Caleb M Fundanga: Growing investor confidence in Zambia's economy
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the
Afreximbank/PTA Bank Financing Agreements Signing Ceremony, Lusaka, 10 June 2008.
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• The President of AFREXIM Bank
• The President of PTA Bank
• Chief Executives and representatives of Financial Institutions Present
• Distinguished ladies and gentlemen
I am greatly honoured to be given an opportunity to make these brief remarks at this signing
ceremony of two important financing agreements. I wish to extend a warm welcome to all of
you gathered here today, particularly those who have travelled from outside the country. I
hope that you will not only have a pleasant ceremony today but also have fruitful
deliberations at the Euromoney Conferences starting tomorrow at this same venue. I also
hope you will find time to explore the beautiful scenery and experience the warm hospitality
that Zambia has to offer.
Mr President, Ladies and Gentlemen, over the recent past, the Zambian economy has
performed relatively well. This is reflected in the overall macroeconomic stability which has
been underpinned by positive growth rates in real Gross Domestic Product, low inflation,
relative stability in the exchange rate of the Kwacha against major currencies, stable financial
sector and improved banking services. However, although incomes have generally
increased, the challenge that still remains is that of meeting the basic needs of the majority of
Zambians in order to uplift their living standards. This ceremony is therefore more than timely
as the Government is working tirelessly towards empowering its citizens economically and at
the same time increasingly diversifying the economy and promoting export led growth. It is
for this reason, Mr President that the Government established the Citizen's Economic
Empowerment Fund under the Citizens Economic Empowerment Act of 2006 in order to
promote empowerment of citizens in various economic activities.
This signing ceremony is yet another indication of the growing investor confidence in
Zambia's economy. You will be glad to note that the country's total investment pledges rose
more than ten times over to US $1.9 billion in 2007 from US $115.6 million recorded in the
year 2001. This is an indication of the vast investment potential and improving investor
confidence due to the macroeconomic stability particularly lower inflation and the sound fiscal
polices that the Government has put in place. Institutional capacity has also been enhanced
with effective supervision of the financial system to promote efficient operations of the
banking sector.
Mr President, the mining sector continues to be the major economic activity in the country.
Following the liberalisation of the sector and subsequent privatisation of the mines,
Government has continued to facilitate mineral exploration by the private sector and created
an attractive investment environment through the maintenance of macroeconomic stability.
This has sustained renewed interest in mining, reflected in a complete rebound in the mining
sector on the Copperbelt and North Western province start up of new mines. New projects
such as the Konkola Deep Mine, Lumwana Mine and Nickel Mining in the Southern Province
have come on board in addition to other mining initiatives going on in most provinces of the
country. Another key development in the sector has been the revival of zinc production,
once, one of Zambia's metal exports in the 1970s. Sable Zinc of Kabwe (owned by Metorex)
has commenced processing the mining dumps in Kabwe.
Ladies and Gentlemen, although investment in the mining sector requires massive capital by
large conglomerates, the majority of our citizens are increasingly involved in the sector
through the supply of goods and services to support the mines. However, the main challenge
to the growth of this sector has been the availability of finance. Most companies struggle to
find finances to meet their contract obligations. The need for financing is immense especially
as the mining sector is growing year on year and will need to acquire new equipment and
spare parts as the mining companies invest heavily in the development of new mines.
It is gratifying to know that the USD 50 million facility in favour of the Zambian Mining
Services Companies being signed today, is expected to assist major players in the supplies
and services sub-sector of the mining industry to execute contracts with mining companies. I
am also reliably informed that the facility will allow eligible companies access financing by
assigning receivables for execution of contracts such as extraction and transportation of
waste materials, transportation of copper ore from the pits to the smelting plants and contract
mining. I have no doubt that the facility will go a long way in supporting Zambian companies
grow and actively participate in the economic development of the country. The Fund will not
only augment the supply of goods and services to the mining sector but also introduce
important institutions that are critically needed to ensure that the supply system in the sector
is efficient and sustainable in the long run.
The USD 80 million in favour of the Export Fund of Zambia has come at a time when the
Government is increasingly promoting the diversification of the economy through export led
growth. Strengthening of the external sector performance has continued as evidenced by an
improved balance of payments position. This has been on account of higher foreign
exchange inflows emanating from increased metal and non-traditional exports earnings
coupled with investor confidence in the Zambian economy. The nontraditional exports have
continued to record unprecedented growth over the past couple of years. For instance, NTEs
rose by 63.4% to US $924.4 million in 2007 from US $564.7 million in 2005 with
commodities, such as, sugar, copper wire and tobacco, coupled with receipts from tourism
making notable contributions.
The growth of this sector is expected to be further bolstered by the establishment of the
Multi-Facility Economic Zones in Lusaka and Chambishi to further diversify the economy and
promote trade, stimulate export activities, technology, skills transfer and job creation. In
pursuing an export-led growth strategy, the economic zones would actively promote value
addition in identified specific products, such as, copper, vegetables, tobacco, gemstones,
cotton yarn, leather products, sugar and oil cakes, of which the country has a competitive
advantage. For instance, there has been a large increase in tobacco production, which has
led to increased export earnings. Unfortunately, much of the tobacco is exported in a raw
form with very little treatment or processing in the country. Significant investments in plant
and machinery for value-addition will therefore be needed to offset this scenario. Thus, with
expected large investments in Economic Zones and Export Fund facilities like the one we are
witnessing today, Zambia's competitiveness through value addition is expected to improve.
Mr President let me also commend all the institutions involved in the two syndicated loans. It
is gratifying to note that these facilities have been made possible due to the partnerships
between the local financial institutions and international ones. I commend such partnerships
and challenge other local institutions to enter into similar arrangements to reduce the cost of
borrowing and promote growth in Zambia. Congratulations should be extended to the Zambia
National Commercial Bank, ALS Capital and Calag Capital, AFREXIM, PTA Bank and Loita
Capital to name but a few for the initiative.
The Bank of Zambia has continued to encourage local banks and other financial institutions
to partner with international financial institutions and other banks in Africa, Europe and Asia.
In this regard, in December 2007, the Bank organised a forum to exchange information on
sources of finance in Lusaka. The forum was well attended and the international institutions
showcased their products to their local counterparts. I am happy to note that institutions
present here today such as Zambia National Commercial Bank, AFREXIM Bank, PTA Bank,
ALS Capital and Loita Capital were all represented at the forum. I imagine that such fora are
instrumental in structuring tangible financing agreements like the ones we are witnessing
today.
Finally, I would, like to request all parties involved in the management of these facilities to
ensure that the funds reach the intended beneficiaries and that controls are put in place to
avoid abuse. The beneficiaries should also ensure that their projects are implemented
effectively and expeditiously without any delay. In this regard, may I request the Zambian
Mining Services Companies and the Export Fund of Zambia to take necessary measures in a
timely manner to fulfill the requirements for declaring these loans effective and for starting
implementation.
I would like to wish all those involved success in their management of the funds and
implementation of the projects so that we can ensure that the development impacts expected
from these important initiatives become a reality for the intended beneficiaries and the
country at large.
I thank you for your attention.