of unplanned residential areas. in spite of the growth in the share of real estate to gdp, the zambian real estate finance sector is still characterized by inadequate long - term finance. prior to 1990, the sector was dominated by the zambia national building society ( znbs ), which following the liberalisation of the economy in the 1990s, is unable to meet the demand for real estate finance. much as there are other building societies now, their impact on real estate finance is still minimal. consequently, most of the people who are constructing nowadays are doing so out of their own funds. since they are building using their own meagre resources, the quality of their structures leaves much to be desired and the projects take long to complete. this, in part, explains the mushrooming of shanty compounds i have alluded to earlier. what i have said clearly shows that there is need for new players in the real estate financing sector. to this effect, i wish to challenge the private sector to invest in the real estate financing business. having said that, what is the role of the bank of zambia in enhancing investment opportunities in the real estate business? as you may be aware, the primary mission of the bank of zambia is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. how does this tie in with real estate business? the relationship between real estate business and monetary policy and financial system stability is a much debated issue among academics and policy - makers, alike. the relationship brings to the fore important challenges involving policy design, financial regulation and risk management. in zambia, however, like most other developing countries, we have had difficulties in quantifying the relationship due to paucity of reliable information on property markets, thereby limiting the scope for meaningful analysis as an input into policy formulation. it is therefore, critical that improvements are made in the quality of real estate sector data to enhance analysis and policy response to developments in this sector. there is no doubt that the rate of inflation is still too high in zambia compared to some of our neighbours, like tanzania, botswana, and mozambique. however, i wish to assure you that lower rates of inflation are within reach given government commitment to fiscal discipline and macroeconomic stability. it is a well established that high inflation ( that is, above ten percent ) is a cost to economic activities. this happens through : 1. increased investment costs. high and persistent inflation adversely affects savings mobilization in the economy because savers

##ractive. however, following the introduction of the broad - based interbank foreign exchange system ( ifes ) in july 2003, the exchange rate of the kwacha against major foreign currencies, particularly the us dollar, has been relatively stable. the kwacha appreciated by 2. 6 % against the us dollar in 2004, after depreciating by 7. 2 % in 2003. other factors contributing to the relative stability of the kwacha include strong performance of the external sector, prudent fiscal management, and the broad weakness of the us dollar in the international market. from the behaviour of the exchange rate of the kwacha against major currencies, it is clear that, supported by effective supervision, foreign exchange market participants are able to police themselves and instil discipline in the market. ladies and gentlemen allow me, at this juncture, to turn to the other function of the bank of zambia – that of ensuring financial system stability. as you may be aware, financial system stability is very critical to the maintenance of macroeconomic stability. as a matter of fact, monetary policy would not be effective in pursuing the inflation objective if the financial system were not stable, for monetary policy actions are transmitted through financial institutions. in this regard, a stable financial system plays a catalytic role for financial institutions to provide the financial products that will contribute to the development of the real estate business. therefore, to enhance the capacity of the financial institutions to meet the challenges of financing, among others, the real estate sector, the bank has undertaken a lot of reforms. for instance, the bank ’ s legislative and supervisory powers have been strengthened to conform to a liberalised financial sector. however, the development of a more active secondary financial market to enhance efficiency in the financial system remains a key challenge to us. to address these and other challenges, the government approved the financial sector development plan ( fsdp ) in 2004. in coming up with the fsdp, the government recognised, among other weaknesses, that public financial institutions that were established to facilitate the provision of various financial services to the majority of the people in the country were insolvent, and therefore ineffective, or have closed down. e. g., mortgages ( znbs ) ; agriculture lending ( lima bank, co - operative bank and exim bank in the past ) and ; banking services for the rural populace ( nscb ). in addition, long - term project finance has remained difficult to access for