoods

• Ability for communities to benefit enhanced wildlife user rights – and realise more significant revenues

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PricewaterhouseCoopers

Roadmap

1

Q. Operation

and

Continuous

Improvement

I. Business Case II. Mobilisation III. Delivery / Implementation IV. Ongoing

REDD+ Landscape project. Methodology to underpin the delivery of intervention in an integrated approach.

Engage private sector

partners, communities

and key stakeholders -

confirm Project Vision

Investment due diligence

Confirm and secure

site locations,

secure stakeholder

buy in.

Barriers to

investment &

Regulatory change

Proposals

Work with GRZ to reform

institutional frame work

Implement private sector interventions

Confirm which investment

barriers can be tackled

Design investment promotion

strategy

Preliminary marketing of

tourism & game interventions

Produce marketing materials

and location booklets

Design

Investment

Climate Reforms

Promote and

Procure

tourism/game

investments

Initiate PPCR private sector interventions in pilot site

• Project initiation to confirm private sector

appetite for investments

• Complete due diligence on investment of

interest

• Initiate Tourism/Wildlife based land use

investment facilitation programme for

Zambia

• Agree carbon accounting methodology

• Initiate agricultural financing intervention –

facilitated by PPCR concessional funding

• Engage identified communities

• Agree delineated land uses

• Review level of current deforestation

• Develop activity based landscape level

accounting methodology

• Confirm which investment barriers can be

removed

• Agree how to mitigate remaining barriers

• Identify community led market

opportuntiies

• Market business opportunities

• Design and deliver database for data

collection

• Track ability of interventions to deliver

compliance

• Community revenues – track progress

• Capacity building programme for

communities

• Monitor climate change adaption impact

Formal Approval Points

Ongoing Activities

Jan 2013 Jul 2013 Jan 2014 Jul 2014

Initiate community focused engagement

Identify and engage with community identified private sector

interventions

PwC

Integrated Intervention Challenge

• Complex Programme, which is high risk

• Communities need to be engaged as primary partners, and trust needs to be built

• Enhanced ability for communities to benefit from diversified livelihoods, however timescales in which benefits can be realised need to be clearly communicated

• Intervention not purely private sector/commercial. Hybrid approach of loan and grant money – sustainability of this approach needs review

• Climate change adaptation benefits can be demonstrated, however private sector engagement with climate resilience does not always produce traditional/orthodox climate change adaption projects.

• The link between climate resilience and private sector relies on multiple dependencies, model/methodology by which private sector can be engaged into this sector still under debate on a global level

• Partnerships need to include companies that qualify from citizen economic empowerment – and capacity of local business to engage with these opportunities need to be developed

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This publication has been prepared for general guidance on matters of interest only, and does

not constitute professional advice. You should not act upon the information contained in this

publication without obtaining specific professional advice. No representation or warranty

(express or implied) is given as to the accuracy or completeness of the information contained

in this publication, and, to the extent permitted by law, PwC Zambia its members, employees

and agents do not accept or assume any liability, responsibility or duty of care for any

consequences of you or anyone else acting, or refraining to act, in reliance on the information

contained in this publication or for any decision based on it.

© 2012 PwC Zambia All rights reserved. In this document, “PwC” refers to PwC Zambia which

is a member firm of PricewaterhouseCoopers International Limited, each member firm of which

is a separate legal entity.

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