Catalysing Climate-Compatible Growth: Harnessing Zambia’s Constituency Development Fund
Constituency Development Funds (CDFs) are often overlooked as effective drivers of growth. While Zambia first introduced its CDF almost 20 years ago, the current government made a significant investment into this fiscal decentralisation tool in 2021 – increasing the allocation of funding to each of the country’s 156 constituencies 16-fold and unlocking about US$1.3 million for each constituency to spend on local development. In doubling down on its CDF, the government hopes to bridge the gap between central governance and local needs by allocating funding directly to communities. By enabling grassroots participation in development decisions, Zambia’s reinvigorated CDF further aligns with the country's commitment to decentralised development and its aspirations for climate-compatible growth.
To better understand the critical role that CDFs can play in driving climate-compatible growth in Zambia and across Africa more broadly, Invest Africa spoke to George Carew-Jones, Research Associate in Sustainable Investment at the Smith School of Enterprise and the Environment at the University of Oxford. Earlier this year, the Smith School published a report that explores the critical role that CDFs can play in mobilising private finance into community development projects – highlighting the unique aspects of Zambia’s CDF model that could be replicated by other countries and underscoring the need for effective governance, community engagement, and monitoring and evaluation processes. The following interview unpacks the Smith School report and the true potential of CDFs to drive climate-compatible growth in Zambia and beyond.
From your standpoint, what factors make investing in Zambia worthwhile? To what extent is the current investment landscape aligned with the country’s climate goals?
Zambia is at a very unique juncture. While the country has yet to reach a debt restructuring solution with its creditors and the IMF, the “New Dawn” government since 2021 has been resolutely laying the groundwork for an improved investor landscape through a variety of strategies and actions. Most relevant to climate-compatible investment is the publication of the NDC Implementation Framework in May 2023, which sets a target of mobilising US$17.2 billion for green growth in Zambia between 2023-2030. With Zambia’s 2022-2023 fiscal expenditure totalling only US$8.7 billion, there is a clear expectation from the government that external investors will play a significant role.
As part of the strategy, the government has committed to establishing a ministerial public-private partnership committee to develop a project pipeline for green investment, and to take steps to facilitate the issuance of green bonds by the end of 2023. Alongside a strengthening governing environment, additional factors in favour of investing in Zambia include the robustly developing local private sector, the willingness of the government to support bespoke project initiatives, the supply of climate-critical metals and rare earths, as well as the underlying democratic stability and demographic growth trend (the population is projected to nearly double by 2050). When we attended Invest Africa’s Zambia Investor Forum in May 2023, the President made it clear that he expected the core growth sectors to be in energy, mining, agriculture, infrastructure, tourism and research and development. Each of these sectors has significant relevance to climate challenge, so it will be interesting to keep track of the extent to which the government is able to mobilise green investment into these sectors in a way that meets the goals of the NDC Implementation Framework.
Of course, fiscal stability will remain a significant driver of investment decisions, but with this set to ease under a more fiscally prudent new administration, Zambia remains an under-recognised opportunity for investment in an emerging market that is not affected by many of the typical shocks of political unrest that beset some of its neighbours.
What is the role of CDFs in a country’s broader investment landscape. To what extent are they well placed to drive climate-compatible growth?
Constituency Development Funds are fiscal decentralisation schemes that involve communities being allocated set portions of finance by central governments, with the funding being used to support community-selected development projects. They are a relatively niche form of devolution, with only 15 countries having experimented with CDFs of different forms in the past. They have mostly been deployed by emerging democracies using public funding, with the aim being to devolve development power away from traditionally very centralised regimes and to further tie the wealth of dispersed rural communities with that of large cities. To date, no CDFs have involved blending of public and private finance – so whilst they are an important part of the public investment landscape in countries like Kenya, which has perhaps the most advanced CDF in Africa, there has historically been limited opportunity for private finance actors to invest in community development through this route.
Where Zambia is different is in the current regime’s interest in growing the CDF through attracting external private finance. The proliferation of alternative forms of development finance in recent decades has created an opportunity – whether that’s philanthropic funds, impact-focussed investment or green investment – and this is an opportunity in which the government is extremely interested. CDFs provide a strong collection of decentralised project options for private investors through a single platform. This addresses the dilemma often facing investors who are interested in driving decentralised impact – how can they support the meeting of community needs and ensure finance is received by those who most need it, without being stymied by high transaction costs relative to transaction value? The report that we released in June flagged the idea that Zambia’s CDF is a model that meets both the government’s desire for private investment in climate-compatible growth and investor desires for models that allow the deployment of impact finance for decentralised sustainable development – and we are pleased to see recent statements from President Hichilema publicising the idea that the CDF can be a crucial model for mobilising investment into Zambia.
Regarding the climate-compatibility aspect of CDFs specifically, the uniqueness of CDFs here are that they are driven by community needs – so a community that sees it is repeatedly suffering from climate change-driven drought and flood cycles can invest in water reticulation, or an off grid community can decide to invest in renewable solar and micro grid installations. Community development choices will not automatically always be climate compatible, though, which is why there is a role for local governments to educate communities on climate-compatible options, to ensure development projects meet regulatory requirements, and undertake the overarching work to identify development gaps. Our report goes into more detail on how this can be achieved in a Zambian context, and these learnings are applicable to CDF schemes in other countries too.
Could you discuss the key reforms made to Zambia’s CDF in recent years. How is the reformed CDF better placed to mobilise external funding to local communities?
Zambia’s CDF was first implemented in 1995 and since then a slow set of reforms have seen the community-representation structure of the CDF develop and the policy enshrined in Zambia’s constitution. The step change in the CDF came in 2021 when the ‘New Dawn’ government of President Hichilema was elected. The new government increased the allocation of funding to each of Zambia’s 156 constituencies 16-fold, meaning that each constituency had around US$1.3m to spend on local development. Where the CDF had previously created a strong basis for political decentralisation, this was the first time that significant fiscal power had been allocated for community-determined spending. With the government making repeated public statements that the CDF would bring economic empowerment to communities, public support of the policy has also been high. Consequently, there is strong bipartisan political support for the agenda and also a strong public narrative on the CDF’s reform. When we undertook fieldwork for our report in Zambia in March 2023, we found that the CDF was an almost daily discussion point on talk radio shows, in the news and amongst citizens through CDF-specific WhatsApp groups.
Alongside the increase in public funding, there have also been a set of governance reforms, with new ‘CDF Guidelines’ being released in 2021. These guidelines outline rules on everything from community-representation and project technical appraisal to funding disbursal and project monitoring. In short, the reformed CDF is more fit to mobilise external funding into communities because these rules contain more advanced governance and fewer loopholes than previous guidelines. Three of the reforms that we think are most important are:
The expansion of CDF Committees – these ‘CDFCs’ choose which of the community projects identified at ward-level will be funded under the CDF, and both the composition of the CDFC and its oversight of the community and project progress was improved in the new guidelines;
Role of the Local Authorities – Zambia has a system of planning in which each Local Authority is mandated to create ‘Integrated Development Plans’ which cover the major development gaps in each of Zambia’s districts. The CDF guidelines link these IDPs to the CDF, ensuring in theory that locally selected needs match those identified in top down studies; and
Devolution of project approvals – past iterations of the CDF have maintained central Ministry control over project approvals. Since 2021 these approvals have been devolved to the Province, and now partially to the Local Authority level, making the process much quicker.
In your view, what are the core challenges impeding Zambia’s CDF from greater success?
The main challenge that Zambia’s CDF faces at the moment is implementation – whilst the guidelines in place present a clear process flow from project identification to implementation, there are a number of on-the-ground barriers that slow the rate of local development. One solution that our report focusses on specifically is Loval Authority capacity building. Local Authorities sit at the confluence of the community and central government priorities, and the majority of CDF improvements can be implemented through them. The recently announced US$220m World Bank Zambia Devolution Support Programme should aid with this.
There is also a risk within decentralised schemes like the CDF that the same mistakes are made in different places and that economies of scale are not achieved across the scheme. A recommendation that we focus on is the need to scale up the implementation of project monitoring and evaluation (M&E) as a key priority. M&E not only allows the whole scheme to be implemented more effectively year on year, but it also supplies the data that is crucial for investment decisions. External investors cannot easily provide funding where project-level data and data on scheme impact is not available, and so our work for the rest of the year will be focussed on how M&E processes can be improved under the CDF and how impact cases can be built. Ultimately, we think demonstrations of impact will be crucial for achieving the blending of private funding into Zambia’s CDF.
If you are interested in anything I have talked about here or think you would be interested in learning more about this opportunity then I would encourage you to get in contact!