As you know, the crisis have arguably provided provocative questions regarding the management of financial markets, to which answers are now being actively sought. Ladies and Gentlemen, financial markets provide the liquidity necessary to facilitate transactions in assets. By pooling resources from a myriad of savers, financial markets play a critical role in directing resources to profitable investment projects. The ability of financial markets to effectively contribute to economic development depends on the availability of affordable capital and its efficient allocation in the economy. For this reason, affordability of capital is an important input in any economy’s progress. But the relevant question then is “How Can We Make the Cost of Capital Affordable?” Distinguished Delegates, this question cannot be adequately answered without putting it in some historical context. Most of you will recollect that two decades ago, the Zambian Government embarked on an ambitious financial liberalisation programme and dismantled many forms of administrative controls, in general, to improve the efficiency of our economy. The expectation from this policy shift was that the economy would score efficiency gains primarily arising from increased competition in the financial system. Two decades on, it would be hard to disagree that our financial system has certainly faced increased competition. Whereas the number of commercial banks at the end of the 1990s was 14 after the failure of some insolvent banks, Zambia now boasts of 18 commercial banks who in aggregate have a total of 263 branches.

Whilst the Government should take a leading role in creating an enabling environment and putting in place an effective regulatory framework, the financial services industry, to which you all here belong, can also make a significant contribution to the  BIS Review 105/2010  3  reduction in the cost of capital. I therefore wish to encourage you, through this platform, to provide accurate, reliable and high quality financial information on all business activities. The availability of firm level financial information will assist financial institutions in making informed decisions on granting capital to firms. This would in turn lead to a reduction in the level of risk premium loaded on the loan rates. Ladies and Gentlemen, allow me to conclude by stating that Zambia is a country in urgent need of investment. However, the high cost of finance has hampered the increase in investment. Therefore provision of appropriately priced financing and policy incentives to our business firms are important triggers to investment opportunities and increased productivity. The recent survey by Government and its cooperating partners on the cost of doing business has highlighted the need to ignite the SMEs by allowing them to come out of informality and contribute to job creation and poverty reduction. Although there are still many challenges remaining, I am particularly encouraged by the increasing number of financial service providers in the Zambian economy. This is important for competition. As competition intensifies, banks and other financial institutions would start to reposition themselves by lowering the cost of finance.