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Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 17th SEE Economic Research Workshop, Tirana, 4 December 2023. | Gent Sejko: Welcome remarks - 17th SEE Economic Research Workshop Welcome remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the 17th SEE Economic Research Workshop, Tirana, 4 December 2023. *** Dear guests from academia and central banks, Dear researchers and participants, It is a great pleasure to welcome you in this annual scientific activity, already turning into a solid platform for sharing and discussing key research works on central banking topics. I am delighted to see many international researchers, from academia and the central banking community joining us at the Bank of Albania's Research Workshop. Your presence signifies an appreciation for the quality of research and policy discussions we foster here at the Bank of Albania. Your discussions and insights, enrich significantly our research work. The program of the 17th Research Workshop aligns notably with the current challenges and issues that the central banking community is encountering globally. This year's topics - not only cover traditional areas of central bank interest, like inflation, monetary policy, and financial stability- but also delve into pressing issues such as: climate change, digitalization, household finances and financial inclusion. The evolution of our workshop's agenda reflects the dynamic nature of the challenges we face. Our societies, economies, and financial systems are under strain from various sources: wars, heightened geopolitical tensions, demographic shifts, the escalation of extreme climate events, artificial intelligence and digitalization of finance and money. These challenges have triggered negative consequences on production and distribution chains, have affected labour markets, and have driven to structural changes, which in turn have impacted productivity, costs, price stability, as well as the overall macroeconomic and financial stability. In Albania, these events are reshaping the economy's orientation and sectoral focus, boosting growth in some areas, which are gradually turning dominant compared to certain traditional sectors. This transition has resulted in: an accelerated economic activity; improved foreign sector positioning; and enhanced sustainability. However, this transition also pressures labour markets, which have been already affected by emigration. These changes ripple through the economy, by unsettling established equilibriums and prompting adjustments in nominal indicators. All these conclusions are underpinned by a thorough research, which employs the most relevant data and research methodologies. 1/3 BIS - Central bankers' speeches Beyond these difficulties, central banks have yet to discover how to normalize the monetary policy and their balance sheets, in line with pre-crisis positions, without jeopardizing both the economic growth and financial stability. Many central banks have already starting to understand that their objectives and the long- run sustainability of their policies encompasses multiple dimensions, extending beyond mere price stability to align with the sustainable development goals. The role of the central bank in achieving these goals - whether directly or indirectly, through monetary policy and financial regulation, financial education and inclusion - is more vital than ever, for the society, as well as for the central bank itself and the success of its policies. We have embarked on two major strategies, which support the achievement of the sustainable growth objectives: the climate strategy and the financial education and inclusion strategy – in addition to developing a new focus, the one on digitalization. These initiatives are based and informed by the extensive scientific research taking place at the Bank of Albania on areas covering climate change, financial education and inclusion of households and the private sector. The advent of digitalization is fundamentally altering economic and financial landscapes, changing public perceptions and behaviours towards monetary and financial decisions. This thorough transition demands new approaches of analyses, decision making and communication with the public, especially in the face of unknowns brought about by emerging technologies. Thus, I encourage you to scrutinize your studies on these critical issues. As we look into these complex and dynamic conditions in economy and finance, we must remember the lessons from history, particularly Albania's economic and monetary journey. As we approach the centenary of the Bank of Albania and central banking foundation in Albania, we must delve into this rich history to enrich our modern understanding about the economy and finance, in turn to tailor global knowledge to the specific context of Albania. This historical perspective is crucial in understanding the cycles and evolutions of the economy, reminding us of the rationale and main reasons which have underpinned our fundamental choices, regarding the monetary and financial regimes. It helps us to better understand what stands behind the choice of free floating exchange rate regime, liberalization of trade and capital controls, the independent monetary policy and price stability objectives, and how they are relevant under the current challenges. Concluding, I urge our researchers to adhere to principles of unbiased analysis, scientific rigor, and clear recommendations. This is a challenging task, but I am confident in our collective ability to uphold these standards. The research at the Bank of Albania has already gained credibility with policymakers and respect from academia, as evidenced by the international participation in this event. However, we must also ensure that our research communicates effectively with the broader economy, guiding responsible decision-making across the private sector and households. I strongly encourage you to extend your influence beyond the confines of the bank, engaging with academia and various interest groups to foster the continuous communication with the economy. This engagement will ensure that our policymaking is better understood and gains an ever increasing public support. 2/3 BIS - Central bankers' speeches I wish you a very productive discussion! 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 12 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Competition Authority of Albania Conference on "Competition and Stability in the Albanian Financial Sector", Tirana, 23 November 2023. | Gent Sejko: Competition and stability in the Albanian financial sector Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Competition Authority of Albania Conference on "Competition and Stability in the Albanian Financial Sector", Tirana, 23 November 2023. *** Dear participants, It is a great pleasure to be here on the occasion of the twentieth anniversary of the Law "On Competition protection". In these two decades, the Competition Authority of Albania has implemented a policy which encourages companies to supply products and services at the most favourable terms to consumer, by boosting transparency, efficiency, innovation, and in turn the reduction of prices in the market. The weight and contribution of the Competition Authority, likewise many other regulators, are both necessary and irreplaceable in the life and development of a country. A fair and sound competition plays a crucial role in the economy of a country. It promotes the economic growth, by bolstering commercial activity, productivity, and investments. The economic theory emphasises that competition encourages the efficiency of businesses in managing the resources, in turn, providing the reduction of costs and the increase of sales. Enhanced efficiency translates into lower prices. The decline in prices drives to the growth in: on the one hand, the real income of consumers, thereby fuelling consumption; and, on the other hand, the motivation of companies to invest in innovation and capital building– human and financial – which altogether contribute further to economic growth in a direct manner. Competition, likewise in the other sectors of economy, should generate the same effects in the financial sector as well, by contributing in the expansion of both the gamma and quality of products and financial services provided by banks, as well as the increase of access in finance. Banks play a critical role for the country's economy and economic growth, so financial stability is a prerequisite for a stable, efficient and supportive financial system to economic growth and the real economy. The soundness of the banking sector lies at the heart of an operational market economy. It channels the savings of households and businesses into investments and financing, thus carrying out the intermediation functions that are crucial to the real economy and contribute to the country's development. For the Bank of Albania, the financial sector must be both stable and competitive. For this purpose, the Banking law requires banks to act independently from each other, based on the principles of free market and fair competition. Beyond that, the policy implemented by us has been that of drafting a regulatory framework that disciplines banks, establishing equal rules of the game for all actors in the market. The challenge for the Bank of Albania is to ensure the soundness and stability of the financial system, but without sacrificing its competitiveness and efficiency. Only in this way, the financial system can be able to support households, businesses and other users of financial services, as well as protect depositors. 1/3 BIS - Central bankers' speeches However, the implementation of competition policy in the banking sector remains a complicated issue. Regulation in financial sector, unlike other sectors of the economy, where competition and market discipline are sufficient to achieve the desired results, is needed for the well-functioning of this sector. In addition, there are significant asymmetries regarding the information on risk levels between customers and banks. This is also related to the lack of knowledge and understanding of financial concepts that reduces confidence in their ability to choose the right financial products. Therefore, for the purpose of establishing the most competitive conditions in the market, the Bank of Albania has undertaken a number of measures, such as: (i) financial education of public related to financial alternatives; (ii) transparency on prices which enable the comparison of banks' offers for loans and deposits; and (iii) credit registry for sharing reliable and up-to-date information on borrowers' quality amid banks. Prudential regulation is quite indispensable for the well-functioning of the market. In this regard, the fruitful collaboration between the Bank of Albania and the Competition Authority has been playing an important role. Licensing for the conduction of banking activity is the first point where prudential regulation and competition policy meet. This instrument regulates access to the banking market and requires the applicant to prove how it will contribute to the existing environment, without infringing the conditions of free competition in the market. On the other hand, effective competition can lead to the reorganization of the banking market. Competition is a selection. Weaker banks give way to stronger and more efficient banks. In turn, the entire banking system becomes stronger. In the last 10 years, the banking sector experienced a fast consolidation. As a result, the number of banks declined to 11 from 16. Medium-sized banks have absorbed small banks, thereby increasing their market share and reducing the banking sector's reliance on larger banks. Nowadays, banks participating in the consolidation process are the most active in the market. Consolidation, also has provided a very positive impact on the financial performance, efficiency and profitability of the banking sector. The operating expense ratio to income of the sector has dropped by around 10 percentage points compared to 2015. The liquidity indicators, up by 1.2 percentage points, reflect the improved efficiency of the sector as well. The consolidation process has also enhanced the distribution in the market of the advantages brought by the economy of scale. This has also been shown in the strengthened banking sector capitalization at the highest historical level - 19% - displaying a sound growth and a prudential management of risks from the sector. Open and collaborative dialogue between the two institutions is a key element for a procompetitive regulatory environment that supports innovation. The spread of new financial technologies presents an important test for our institutions. New actors are appearing in the market in the form of FinTech companies, which can affect different segments of the financial market, such as payment systems. New technological developments will arise competitive pressures on banks, in addition to simultaneously presenting opportunities for the market itself, by further orienting it towards improving operational efficiency and reducing costs. All this means a more competitive environment, and higher profitability for consumers. 2/3 BIS - Central bankers' speeches Thus, regulation and competition can coexist in the financial sector. Both policies complement each other. Thus, there is no reason to choose one over the other. Our common history has shown that a more competitive financial market structure, supported by an appropriate regulatory and supervisory framework, promotes financial stability in the country. Our policies, despite different mandates and instruments, serve the same objectives: the establishment of an efficient financial market that allocates financial resources to their best use and that supports the real economy, while serving consumers as well. Concluding, allow me to congratulate the Competition Authority for its achievements and facing numerous challenges in its 20-year journey for the protection of both competition and consumer. Your continuous work has contributed towards increasing the formalization of the economy, restraining unfair competition and encouraging more efficient use of the economy's financial resources. I am positive, that our two institutions will continue this so far fruitful collaboration and in a thoroughly manner. 3/3 BIS - Central bankers' speeches | bank of albania | 2,023 | 12 |
Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2023-24, Tirana, 29 January 2024. | Gent Sejko: Launch of the EBRD Transition Report 2023-24 Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the launching of the EBRD Transition Report 2023-24, Tirana, 29 January 2024. *** Dear participants, The Bank of Albania, for years now, has turned it into tradition hosting the European Bank for Reconstruction and Development in one of the most important events in its schedule of activities: the launching of the Transition Report. This report, which opens the door to professional economic analysis for the year, is of great importance. The analyses, conclusions and recommendations provided in it have always feed the economic debate, on the challenges that the time poses and on the appropriate development policies in order to achieve the fastest and most sustainable growth, the improvement of social well-being, as well as the economic and financial integration with our European partners, in turn strengthening resilience against shocks. For these reasons, I am pleased that this year we are continuing this journey, with the presentation of the Transition Report for the period 2023-2024. This satisfaction is even greater when I find that this year's Report invites us to a moment of reflection. While our activity focuses on the issues of the day, the topic of this report, - "Transitions big and small', urges us to look further afield. The quality of life and the affecting-related factors, the new geopolitical realities and their consequences on the development strategies of countries in transition, climate change, global warming and the reduction of biodiversity, are undeniable realities with significant consequences, on economies also on our society and communities. In this context, this year's Transition Report rightly has added value for its focus on the implications of transition on the structure of economies, on global supply and value chains, on climate change, on the need for sustainable access to raw materials, as well as on the living, working and well-being of the individual. To this end, I would like to place some of the Report's aspects in the context of the Albanian economy, in view of the messages found in this Report. To begin with, let me emphasize that the Albanian economy has shown a good performance in the face of successive shocks of the last four years. The sound foundations of the Albanian economy, the flexibility of our private sector, coupled with the prudential macroeconomic policies we have implemented, have enabled a sustainable economic growth and an overall economic and financial stability. In particular, inflation has been coming down, financial markets appear calm, while the growth in employment and wages have supported households' budgets. On the other hand, the banking sector appears sound, while access to finance and financial inclusion have improved. Compared to regional countries, Albania has one of the highest economic growth rates, the lowest inflation rates and the slowest increase in financing costs. 1/3 BIS - Central bankers' speeches Despite the still challenging external environment, the economic prospect appears positive. This confidence is fuelled by a number of factors, among which I would like to emphasise: the sound balance sheets of the Albanian businesses and households; the stable financial environment; the credit support that the banking sector continues to provide for the expansion of consumption and investments, as well as the rapid boosting of tourism sector in recent years. In parallel, the concrete perspective in the European Union membership has helped to focus and accelerate our agenda of structural reforms. This positive landscape encourages us to be more far-sighted, to new challenges which are already turning into an increasingly tangible reality. Among the topics addressed in the Transition Report, I would like to dwell on that of climate change. Global warming and the increased frequency of climate-related natural disasters are weighing on all countries and economies, in an ever greater manner, whether advanced or developing, large or small ones. Despite the window for action is narrowing, the transition to a sustainable and green economy – in the interest of economic growth and of the natural and social systems themselves – is becoming an increasingly vital objective for many countries. However, while the challenge is clear to most decision makers, identifying how best to address this challenge in practice is still a work in progress. In this context, I find it appropriate to point out that the Global Adaptation Index, measured by the University of Notre Dame, ranks Albania among countries vulnerable to climate change. Likewise, the IMF's assessments suggest that Albania has an average of one episode of natural disaster per year, which causes damages up to 1.3% of GDP and affects at least 1 in 200 inhabitants of the country. We are aware that climate change will have far-reaching implications for the economy, the financial system and the entire society. For this reason, public authorities should engage in concrete plans and strategies to minimize their impact and achieve sustainable economic and social development. Although the central banks are not the primary actors who can facilitate the adaptation of the economy to climate change, the Bank of Albania has decided that - without prejudice to its legal mandate of price stability - to give its contribution in this regard. Our efforts are focused on three directions, as following: First, monitoring climate risks and strengthening our analytical capacities in this area. At the moment, we have to admit that there is a huge gap in climate-related data. However, overcoming it as soon as possible would establish premises to further improve our macroeconomic models, scenario analysis and risk assessment. In turn, this helps us better calculate climate risks and the implications that the transition to a carbon-neutral economy may have. In the last years, the Bank of Albania has increased the knowledge on the economic and financial consequences of climate change, through the scientific researches in this regard. Second, promoting green finance. To this end, we have recently approved the "Strategy for the Management of Financial Risks related to Climate Change, 20232025". The purpose of this strategy is making banks aware on the need to identify, measure and monitor the risk that comes from climate change, until the issuance of complete guidelines by the European Banking Authority for the 2/3 BIS - Central bankers' speeches inclusion of this risk in the supervisory processes. Meanwhile, in the current year we plan to draft a climate risk guideline in order to encourage banks to include climate risks in their framework on risk management. In this process, the alignment with the ECB initiatives will also be considered, taking into account the practices of other countries as well. Third, strengthening collaboration with national and international partners. Addressing risks of climate change and transitioning to a sustainable economy are global challenges. Therefore, the share of information, expertise, as well as the recognition and implementation of best practices to handle climate change, are crucial elements for successfully addressing this challenge. We work with the Albanian and international partners to increase knowledge, awareness and transparency on climate-related issues. Since 2020, the Bank of Albania is a member of the Network for a Green Financial NGSF), while we have been collaborating for a long time with the World Bank (FinSAC), the State Secretariat for Economic Affairs of the Swiss Government (SECO), Vienna Initiative, and others intuitions. We are also working to reduce our environmental impact by implementing measures to save energy. Dear participants, Thanking you for participating in the launching of the EBRD Regular Transition Report, I kindly invite you to become an active part of discussions on the messages it provides and try to reflect them as much as possible in our future work. 3/3 BIS - Central bankers' speeches | bank of albania | 2,024 | 2 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2024 in Albania, Tirana, 18 March 2024. | Gent Sejko: Global Money Week 2024 in Albania Address by Mr Gent Sejko, Governor of the Bank of Albania, at the opening ceremony of the Global Money Week 2024 in Albania, Tirana, 18 March 2024. *** Honourable Minister of Education and Sports, Dear Chairman of the Albanian Association of Banks, Dear students and teachers, friends and banker colleagues, I am delighted to welcome you as every March to the launching of Global Money Week – a worldwide initiative that, since 2012, has been encouraging us in joining our efforts to enhance public awareness on the crucial role of financial education for our younger generations. This campaign represents a great opportunity for policy-makers, the educational system, the banking sector, and businesses to collaborate with the aim of reaching out to young people to teach them about the importance of money, planning, and making sound financial decisions. It's time for children and young people to actively learn about money and finances, gradually acquiring the knowledge, skills, attitudes, and behaviours necessary to ensure financial well-being and stability. This ultimate goal of Global Money Week has acquired international support, with over 40,000 entities across government and civil society, under the OECD-INFE's guidance1 , reaching approximately 120 million individuals in 176 countries last year alone. This figures, alongside with the growing involvement of Albanian pupils and students, encourages and inspires us to provide an ever increasingly number of activities, competitions, educational lessons, and to deepen our collaborative efforts with bankers, educators, pupils and students alike. This year's theme, "Protect your money, secure your future" highlights the necessity for a responsible and informed approach to managing personal finances, including the identification and understanding of potential risks of financial transactions. It is crucial for young people to identify risks associated with online scams, as well as other risks stemming from unreliable information and advice. To this end, the Bank of Albania, together with its partners, will be organizing a series of educational programs and activities nationwide, aimed at equipping youth and children with the tools needed to navigate the financial world safely. In today's digital era, young individuals are frequently exposed to financial advice, advertising, and investment opportunities through social media and their peer networks. It's crucial to comprehend that financial market participation, even in its most basic forms, carries broader economic implications. The innovative investment methods and payment instruments can enhance efficiency and reduce costs for consumers. They indeed open many doors to the future, yet they also introduce risks if not accompanied by sufficient financial literacy and appropriate market regulation and supervision. 1/3 BIS - Central bankers' speeches Instances of occasional successful investments in unregulated products should not be seen as indicators of future or sustainable success. It's important to emphasise that these can pose significant risks when conducted within markets that lack regulation and supervision. Recent global challenges, including the pandemic, conflicts/ war, and climate change, have underscored the importance of informed and secure financial decision-making, not only for personal financial health but also for the broader financial system's stability. The swift pace of digital transformation and the urgent issues raised by climate change are reshaping our engagement with financial instruments and relationships. Young people have a unique opportunity to use their resources as a force to induce a positive change in both society and environment. Accordingly, the Bank of Albania has embarked on two significant strategies: 1. "The Strategy for the Management and Supervision of Climate-Related Financial Risks"; and 2. "The Strategy for Enhancing Financial Education and Inclusion". In the past decade, there has been a marked increase in academic research on financial education and inclusion, both globally and within our borders. Albanian research is largely driven by the Bank of Albania's efforts to gather insights and data. The insights collected from this research have informed the development of policies designed to meet contemporary needs. We now possess a rich pool of information that enhances our understanding of the factors influencing financial literacy across different demographics, including economic conditions, education, employment, digital access, and familial influence. Owing to its initiatives, the Bank of Albania has observed a notable enhancement in financial inclusion. This is evidenced by a substantial increase in electronic payment transactions, which have reached approximately 48 million across both banking and non-banking platforms, marking a 26% rise from 2022. Also, the number of accounts accessible remotely increased by 24% in 2023, accounting for 34% of the total customer accounts in banks. However, innovations also bring new risks, such as online scams or what is known in financial language as phishing - a way of stealing identity that is carried out through the voluntary but uninformed provision of personal data, such as account numbers and passwords, which can then be used by wrongdoers for theft purposes. In response to these challenges, and to foster a culture of financial literacy, the Bank of Albania is implementing a comprehensive strategy for financial education and inclusion, which certainly is addressed to children and young people. This strategy, developed in collaboration with key stakeholders, like the Ministry of Education and Sports, the Albanian Bank Associations, the World Bank etc., aims to boost financial literacy across Albania. It serves as a blueprint for educational bodies, financial institutions, businesses, and NGOs to develop and implement collaborative policies, programs, and educational materials, ultimately enhancing the country's financial literacy. Advancing this initiative presents obstacles, thus there is a growing necessity of exchanging experiences and learning from one another to enhance and advocate for a stronger financial literacy in our country. 2/3 BIS - Central bankers' speeches Engaging in discussions about money with our children is a simple yet effective way to cultivate financially aware individuals. Global Money Week plays a central role in initiating these crucial conversations, allowing young people and their families to explore fundamental financial concepts such as budgeting, saving, lending, and the implications of uninformed financial decisions. The financial landscape is evolving rapidly, technological advances are changing how children learn in every field. As we navigate a changing world, it is vital for young people to acquire the skills, knowledge, and confidence to manage their financial future in a responsible manner. I take this opportunity, with the launching of Global Money Week 2024, to express my best wishes for the success of this campaign. Allow me to congratulate and thank the many students, pupils, and teachers who have joined us. I encourage new participants to actively engage, ask questions, and enjoy the learning experience. The Bank of Albania is proud to be the main local organizer of this global initiative, promoting significant changes in financial and digital inclusion, which have greatly increased the importance of financial education in our country. I thank all our partners for their dedication and commitment to advancing financial literacy in Albania. Let us continue to collaborate towards a future that is more financially educated, empowered, and secure. 1 OECD International Network on Financial Education (INFE). 3/3 BIS - Central bankers' speeches | bank of albania | 2,024 | 3 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the 25th Anniversary of Albanian Association of Banks, Tirana, 14 May 2024. | Gent Sejko: 25th Anniversary of Albanian Association of Banks Address by Mr Gent Sejko, Governor of the Bank of Albania, at the 25th Anniversary of Albanian Association of Banks, Tirana, 14 May 2024. *** Dear members of the Albanian Association of Banks, Dear colleagues, I am particularly delighted to join you today celebrating the 25th Anniversary of the Albanian Association of Banks. The Albanian Association of Banks, for almost 25 years, has provided a significant contribution in the advancement path of the banking system, in turn backing the financial and economic stability and progress in Albania. Your efforts for development have been crucial, while being concretely engaged and in an active manner for adopting the best practices as provided by the global banking industry. Over these years, the banking system has supported and undertaken many initiatives, thus paving the path for adopting the standards that nowadays define the modern banking system in Albania. Your efforts in promoting sound financial practices and ethical banking standards have already shaped the landscape of the banking industry. Services provided to customers have been revolutionised, banks have considerably expanded their network, by increasingly offering banking and financial services that were once considered beyond the scope of traditional banking. The Albanian economy has continuously faced domestic and external shocks, which have challenged both the banking industry development and the economic and financial stability of Albania, such as: The global financial crisis of 2008; The outbreak of Greek crisis which precipitated in a sovereign debt crisis in euro area, in 2011-2013; The Covid pandemic 2020-2021; and Economic consequences from the war in Ukraine. Despite the waves of these turbulences, the banking system has provided a decent contribution by enabling a rapid growth of credit to the economy, to 30% of GDP in 2023, from 7% of GDP in 2002. In addition, it supported the development of the private sector, through offering consultancy to Albanian businesses and households, as well as enhancing their financial literacy. Last but not least, the Albanian banking sector has supplied to the economy a wide and increasing range of payment instruments, which enable the efficient circulation of liquidity and capital in the economy. Also, I would like to evidence that the establishment of the AAB, in its current form, has provided to the Bank of Albania a reliable interlocutor and partner in discussing the projects and reforms that we have undertaken over the years. Sharing ideas and the 1/4 BIS - Central bankers' speeches exchange of views have been essential in identifying the problems encountered throughout this development and in adopting the most effective instruments for addressing them. In this regard, let me emphasize that altogether: the Albanian Government, Bank of Albania and ABB, have carried out a great work in realising certain fundamental structural reforms over the last decade. Allow me to be specific. First, the plan of measures for reducing non- performing loans and improving the lending environment. The non-performing loans ratio peaked at almost 25% credit portfolio in 2014, posing a major challenge for the development of the banking system and a serious obstacle to credit growth. To address this problem, in 2015, the Bank of Albania together with the Albanian Government and the AAB adopted the National Plan for the Reduction of Nonperforming. A set of important reforms have been implemented in the framework of this plan. These reforms enabled non-performing loans in banks' balance sheet reduce currently to 4.64%. Also, these reforms paved the way for the rapid, stable and sound growth of bank credit. Credit growth to private sector - stated in figures and referring to the same five-year horizon – has increased with a cumulative value of 40%. Only in the last year, credit to the private sector recoded an average growth of 8%. In the first quarter of 2024, this growth has climbed close to 12%. Second, the consolidation of banking system, as an instrument for enhancing its competitiveness and reorganisation, was concluded successfully. This process, while taking place as dictated from the strategies and policies of European banking groups, presented many challenges. Nevertheless, ultimately, it resulted in a more sound competition, an increased share of the domestic capital and improved financial intermediation. Third, the enhancement of financial inclusion – though an ongoing process – has brought significant benefits to the Albanian economy. As a result of joint implemented reforms in payment systems and the continuous investment to increase financial education, we have achieved a remarkable progress over the last years: Around 171,654 adult citizens or around 78% of the adult population have access to bank accounts (2023); Access to bank accounts via internet has increased by around 17 times (11,108 accounts in 2008 - 1,096,402 accounts in 2023); Currently (2023), transactions carried out via banks amount around 7.7 million (from only about 88.000 in 2008), accounting ALL 2,004,180 or 88% of GDP in 2023); The number of bank cards has almost tripled since 2008. Currently, Albanian citizens own 1,433,151 debit and credit cards of the prestigious VISA and Mastercard companies, which have implemented standards from the best at international level; Significant increase of POSs in Albanian businesses by around 6 times from 2008 (about 300 POSs) to 2023 (about 19 000 POSs); 2/4 BIS - Central bankers' speeches Currently, there are around 230 businesses equipped with the necessary infrastructure for e-commerce, from a total of 3 in 2013, when it was introduced for the first time this service from the banking system; The number of bank card payments has increased 83 times since 2008. In 2023, the Albanian citizens have carried out an average of 11 payments per capita, from 0.3 payments per capita in 2008 via bank cards. As we reflect on the past years, despite the various domestic and external challenges, we can say that - despite the shocks on inflation and monetary tightening over the last few years, both in Albania and in the euro area - the Bank of Albania and AAB have continued to work for: drafting and approving many legal and regulatory acts in accordance with the European directives and best practices in the field of regulation and micro- and macro-prudential supervision, resolution, payments, statistics, etc.; continuously modernizing the payment system, establishing and developing payment schemes, such as direct debit, as well as the increase in the use of electronic payment instruments, etc; building cooperation bridges and improving communication with domestic and international institutions to help the financial sector in Albania; organising many events and programs to educate the public, promoting financial inclusion and reducing the use of cash in the economy. *** Dear colleagues, Banks play a key role in the economic structure of Albania. We have a common mission: bolstering a strong financial and economic environment, which continues to remain challenging. Forward-looking and due to global changes and developments taking place, the Bank of Albania: remains committed to fulfilling its legal objectives, always implementing policies aimed at safeguarding the monetary and financial stability of Albania, as a prerequisite for the sustainable and long-term development; encourages the further increase in lending to Albanian businesses and households, always requiring for compliance with the prudential requirements, but at the same time insisting on increased attention to specific sectors or vulnerable groups of the society; has encouraged and will encourage the drafting of policies and the adoption of instruments that expand financial inclusion for those segments of society not yet fully served; considers that the cooperation between us (the Bank of Albania and the banks) remains decisive, particularly regarding the alignment of its legal and regulatory framework with that of the European Union; supports the digital transformation of the banking sector as a trend and an opportunity to improve banking services, making them more accessible and faster for the public, while strengthening at the same time public confidence in regard to the latter; last, we forecast to advance towards more stable banking practices, by supporting projects that affect positively the environment. In conclusion, on this 25th anniversary, let us renew our commitment to: (i) dedication, 3/4 BIS - Central bankers' speeches (ii) integrity, and (iii) high quality service to the public. Despite the achievements and challenges, which will be present over the next years, I am confident that the Albanian banking sector will become a synonym of sustainability and innovation. Thank you for your commitment and trust in our mutual cooperation. Happy 25th Anniversary! 4/4 BIS - Central bankers' speeches | bank of albania | 2,024 | 5 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Hearing of the Committee on Economy and Finance of the Albanian Parliament, on non-bank financial institutions which purchase non-performing loans, Tirana, 21 May 2024. | Gent Sejko: Non-bank financial institutions which purchase nonperforming loans Speech by Mr Gent Sejko, Governor of the Bank of Albania, at the Hearing of the Committee on Economy and Finance of the Albanian Parliament, on non-bank financial institutions which purchase non-performing loans, Tirana, 21 May 2024. *** Honourable Chair, Honourable members of the Parliament, Article 161 of the Constitution of the Republic of Albania defines the Bank of Albania as the constitutional institution, charged with two main tasks: the implementation of monetary policy and the issuance of domestic currency. In accordance with this provision, the organic function of the Bank of Albania is regulated by special laws, as well as the duties and functions that the legislator has assigned to the Bank of Albania. We are quoting these laws below: Law No. 8269, dated 23.12.1997, "On the Bank of Albania", as amended; Law No. 9662, dated 18.12.2006, "On banks in the Republic of Albania", as amended; Law No. 133, dated 29.04.2013, "On payment system"; Law No. 55/2020 "On payment services"; Law No. 52, dated 19.05.2016, "On Savings and Loan Associations and their Unions"; Law No. 133, dated 22.12.2016, "On the recovery and resolution of banks in the Republic of Albania"; Law "On Payment Accounts with Basic Features". Also, other laws are approved related to the activity of the Bank of Albania, such as: the Law "On the prevention of money laundering" and the Law "On the Deposit Insurance Agency". The Bank of Albania, in accordance with the provisions laid down in the Law No. 9662, dated 18.12.2006 "On banks in the Republic of Albania", as amended, and Law No. 52 /2016, dated 19.05.2016 "On Savings and Loan Association and their Unions", grants the license to the following entities to carry out the lending activity: 1. Banks – (11) which collect deposits from clients and may supply the entire gamma of credit products (credits with instalments, credit lines, financial leasing, micro credit, consumer credit, guarantees, letter of credit, etc.). 2. Non-bank financial institutions - (26) which are not allowed to collect deposits from clients, bur are specialised in one or some lending activities (financial leasing, credits, micro credit, factoring, etc.). 3. Savings and Loan Associations - (16) which collect deposits from their members and supply credits only to the members of the association. 1/6 BIS - Central bankers' speeches These financial entities (banks and non-banks) have continuously supported the economy of Albania and households through lending activity. Currently, the entire granted credit portfolio is assessed at ALL 805 billion. Lending is the main activity carried out by non-bank financial institutions. The latter through this activity help a specific category of consumers and small enterprises, who do not manage to access the banking system. Currently, 26 non-bank financial institutions operate in Albania carrying out the lending activity, though they account for only 6% of the system's credit portfolio, totalling All 53.6 billion. The practice of selling and purchasing non-performing loans appeared in the Albanian financial market, after the global financial crisis of 2008-2010. In this period, some of credits granted by banks over the years were not repaid by citizens. In 2015, these credits exceeded 25% of total credits, directly affecting the soundness and safety of banks and turning into a serious threat to citizens' savings. The ability of banking sector to support the economy with new credits reduces significantly due to the overloading of balance sheets with non-performing loans. Against this backdrop, the Albanian Government and the Bank of Albania adopted "The National Plan on the Reduction of Non-performing loans" in September 2015. Among other things, the Plan charged the Bank of Albania with the task of regulating and licensing entities engaged in the purchase of non-performing loans. This practice, recognized internationally, is strongly recommended by the experts of the IMF and the World Bank. In that period, some financial institutions, in addition to lending for which they were licensed by the Bank of Albania, had also purchased non-performing loan portfolios from banks. This activity is based on the provisions laid down in the Civil Code on the transfer of credit (Articles 499 – 507 and 705, respectively). Pursuant to the amendments taking place in March 2016, credit purchase is considered a form of lending. Through licensing, credit purchase and sale, based on the aforementioned Articles of the Civil Code, is regulated and controlled by the Bank of Albania, being a subject to all supervisory obligations, including: reporting to the Credit Registry, providing periodic reports, risk management through on-site inspections, offsite analyses and ongoing supervision. All banks were informed that upon this regulatory amendment, the process of collecting non-performing loans is part of the lending process and, as such, can only be carried out by entities being granted a license by the Bank of Albania. Currently, there are 5 entities, which, in addition to lending activity, also carry out the activity of purchasing non-performing loans portfolios. 2/6 BIS - Central bankers' speeches The further commercial relationships between banks and these institutions, regarding the sale and purchase of non-performing loans portfolio, are not a competence of the Bank of Albania. They are regulated by the Civil Code through contracts agreed between the parties. In the following years, the expansion of this sector was also accompanied by the further improvement of the legal and regulatory framework. New and improved requirements are approved for the licensing and provisioning of purchased credits, consumer protection and ethics in granting and managing loans in the system. In concrete terms, the Bank of Albania: limited the penalties applied to the borrower of a consumer credit to the extent of 30% of the unpaid credit balance. This came as a necessity, given that the accumulated penalties for non-performing loans can exceed the credit principal several times; limited the interest rates on consumer credits, by adopting the concept of "maximum EIR" as an upper limit for the effective interest rates. This amendments aims to strengthen consumer protection against high credit costs, divided into interests, commissions and fees. In addition, aimed at providing transparency and client protection, the following updates have taken place: Regulation No. 59, dated 29.08.2008 "On transparency for banking and financial products and services", which lays down the requirements on the manner and form of providing information to clients on banking and financial products and services offered by the entities which fall under the scope of application of this Regulation; Regulation No. 48, dated 01.07.2015 "On consumer credits and mortgage credits". Currently, after the imposition of these restrictions, the average effective interest rate applied by non-bank financial institutions (which includes interest, commissions and any other type of fee applied to consumer loans), has been reduced by 3 times, compared to the period before the entry into force. Meanwhile, we emphasise that according to the implemented formula, the trend will always continue to be downward. From the moment of being granted a license, all these entities have been regularly subject to continuous on-site inspections, off-site analyses and 3-month monitoring of financial statements and indicators from the Bank of Albania. The scope of supervision encompassed every aspect of the activity of the entities that is included within the legal duties and powers of the Bank of Albania, which are regularly exerted to each financial entity under its supervision, banks and non-banks. In concrete terms, the MCA entity has undergone, in a regular manner, has been subject of all the above inspections conducted by the Bank of Albania. To address the identified deficiencies, the entity was given a number of recommendations for follow-up. In 2022, after ascertaining that the recommendations had not been implemented and the problems had not been sufficiently addressed, the Bank of Albania escalated the 3/6 BIS - Central bankers' speeches measures on this entity by suspending the conduction of lending activity (including the purchase of new loans), for which it was licensed. In the last inspection (December 2023), the Bank of Albania took a more severe measure, which although classified as a suspension, placed the MCA under the conditions of a "de facto revocation" of the license. Thus, the MCA was prohibited from carrying out the activities for which it was granted the licence. It was only allowed to sell the portfolio it managed to entities which are licensed and supervised by the Bank of Albania, as well as the immediate reflection in reduced liabilities, of any repayment carried out by the client. The suspension and revocation of the license are the most severe administrative measures that the Bank of Albania can take in event of concluding any infringement, while carrying out the supervision function. The suspension limits the financial activities that the licensed entity can carry out, until the infringements are corrected, or the recommendations are fulfilled. Revocation definitively prohibits the entity from carrying out activities for which it is being granted a license. Revocation of license is the last measure applied to an entity, as this measure automatically takes the entity out of the supervisory jurisdiction of the Bank of Albania, as it weigh on the borrowers' situation for several reasons: First, the revocation does not release the borrowers from the repayment of their liabilities; these liabilities constitute executive titles and, as such, are subject to mandatory execution procedures by the bailiff service, even after the license has been revoked. Second, the revocation of the license makes it impossible for the Bank of Albania to address complaints of clients against these entities, which are no longer supervised and therefore no longer report to the Bank of Albania. Third, the revocation interrupts both any reporting of these entities in the Credit Registry and any communication with the Bank of Albania. Even in case of full repayment of the loan to the entity, the status of borrowers would remain not updated in the Credit Registry, placing them unfairly in a penalized status. Finally, the revocation of the license creates a false expectation among borrowers that through the cessation of the entity's lending activity, the obligation to repay the loan is extinguished. Borrowers may perceive that non-payment of liabilities exists as an option. This drives to an increase in non-performing loans in the banking system, and puts citizens' savings at risk, and consequently, jeopardises the financial stability in Albania. For all these reasons, the suspension of the license and the determination of a deadline for the sale of the portfolio to any other licensed entity, aims to protect borrowers from abusive practices and the problems mentioned above. Currently, MCA has 15,942 borrowers in its portfolio. Of these, around 90% have received a court decision and/or are in the enforcement process. This means that for 90% of cases there is a court decision that determines the value of the borrower's 4/6 BIS - Central bankers' speeches liability. In total, MCA has purchased portfolios amounting ALL 9.6 billion, of which about 10% has been recovered. Since the moment of licensing, until today (2016-2024), around 85 complaints against this entity have been submitted and handled in the Bank of Albania. The Bank of Albania has paid the maximum attention to the complaints and has addressed all of them, with no exception, in accordance and in full compliance with the legal and regulatory framework of the institution. Complaints related with the enforcement execution process from the bailiff service have the main share within the number of the submitted complaints. This process is also a concern for the operational management of banks due to the quite high number of seizure orders that are filed every day by the bailiff service and that impose the blocking of debtors' accounts in unreasonable terms. The organic law on the Bank of Albania clearly define its mandate, for the purposes of safeguarding the financial stability of Albania, authorizes the Bank of Albania to regulate, license and supervise entities that are part of the financial market, only within the categories as provided in the Law. The activity of bailiff service is neither licensed nor supervised by the Bank of Albania. The legal framework does not give the Bank of Albania the competence to order the prohibition/suspension of the enforcement execution processes, nor to monitor the financial burden that this service pose on citizens. The law empowers this competence only to the court. Thus, the activity of bailiff service is not subject to control by the Bank of Albania. In this context, we underscore that the legal authority of the Bank of Albania ends by the moment the court issues the execution order to recover the unpaid loan. Any process beyond this moment (auctions, imposition of seizures or any other procedural action undertaken by the bailiff companies) is out of the legal competences of the Bank of Albania and cannot be followed or regulated by it. The Bank of Albania cannot even interfere in the relations that MCA has with the entities it contracts, such as the case of the bailiff service. According to the provisions provided in the Civil Code, all contractual relationships are agreed upon the free will between the parties and the disputes that may arise during the execution of contractual obligations, fall under the jurisdiction of courts. Likewise, Article 36 of the Civil Procedure Code stipulates that no other institution has the right to accept for consideration a civil dispute which is being tried by the court. However, the Bank of Albania has been attentive to the problems that accompanied this part of the process, despite being beyond its jurisdiction. For the purposes of resolving them, the Bank of Albania has communicated regularly with the Ministry of Justice and has reported, whenever requested, to the Parliament of Albania. These issues have been dealt continuously with the National Chamber of Bailiffs, as well as with the Albanian Association of Banks. 5/6 BIS - Central bankers' speeches In addition to the above, the Bank of Albania has continuously suggested coordinated actions for a substantial improvement of this entire process. These actions, by their very nature, require the involvement of other parties as well. Specifically, we consider that it is necessary to make amendments to: The Code of Civil Procedure for the regulation of all procedural actions of bailiffs during the execution of executive titles; Drafting, in cooperation with the World Bank, of a special Law for consumer protection in the activity of non-bank financial institutions; The translation into laws of the regulatory amendments undertaken by the Bank of Albania, on the establishment of ceilings regarding penalties and interest rates; The transformation of all non-bank financial institutions into joint stock companies, aimed at increasing internal control and the organisation in two-tier management structure; and Accounting registration of only principal and interest in case of purchasing portfolios, at least until the determination of legal interest rate ceilings. Concluding, we highlight that the Bank of Albania has acted, at all times, in full compliance with the obligations recognized by the law and remains always ready to make full transparency to the public, public institutions and the media in relation to its regulatory and supervisory activity. Thank you! 6/6 BIS - Central bankers' speeches | bank of albania | 2,024 | 5 |
Speech by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2023 to the Parliamentary Committee on Economy and Finance of the Albanian Parliament, Tirana, 28 May 2024. | Gent Sejko: Albania's economic and financial developments in 2023 Speech by Mr Gent Sejko, Governor of the Bank of Albania, presenting the Annual Report 2023 to the Parliamentary Committee on Economy and Finance of the Albanian Parliament, Tirana, 28 May 2024. *** Honourable Chair, Honourable Members of the Committee, Thank you for the invitation and the opportunity to present to the Committee, the main messages delineated in the Bank of Albania's Annual Report for 2023. The presentation of BoA's Annual report, an integral part of our transparency process, serves both the institutional dialogue with the Parliament of Albania, as well as the enhancement of public confidence in our institution. Over the past year, the Bank of Albania oriented its activity on three main pillars. First, we have taken care for strengthening the monetary and financial stability of Albania, as an important prerequisite for the sustainable and long-term growth of the country and the improvement of social welfare. Second, aiming at being a promoter of the financial industry development and a reliable partner of the Albanian public, we have accomplished all the institutional commitments. Third, and equally important, we have been attentive to fulfilling all the recommendations left by the Assembly of Albania for the year 2023. Honourable Committee members, Year 2023 was a year of progress for the Albanian economy. The volume of economic activity, despite a difficult external environment, continued to grow, generating a surge in the income for businesses and a lift in the welfare of households, in the form of expanded employment and increased wages. In parallel, consumer price inflation, came down continuously, helping in maintaining the value of Albanian households' income and savings, and supporting the smooth functioning of financial markets. At the same time, the domestic and external equilibriums of the economy have been improving. In particular, budget and current account deficits were reduced, leading to an increased sustainability in domestic debt and external debt of Albania. Finally, and just as importantly, the financial stability of the economy strengthened further: liquidity, capital and profitability indicators of the banking sector improved, while the non-performing loans ratio fell to the lowest level recorded in more than a decade. The Albanian economy, in a longer time perspective, has displayed an admirable degree of resilience and flexibility, despite the huge challenges of recent years. This fact is reflected in the improved risk ranking of the country's public debt by foreign rating agencies, now at BB-, as well as in the increased interest of international operators to invest in Albania. 1/9 BIS - Central bankers' speeches This positive momentum in the development of Albania reflects, to a large extent, our prudential monetary policy, our supervisory, regulatory and macroprudential measures, as well as the continuous work we have carried out for the advancement and modernization of payment systems. In more concrete terms, the prudential normalisation of monetary policy stance, first enabled to keep inflation under control and then its continuous reduction, without jeopardising- at the same time - the positive trend of economic growth and the financial stability of Albania. In addition, our rigorous micro and macroprudential measures strengthened the stability of the banking system, while the continuous alignment of our regulations with the European Union standards has led to a considerable regulatory convergence, by reducing financial risk premia in Albania. Last, the ongoing advancement regarding the infrastructure and regulatory basis of payment systems has driven to an increased financial participation, and has helped strengthening both the efficiency and formalization of the private sector. We deem that these positive development trends will continue in the future as well. In the baseline scenario, we expect the Albanian economy to grow further in the next years, underpinned by the increase in consumption, investments and in the export of services, as employment and wages will pick up further. In addition, we expect inflation to stay close to our 3% target. This level protect the purchasing power of Albanian households and helps the overall financial soundness of the economy. However, many challenges lie ahead of us. External environment continues to be characterised by various uncertainties, geopolitical tensions and an increasing economic and trade fragmentism. In addition, the effects of population ageing and labour force constraints are evolving into ever more important factors for the economic development, in Albania and globally, while technological innovation and climate change have turned out to be the challenges of the day. Economic policies, which ensure economic and financial stability and establish a more innovative, efficient, resilient and inclusive economy, enable the successful navigation through such an environment. In this context, I would like to ensure you that the work of the Bank of Albania in the future will continue to focus on the following areas: First, guaranteeing price stability and strengthening the financial health of the economy, as the best contribution a central bank can make to the sustainable, long-term and comprehensive growth of the country. Second, promoting financial progress, as a key instrument for boosting the efficiency of the Albanian economy, through continuously investing for the development of: financial markets; the payment systems; as well as innovation and digitalization of financial services. Third, boosting financial education and inclusion, as a prerequisite for expanding access to financial services and payment services and for a prudential approach towards the personal finances management. Fourth, enhancing attention to green finance and strengthening public awareness regarding climate change, as a necessity for the sustainable growth of the country. Last, I would like to emphasise that our policies must be coordinated with prudent fiscal policies and supported by structural reforms. In particular, the creation of a more 2/9 BIS - Central bankers' speeches stimulating environment for promoting domestic and foreign investments, coupled with the investments in human capital and infrastructure should be encompassed in the priorities of structural reforms. Also, these reforms should aim at expanding the sectoral base of economic growth and bolstering its sustainability. Honourable Committee members, Allow me to focus more specifically on the main directions of our work over the past year, highlighting the measures taken and the results achieved. *** 1. Economy, inflation and monetary policy of the Bank of Albania The 2023 was characterized by a solid growth in economic activity, employment and wages, as well as by the improvement in the main indicators of Albania's economic and financial stability. According to INSTAT data, the volume of economic activity in Albania grew by 3.4% over the past year, by gradually improving the growth pace over the course of the quarters. In parallel, employment rose by 2.2%, while the unemployment rate dropped to a new historic low of 10.7% at the end of the year. From the demand perspective, the expansion in family consumption, private investments, and in the export of tourism services underpinned the economic growth. On the other hand, the fiscal policy maintained a consolidating stance while the export of goods has been declining. The expansion in the demand for goods and services reflected the sound financial balance sheets of private sector, the gradual improvement in businesses and household's confidence, the stable financial environment, the increasing bank credit, inflation coming down, and the rapid growth in the income from tourism. In the sectoral perspective, economic growth was reflected in the expansion of the activity in the sectors of services and construction, while the volume of activity in industry and agriculture trended downwards. The heightened demand for goods and services drove to the increased demand for labour force from businesses. Meanwhile labour shortages turned increasingly apparent. These factors led to the rapid and broad-based wage growth in the private sector, which recorded an average growth of almost 13%. Wage growth – at higher rates than inflation – sustained the expansion in both households' incomes and consumption. On the other hand, wage growth pushed up rapidly the production costs, by exerting pressure on final prices. Also, year 2023 recorded improvements in the domestic and external balances of the economy. Among them, I single out: The improvement in the external position of Albania, as the country's current account deficit recorded an unprecedented fall of five percentage points. This deficit dropped to 0.9% of GDP over 2023, recording a historical minimum of posttransition period. In addition, the external debt of Albania dropped below 50% of GDP, while foreign direct investments marked a historical record of EUR 1.5 3/9 BIS - Central bankers' speeches billion. The good performance of Albanian exports, climbing by EUR 1.7 billion over the past year, and the two-fold attractiveness of Albania, both as tourism and investment destination, dictated this performance. In parallel, the international reserve of the Bank of Albania registered a historical record of EUR 5.8 billion, by significantly increasing the solvency of the country. The improvement of Albania's fiscal position, reflected in both the reduced budget deficit and public debt, which dropped to the minimum levels of more than a decade, to 1.4% and 59.2% of GDP, respectively. The reduced public debt drives to increased fiscal spaces for reaction against potential shocks in the future, as well as decreases risk premiums and financing costs for all economic operators. The sustainability of the banking sector, reflected in the improved indicators of capitalization, profitability, as well as of the loan portfolio quality. The nonperforming loans ratio stood at 4.8%. These positive trends enable the banking sector to supply efficiently and in a continuous manner the economy with financial funds and payment and savings instruments. In parallel with these developments, inflation recorded a gradual decline, but steadily, over 2023. As at end of 2023, inflation dropped to 4%, from 7.4% at the beginning of 2023, and to 2.7% in the first quarter of 2024. The decline in inflation in foreign markets, the exchange rate appreciation and the normalisation of the monetary policy stance drove inflation coming down. The fall in inflation was initially focused on food and oil prices, but it further spread to other items of the basket. However, this decline was uneven: it has appeared faster in goods items, and in particular food items, and slower in service items. The higher inflation inertia of these items is dictated by the positive cyclical position of the Albanian economy, which is characterized by a sustainable demand for goods and services and by the relatively rapid growth in wages and production costs. The inflation above the target, coupled with the positive cyclical position of the economy dictated maintaining the normalisation stance of monetary policy, even over the course of 2023. This normalisation was carried our through the further rise of the policy rate, the attentive and transparent forward guidance tool, while it took place through meeting all the liquidity needs of the banking sector. The normalisation of monetary policy over 2023 had certain features, which I think are important to evidence. First, the normalisation pace was slower than in the previous year. We increased the policy rate five times over 2022, for a cumulative effect of 2.25 percentage points, while in 2023 we rose the policy rate only twice, with a cumulative effect of 0.5 percentage points. This slowdown reflected the exchange rate strengthening and the consolidation stance of fiscal policy. Lek rapid appreciation helped in mitigating external inflationary pressures, while fiscal consolidation helped in curbing domestic pressures. In particular, lek strengthening has been and continues to be one of the most discussed economic issues of this period. Our analyses have focused on this indicator as it turned out significant for the economic developments in Albania. These analyses aimed at identifying its reasons, consequences and implications for the monetary and financial 4/9 BIS - Central bankers' speeches stability of Albania. Conclusions in these analyses show that the strengthening trend of lek is due to the structural improvement in the external trade balances, reflected in the increase of exports, mainly in tourism, remittances and foreign direct investments. In these circumstances, lek strengthening provided an overall positive impact on the economy. It contributed to keep inflation under control, by enhancing the purchasing power of Albanian families, as well as enabling a more gradual normalisation of our monetary policy stance, thus keeping financing costs to businesses low. Consequently, Albania, compared to regional countries, has one of the highest economic growth rates, the lowest inflation rates and the slowest increase in financing costs. However, the Albanian economy has been and remains an economy with a relatively high level of informality. This phenomenon has its consequences in many economic indicators of the country, including - potentially - the exchange rate. The Bank of Albania has continuously taken measures to reduce informality, through the continuous improvement of the payment system, the introduction of regulatory requirements that enable the granting of loans only against certified fiscal balances of businesses, as well as through the implementation of all necessary supervisory regulatory changes, which fall in our field of competence, within the plan of measures for the prevention of money laundering and terrorism combating. However, fully addressing this problem requires further attention. Among other things, it should be addressed both through strengthening and coordinating the work of all law enforcement agencies, as well as through further structural reforms in support of the economy formalization. Second, the pass through of monetary policy decisions to financial markets was satisfactory. The increase in policy rate engendered an overall rise in interest rates, though the overall financing condition in Albania still remain simulating. Credit portfolio to the private sector, in response to them and banks' positive approach towards lending, recorded a fast and stable growth over 2023, around 10%. Lending growth also had some positive features: the new credit had a broad sectoral base; it was focused on our domestic currency; it had an upward orientation towards investment financing; and did not harm the overall quality of the portfolio. These features suggest a sustainable and sound credit growth in the future as well. Third, the normalisation of monetary policy stance enabled the reduction of inflation, without jeopardising the positive economic growth trend. The positive contribution of the monetary policy was materialised through three channels. First, there was willpower exhibited and concrete measures undertaken to meet the price stability objective, which helped to anchor inflationary expectations and mitigate economic agents' uncertainties. Second, the prudential increase of financing costs led to a more balanced performance of demand and supply in the economy, enabling the curbing of the domestic inflationary pressures. Third, the normalisation of the monetary policy stance helped financial markets to operate smoothly, keeping down their risk premia. Inflation and expectations on inflation, as a result of this reaction, stay already close to our 3% target, while second-round effects remain under control and the outlook for the future is positive. However, domestic inflationary pressures still appear relatively high, while uncertainties about the future are heightened. 5/9 BIS - Central bankers' speeches In these circumstances, our monetary policy decisions in the future will be new- data oriented. They will always be consistent with our price stability objective, continuously factoring both the overall balance of price stability and the factors affecting it, and in particular the fiscal policy stance and the exchange rate performance. 2. Banking supervision and financial stability The increase in interest rates and heightened uncertainties experienced over the past two years by both the domestic and external environment, have posed a challenging environment to the activity of the banking sector and our financial stability. However, the banking sector in Albania has responded positively to this challenge, and financial stability appears consolidated. The Albanian banking sector concluded 2023 with a positive financial result, a high level of liquidity and capitalization indicators, and improved credit quality. Our regular analyses show that the systemic risks to the banking system remain contained. The resilience, stability and flexibility of the financial system against these continuous challenges reflects a level of supervision which is both meticulous and efficient. This is also the result of the structural reforms of the financial market undertaken throughout the years by the Bank of Albania. The continuous investment made over the years has strengthened the resilience of the banking sector against shocks and has enabled it to continue to meet the demands for funds of the economy. In 2023, we have continued to work for the supervision and prudential regulation of the banking sector, for the development of financial markets and payment systems, as well as for strengthening the safety nets in the system. Two important achievements were recorded by the Albanian banking sector last year. First, Albania has been taken off the list of places continuously monitored by the Financial Action Task Force (FATF) regarding the development of infrastructure for anti- money laundering and countering financing of terrorism, also known as "grey list". This event consists a pivotal point of the reforms undertaken by national institutions, including the Bank of Albania, to fulfil the necessary criteria. Being removed from the grey list of FATF, marks an important achievement for our country, the economy and the reputation of Albania, because it is a demonstration of trust by the international community on our dedication in the fight against money laundering and combating financing of terrorism. Second, upon the exit from the "grey list" we have started the procedures to receive the equivalence status of our supervisory and regulatory frameworks with the EU standards. Our preliminary assessments suggest a high convergence level of the Bank of Albania with these standards. Therefore, we have submitted the official request to the European Banking Authority (EBA), and we are expecting to start our discussions on the equivalence assessment process for Albania. Obtaining the equivalence status is expected to directly affect the increase in lending from European banks that operate in Albania. In the same vein, we have continued our work on further strengthening the banking regulation and supervision, as well as consolidating the resolution plans. Below, I will list some of the priorities of the Bank of Albania in this regard. 6/9 BIS - Central bankers' speeches First, the Bank of Albania has improved its supervisory and regulatory framework aiming to approximate it with the EU acquis and Basel principles. Some regulations have been revised in order to strengthen the capitalisation standards of the banking system and supervision, the regulation on the reporting systems of payment institutions and electronic money institutions. Second, the approval of the law "On payment account with basic features" by the Assembly of the Republic of Albania, which was drafted by the Bank of Albania with the assistance of the World Bank, and the regulation of the Bank of Albania "On the comparability of the fees related to payment account and payment account switching service", concluded the transposition of Directive 2014/92 of the European Union to the regulatory framework of the Bank of Albania. The transposition of this directive marks the fulfilment of the requirements of the European Integration National Plan 2022-2024. The law on payment account with basic features provides the consumer the possibility to access basic banking services, through "the payment account with basic features", avoiding discrimination of consumers based on their employment status or financial situation. Third, the Bank of Albania drafted the document on the banking sector financial reporting, which is the first step toward the adoption of the international standards on financial reporting and accounting. The document consists of the standards delineated by the European Banking Authority (EBA). The final document, distributed to commercial banks, has served to open the discussion on the challenges and respective obligations springing from its implementation. Fourth, the Bank of Albania has developed and approved the Medium-Term Green Strategy 2023-2025 for "The Management and Supervision of ClimateRelated Financial Risks in the Financial Sector" in cooperation with the World Bank. The strategy lays down a detailed action-plan based on best international practices and complaint with the EU Commission Action Plan. This strategy comprises all the aspects and policies of the Bank of Albania which contribute directly to the effective management of climate risks in the financial sector. Fifth, the Bank of Albania continued to monitor rigorously the banking sector through on-site examinations and off-site analyses. The examinations' focus was the monitoring of compliance with the regulatory requirements on capital, the assessment of governance systems and culture, the assessment of the management of credit and market risk, and operational, IT and liquidity risks, and the assessment of transparency with clients. The above monitoring suggests that financial institutions under the regulatory and supervision authority of the Bank of Albania follow a meticulous approach in managing risks, have a stable management culture, and are overall compliant with the regularity framework. Lastly, the Bank of Albania has continued to enhance its ability for resolution. In the capacity of Resolution Authority, the Bank of Albania has completed and communicated the resolution plans to all banks, including the resolution strategies of specific banks, the minimum requirements on financial assets needed for loss absorption and recapitalisation, as well as requirements for increasing resolvability. Banks have made steps forward in regards to governance, capacity enhancement, the ability for loss absorption and their capitalisation, and ensuring business continuity and preserving market access. Along with the primary objective of preserving monetary and financial stability, the Bank of Albania is responsible for other activities as well, which are considerably 7/9 BIS - Central bankers' speeches important for the development and growth of society's welfare. Further on I will provide a brief summary on some of these. 3. Other activities The Bank of Albania plays a key role in promoting the smooth functioning of payment systems through the operation and management of three main infrastructures for processing interbank payments and one infrastructure for securities settlement. All the systems have been fully available. The newest system of Euro payment settlements within Albania experienced a further increase in its use during 2023. As a result, it has been assessed that Albanian businesses and consumers saved around EUR 37 million from the use of this system in 2023. The development of payment services infrastructure has supported the expanded use of e-payment instruments and the financial inclusion of the population. Our statistics show a growth of 25.5% in card payments, e-money payments and home banking payments. The use of electronic payments per capita reached 21 payments, from the 10 payments objective set in the National Retail Payment Strategy for 2023. The Bank of Albania has worked intensively to ensure the safety, efficiency and availability of the payment systems. In 2023, we started our work to receive membership in the Single Euro Payment Area (SEPA), which is an integral part of the Growth Plan for the Western Balkan area, drafted by the European Commission. This membership is our chance to integrate our payment platforms and electronic trade with the European market, and it will enable equal fees to be applied to national as well as international and electronic payments in the euro. The preliminary assessments on the compliance criteria with the EU legislation, adopted with the assistance of the World Bank, have shown that Albania is leading the Western Balkan region in the approximation of the legislation that enables its membership in SEPA. The application process is being led by the Bank of Albania, but it also reflects the contribution of several other public institutions. In addition, we have undertaken important steps for the implementation of a new payment infrastructure, such as that of instant payment. This infrastructure allows the electronic settlements of small-value payments, in a safe and prompt manner and at any given moment of the day. The Bank of Albania is being actively supported by the Bank of Italy for the development and implementation of this system, according to the TIPS instant payment system model of the euro area. Eventually, this solution facilitates the integration of our payment system with the ones of the EU in the future. In parallel, by encouraging and ensuring electronic payments, we have also accommodated the economy's demand for cash. Following the issuance of the new series of banknotes in 2022, we have fulfilled all the demand of the Albanian economy for cash, in both value and structure, over 2023. Also, the Bank of Albania has fulfilled the institutional obligations stemming from the Stabilization and Association Agreement, the Progress Reports of the European Commission, joint EU-Albania subcommittees and the National Plan for European Integration. Upon the opening of negotiations, the Bank of Albania has actively contributed in bilateral meetings (i.e., screenings) for each of the Acquis chapters between the Albanian delegation and the representatives of the European Commission. 8/9 BIS - Central bankers' speeches Furthermore, we have continued to lead the drafting of Chapter 4 and 17 on "Free movement of capital" and "Economic and monetary policy", respectively. The Bank of Albania has scrupulously managed the international reserve, by observing the main objectives of liquidity and safety. The level of our international reserve is in accordance with our adequacy criteria and best international practices. In addition, returns from reserve management have been positive, due to the increase of interest rates in international market in 2023. At the same time, our relationship with the public and stakeholders were motivated by the principles of transparency and accountability, keeping open channels of communication at all times. This approach helps to increase the efficiency of the policies adopted by the Bank of Albania. However, it requires a satisfactory degree of financial education of the public. In order to improve the latter, we adopted the Strategy of the Bank of Albania for Financial Literacy and Inclusion, the first institutional document that promotes financial literacy. Some of the main objectives incorporated in this strategy are: the well management of personal finances and sound borrowing; planning and saving for the future; and consumer protection. The Bank of Albania has now started to implement this strategy. Finally, significant improvements have taken place in terms of improving the governance of the institution, through updating risk management systems and the infrastructure of information technology. Considering the latest cyberattacks, which have targeted public and private Albanian institutions, we have dedicated attention to strengthening cybersecurity that supports the continuation of the Bank of Albania's daily activity and the functioning of the banking and financial system. In this context, we have strengthened security and monitoring measures as well as technical and procedural ones, based on the best international practices and standards, in cooperation with the national and international institutions, and for the resilience against potential cyberattacks. Honourable Members of Parliament, Allow me to ensure you that the Annual Report is a faithful reflection of our opinion on the economic outlook and the banking system in Albania, the work results of the Bank of Albania over the year in regards to fulfilling the legal objectives and our institutional engagements, as well as of our financial results. Also, I would like to reiterate the engagement and dedication of the Bank of Albania in respecting all legal obligations and institutional engagements. This commitment is documented in the Medium-term Strategy of the Bank of Albania, a summary of which is an integral part of this Report. Thank you for your attention! 9/9 BIS - Central bankers' speeches | bank of albania | 2,024 | 5 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Bank of Albania and World Bank Workshop "Albania's path to SEPA integration, financial inclusion and eduction", Tirana, 14 June 2024. | Gent Sejko: Albania's path to SEPA integration, financial inclusion and education Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Bank of Albania and World Bank Workshop "Albania's path to SEPA integration, financial inclusion and eduction", Tirana, 14 June2024. *** Dear ladies and gentlemen, I am delighted to warmly welcome you in this Workshop, focusing on two important topics: submission of application for integration in the Single Euro Payments Area (SEPA), and the importance of financial inclusion and education, as crucial issues for the development of Albania. These topics might, at first glance, seem unrelated to each other, but they share a single objective: improving the well-being and financial stability of Albanian families and businesses. If handled with responsibility, both of them might contribute to the financial and macroeconomic stability of Albania. More than ever, the economic growth and economic stability depend on the financial empowerment of all our citizens. Due to the rapid developments in the field of: finance, artificial intelligence, digitalisation; as well as in economy and money, our commitment towards these objectives has become purposefully. Allow me first to list some of the most important developments taking place in payment systems. The Bank of Albania, in the past year, has considerably intensified the efforts for accelerated membership of Albania in the Single Euro Payments Area - SEPA. These efforts have been materialised in touchable measures and quite optimistic. Two days ago, the Bank of Albania officially submitted the application to the European Payments Council for Albania's membership in SEPA, ranking the first country in the Region to successfully complete this important phase of integration into the Euro payments area. It is important to highlight that the drafting of the application has been a laborious task led by the Bank of Albania, but thanks to our preparatory work and cooperation with other several public institutions, this project is being carried out successfully. The accelerated membership in SEPA is one of the measures laid out in the Project "Payment Systems Modernization in the Western Balkans", which has become a national priority in the framework of fulfilling the New Growth Plan for the Western Balkans of the European Union. It has the support of the European Commission, the Regional Cooperation Council and the World Bank. Membership in SEPA brings multidimensional benefits to Albania in the framework of the integration process in the European Union, also as regards the Albanian economy and the domestic payment market. Simplification, convenience and efficiency are three among the main benefits of this membership for the consumers and businesses. Through SEPA, the Albanian citizens and businesses will conduct their payments and transfers just like their European 1/3 BIS - Central bankers' speeches counterparts and vice-versa. The main benefits of the Albanian economy and Albanian families will be among others in the areas of trade, tourism, remittances, and direct investments. Projections show that the Albanian economy, over the medium term, will benefit some hundred million euro from membership in SEPA. From the integration process viewpoint, the accelerated membership in SEPA guarantees that Albanian citizens will be treated equally to their European in the field of payments. Also, it guarantees that the Albanian payments market is in compliance with the European Union legislation and practices in terms of Chapter 4 that delineates the "Free Movement of Capital", while successfully crowning the consistent and multi-year efforts of the Bank of Albania, as the institution responsible for this chapter. Last but not least, fulfilling this objective marks the first step toward our engagement in the framework of the new Growth Plan for the Western Balkans, which will enable Albania to obtain the necessary funds to pave a sustainable path toward the EU membership in 2030, which is also our final objective. As previously stated, we can benefit from the advantages provided by the financial instruments only through financial education and know-how. That is why the second part of this workshop focuses on financial education, which equips individuals with the necessary know-how and skills to take informed decisions on personal finances management. Albania is a developing economy, with a low level of financial literacy traditionally, thus, working in this regard can bear significant achievements. The Bank of Albania, as a result of its initiatives, notes with a degree of satisfaction a significant increase in financial inclusion. Thus, based on official data from the national register of bank accounts, in 2023, around 78% of adults own a bank account, a figure which could reach 85%, if payment accounts of electronic money institutions were to be included as well. The higher financial inclusion has been accompanied by an increase in electronic payments. More concretely, in 2023, the number of electronic payments per capita reached 21, from 4 per capita in 2017. A considerable increase was recorded in card payments, as they reached 11 payments per capita in 2023, from 5 payments per capita in 2020. From years, the Bank of Albania has paid special attention to financial education and literacy. In order to have a responsible approach in this regard, the Bank of Albania has approved the Strategy on Financial Education and Inclusion (BoASFEI). This document, as compiled in compliance with the best international practices, makes official the efforts of the Bank of Albania in promoting financial education as a public good for everyone, for bolstering financial inclusion, consumer protection and increasing financial welfare of individuals as well as the stability of entire financial system. We are pleased to share this objective with various public and private institutions and organisations engaged in the area of finance, education and development, which focus their work on the enhancement of financial literacy. The common work may transform the Bank of Albania Strategy on financial inclusion and education into a national one, which would coordinate at a national level the initiatives of all stakeholders, driving to more tangible results. I am optimistic that we will reach this objective sooner rather 2/3 BIS - Central bankers' speeches than later. The activity today is part of this strategy' the action plan, allowing these important collaborators to present and display their work and projects and coordinate their visions and objectives. As we work together for accomplishing these common objectives, a special thank is addressed to public institutions that adopt policies which promote financial education and inclusion; financial institutions that develop and provide all-inclusive financial products and services; educational institutions which integrate financial education in their curricula and programs; non-government organisation that work in the field to educate and empower their communities; as well as the information technology companies and Fintech innovators who work to digitally transform the financial sector. Before concluding, I would like to express my gratitude to the World Bank, SECO and the Swiss Embassy in Tirana, and absolutely the Albanian Government, as they are important partners in the process of drafting and implementing these challenging projects. Together, we could build an inclusive society in a financial manner, where each individual can develop and realise its own potential. Thank you! 3/3 BIS - Central bankers' speeches | bank of albania | 2,024 | 6 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Hearing of the European Affairs Committee of the Albanian Parliament on the preparation of Albanian institutions regarding Albania's participation process in the Single Euro Payments Area (SEPA), Tirana, 17 July 2024. | Gent Sejko: Albania's participation process in the Single Euro Payments Area Address by Mr Gent Sejko, Governor of the Bank of Albania, at the Hearing of the European Affairs Committee of the Albanian Parliament on the preparation of Albanian institutions regarding Albania's participation process in the Single Euro Payments Area (SEPA), Tirana, 17 July 2024. *** Honourable Chair, Honourable members of the Committee, First of all, thank you for the invitation and the opportunity to share with you the work we have dedicated to the first step towards the economic integration in the European Union. This step regards to the official submission of Albania's application to the European Payments Council, for participating in the Single Euro Payments Area, also known as SEPA. The application was sent in June, as scheduled in the action plan. Given the multi-dimensional importance of SEPA, I extend my gratitude for the attention expressed by this Committee in the process of Albania's membership into SEPA. Its successful finalisation will benefit from the support of all the public institutions involved in the integration processes. Before delving into more details regarding the application process, allow me to briefly summarise its history and context. The work for Albania's participation in SEPA has started in 2021, when the Bank of Albania became part of the regional project "Payments modernization in the Western Balkans". This project originates from the agreements achieved under Berlin Process and aims at developing financial and economic relationships among Western Balkan countries, while simultaneously integrating the region into the European Union. In November 2023, the European Commission, to encouraging the efforts made by the countries to expand their economic integration with the European market, included the accelerated participation in SEPA in their priority agenda of regional enlargement. Previous assessments of the World Bank experts showed that Albania was noticeably prepared to start the application, since it fulfilled almost all the criteria. In particular, it was assessed that Albania had made a significant progress regarding the alignment of its payment legislation with that of the European Union. The commitment to start the application for membership in SEPA was re-highlighted in the Ministerial as well: "The Western Balkans toward the Single Euro Payments Area (SEPA)", which was held on 28 February of current year, where Albania expressed its dedication to submit the application by June. The Bank of Albania has led and coordinated the work for submitting the application. However, to accomplish this task, the contribution and cooperation of other public institutions, as per the requirements of the application, was necessary. I would like to take a moment to thank all the institutions involved in the process for their utmost engagement dedicated to this work, particularly the Ministry of Finances. The Bank of Albania compiled an action plan, coordinated and cooperated with all the national 1/5 BIS - Central bankers' speeches institutions involved in the process, while established bridges of communication with the European Payments Council and the European Commission, in order to address every arising during the process. The entire application process was conducted through the valuable assistance of the World Bank. Allow me to stress out that within less than 5 months, a voluminous and detailed material was compiled, and all the stages of preliminary consultations with the European Payments Council and the European Commission were successfully completed thanks to this coordination and cooperation. The criteria set forth by the European Payments Council for countries that apply to participate in SEPA are concentrated in two aspects. First, the applicant should demonstrate strong economic links with the European Union, and second, it should demonstrate the alignment of its legislation with that of the European Unions in the area of payments, but not exclusively. The latter has the largest volume in the application. In the area of payments, Albania demonstrates a high legal compliance with the Acquis and the regulatory framework of SEPA. Since 2018, Albania has accelerated its efforts in this regard, through the drafting by the Bank of Albania and the approval of the Law "On Payment Services" and the regulatory framework for the implementation thereof. This law transposes the EU Directive on Payment Services, known as PSD2. The approval of this law ensures that competition, transparency and consumer protection are maintained during the provision of payment services, following the standards of the European Union. In order to fully align the regulatory framework of payments with the SEPA criteria, in March and April, the Bank of Albania prepared and approved a new regulation, which transposes the SEPA regulation. Alongside laying down certain harmonised standards, this regulation gives the banking system the necessary time to prepare its infrastructure to adapt to the SEPA schemes. Another aspect of legal compliance is related to the supervisory practices of the banking system and the regulatory requirements on capital, which were for the most part congruent to the EU legislation on the context of SEPA. A delicate point in the application is the legal compliance as regards the measures adopted for preventing money laundering and countering of terrorist financing. The delisting of Albania from the "grey" list last year, removed a barrier that prevented it from fulfilling the application criteria. Our legislation regarding money laundering is assessed as generally compliant with the Acquis, although some legal amendments are still necessary. We are in close contact with our colleagues at the Financial Intelligence Agency, as we discuss how to address these issues which will successfully support Albania's application. However, allow me to highlight that a beneficial contribution originating from participation in SEPA, besides the formalisation of the economy, is the possibility to implement in a more rigorous manner money laundering. More concretely, shortening the payment cycle and including fewer actors in this process, gives lawabiding institutions the possibility to monitor more effectively. Furthermore, the practices 2/5 BIS - Central bankers' speeches and standards of SEPA schemes implement the advanced communication standard (ISO 20022) to create the necessary pre-conditions so that the monitoring of transactions is rendered in a more effective manner. Other legal aspects comprising the necessary criteria to participate in SEPA are related to the protection of competition and personal data, free capital movement, taxation according to international standards, private international rights, etc. The assessment of relevant authorities, supported also by the conclusions of screening meetings, show that our legislation is adequately aligned with the Acquis, in the context of SEPA. Albania's application will be analysed by the European Payments Council, which manages the SEPA schemes, as well as the European Commission. The latter should agree to include Albania in the geographical scope of the SEPA schemes in the context of integrating non-member countries in the European market, based on the same rules and standards. Participation in SEPA, beyond the political importance of the country's integration in the European Union, brings a series of benefits for Albanian consumers, businesses and the economy. First, cross-border payments in Euro are conducted at the same costs with national payments. This means cheaper and faster payments with the countries which are SEPA members. Currently, transfers and payments with the European Union countries and vice versa are conducted through correspondent banks. This is a costly and inefficient channel in terms of: transaction execution time; monitoring of its finalization; transparency of working conditions; and consumer protection. Through SEPA, the costs of cross-border Euro payments with its member countries are at a minimum 5 times lower. Most of cross-border financial transactions are conducted with the EU countries - around 58% of goods' trading. At the same time, these countries ensure half of the stock of Foreign Direct Investments. There are sizeable economic benefits from conducting payments which are more efficient as regards costs, time and safety, and according to our preliminary assessments they could reach up to EUR 20 million, in the first year, progressively increasing thereafter. In more concrete terms, based on the experience of AIPS Euro, through which the Bank of Albania has saved the Albanian market EUR 50 million since its launching in January 2022, the impact from SEPA membership will be even broader. Both projects aim to reduce fees on payments, however AIPS Euro targets Euro payments conducted within the country, whereas SEPA will affect cross-border payments. In this context, since the volume of cross-border transactions is manifold compared to domestic ones due to tourism, trade and the close cooperation between Albanian and European citizens, the impact base is broader and addresses the higher fees charged on these types of payments from banks. Second, the facilitation of cross-border payments with the European Union boosts the expansion of trade relationships with the EU, the main trading partner of Albania. By facilitating the conduction of transactions, Albanian businesses have access to a large market, which could provide them the opportunity to expand their 3/5 BIS - Central bankers' speeches services and products and increase competitiveness, ensuring European partners that they are receiving what they get within the borders of the Union. Third, almost all remittances come from EU countries and the UK, which is also a SEPA member. The facility provided by SEPA will encourage the senders of remittances to use official channels, in addition to increasing the value of savings. Fourth, SEPA participation promotes an efficient and reliable payment system for small economies like Albania. As a payment market regulator, this is a desirable objective of the Bank of Albania. Through standardising cross-border payments and employing an advanced technology, it is possible to develop a more contemporary payments market in accordance with European policies; one which supports competition in the retail payments market, as well as transparency and trust on the products offered to the public regarding cross-border payments. Last, the use of SEPA payments is expected to bring a positive change in the behaviour of Albanian companies and households as regards the methods for carrying out electronic (cashless) payments. It serves as an educational instrument which supports the expansion of financial inclusion of the population. Even after the submission of the application, the Bank of Albania has continued its work to comply with the regulatory framework and establish the technical conditions in support of the process. Currently, we are discussing with the relevant institutions the possibility to introduce some amendments to the regulatory framework as regards the implementation of the Law on Payment Services and the adoption of measures for the prevention of money laundering through cross-border transfers. These amendments reflect the new regulations of the European Union which have currently entered into force, or that will do so in the successive months, and are relevant in the context of SEPA participation. Upon the approval of Albania's participation in the geographical scope of SEPA, our payment institutions should individually apply to participate in SEPA schemes. The Bank of Albania has undertaken some initiatives as regards the infrastructural developments necessary to facilitate the membership. It is important to mention the project for improving our payment systems, aiming, among others to further approximate with the ISO 20022 communication standards and the rules of conduct of SEPA on transactions carried out domestically. The implementation of these standards and regulations is a necessary preliminary condition as regards the technical criteria of this market, when our payment institutions will join SEPA schemes. The market should be prepared beforehand, therefore by making these standards mandatory on domestic payments, market players will be well-prepared for SEPA membership. Also, the Bank of Albania is in close contact with the Albanian Association of Banks, which will support and guide banks to lay out the necessary infrastructure. As it was already mentioned, upon getting the approval to join the geographical scope of SEPA, banks will be granted the time necessary to prepare the technical conditions to carry out SEPA transfers. However, I would like to highlight the fact that since some of the banks originate from pan-European banks, the transition process needed to use these schemes will be faster and more effective. 4/5 BIS - Central bankers' speeches Another project of great importance related to SEPA, as well as the domestic payments market, is the one regarding the implementation of the instant payment infrastructure. In the international arena, these systems are becoming increasingly important, as they allow the transfer of funds 24/7, using innovative methods, in the domestic market, also for cross-border payments. Instant payments facilitate crossborder trade, increase competition and reduce costs. In order to fulfil this project, which started years ago, several analyses on the needs of the domestic market as well as the interaction with the countries of the region and the EU, were carried out. We are currently communicating with the Bank of Italy to adopt a system which will be identical with the instant payments system that is run by the European Central Bank. In this way, the system that we are aiming to adopt will be in compliance with SEPA, and other systems operating in the EU. In conclusion, I would like to reiterate that the Bank of Albania is fully committed to continue its cooperation with the other institutions in order to successfully realise its national objective. The Bank of Albania will take all the necessary measures as a regulator to support the membership of Albanian payments institutions into SEPA and their integration in the European markets. 5/5 BIS - Central bankers' speeches | bank of albania | 2,024 | 7 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Assembly of the Republic of Albania presenting the Annual Report of the Bank of Albania for 2023, Tirana, 18 July 2024. | Gent Sejko: Albania's economic and financial developments in 2023 Address by Mr Gent Sejko, Governor of the Bank of Albania, to the Assembly of the Republic of Albania presenting the Annual Report of the Bank of Albania for 2023, Tirana, 18 July 2024. *** Honourable Speaker, Honourable Members of Parliament, Allow me at the beginning of the regular presentation of the Bank of Albania Annual Report for 2023, to re-affirm the high consideration that the Bank of Albania and personally have regarding accountability and the dialogue with parliament. Traditionally, this presentation aims to present to the Assembly a complete and faithful overview of our opinion on economic and financial developments over the past year, the measures taken by the Bank of Albania in fulfilling its legal mission and duties, and to provide an assessment of their impact. Dear Members of Parliament, In 2023, Albanian economy has consolidated the positive development trends, both in terms of growth and improving the country's main economic and financial balances. Despite a difficult and challenging external environment, the volume of economic activity in Albania continued to grow, generating higher income for Albanian businesses and households. According to INSTAT data, the volume of economic activity in Albania grew by 3.5% over the past year. In parallel, employment and average wage in private sector rose by 2.2% and 13%, respectively, while unemployment rate fell to the new historical minimum of 10.7%. The expansion in family consumption, private investments and in the export of tourism services underpinned the economic growth, while fiscal policy maintained the consolidation trend. From the macroeconomic perspective, economic growth reflected the sound financial balance sheets of private sector, the gradual improvement in businesses and households' confidence, the expansion in bank credit, inflation coming down, and the rapid growth in the income from tourism. The surge in the demand for goods and services did not harm the downward trend of inflation. In contrary, over 2023, this indicator fell gradually to 4% as at end of 2023, from 7.4% at the beginning of year. The decline in inflation in international markets, the strengthening of the exchange rate, and the normalisation of the monetary policy stance affected this performance. The decline in inflation and its progressive approach towards the target helped preserving the value of households' income and savings, supported the smooth functioning of financial markets and backed the strengthening of macroeconomic stability in Albania. In parallel, the domestic and external balances of our economy improved in 2023. In particular as following: 1/6 BIS - Central bankers' speeches First, the improvement in the external position of Albania, reflected in a rapid fall of the current account deficit. This deficit dropped to 0.9% of GDP over 2023, recording a historical minimum of the post-transition period. Also, external debt dropped below the level 50% of GDP, while the level of foreign exchange reserves of the Bank of Albania grew, in turn improving our ability to respond to both domestic and external shocks. The increase by EUR 1.7 billion in the Albanian exports over the past year, coupled with the immediate growth in foreign direct investments - which reached a new historical record of EUR 1.1 billion – led to these improvements. Second, the improved fiscal position of Albania, being reflected in the reduced budged deficit and public debt, at 1.4% and 58.9% of GDP, respectively, the minimum levels for more than a decade. The decreased public debt increases fiscal spaces for reaction against potential shocks in the future, as well as decreases risk premia and financing costs for all economic operators. Third, the sustainability of the banking sector, being reflected in the improved indicators of capitalization, profitability, as well as of the loan portfolio quality. The non-performing loans ratio stood at 4.8%. These positive trends enable the banking sector to supply - efficiently and continuously - the Albanian economy with financial funds as well as with payment and saving instruments. The Albanian economy, in a longer-term perspective, has displayed an admirable degree of resilience and flexibility in face of the huge challenges experienced in recent years. Among others, this fact was reflected in the improved risk ranking of the country's public debt by foreign rating agencies, now at BB-, according to Standard & Poors, as well as in the increased interest of international operators to invest in Albania, both in real economy and financial market. Honourable Members of Parliament, The positive development momentum of the country is attributable - first - to the resilience, flexibility and dynamism of the private sector. In addition, this positive developing momentum, reflects our prudential monetary policy, our supervisory, regulatory and macro-prudential measures, as well as the continuous work we have carried out for the advancement and modernization of payment systems. In more concrete terms, the prudential normalisation of the monetary policy stance, first enabled to keep inflation under control and further its continuous reduction, at minimum costs on the economic activity and financial stability of Albania. Also, our rigorous micro and macro-prudential measures strengthened the stability of the banking system, while the continuous alignment of our regulations with the European Union standards led to a considerable regulatory convergence, by reducing financial risk premia in Albania. Last, the ongoing advancement regarding the infrastructure and regulatory basis of payment systems has driven up financial inclusion and has helped efficiency and formalisation of private sector edging up. Next, I will delineate in more concrete terms the main aspects of our work over the past year, by evidencing the undertaken measures and the achieved outcomes. Monetary policy and price stability 2/6 BIS - Central bankers' speeches The monetary policy of the Bank of Albania has continued to be oriented towards the fulfilment of our legal objective: achieving and maintaining price stability. In this context, I would like to highlight that still high and above-target inflation rates dictated the continuation of a normalising monetary policy over 2023. Nevertheless, we have tried to implement a more flexible monetary policy, aiming not to undermine the positive development trends of Albania and by taking care to harmonize it with the financial developments and the fiscal policy stance. In this context, allow me to focus on two important conclusions: First, the normalisation pace of monetary policy slowed down over the course of 2023. In this year, we have increased the policy rate only twice, with a cumulative effect of 0.5 percentage point. This slowdown reflected the exchange rate strengthening and the consolidation stance of fiscal policy. In more concrete terms, rapid lek appreciation helped in mitigating imported inflationary pressures, while fiscal consolidation helped in curbing domestic inflationary pressures. In particular, lek strengthening has been and continues to be one of the most prominent economic developments of this period by providing an entirely positive impact on the economy. It contributed to keep inflation under control, by enhancing the purchasing power of Albanian households, as well as enabling a more gradual normalisation of our monetary policy stance, by keeping financing costs to businesses low. Consequently, Albania has one of the highest economic growth rates, the lowest inflation rate and the slowest increase in financing costs, across regional countries. Second, the increase in policy rate engendered an overall hike in interest rates in the country, though the overall financing conditions in Albania still remain simulating. In response to them coupled with the positive approach of banks, credit portfolio to private sector grew steadily and rapidly over 2023, presently standing at 14%. Growth in lending was characterised by certain positive features: i) new loans were broadlybased by sector; ii) it was concentrated in our national currency; iii) it showed an increasing orientation towards investment financing, and did not jeopardise the overall quality of credit portfolio. All the three features have continued and further strengthened during 2024. Inflation and expectations on inflation, as a result of this reaction, stay already close to our 3% target, while forecasts for the future are positive. Banking supervision and financial stability The increase in interest rates and higher uncertainties experienced over the past two years in Albania and worldwide, have created a challenging environment to banking activity and financial stability. Nevertheless, our banking system and financial stability in Albania appear solid. In particular, the Albanian banking sector closed 2023 with a 3/6 BIS - Central bankers' speeches positive financial result, a high liquidity and capitalisation level, and a further improved credit quality. Our analyses show that systemic risks to banking sector remain contained. In particular, two important achievements were recorded by the Albanian financial sector last year. First, the removal of Albania from FATF' list of jurisdictions under increased monitoring, regarding the development of infrastructure for anti-money laundering and counter-terrorism financing, known as "grey list", constitutes the pivotal point of the reforms undertaken by the Albanian institutions, including the Bank of Albania, to fulfil the necessary criteria. Albania taken off FATF grey list marks an important achievement for our country, the economy and the reputation of Albania, as it is a demonstration of trust by the international community on the Albania's dedication against money laundering and combating terrorist financing. Second, upon the delisting from the "grey list", the Bank of Albania has started the procedures to receive the equivalence status of our supervision and regulatory framework with the European Union standards. Our preliminary assessments suggest a level of convergence of approximately 90% with these standards. Therefore, we have submitted the official request to the European Banking Authority (EBA), and we are expecting to start our discussions on the equivalence assessment process for Albania. This equivalence assessment will enable the increase of lending to economy from the European commercial banks that conduct their activity in Albania. The resilience, sustainability and flexibility of the financial system against the recent challenges reflect a supervision, which is both meticulous and efficient, as well as the structural reforms undertaken by the Bank of Albania. In particular, the continuous investment made over the years has strengthened the resilience of the banking sector against shocks and has enabled it to continue to meet the demands for funds of the economy. In 2023, we have been working on the following: First, the Bank of Albania has improved its supervisory and regulatory framework, aimed at its approximation with the EU Acquis and Basel principles. Second, the approval of the Law "On payment accounts with basic features" by the Assembly of the Republic of Albania, which was drafted by the Bank of Albania with the assistance of the World Bank, and the regulation approved by the Bank of Albania "On the comparability of the fees related to payment accounts and payment account switching", enable the consumer to access the bank basic services, despite their employment status and financial situation. Third, the Bank of Albania drafted the document on the banking sector financial reporting, which is the first step for implementing the international standards on financial reporting and accounting. Fourth, we have compiled and adopted the Strategy on "Management and Supervision of Climate-Related Risks in the Financial Sector", in collaboration with the World Bank. Fifth, the Bank of Albania has continued monitoring the activity of banking sector, through on-site inspections and off-site analyses. Examinations has focused on 4/6 BIS - Central bankers' speeches monitoring the completion of the regulatory requirements on capital, the assessment of governance systems and culture, the assessment of risk management regarding: capital and market risk; operational risks, information technology risks, liquidity risks, as well as the assessment of transparency with clients. Last, the Bank of Albania has continued the further enhancement of its resolution ability, alongside with its primary role in safeguarding the monetary and financial stability of Albania. In addition, the Bank of Albania carries out various activities which are crucial in bolstering the development and growth of the overall wellbeing of the society. Below, I will list briefly some of them. The Bank of Albania assures the smooth operation of payment systems. In particular, the new payment system for the settlement of interbank customer payment orders in euro, within the territory of the Republic of Albania – AIPS EURO, since the start of its operation in January 2022, saved to the Albanian households and businesses EUR 50 million in the form of lower fees and commissions on payments. These savings amounted EUR 37 million only in 2023. The development of payment infrastructure has supported the expanded use of electronic payments and the increased financial inclusion of citizens. The use of electronic payments reached 21 payments per capita, recording an increase of 25.5% of payments via cards, payments via electronic money and of home banking payments. In 2023, we started our work for participation in the Single Euro Payments Area (SEPA), an integral part of the Growth Plan for the Western Balkans, drafted by the European Commission. This process culminated in 2024, with the submission of the official application to European Authorities to be an integral part of this system. In parallel, we have taken important steps to develop new payment systems such as instant payments. This system enables electronic payments of small value, safely, at any point of the day and at an almost immediate time. For the development and implementation of such a system according to the model of TARGET Instant Payment Settlement (TIPS) in eruo area, the Bank of Albania is actively supported by the Bank of Italy. Also, the Bank of Albania has fulfilled the institutional obligations under the Stabilization and Association Agreement, the Progress Reports of the European Commission, joint EU-Albania sub-committees and the National Plan for European Integration. The Bank of Albania has provided its active contribution in bilateral meetings regarding the relevant chapters of the Acquis taking place between the Albanian delegation and the representatives of the European Commission. In this regard, we have chaired the drafting of chapters 4 and 17, related to the "Free movement of capital" and "Economic and monetary policy". In parallel, we have: managed the foreign exchange reserve; worked to further develop and improve statistics; met the needs of the economy for cash; and worked to further improve the financial communication and education of public. In this regard, allow me to emphasise the approval in the past year of the Bank of Albania's Strategy on Financial Education and Inclusion. This strategy is the first document that promotes financial education in Albania. Honourable Members of Parliament, 5/6 BIS - Central bankers' speeches The activity of the Bank of Albania has been and will remain focused on three main pillars: Strengthening the monetary and financial stability of Albania, as a key precondition for the sustainable and long-term growth and for improving the wellbeing of society; Fulfilling all our institutional commitments, aimed at being a development promoter of the financial industry and a reliable institutional partner for the advancement of the structural reforms agenda; as well as Meeting all the recommendations addressed by the Albanian Parliament. Allow me to conclude this presentation by assuring you that this philosophy will continue to guide our work throughout 2024. Thank you! 6/6 BIS - Central bankers' speeches | bank of albania | 2,024 | 8 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the 10th meeting of the National Payment System Committee, Tirana, 5 December 2024. | Gent Sejko: Address - 10th meeting of the National Payment System Committee Address by Mr Gent Sejko, Governor of the Bank of Albania, at the 10th meeting of the National Payment System Committee, Tirana, 5 December 2024. *** Dear representatives of financial community in Albania! It is always a pleasure to participate in the meeting of the National Payment System Committee, this year celebrating its 10th anniversary. As the chair of this Committee specified, the revolution taking place over the past decade in the payment area in Albania has profoundly transformed its every aspect. The Bank of Albania has guided this transformation, while showing proactive in regard to technological changes in the international payments environment, and leading the market towards the controlled adoption of these alterations. From the regulatory perspective, we succeeded in aligning our framework with that of the European Union for payment services. From an operator's perspective, we have provided the establishment of new payment infrastructures, such as the AIPS Euro system, as well as the optimal operation of the national payment systems. From the perspective of a catalyst, we have been quite active in advocating the ambitions of the payment industry to implement the best practices for secure, efficient, and transparent payments. The establishment of the adequate environment has motivated payment service institutions to expand further coupled with the increase in the variety of products offered to the public. The latter has benefited from lower costs, tailored products to needs, and enhanced access to payment services, which has been reflected in an increase at a double-digit rate in the use of electronic payments, reaching 21 electronic payments per capita, compared to only 2 payments in 2015. The costs of conducting bank transfers for electronic payments in lek have been reduced by up to 50%. At the same time, the use of the AIPS Euro system for domestic euro transfers is estimated to have saved clients above EUR 90 million since its start of operation in 2022, with the costs of transfers about five times lower, and the execution timeframe on the same date. Today, I would like to focus on two crucial moments that have crowned the Bank of Albania's multi-year work as a catalyst for developments in the digitalization field. First, as you already know, on 21st November of this year, the European Payments Council approved the inclusion of Albania in the geographical scope of SEPA payment schemes. This decision marks a political achievement at the national level as a concrete step towards integrating the country into the European market. Under the guidance of the Bank of Albania and in close cooperation with other public institutions such as the Ministry of Finance, the Ministry of Justice, the Ministry for Europe and Foreign Affairs, the Financial Intelligence Unit (FIU), etc., the application was submitted to the EPC, which demonstrated that Albania has a high level of legal compliance with 1/3 BIS - Central bankers' speeches that of the European Union. While we have accomplished the first step towards membership in the SEPA jurisdiction, the concrete economic benefits from this decision will be multiple. First, savings that will be generated from membership in SEPA for economic actors will amount to around EUR 20 million only in the first year, resulting from the reduction of fees. Second, the establishment of a supportive environment for key sectors of the economy, such as trade, will facilitate transactions with our main European partners, in addition to enabling for Albanian businesses potential access to a market of 500 million people. Third, a significant impact is also expected in tourism sector, as well as in remittances from emigrants and direct investments, which generate a considerable contribution to the Albanian economy. However, these benefits will be visible once each financial institution applies and joins the SEPA schemes individually. In this view, financial institutions are required to be technically capable of connecting to these schemes. Absolutely, this will need investments, which, in our judgement and yours, fully justify the benefits that the Albanian economy will have from direct participation in SEPA. In this case as well, the Bank of Albania will guide the process and support financial institutions to fulfil the SEPA technical criteria. Today, I take the opportunity to encourage you to begin comprehensive and devoted preparations to meet the deadlines of the respective regulations, so that you can achieve membership in the SEPA schemes and carry out SEPA transactions for clients within the next year. The second important development I would like to focus is "open banking". As you are aware, after the entry into force of the Law on "Payment Services", the Bank of Albania has compiled and approved the entire regulatory framework for the implementation of this law. The new legal and regulatory framework paved the adequate terrain for the implementation of open banking in Albania. The Bank of Albania has continuously collaborated - throughout this process - with domestic authorities, such as the National Agency for the Information Society (NAIS), the National Cyber Security Authority (NCSA), the Albanian Association of Banks (AAB) and bank experts. On the other hand, market actors have also taken steps to operationalize and make open banking functional in practice. Thus, in November 2024, upon meeting the legal and regulatory requirements, the Bank of Albania approved for the first time the activity of open banking by granting the first license to one of the electronic money institutions operating in Albania. Also, currently, applications from several other entities are in the process of being reviewed to receive approvals to conduct the open banking activity. I would like to point out that the citizen is at the heart of this initiative, as it empowers them with more choices to make simpler, faster, and lower-cost payments and transfers. Therefore, the Bank of Albania encourages applications from financial institutions to obtain open banking license, aimed at providing greater added value for Albanian citizens in their daily financial activities. The operationalization of openbanking is the first and fundamental step towards the functioning of open-finance, which will enable the digitalization of lending, investments, and other financial services for clients. 2/3 BIS - Central bankers' speeches In addition to personal benefits for the consumer, on a broader context, this innovation brings many advantages on the path to the formalization of the economy and in enhancing financial inclusion. The Bank of Albania will always remain a promoter of advanced initiatives and innovations that time demands for the growth of the Albanian society well-being. Dear participants, Following the long-standing global trends for the inclusion of digital transformation in the financial industry, the legal and regulatory framework in the Republic of Albania has also been amended in a timely manner and at the right speed in this regard. In this context, the Bank of Albania encourages banks to be as oriented as possible towards innovative projects, which aim to offer and increase the volume of remote banking services, particularly those with a direct impact on facilitating financial inclusion, or simply, the opening of a bank account remotely. Investments in these initiatives yield mutual benefits, both for banks and for clients and the public in general, in terms of reducing costs, saving time, and increasing customer satisfaction, consumer's education and development, as well as optimizing work processes. Certainly, advancing in this regard triggers a particular challenge. Consequently, the implementation of digitalization strategy must be secure, yet cautious, keeping in consideration the need to safeguard a balance between providing the best customer experience and ensuring the security of services. Confident in our common vision and joint commitment to progress, I invite you to work with dedication towards building a better future for the economy and citizens of Albania. Thank you! 3/3 BIS - Central bankers' speeches | bank of albania | 2,024 | 12 |
Greeting speech by Mr Gent Sejko, Governor of the Bank of Albania, at the International Conference "Economic development prospects, globalisation, tourism and tradition", Luarasi University, Tirana, 12 December 2024. | Gent Sejko: Albania's economic outlook and the challenges Greeting speech by Mr Gent Sejko, Governor of the Bank of Albania, at the International Conference "Economic development prospects, globalisation, tourism and tradition", Luarasi University, Tirana, 12 December 2024. *** Honourable Rector of University, Dear ministers, Dear academics and guests, It is a pleasure to be part of this conference, which aims to shed light on the Albania's economic outlook and the challenges we face. Allow me to congratulate the organizers for bringing together representatives from academia, civil society, the public sector, and the private sector. Dialogue and our contribution are crucial, especially as the economic and social challenges we tackle require innovative and interdisciplinary approaches to work out the most effective solutions. The shocks we dealt with in past years – the pandemic, the war in Ukraine, the energy crisis, and the inflation wave – have tested the ability of countries in preserving the economic, financial, and social stability. In addition, global transforming trends such as the acceleration of digitalization, the irreversible impacts of climate change, the retreat of globalization, and demographic challenges – including population ageing and the emigration of the labour force– are shaping a new global economic setting. Albania is not immune to these changes at all. Next, I will share my views in this regard, trying to find a balance between challenges and new opportunities. At the same time, I will evidence the proactive and contributing role that the Bank of Albania can have in bolstering the sustainable economic development of our country. Dear participants, The Albanian economy has shown remarkably resilient against various challenges that have marked the global environment in recent years. Facing the consequences of the pandemic, managing geopolitical shocks, and dealing with inflationary pressures caused by the upsurge in commodity prices have been extremely large and complex challenges. However, Albania, despite these shocks, has succeeded to maintain its economic and financial stability in addition to accelerating the economic growth pace. This progress demonstrates both the prudential macroeconomic policies management, as well as the sustainability of the country's economic growth drivers. The volume of economic activity in Albania has recorded a cumulative growth of 8.3% compared to the end of 2019, employment and wages have gone up by 3.9% and 15.4%, respectively, while the unemployment rate has dropped to a historic low of 10.7%. In parallel, the key economic and financial indicators: public debt, external debt, 1/3 BIS - Central bankers' speeches and the non-performing loans ratio, have improved considerably. In particular, inflation is three times lower than in 2022, down to 2.2%, while indicators of the banking sector soundness stand at positive levels. All of these factors, have enabled – among other things – the improvement of Albania's credit risk rating by international institutions. The enhanced interest of foreign investors for Albania has been another positive development as well. Our country has welcomed an ever increasing number of visitors in recent years, ranking third in the world for the fastest growth in tourism in 2023. Likewise, foreign direct investments have picked up progressively from year to year, confirming Albania's attractiveness as a compelling destination for investments. The Bank of Albania has actively contributed to this progress by addressing elevated inflation in a timely manner and carefully supervising the banking sector. In addition, investments for developing the payment system, innovation, and the digitalization of financial services have played a key role in strengthening economic stability and the development of the financial sector. We believe that Albania's outlook remain positive. However, global trends trigger a complex environment, which poses challenges and opportunities for the future. Next, I will briefly address some of them: First, one of the biggest challenges for the Albanian economy is improving productivity and achieving a competition level comparable to that of European advanced countries. Despite the improvements achieved so far, Albania still has to work for reaching an economic structure oriented toward high-value-added sectors. Second, the ageing population and the elevating shortages of the labour force is a complex challenge with consequences on the Albanian economy as well as on the European and global economies. This process affects both the labour market and the long-term prospects for economic growth and the sustainability of the pension system and public debt. Third, another challenge is the impact of climate change on vital sectors such as agriculture and tourism, which are sensitive to it. These two sectors, in addition to directly affecting the economic activity and employment, represent also a great potential for the development of the Albanian economy in the future. An integrated approach coupled with a strategic vision is needed to addressing these challenges. In this context, I believe it is important to undertake certain steps: First, investments in the modernization of physical and digital infrastructure, the development of scientific research, the updating of managerial philosophy and practices, and the improvement of business climate in all its dimensions will enhance productivity and help to tackle the increasing competition, in national level as well as in both regional and global levels. Second, investments in the development of human capital, through the improvement of the education system and the creation of specialized programs for vocational training, is crucial for empowering human capital. Creating incentives 2/3 BIS - Central bankers' speeches for the return of the diaspora and improving working conditions will help curb the emigration of young people and create an environment that encourages them to build their future in Albania. Third, the optimum utilization of the country's natural resources, including energy, mineral, agricultural, and tourism resources, requires a planned and coordinated strategy to avoid adverse consequences. This strategy must further guide public development policies, entrepreneurial and financial resources of the private sector, as well as an efficient distribution of banking credit flows. The implementation of these measures requires close cooperation between the public and private sectors. Each actor should contribute in their area of expertise, within legal frameworks and with a common approach, to ensure that these initiatives succeed. The academy plays an outstanding role in this regard. To this end, I find it appropriate to commend "Luarasi" University for its valuable contribution to the education of the new generation, transforming in a short period of time into a prestigious institution of professional education." Dear guests, Concluding, I would like to highlight that Albania has an extraordinary potential for development. A comprehensive effort from all actors is needed to realize this potential. In this context, the Bank of Albania will continue to be an active partner in the country's economic development. In our vision for the future, the Bank of Albania aims to be the guarantor of financial stability and also a catalyst for long-term economic development, establishing the conditions for a more sustainable, competitive, and fair economy. Our monetary and macroprudential policies will continue to focus on preserving the monetary and financial stability as a foundation for sustainable and inclusive growth. Also, we will continue to work on the advancement and modernization of the payment system and our financial market, based on the best and most successful global practices. Thank you, and I wish you a successful conference! 3/3 BIS - Central bankers' speeches | bank of albania | 2,024 | 12 |
Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference of the Bank of Albania, co-organised with the Albanian Association of Banks, Tirana, 13 November 2024. | Gent Sejko: The role of central banks and the banking sector on the path to EU Welcome address by Mr Gent Sejko, Governor of the Bank of Albania, at the Annual Conference of the Bank of Albania, co-organised with the Albanian Association of Banks, Tirana, 13 November 2024. *** Honourable Minister of Finance Honourable Madam Minister of State and Chief Negotiator, Honourable Chair of Parliamentary Committee on Economy and Finance, Dear President of the Albanian Association of Banks Shella, Dear fellow Governors and guests It is a great honour and pleasure to welcome you all to the Annual Conference of the Bank of Albania. Please allow me, in this occasion to congratulate the Albanian Association of Banks for its 25th Anniversary. The Albanian Association of Banks, the co-organiser of this conference, has proven to be a serious collaborating and coordinating platform for the banking industry, in addition to being a visionary institution and our important partner on our journey towards development and modernisation. This Conference, the 17th one, is a crucial moment in our annual business schedule as it always offers a solid ground for communicating with our institutional partners, field experts and the public at large. It enables us to look away from the challenges of the present, to consider issues of strategic importance for the sustainable and long-term development of Albania, as well as to try - through open and constructive dialogue, to identify the policies and adequate instruments for addressing them. In this view, I would like to highlight that despite the rapid economic and political developments of the year we are leaving behind, the long-term headline from 2024 will be our receiving of a green light and the start - in October - of the official process of negotiations for membership in the Union European. This new chapter poses a busy agenda ahead of regulatory, legislative and institutional reforms. Their realisation is both a prerequisite for our membership, as well as a major and indispensable step on our way of progress. For this reason, we have decided to dedicate the proceedings of this conference to the role of central banks and the banking sector in the integration process. Dear guests, Before addressing my views on our conference's topic, I would like to focus briefly on the current status of the Albanian economy and its financial system. 1/4 BIS - Central bankers' speeches Albania of 2024 offers a completely different economic reality compared to a decade ago, when the country received the status of potential candidate for membership. Despite the many challenges we have faced over this period, the volume of economic activity in Albania has grown to EUR 24 billion from EUR 10 billion, the unemployment rate has shrunk to 10.7% from 17.5% and the average income per capita has increased to EUR 9200 from EUR 3500. At the same time, the main parameters of economic and financial equilibriums in Albania have been improving. During this period, inflation has averaged 2.5%, current account deficit has decreased to 2% of GDP from almost 11%, and external debt has been reduced to 44% of GDP from 70% of GDP, while public debt has declined to 56% of GDP from 72%. In parallel, the banking sector has exhibited stability and improving financial indicators. Thus, the non-performing loans ratio has dropped to 4.6% from almost 23%, the capital adequacy ratio has reached an average of 18%, while the banking sector has continued lending to the economy and displays high liquidity and profitability levels. This substantial progress has not been the product of chance. On the contrary, it reflects the ever increasing maturity and sophistication of Albanian business, a framework of consistent macroeconomic policies, which are coordinated and oriented towards stability, the fruits of the structural reforms undertaken during this period, as well as the positive contribution of the banking sector. I will briefly address some of the supportive factors I mentioned above, focusing on the role of both the Bank of Albania and the banking system. From the perspective of economic management policies, Albania has made progress in adopting the best practices in the field, both at the individual level, through their anchoring in the rules, as well as in terms of increasing their consistency and coordination mechanisms. The Bank of Albania has adopted a modern monetary policy framework, in the form of a flexible regime of targeted inflation, oriented towards price stability, accompanied by a free exchange rate regime. In parallel with the monetary policy, the Bank of Albania has worked on development of the macroprudential intervention policy and instruments, for improving the regulatory framework of the banking system, as well as advancing our supervision process, aimed at harmonizing them with the European Union standards. In addition, the fiscal policy framework, equally important in this regard, has progressed towards the adoption of fiscal rules, which guarantee the long-term sustainability of public finances and increase its effectiveness and predictability. In terms of structural reforms, the Bank of Albania has focused on two important directions: i) increasing the stability and efficiency of our banking system; as well as ii) further developing financial markets, payment instruments and financial education. In this regard, we have closely cooperated with our institutional partners: the Albanian Parliament, the Ministry of Finance and the Albanian Association of Banks. Also, in its capacity as administrator, regulator and promoter of development of the payment 2/4 BIS - Central bankers' speeches system, we have worked for continuous modernization of national payment platforms and updating their regulatory framework, with a focus on reducing the use of cash. Finally, in cooperation with other public agencies and groups of interest, we have initiated and are implementing the National Strategy for Financial Education, which is a major and long-term investment for the development of the country. Concluding this overview of developments, I would like to address the positive role that the banking sector has played in economic growth and development, as well as in view of the European integration process. This sector has been, continuously, the vanguard segment of the Albanian economy in terms of integration and level of advancement. For example, the capital invested in the banking sector by the European Union members' countries amounts to EUR 1 billion. Parallel to its integrating role, the Albanian banking sector has been transformed into an important instrument of sustainable and long-term development of Albania, through the improvement of the range and quality of banking products, and especially of credit. In this context, I would like to point out that lending of the banking sector to Albanian business stands at levels comparable to many of the new member countries of the European Union. Dear guests, This reflection on the positive growth trends so far should not give us any illusions on the magnitude of the challenges ahead. Avoiding the growth trap faced by middleincome countries, as well as the structural challenges of demographics, climate change and financial innovation, requires an even greater effort than what we have undertaken. I think, the structural reforms that we need to undertake in the framework of the integration process provide a unique opportunity for addressing them systematically. Focusing on this moment, allow me to conclude this welcome speech with some of my observations on the role of the Bank of Albania and the banking sector in this process. The Bank of Albania, as the monetary, supervisory and regulatory authority, has a primary role in the negotiations process of membership. We are an integral part of the working groups for five chapters and chair two of them: Chapter 4 "Free movement of capital" and Chapter 17 "Economic and monetary policies". This process implies a full harmonization of our legal and regulatory framework with the Acquis Communautaire. However, we are aware that this process will have its challenges as well. Following, I will list three of these challenges: First, the integration process also means an enhanced exposure to financial flows in the form of portfolio investments. These flows serve the development of the financial market and reduce overall financing costs in Albania. Nevertheless, these flows tend to generate volatility in terms of liquidity and the exchange rate. Managing these inflows successfully triggers an increasing challenge to the Bank of Albania. In this context, we consider that the current regulatory and monetary policy frameworks provide a good starting point for addressing them. Second, the integration process means an increasing exposure to the financial cycle of the European Union. This cycle has proven to have yielded significant consequences on our financial market and economic activity. In this context, further development and improvement of our macroprudential policy and instruments will be our priority, as the right instrument for avoiding their adverse negative consequences. 3/4 BIS - Central bankers' speeches Third, the sequencing and coordinating of the banking system' regulatory framework convergence speed with that of other segments of the financial system, is another challenge. This coordination is necessary to avoid regulatory arbitrage and to promote a harmonized development of the financial system. Finally, I would like to conclude my speech by underlining that the integration process offers equally serious challenges and opportunities for our banking sector. The free movement of capital also means full exposure to competition between this sector and the European one. Our banking industry must be aware of the consequences that this competition will have on the business model and profit margins, by taking measures in a timely manner to deal with it. In this view, I am confident that the Albanian Association of Banks will continue to provide its positive contribution to the development and convergence process. Thank you, once again, for being part of our traditional conference, and I kindly invite you to provide your contribution through a rather opening discussion. Thank You! 4/4 BIS - Central bankers' speeches | bank of albania | 2,024 | 12 |
Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the joint 6th Annual Costituency Meeting, organised by the International Monetary Fund and the World Bank, Tirana, 16 February 2024. | Gent Sejko: Opening remarks - 6th IMF and WB Constituency Meeting Opening remarks by Mr Gent Sejko, Governor of the Bank of Albania, at the joint 6th Annual Costituency Meeting, organised by the International Monetary Fund and the World Bank, Tirana, 16 February 2024. *** Your Excellency, Prime Minister, Dear Ministers of Finance and fellow Governors, Allow me, first of all, to welcome you to this annual meeting of our joint Constituency in the International Monetary Fund and the World Bank, which is taking place at the new premises of the Bank of Albania. Also, let me highlight that this is a special pleasure for us, along with the Minister of Finance of Albania, as we have the opportunity to provide this welcome at the opening session of this event, for which we are the host country. Dear participants, The economic reality in recent years has been challenging. The 2020-2021 pandemic and the economic consequences of Russia's military aggression against Ukraine have been quite serious. However, I believe I am expressing a common opinion if I point out that the resilience of our economies and societies in the face of these challenges has been admirable. In particular, against a global context characterized by a rapid surge in prices, uncertainty and financing costs, we have managed to ensure positive growth rates in the overall economy, in employment and in wages. We have made progress in reducing inflation, and we have safeguarded the overall economic and financial stability of our economies. Albania is also part of this encouraging narrative. The year 2023 ended with economic growth at around 3.5%, the unemployment rate at historic lows, as well as foreign debt, public debt and non-performing loans ratios below pre-shock levels. In particular, inflation was halved over the past year, down to 4%, while indicators of the banking sector's soundness remain positive. A surprise in 2023 was an increase in the interest of foreigners in our country. Albania welcomed around 10 million visitors, climbing to third place in the world for the fastest growth in tourism and recording – for the first time in its history – a current account surplus. Also, the year 2023 is well on its way to being the year with the highest level of foreign direct investments, proving once again the attractiveness of Albania as an investment destination. The Bank of Albania has made its contribution in this regard. We have addressed the increase in inflation in a timely manner, embarking on a gradual and prudential normalisation of the monetary policy stance. In complete coherence, supervision and careful regulation of the banking sector, continuous investment in advancement of the payment system, along with innovation and digitalization of financial services, have all contributed to development of the financial sector and strengthening the stability of our country. 1/2 BIS - Central bankers' speeches Albania's perspective remains positive. However, the experience of recent years has taught us that shocks and challenges, no matter how remote they may seem, will not be absent in the future. At this point, let me broaden the scope of the discussion somewhat. For a long time now, low growth of productivity, the effects of population ageing and labour force limitations have been turning into increasingly important factors affecting the development of the economies of our Constituency. In addition, geopolitical fragmentation and the effects of climate change are becoming present challenges. But what do these challenges mean for us as policy makers? The answer is both straightforward and complex: we must ensure economic and financial stability, establish a more efficient, innovative and inclusive economy, as well as invest in the green and digital revolution. Allow me to be more specific. First, as a central bank, we must take the fight against inflation to the end. Its downward trend is good news, but declining inflation is not an inflation on target. Therefore, central banks should continue to focus on taking the necessary measures to return inflation to the target, as a prerequisite for the sustainable growth of economies and the well-being of citizens. Second, we must insist on rebuilding fiscal spaces in timely manner, so that we are as prepared as possible to withstand future shocks. Third, financial policies should continue to have a twofold focus: on the one hand, inducing financial progress with a view to boosting efficiency and, on the other hand, addressing risks to financial stability early, through prudential regulation and supervision. Finally, structural policies should be increasingly oriented towards fostering sustainable growth. In the global and European contexts, in the face of a complex geopolitical reality, we must work to maintain - as far as possible - economic integration and free markets for products, labour and capital. This is a process that has brought remarkable progress to all involved actors. In parallel, the domestic structural reforms should focus on supporting innovation, training and continuous re-qualification of the labour force, as well as on stimulating both green transition and technological revolution. Meanwhile, developing countries like Albania should focus on meeting infrastructure investment gaps and establishing a more stimulating environment for bolstering domestic and foreign investments. Dear Ministers of Finance and colleagues Governors, Concluding these remarks, I would like to thank you once again for your participation and express my belief that this discussion forum will help us devise the most efficient and coordinated approach for the development of our countries. 2/2 BIS - Central bankers' speeches | bank of albania | 2,024 | 12 |
Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media and the Governor's Award ceremony, Tirana, 16 December 2024. | Gent Sejko: Bank of Albania's achievements in 2024 Address by Mr Gent Sejko, Governor of the Bank of Albania, at the end-of-year meeting with the media and the Governor's Award ceremony, Tirana, 16 December 2024. *** Dear media representatives, Dear students, Dear participants, Welcome to our traditional end-of-year meeting! The Bank of Albania holds this annual event every end of year to extend our gratitude and to thank you, media colleagues, for your work in conveying and communicating our policies and activities. As traditionally, we also hand out the Governor's Award for the Best Diploma Thesis. Dear journalists present here today, as well as all those who, for various reasons, were unable to join us in this year-end celebration; throughout 2024, you have worked tirelessly to transmit with objectivity, truthfulness, and in real time the entire activity of the Bank of Albania. For this, I sincerely thank you! Through your work, the Bank of Albania has been able to communicate to the public its decision-making in the field of monetary policy and financial stability, announce regulatory amendments, and provide the latest updates in the areas of banking supervision, payment systems, financial education and inclusion, and financial digitalization. Your professionalism has enabled us to have an effective communication, helping to transmit our policies in the economy, and consequently, preserving price stability, financial sector stability, and macroeconomic stability in the country. New technological developments and global uncertainties render the communication of central banks with the public even more important. For Albania, this communication becomes even more valuable, as individuals are challenged by the unsatisfactory level of financial literacy, particularly digital literacy. Nevertheless, thanks to your work and in close collaboration with you, we have succeeded in conveying to the public the stance and expected consequences of every policy undertaken, reflecting the truth and eliminating any misinterpretation or deviation from it. Since this is also our closing meeting for this year, I would like to briefly address some of our most recent achievements and the challenges we are facing. The latest data for 2024 on macroeconomic developments in Albania, show that the positive performance of the economy coupled with the increased employment and revenues, have led to elevated income for businesses and households, which in turn are reflected in higher household's spending and business investments. In parallel with these developments, inflation has been rapidly declining, fully recovering from the shock it experienced due to surge in prices in international markets, and reached 2% in November 2024. This return to price stability has been accompanied by a reduction in the cost of living for households and an increase in business investments. 1/3 BIS - Central bankers' speeches Also, overall inflationary pressures have been reduced, on the back of declined inflation in trading partners, appreciated exchange rate and the normalization of monetary policy stance over the past two years. During 2024, the Bank of Albania has achieved significant progress in two key initiatives in the areas of payments and banking supervision: joining SEPA on November 21, 2024, and advancing open banking. Participation in SEPA will enable the conduction of cross-border financial transfers with European Union countries, making them faster and at lower costs – an important step towards economic integration and improving services for businesses and consumers. Also, the Bank of Albania, in line with EU regulations, has advanced in implementing open banking, by promoting the use of digital platforms with the aim of enhancing financial inclusion and establishing a more open ecosystem for clients and businesses. Open banking will empower citizen with higher and more transparent access to financial services. This development is part of a broader strategy to improve financial infrastructure and digitalize the economy. Both initiatives aim to expand financial inclusion, by directly contributing to the reduction of informality, in turn supporting long-term sustainable growth. Regarding the future, our forecasts remain positive, mainly based on positive developments in terms of economic activity growth. The financial environment, characterized by ample liquidity, relatively low and stable interest rates, and contained risk premiums, thus transforming bank credit into an important and reliable source of financing for the Albanian economy, has played an important role in this regard. To this end, the Bank of Albania will continue to remain vigilant to accurately reacting and in timely manner to the economic and financial developments. Concluding, I would like to shift the focus to an 18-year tradition that enriches this annual event of the Bank of Albania. I have the pleasure to present the winners of the Governor's Award for the Best Diploma Thesis. This activity, invites Albanian students from all over the world to present their work in the field of economics and finance. This year 24 participants have participated in this competition with impressive papers. I am delighted to note that the topics addressed in these studies are related to the traditional objectives and policies of central banks, but at the same time, many of them have focused on issues that have dominated the activity of the Bank of Albania over 2024. The authors have addressed problems related to climate change, financial education and inclusion of the population, and payment systems. This attention inspires us to do more in these areas in the future. 2025 will be a jubilee year for us, as it marks the 100th anniversary of our central bank. In the context of this anniversary, some of the topics have focused on the field of historical research, analysing the character and evolution of trade agreements, as well as monetary and financial developments. I am pleased to say that the topics align with our expectations and meet the best characteristics of scientific work. They remain focused on the real problems of the economy and finance, hence embodying a particular value for the authorities and the private sector. I thank all the participants in this competition and their mentors for the attention given to issues of interest to the central bank. 2/3 BIS - Central bankers' speeches We, the members of the selection committee, have the pleasure of reading the papers, but at the same time, we also faced the difficulty of selecting three winners among them. After many discussions, the committee reached a unanimous decision on the winners of the Governor's Award for the Best Diploma Thesis, who will be presented below. I congratulate the winners and encourage all applicants to continue showing the same dedication and intellectual ambition in the future! 3/3 BIS - Central bankers' speeches | bank of albania | 2,024 | 12 |
A paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at a seminar organised by the C and N Centre for Advanced International Studies, Lusaka, Zambia, 23 January 2003. | Caleb M Fundanga: The role of the banking sector in combating money laundering A paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at a seminar organised by the C and N Centre for Advanced International Studies, Lusaka, Zambia, 23 January 2003. * * * Mr Chairman Distinguished Guests Ladies and Gentlemen Allow me first of all to thank you for inviting me to address you on this topic of great importance to the development of our financial system in Zambia – “the role of the banking sector in combating money laundering”. I have every reason to believe that your training in the last couple of days has provided an opportunity for you to share with the resource persons valuable insights on the subjects you have covered. Mr Chairman, the scourge of money laundering is not new to mankind. Despite money laundering being topical in policy discussions nowadays and on the minds of supervisors and regulators like the Bank of Zambia, the scourge itself has a long history and could be as old as the history of organised trade. Nonetheless, in spite of the fundamentals of the crime remaining, largely, the same as in the olden days, recent advances in technology and globalisation have offered and will continue to offer more sophisticated means to convert ill-gotten proceeds into legally acceptable financial assets. In recent times, money laundering has grown into real big business. For instance, the Economist magazine estimated that about USD 500 billion to USD 1.5 trillion is laundered through banks each year. Further, the Financial Action Task Force (FATF) - an intergovernmental organization under the auspices of the Organisation for Economic Co-operation and Development (OECD) also estimates money laundering to be in the ranges of USD 590 billion to US1.5 trillion. As a percentage of world economic output, money laundering accounts for about 2% to 5%. Obviously, given the secrecy and the illegal nature of this business, it is difficult to tell exactly the extent of money laundering. Nevertheless, these figures give us an indication of the magnitude of the problem. In this regard, financial institutions, in particular, banks provide a conduit through which money (including laundered money) flows. Because of this, the financial system is the focal point of antimoney laundering initiatives because dirty money is most visible when it is first introduced into the financial system. Ladies and Gentlemen, before I proceed in discussing the various aspects of money laundering including stages in money laundering, its effects on the economy, the global and local initiatives to fight money laundering and the role that banks can play in combating money laundering, allow me to define what money laundering is. For the purposes of my presentation today, I shall define money laundering as the method of hiding, mixing and disguising the proceeds of criminal activities through legally operating institutions for the purpose of destroying the origins of the proceeds. Mr Chairman, it is clear from the definition that money laundering is a tool that is used by people involved in illegal activities, such as drug trafficking, organised crime, tax-evading, political bribery and th above all, corruption. In addition, the events of September 11 have added another dimension to the problem of money laundering and brought to light the synonymity between money laundering and terrorism. What then are the stages in money laundering? Though the money laundering process seems so complicated, it usually follows a traceable pattern and three distinct stages can be identified. These are: • Placement Stage. This it involves the disposal of cash proceeds of the illegal activity. It is at this stage that the proceeds are introduced into the financial system in a manner that avoids detection by the banks and the authorities. At this stage criminals use techniques like depositing large amounts of money in several smaller batches so as to avoid suspicion and detection. • Layering Stage. This is when the true character of the cash proceeds of the illegal activities is hidden through a series of transactions in order to erase the audit trail. This is done by transferring this money to off-shore banking centres with strict secrecy laws, or to bearer bonds, and/or shell holding companies and accounts held in the name of nominees. • The last stage is the Integration Stage where the successfully laundered money is integrated into the financial system. Money laundering has a wide range of adverse effects on any country’s economic, political and social structures. Since laundered money passes through the financial system, money laundering also has several effects on the financial systems as a whole and banks in particular. Some of the effects include: • First, undermining legitimate private sector efforts. Money launderers use front companies, to disguise the proceeds of illicit activities and in the process hide the ill-gotten gains. These companies have access to substantial illicit funds, therefore allowing them to subsidize the front company and offer it’s products and services at levels below market rates. At times they quote prices, which are below production cost. This explains why front companies have competitive advantage over companies that source their funding from the financial markets. This makes it difficult, if not impossible, for legitimate business to compete against such companies. This situation may lead to the crowding out of legitimate private sector businesses by criminal entities. Clearly, such criminal enterprises would not adhere to good corporate governance practices as legitimate businesses would. • Second, loss of control of economic policy. As already alluded to, the magnitude of money laundering is between 2% to 5% of world output. In most developing economies, like ours, these proceeds may dwarf government budgets, resulting in loss of control over economic policy by such governments. • Third, money laundering can also affect currencies and interest rates as launderers reinvest their funds where their schemes are less likely to be detected rather than where rates of return are higher. Money laundering can also increase the threat of monetary instability due to the misallocation of resources. In this regard, money laundering may result in inexplicable changes in money demand and increased volatility of international capital flows, interest and exchange rates. The unpredictable nature of money laundering, coupled with the attendant loss of policy control, may make sound economic policy difficult to achieve. • Fourth, money laundering could lead to economic distortion and instability. Since money launderers are not interested in profit generation from their investment but rather in protecting their proceeds, they will invest their funds in activities that are not necessarily economically beneficial to the country where the funds are located. Further, to the extent that money laundering and financial crime redirect funds from sound investments to low-quality investments that hide their proceeds, economic growth can suffer. In some countries for example, entire industries, such as construction and hotels, have been financed not because of actual demand, but because of the short-term interests of money launderers. When these industries no longer suit the money launderers’ scheme of things, they abandon them, causing a collapse of these sectors and immense damage to economies. • Fifth, money laundering could lead to loss of revenue. Money laundering makes tax collection efforts difficult, thus leading to decline in tax revenues. The loss of revenue means government setting higher tax rates than would normally be the case. • Sixth, money laundering could lead to risks to privatisation programmes. Money laundering poses a threat to governments’ economic reform efforts, especially privatization of state owned enterprises. Money launderers have the financial power to out-bid legitimate investors. In addition, while privatisation initiatives are often economically beneficial, they can also serve as a vehicle to launder funds. Criminals have been known to purchase privatised banks, resorts, etc to hide their illicit proceeds and farther their criminal activities. Unfortunately, developing countries like Zambia risk being exposed to the threat of money laundering because in the process of attracting investments, they become more vulnerable to accepting laundered money. • Seven, money laundering could expose any recipient country to reputation risk. In today’s global economy, nations cannot afford to have their reputations eroded by associating themselves with money laundering activities. Money laundering and other crimes erode confidence in financial markets, and the negative reputation resulting from these activities diminishes legitimate global opportunities available to any country and this could slow sustainable economic growth. Ladies and Gentlemen, what I have just elaborated are the adverse effects of money laundering on any economy in the world. Allow me now to look at the effects of money laundering on the banking sector. As you may be aware, due to banks’ confidentiality principle and their capability to handle huge cashless transactions, and transmit funds efficiently, they are normally the targets of money laundering activities. In doing so, banks also suffer serious consequences from money laundering, which include: • First, reputation risk - banks become vulnerable to reputation risk because they easily become a vehicle for or a victim of illegal activities perpetuated by their customers. Once banks are associated with such activities, their reputation in the market becomes tainted and they risk losing customers. For instance, in Zambia, the closure of one bank was as a result of allegations that the bank maintained accounts keeping proceeds of drug money. Banks therefore, need to protect themselves by continuously and vigilantly evaluating their customer base. The quest to mobilise deposits and improve liquidity must not be an overriding factor to accepting money from questionable sources. • Second, legal risk - banks may become subject of lawsuits resulting from failure to observe ‘know your customer’ standards or from failure to practice due diligence in customer evaluation and acceptance. As a result of this, banks can suffer from criminal liabilities, supervisory fines and other penalties. • Third, concentration risk - banks are expected to have information systems to identify credit concentrations and to set prudential limits to restrict exposures to single borrowers or groups of related borrowers. The challenge for banks therefore is to adopt vigorous programs for the detection of suspicious transactions, since failure to report such transactions under the new money laundering legislation may subject the bank to criminal sanctions. • Fourth, lack of anti-money laundering practices in a bank may also affect it’s relationships with correspondent banks because reputable international banks would not want to be associated with banks that do not practice basic anti-money laundering techniques, and therefore be a threaten to their own operations. • Fifth, money laundering compromises the corporate governance structure of banks. This is an area of concern especially among the small banks when it comes to deposit mobilisation and customer selection. Mr Chairman, the increasing integration of financial systems means that money launderers can now make use of the financial system to hide the proceeds of the illegal activities easily. Launderers are now able to quickly move illicit money between national jurisdictions, therefore complicating the task of tracing and confiscating these assets. Further, differences in money laundering legislation and in the implementation of international standards such as, know your customer regulations, customer identification and secrecy laws have led to regulatory arbitrage. This has worked to the advantage of money launderers because they can move the proceeds of their activities to less regulated territories where there are lax laws. Therefore, to avoid launderers from taking advantage of the weaknesses in the application of international law, many governments have decided to co-operate in order to combat money laundering. In this regard, the most notable international initiatives/responses to money laundering include: • First, the Financial Action Task Force (FATF). The FATF is a 26 member intergovernmental, policymaking body that was established in 1989 to guide the implementation of anti money laundering measures in the aftermath of the 1988 UN Drugs Convention. Its membership includes the major financial centres of Europe, North America and Asia. The FATF has come up with 40 recommendations which member countries are expected to adopt. These are designed for universal application and cover the criminal justice system and law enforcement, the financial system; it’s regulation and international cooperation. • Second, the Basel Committee of Banking Supervision. The main thrust of regulatory response to money laundering has been to stop dirty money from entering the banking system and to make sure that it is traceable when it occurs. The Basel Committee, a grouping of the worlds leading bank supervisors has so far come up with three guidelines for banks in combating money laundering, namely: ‘The Prevention of Criminal Use of the Banking System for the purpose of Money Laundering’ (1988), the ‘Core Principles of Effective Banking Supervision’ (1997), and the ‘Customer due diligence for banks’ (2001). • Third, the Wolfsberg Principles. The Wolfberg Principles came into force in 2000 and are an industry response to the threat of money laundering. They are an agreement among eleven major international private banks (which account for at least a third of the world private banking funds) to guide the conduct of international private banking. Essentially, the Principles seek to control money laundering by cutting across the multiplicity of jurisdictional issues and addressing the serious reputation damage they were suffering in the media because of money laundering. Ladies and Gentlemen, allow me now to discuss our local initiatives/responses to money laundering. Admittedly, there has been little activity in the areas of prevention of money laundering in Zambia, until quite recently. This exposed the country to the activities of money launderers because they always seek to operate in countries where there are lax controls. However, the major initiatives in the fight against money laundering, locally, have included: • Enactment of the Prohibition and Prevention of Money Laundering Act. The Government of Zambia responded to the increase in drug trafficking and money laundering by passing the Prohibition and Prevention of Money Laundering Act in 2001. The Act provides for the disclosure of information by supervisory authorities and of regulated institutions if suspected of money laundering activities. The Act also provides for the forfeiture of property belonging to persons connected to money laundering offences as well as for the prosecution of persons connected to or charged with money laundering offences. The Money Laundering Act places certain obligations on the Bank of Zambia as the supervisory authority. One of these is the issuance of regulations to commercial banks as and when necessary in order to prevent money laundering. • Regulatory responses. The Governor of the Bank of Zambia is a member of the Anti-Money Laundering Authority, whose main functions are to provide policy directives to the Commissioner of the Drug Enforcement Commission and to advise the Minister of Home Affairs on measures that are required to prevent and detect money-laundering activities in Zambia. • In order to minimise the likelihood of criminals or their organisations from taking control of or setting up their own banks, the Bank of Zambia as the licensing authority of banks and financial institutions, has put in place a rigorous licensing process, which ensures that only ‘fit and proper’ persons are allowed to own and manage financial institutions. • Know Your Customer Directive. Even before the coming into effect of the Prohibition and Prevention of Money Laundering Act, the Bank of Zambia, inline with the Basle Committee’s guidelines issued the ‘Know Your Customer’ Directive in December 1998. The directive outlines the basic procedures that bank managements should put in place within their institutions to prevent criminal use of the banking system. It also places limitations on the amounts of foreign exchange that individuals can transact. Mr Chairman, the banking sector in Zambia has also not lagged behind in terms of coming up with an industry response to this scourge. The Bankers’ Association of Zambia (BAZ) issued the ‘Code of Banking Practice in Zambia’ in 2002, outlining the Association’s commitment to fighting money laundering and complying with the letter and spirit of money laundering in all parts of the world. Because banks have been identified as the primary focus of money launderers and provide an entry point for laundered money into the financial system, most efforts to combat this scourge are targeted towards banks. Under the money-laundering Act, banks have certain obligations, which are placed upon them by the law. These include: • To keep identification record of its customers for a period of ten years. This is aimed at safeguarding the documentary evidence to prove that the financial institution has sufficient knowledge of its clients. • To report to the Money Laundering Investigations Unit whenever there are reasonable grounds to believe that a money laundering offence has been or is about to be committed. • To comply with any directives issued by the Bank of Zambia. • To designate an officer in each branch or office as the money laundering officer. • To provide training to staff on anti-money laundering techniques. In conclusion, Mr Chairman, I would like to state that the effects of money laundering are incomputable and unknown to many of us. The Prohibition and Prevention of Money Laundering Bill has laid a foundation and will serve to deter the use of the Zambian financial system as a site to launder dirty money. It has given each one of us a challenge. For the banking sector, the challenge is to ensure that their corporate governance structures and risk management systems are redesigned to take care of this growing threat. As for the Bank of Zambia, our challenge is to recognise that technology and globalisation has given money launderers an opportunity to explore new techniques to commit and cover their crimes. This therefore, requires us to be more vigilant, dynamic and resourceful to thwart and overcome the scourge. In addition, full co-operation and coordination within the banking industry in implementing the Bank of Zambia guidelines will go a long way in enhancing co-operation within the region and internationally because money laundering thrives in jurisdictions where there is piece-meal implementation of standards and laws. Once again, I thank you for inviting me. | bank of zambia | 2,003 | 2 |
Keynote address by Dr Denny Kalyalya, Deputy Governor - Operations of the Bank of Zambia at the | Denny Kalyalya: Regulatory framework for microfinance institutions in Zambia Keynote address by Dr Denny Kalyalya, Deputy Governor - Operations of the Bank of Zambia at the 2nd AFRACA Microfinance Forum, Lusaka, 3 and 4 April 2003. * * * Honorable Deputy Minister of Finance and National Planning, The Secretary General of the African Rural and Agricultural Credit Association (AFRACA), The Chairperson, The Honorable Member of Parliament and Chairperson for Economic Affairs - Labour, Members of the Diplomatic Corps, Your Excellencies, Representatives of International Organisations, Distinguished Invited Guests, Ladies and Gentlemen, It is a great honour for me to be given this opportunity to address this important workshop and share a few words with you this morning. I therefore wish to sincerely thank AFRACA and Micro Bankers Trust, the organizers of this workshop, for extending this invitation to me. Ladies and Gentlemen, AFRACA’s decision to host this workshop in Lusaka has come at an important time for us when, as a country, we are working towards finalisation of the development of a regulatory framework for microfinance institutions in Zambia, with a view to foster balanced growth in our financial sector. Our staff will therefore listen extra attentively to the deliberations of this workshop so that we get as much information and ideas as possible to assist us in this very important exercise. It is also our hope that, you, the participants, will share your views and experiences freely at this workshop. I have noted from the programme, with excitement, that in addition to the presentation on the Process of Product Development by Microsave, there will be several presentations on the experiences of different institutions from various countries. In this regard, it is our sincere hope that these experiences will not only provide a rich learning ground to upcoming microfinance institutions to enable them establish themselves in the market, but also that these experiences will enable established microfinance institutions to consolidate their positions in the market. Invited Guests, Ladies and Gentlemen, As you may all be aware the microfinance industry has emerged to meet the financial needs of people who have had limited or no access to the traditional sources of credit and other financial services. Lack of credit facilities, rural and agricultural finance is one of the major contributing factors to the poverty of this rather large segment of our populations. Microfinance institutions are and can be efficient and effective channels for mobilizing savings, credit, in-country remittances, and insurance services to lower-income people, particularly in those areas where traditional financial services are hardly there or do not exist. Microfinance is also increasingly being seen as an effective tool for poverty reduction. Moreover, when microfinance is provided in an environment where there are sufficient alternatives for diversified household income generation, and where access to information, appropriate physical infrastructure, and integrity in loan repayments are present, can be and it is a key success factor in reducing poverty. Ladies and Gentlemen, Looking back through history, one of the best-known microfinance success stories is perhaps the Grameen Bank of Bangladesh. Its success may be expressed in terms of its staying power and that it has offered to help disadvantaged groups to enable them meet basic needs. This has been attributed mainly to its concentration on lending to women groups. Around the world, various Grameen models have been replicated, especially in South America. Within Africa, microfinance organizations have emerged in Bukina Fasso, the Gambia, Ghana, Kenya, Malawi, South Africa, Tanzania, Uganda, and Zimbabwe, to mention a few. However, what appears to be the common factor in all these areas is the lack of adequate supervision for the sector. In the Zambian case, the principal financial legislation, the Banking and Financial Services Act of 1994 (BFSA) did not provide for the regulation and supervision of microfinance organizations until the 2000 amendment. Chairperson, Ladies and Gentlemen, In most developing and transitional countries, microfinance institutions are using field-based “best practices” that have emerged from many years of world-wide experience in providing credit and savings to lower-income groups. However, best practices alone cannot guarantee the success of microfinance programmes in the absence of an appropriate legal and regulatory framework. Practioners and policy makers worldwide now realize that without appropriate regulatory and supervisory framework, support from commercial banks and appropriate infrastructure, most microfinance services will continue to be donor-dependant and will remain limited in outreach. Ladies and Gentlemen, Since I have been given the floor I now wish to take this opportunity to briefly share with you the Zambian experience with regard to the microfinance market. Despite its land-based wealth, Zambia faces very significant development challenges. The rapid structural adjustment process that took place during the 1990s has had a harsh impact on our people, with the result that poverty is now widespread in our country. Currently, a significant number of the 10 million or so Zambians strive for survival on far less than one US dollar a day and like in many other African countries there are high HIV/AIDS rates and indebtedness which have contributed to persistent low economic performance. Thus, our government’s focus with assistance from cooperating partners has to increasingly be on poverty alleviation via income generation and micro enterprise stimulation, using small business development and microfinance as mechanisms to improve household standards. Following the structural adjustment period, particularly from the early 1990s, affordable and publicly funded rural financial services have collapsed. A private microfinance movement, though still in its infancy, has had to emerge offering modern microfinance services. Today in Zambia we have an interesting blend of microfinance institutions that are private sector, for-profit firms, and non-profit, non-governmental organizations (NGOs). Although expansion is much slower in rural areas, growth is evident along the line of rails and the peri-urban areas of our country. Invited Guests, Ladies and Gentlemen, In 1999, a survey of the microfinance market in Zambia was conducted to determine the status of the microfinance market and its players, and the basis for establishing regulation and supervision of the industry. The survey revealed that although most microfinance institutions were exceptionally weak, they had the potential to grow as an industry and to provide sustainable financial services to the majority Zambians. The results of the survey enabled us to recognize that appropriate legislation, regulation and supervision were essential to assist this young industry to grow and be able to find investors, expand and provide sustainable services to an increasing number of low-income groups. Accordingly, we have placed our focus on the establishment of a regulatory and supervisory framework that would encourage responsible growth and create a safe, sound, stable and efficient environment in which microfinance institutions can operate. The regulation development process that we have adopted has been a regular system of consultations with stakeholders and various interested parties. We have managed to achieve this through public and focus group discussions and one-to-one meetings with key players in the market. Further, we have also made consultations with supervisory bodies, practitioners and other stakeholders from other countries at various workshops as well as regional and international training forums. I am happy to note that some of the countries we have been sharing ideas with are represented at this forum. I wish to acknowledge the valuable information and lessons that these different forums have provided to us in developing the regulatory and supervisory framework for microfinance in Zambia. I therefore wish to urge all of you participants to take this workshop seriously and participate fully in the various activities that have been lined up. Ladies and Gentlemen, I now wish to conclude by informing you that we now have Draft Microfinance Regulations in place, which are being circulated to all stakeholders and interested parties for comments before they are finalized. These regulations can also be downloaded from the Bank of Zambia website: www.boz.zm. Finally, Chairperson, allow me to pay tribute to AFRACA and our co-host, Micro Bankers Trust, for bringing this workshop to our country. I therefore wish all the participants a very good stay in our country and I hope that you will all have a chance to visit our City of Lusaka. Thank you. | bank of zambia | 2,003 | 5 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the monthly meeting with chief executive officers of commercial banks, Bank of Zambia, Lusaka, 2 April 2004. | Caleb M Fundanga: Recent economic developments in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the monthly meeting with chief executive officers of commercial banks, Bank of Zambia, Lusaka, 2 April 2004. * 1. * * Recent economic developments Introduction This brief reviews monetary, economic and financial sector developments during February 2004. Monetary developments • During February 2004 monetary policy was focused on reducing monthly overall inflation rate to 1.6%. Net strong revenue inflows complemented with primary auctions of Government securities helped to maintain an appropriate level of liquidity. Inflation • Monthly overall inflation slowed down by 1.5 percentage points to 1.1% in February 2004 from 2.6% in January. This was 0.5 percentage points lower than the projection of 1.6% for February 2004. The decrease in the monthly overall inflation rate was attributed to the slow down in food and non-food inflation rates to 0.9% and 1.4% in the month under review from 2.3% and 2.9% in January 2004, respectively. • The slow down in food inflation was attributed to continued ample supply of food items in the market while the drop in non-food inflation was largely due to price declines in rental and fuel prices as well as in prices of transport and communications, recreational and educational services. • The annual overall inflation rate fell to 16.8% in February 2004 from 17.4% in January 2004. This was 0.2 percentage points below the end-February 2004 inflation projection of 17.0%. The annual overall inflation at 16.8% was also 6.1 percentage points below the end-February 2003 inflation outturn of 22.9%. Broad money • Preliminary data indicate that broad money (M3)1 growth slowed down to 1.4% (8.4% in December 2003) to K4,530.7 billion in January 2004 from K4,467.9 billion in December 2003. This growth was 1.0 percentage points lower than the 2.4% recorded during the corresponding period in 2003, but was 0.4 percentage points above the programmed money supply growth of 1.0% for the month. • The growth in broad money during the period under review was largely on account of the increase in net foreign assets of the banking system, which increased by 2.9% to K2,364.9 billion. • Year-on-year broad money growth on the other hand declined by 1.2 percentage points to 22.2% in January 2004 from 23.4% in December 2003. Domestic credit • Preliminary data show that growth in domestic credit slowed down to 2.3% (3.1% in December 2003) to K4,310.9 billion in January 2004 from K4,215.1 billion in December Broad money is here defined to include currency outside banks, demand deposits at Bank of Zambia and commercial banks, local currency savings and time deposits, and foreign currency deposits. 2003. This was mainly attributed to the decline in borrowing by the public sector to negative 4.0% from 22.5%. In addition, there was a slow down in the growth of Government, private and non-bank financial institutions sectors borrowings to 2.3%, 3.1% and 10.3% in January 2004 from 3.1%, 3.4% and 14.5%, respectively. On a year-on-year basis, domestic credit slowed down by 7.5 percentage points to 40.0%. • Following the reduction in the statutory reserve ratios on commercial banks’ Kwacha and foreign currency deposits to 14.0% from 17.5% on 31st October 2003, commercial banks’ total loans and advances increased by 6.6% between October 2003 and January 2004 in nominal terms. Sectors to which most of this lending went with respective percentage increases were: agriculture (12.2%), mining (36.3%) and electricity, gas, water and energy (316.9%). However, credit to the manufacturing sector fell by 18.8% while lending to the transport, storage and communications sector declined by 9.6%. Interest rates Yield rates on Treasury bills and Government bonds • High liquidity levels, coupled with Government’s restraint on further borrowings from the market, continued to exert downward pressure on yield rates. The weighted average yield rate for all Treasury bills fell by 3.7 percentage points to 15.5 percent in February. This was driven by declines in the individual yield rates of all Treasury bills. • Similarly, yield rates on Government bonds further declined, supported by reduced Government borrowing and abundance of liquidity in the market. Thus, the weighted average yield rate for all Government bonds fell to 17.5 percent in February from 22.7 percent in January. Commercial banks’ nominal interest rates • Consistent with the trend in yield rates on Government securities, all commercial banks’ nominal interest rates declined. The weighted average lending base rate (WALBR) and the average lending rate (ALR) declined to 33.7% and 41.3% in February 2004 from 36.2% and 43.9% in January 2003, respectively. The average savings rate for amounts above K100,000 and the 30-day deposit rate for amounts of over K20 million dropped to 7.0% and 11.5% from 7.2% and 15.1% in January 2004, respectively. Real interest rates • All real interest rates declined due to the decrease in the rate of inflation and the fall in nominal interest rates. The real WATBR fell by 3.9 percentage points to negative 2.2% in February from 1.7% in January 2004. The real Weighted Average Treasury bill Rate (WALBR) declined by 1.9 percentage points to 16.9% from 18.8%. Similarly, the real 30-day deposit rate for amounts above K20 million fell by 3.0 percentage points to negative 5.3%. However, the real ASR for amounts exceeding K100,000 increased by 0.4 percentage points to negative 9.8%. Foreign exchange market • During the review period, the Kwacha remained relatively stable. It gained 0.2 percent against the US dollar to an average of K4,763.99 per US dollar in February. However, the Kwacha weakened against other major traded currencies, depreciating by 2.7 percent against the pound sterling to an average of K8,879.12 per British pound and 1.7 percent against the South African rand to an average of K706.87 per rand. Further, the Kwacha lost 0.5 percent against the euro, moving to an average of K6,025.64 per euro. • The continued relative stability in the Kwacha vis-à-vis other currencies was partly explained by the well-functioning broad based interbank foreign exchange system, which has thus far led to an efficient flow of information in the foreign exchange market since its inception in July 2003. In addition, the fall in the value of merchandise imports, coupled with the rise in the value of exports during the month of January 2004, contributed to the observed relative stability in the foreign exchange market in February 2004. Real sector developments Agriculture • As at 29th February 2004, the Food Reserve Agency (FRA) had purchased a cumulative total of 54,773.15 metric tonnes (mt) of maize compared with 54,598.57 metric tonnes (mt) of maize purchases at the end of January 2004. The highest amount purchased was from Eastern Province, 16,052.55 mt followed by 11,935.0 mt from Southern Province. The rest of the purchases were from Central (9,026.15 mt), Northern (8,824.75 mt), North-western (3,100.15 mt), Luapula (2,561.85 mt), Lusaka (2,381.50 mt), Western (498.80 mt) and Copperbelt (392.40 mt) provinces. • As at 29th February 2004, major milling companies in the country had an estimated maize stock of 58,620.0 mt compared with 74,224.0 mt recorded at end-January 2004. Of this, Lusaka Province was holding 28,670.0 mt, Copperbelt (16,200.0 mt), Southern Province (6,650.0 mt), Central Province (6,000.0 mt), Northern Province (1,000.0 mt), and Eastern Province (1,000.0 mt). • Millers’ average purchase price for maize rose by about 7% to K35,967.0 per 50kg bag in February 2004 from K33,599.50 per 50kg bag in January 2004, mainly due to seasonal movements, as the 2003/2004 consumption period is about to come to an end. Mining2 • Total copper production declined by 4.8% to 31,764.00 mt in January 2004 from 33,369 mt in December 2003. Copper output fell as a result of reduced production at all major mines arising from seasonal factors in the rainy season. • Similarly, cobalt output declined by 6.8% to 171.50 mt from 184.00 mt in the previous month. There was no cobalt production at one of the major mines during the period under review on account of higher processing charges, given low quantities of cobalt that were available for processing. The downward movement in production was a result of seasonal considerations as the mines become waterlogged during the rainy season. Tourism34 International passenger movement • During February 2004, the country’s four international airports5 recorded reduced international passenger movements. International arrivals at these airports declined by 3.0% to17,733 from 18,279 in January 2004. At 18,637, departures were 2.9% above the 18,104 recorded in the previous month. • Of the total international arrivals, Livingstone and Mfuwe Airports, which are the major tourist destinations, accounted for 3,530 and 102, respectively. This was an improvement from the 3,110 and 36 recorded the previous month, respectively. The increase in international arrivals at these two airports was mainly on account of continued marketing in the tourism sector. Livingstone posted 3,782 departures during the reviewed month compared to 3,424, while Mfuwe recorded 106 departures against 31 in January 2004. External sector developments • Preliminary data indicate that the country’s trade deficit narrowed to minus US $19.8 million in January 2004 from minus US $45.3 million in December 2003, mainly due to a decrease in the value of imports. Mining production figures reported with a one-month lag. International arrivals are being used as a proxy for tourism. Tourist peak period is March to July. Lusaka, Ndola, Livingstone and Mfuwe. • Total merchandise imports declined by 15.1% to $121.0 million in January 2004 from US $142.5 million in December 2003. The fall in imports was mainly attributed to the decline in the imports of food items (40%), fertilisers (19%), chemicals (21%), plastic and rubber products (40%), iron and steel items (48.6%), nuclear reactors and equipment (31%), and electrical machinery and equipment (52%). • On the other hand, merchandise exports increased by 4.1% to US $101.2 million in January 2004 from US $97.2 million in December 2003. The increase in copper export receipts was on account of the rise in both the volume of copper exports by 2.1% to 30,076 metric tons in January 2004 from 29,449 metric tons in December 2003, and an increase in realised prices by 5.5% to 96 cents per pound in January 2004 from 91 cents per pound in December 2003. • However, cobalt export receipts decreased following the decline in the sales volume by 42.9% to 131.8 metric tons in January from 230.9 metric tons in December 2003. Cobalt realised prices, on the other hand, increased by 46.6% to US $22.08 per pound in January 2004 from US $15.06 in December 2003. • Non-metal export earnings increased by 1.6% to US $31.0 million in January 2004 compared with US $30.4 million realised in December 2003. The major non-traditional export items that contributed to the rise in export receipts in January 2004 were burley tobacco, cement, cotton lint and sugar. 2. Developments in the financial sector Banking sector Overview of financial performance of the banking sector • On the basis of capital adequacy, asset quality, earnings performance and liquidity, the overall financial condition and performance of the banking industry during the month of February was satisfactory. • The industry’s net worth position increased by 3.2% to K639,660 million from K619,955 million in January. The sector also continued to be adequately capitalised. All banks met their minimum regulatory capital requirements in the month under review. • The asset quality in the month under review was satisfactory, with the level of interest earning assets accounting for 77% of total assets compared to 76% for the preceding month. • The sector’s income before tax amounted to K48,206 million compared to K23,897 million recorded in January. The 100% increase in profit before tax was mainly on account of the following: interest income, which increased by K58,497 million or 93% compared to K11,813 million or 82% increase in interest expenses. Additionally, foreign exchange income in gains and commissions increased by 100% from K30,291 million to K60,857 million. Non-interest expenses increased to K 104,869 million compared to K52,916 million in January 2004. However, the ratio of non-interest expenses to total net income remained at 69%. • The banking sector’s liquidity position was satisfactory with the liquidity ratio (liquid assets to total deposits and short-term liabilities) remaining constant at 75%. All banks met the prudential minimum ratio of 50%. The deposit concentration at 28% from 31% in January was also well spread. Total deposits to total assets dropped to 71% from 73% in January. Money laundering draft directives • On 18 March 2004, the BoZ held a consultative workshop with financial institutions, to discuss the draft Money Laundering Directives. Valuable contributions to clarify or strengthen the draft Directives at this well attended workshop were received. The BoZ is now in the process of finalising the said directives. ESAF/SADC Bank Supervision Application project • The implementation of the BSA project has reached an advanced stage. It is expected that the implementation will be completed by end of April. The consultants are finalising the returns that will be used for submission of data. The finalised returns, in the form of a workbook will be circulated to all the banks. In the meantime, the BoZ would like to thank the five banks (Barclays Bank, Stanbic Bank, Cavmont Capital Bank, Investrust Bank and African Banking Corporation) that submitted test data for finalising the returns. The BoZ will be calling on the banks to take part in the testing of the electronic submission of data. Non-bank financial institutions sector • The performance of the non-bank financial institutions sector was generally satisfactory although some institutions were still faced with financial distress. The Bank of Zambia is addressing the problems of distressed financial institutions within the framework of the Financial Sector Development Plan. 3. Announcements and areas of concern Update on the Financial Sector Development Plan (FSDP) • The BoZ is seeking comments from the public and other stakeholders on the FSDP which was placed on the BoZ website on 6 February 2004. The last day for submission of comments is 31 March 2004. A National Forum to discuss the FSDP is scheduled for April 2004. Further details on the Forum will be advised in due course. Update on the microfinance regulations • The draft microfinance regulations, which are aimed at providing a legal framework for regulation and supervision of microfinance institutions, are currently being reviewed by the BoZ and are scheduled to be submitted to the Minister of Finance and National Planning during the second quarter of 2004. Polymer notes • As most of you must have heard, through the media, there are public concerns about some features fading on the polymer banknotes of K500 and K1,000. While we have also noticed a number of them, we wish to inform you that fading is a definite and expected feature of these notes as they approach the end of their useful life. However, we also feel that being a new concept, the notes could still be subjected to undue stress testing due to public curiosity. However, we are also not ruling out premature wearing of the notes. We are therefore doing everything possible to ensure that subsequent consignments do not suffer similar setbacks. In the meantime, we wish to make an earnest appeal to all the banks to assist the Bank of Zambia in ensuring that faded notes are quickly taken out of circulation, in the same way as soiled banknotes have been handled in the past. The Bank of Zambia is also going to set up mechanisms for enhancing the process and pace of siphoning faded notes from circulation. International Fund for Agricultural Development Mission • An International Fund for Agricultural Development (IFAD) Mission was in the country to solicit comments on the Rural Finance Programme Inception Report of November 2003 on the development of rural finance. The major findings were that the Inception Report provided the basis for the provision of rural finance, however, it was noted that the report was limited in scope and was too focused on creating an enabling environment for the provision of rural finance. In addition, the report lacked concrete initiatives for rural finance. In view of this, the Mission proposed the following interventions: • Support of community based financial institutions; • Rural banking; • • Credit facility for contract farming operations; • Innovation and outreach facility; and • Policy, legislative and management support. As a way forward, the Mission agreed to complete a draft formulation report by end-April 2004, hold a stakeholders’ workshop by end-May 2004 and finalise the formulation report by end-June 2004. The programme appraisal would be conducted by end-September 2004. AFRACA Workshop • A workshop was held in South Africa under the auspices of AFRACA. A number of issues came up but a particular one we would like to encourage in our market is the linked banking. This involves commercial banks entering into arrangements with other institutions, such as, microfinance institutions to extend some form of banking services even to outlying areas. We feel that linked banking provides an opportunity to improve the intermediation role that banks play in an economy. Our Non-Bank Financial Institutions Department will be happy to provide more information on this and other innovative approaches to provision of rural financial services discussed at the said workshop. Update on ZIPSS-RTGS implementation • • The Project ZIPSS-RTGS implementation team has successfully undertaken the following activities within the project time frame: • Development of RTGS policy/position papers; • Delivery, installation of BOZ RTGS hardware and software; • Conducting of training for BOZ business and IT staff; • Conducting of both Business and Technical Functional Tests of BOZ RTGS; and • Inspection of Commercial Banks readiness in terms of hardware and SWIFT connectivity. It is important to note that these activities are critical for the successful delivery of the systems within the agreed time and budget. Commercial Banks are therefore urged to ensure that their banks are ready for the next phase which directly affects them. The Implementation Team has put in extra efforts to assist commercial banks to ensure that they are ready within the agreed time frames. Given the importance of the RTGS system, commercial banks must ensure that whatever solution they go for does not compromise reliability, availability, speed and security of the system. On-site examination of commercial bank’s readiness • The Bank of Zambia on-site examination for commercial banks’ readiness commenced as planned on 22 March 2004. Preliminary indications are that the majority of the banks were ready for the installation of the RTGS application software on 29 March 2004. The installation of the software is being done in a phased manner, i.e. on first-ready-first installed basis. This is to ensure that the project schedule is not held back unnecessarily. • It is also important to remind all banks that every bank is required to comply with the minimum technical infrastructure specifications for both the Perago RTGS client configuration and SWIFT connectivity prior to the installation of the application software. This will enable timely installation of the Perago RTGS application software, bilateral key exchange (BKE) for SWIFT connectivity and commencement of the pilot project. RTGS training for commercial bank staff • The RTGS training facilities have been installed, tested and are currently running in the Bank of Zambia In-Service Training Centre. Training for the Bank of Zambia staff has been finalised. Training for commercial bank staff is scheduled to commence on 16 April 2004. This training will involve Perago RTGS Server Applications Technical Operations Training for the IT area staff and Perago RTGS Entry training for the business area staff. This programme covers training for transaction capturers, authorisers, and systems administrators and operators. • As earlier communicated to commercial banks, a number of training sessions have been devised because the training facilities can only accommodate 12 participants at a time. In this regard, a month has been provided for commercial banks’ training ending 5 May 2004. All banks are reminded to ensure that they submit names of nominated officers to the Assistant Director - Payment Systems as soon as possible to enable the training to start according to schedule. Piloting of the RTGS system • The piloting of the system is scheduled to commence on 27 April 2004. It is therefore cardinal that the entire industry moves in unison on this project. As indicated to commercial banks at the last meeting, the training of both Bank of Zambia and commercial banks staff and the execution of the pilot project have been arranged close to each other to enable the quick and effective transfer of acquired skills to staff’s “desks” or operational areas. Therefore, the need for all banks to move at the same pace cannot be over emphasised. Counterfeits • We would like to alert you all that there are people trying to encash counterfeit notes and as banks you are the most vulnerable. It is therefore incumbent upon all of your members of staff to be vigilant when handling incoming cash. The incidence of the counterfeits is suspected to affect other locations beyond Lusaka as such even your outlying areas must be alerted. You should urgently report such cases to the Zambia Police Service. Bank of Zambia and government participation in foreign exchange market • As discussed during the meeting in Ndola and consistent with the code of conduct for the broad based interbank system, we would like to reiterate the fact that Bank of Zambia is a participant in the market like all other players. As such the Bank’s participation should not be seen as extraordinary but as part of the process. Equally, Government participation should be treated in a similar manner. • In addition, a number of issues were raised in the workshop regarding the operations of the foreign exchange market and a report has been circulated to that effect. In this regard, the Bank of Zambia will soon write to the Bankers Association of Zambia (BAZ) outlining those issues that require action by all concerned parties. Use of EDP funds • It has come to our attention that some intermediaries of the EDP funds are not utilizing the funds according to the agreed rules. In some instances, the intermediaries are not on-lending the funds to their clients. Such practices if allowed to continue will defeat the purpose of the efforts aimed at creating a sustainable source of wholesale medium- to long-term funds in our market. We wish to urge all of you to adhere to the established rules, failure to which those institutions engaged in unacceptable practices may not be able to secure such funding in the future thereby denying their clients critical project funding. ZIBAC meeting • A second meeting for the Zambia International Business Advisory Council (ZIBAC), was held in Livingstone from 5 to 7 March 2004. During the meeting, ZIBAC members and the private sector, represented by the Zambia Business Forum (ZBF), applauded the Bank of Zambia and the Government for achieving relative stability in the macroeconomic environment. This is reflected in the relative stability in the exchange rate and the downward movement in interest rates for which the weighted Treasury bill yield rate entered the single-digit region by early March 2004. This trend is due to, among other factors, the reduced Government borrowing from the financial system and indeed your cooperation as banks, especially those that have responded by appreciable adjustments in their base rates. The other aspect was that of inflation, which slowed down to 17.2% in December 2003 from 26.7% in December 2002 and the further fall to 16.8% by February 2004. Accordingly, calls were made for the Bank and the Government to continue with the efforts to stabilise the macroeconomic environment, since stability is one major consideration in investors’ decisions for investment destinations. While ZIBAC and ZBF members commended commercial banks for positively responding to the Bank of Zambia and Government actions by reducing lending rates, they pointed out that the cost of borrowing for the productive private sector was still high and that there was need to further lower lending rates so as to make loans affordable. In addition, low lending rates would improve the investment climate in the country. 4. Outlook The March 2004, inflation pressures were anticipated to slow down. Factors for this anticipation include the following: • Given that the supply of fresh foodstuffs from the 2003/2004 agricultural season had started, inflationary pressures were likely to ease. Coupled with the lifting of the fishing ban in March 2004 and expected increase in the supply of fish on the market, these factors were expected to dampen food inflationary pressures; • The slow growth in broad money in January 2004 and the decline in average reserve money at end-February 2004 were expected to have a dampening effect on non-food inflation in March 2004; • The exchange rate of the Kwacha against other currencies was expected to remain relatively stable on account of improved foreign exchange supply on the market arising from favourable export receipts due to higher metal prices and increased non-traditional earnings especially of sugar, cotton lint, burley tobacco and cement; and • Government expenditure was expected to be within the targeted levels and this was expected to contribute to ensuring that net domestic financing of Government from the banking system would remain within the projected ceiling and thereby contribute to the anticipated drop in inflation. In view of these expectations, the Bank of Zambia will continue to implement appropriate monetary policy aimed at containing the growth in reserve money and broad money within the projections. As part of the outlook, there are two important events that will be forthcoming. These are: The upcoming IMF mission • We wish to inform you that the IMF mission will be in the country during mid-April to assess progress made against the Staff Monitored Programme (SMP) with a view to consider Zambia’s return to a PRGF. It is therefore, our hope that nothing will be done in the market to reverse the many successes that we have achieved thus far because we all need the programme which will not only lead to the country reaching the much anticipated completion point under the enhanced HIPC initiative, but also bring along other benefits, such as, increased supply of foreign exchange in the economy. The Country Assistance Strategy (CAS) • In addition, a Country Assistance Strategy (CAS) for Zambia was recently approved by the World Bank Board. Here too a lot of praise was given to our achievements but with caution as more work needs to be done in our economic programme. The approval of CAS for Zambia means that some substantial funding will be released beginning soon and will spread over a relatively stretched period. This will help ease the situation given the resource constraints that the country is facing, especially to fund capital and related projects. | bank of zambia | 2,004 | 5 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 40th anniversary celebrations, Lusaka, 5-6 August 2004. | Caleb M Fundanga: Achievements and accomplishments at the Bank of Zambia during the past forty years Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 40th anniversary celebrations, Lusaka, 5-6 August 2004. * * * Chairperson, Baroness Lynda Chalker of Wallasey The Guest of Honour, His Excellency, the President of the Republic of Zambia, Mr Levy Patrick Mwanawasa, State Counsel Honourable Ministers Honourable Deputy Ministers Your Excellencies Members of the Diplomatic Corps Honourable Members of Parliament present Special Guest, Governor Tito Mboweni, Governor Reserve Bank of South Africa Distinguished Past Governors of the Bank of Zambia Senior Government Officials Distinguished Invited Guests Ladies and Gentlemen On behalf of the Bank of Zambia and indeed on my own behalf, it is my singular honour and rare privilege to extend a warm welcome to you all as we commemorate the 40th Anniversary of the establishment of the Bank of Zambia. I would also like to thank, His Excellency, the President of the Republic of Zambia, for accepting our invitation to officiate at this special occasion. Further, special thanks go to Governor Mboweni for accepting to deliver a key note speech and all foreign participants for coming. Mr President may I mention that amidst this gathering are participants from sister central banks in the region that have come to celebrate this anniversary with us as well as Zambians based outside the Republic. Mr President, Ladies and Gentlemen, this Anniversary marks 40 years of dynamic transformations and achievements accomplished by the Bank. Some of the challenging issues that the Bank has confronted in the past and likely to do so in the future form part of the selected topics of Papers to be presented and discussed at this Conference. This conference is therefore expected to provide a platform for sharing ideas required for practical solutions aimed at improving the Bank’s deliverables. In doing so, however, we must be cognisant of global trends in central banking. Madam Chairperson, since its establishment in 1964, the Bank of Zambia has played an important role in the economy by formulating and implementing monetary, regulatory and supervisory policies in its quest for price stability. Over this period, progress has been made towards the deepening of financial markets, specifically in the areas of monetary policy management, and the foreign exchange market. In addition, substantial improvements to the legislative and regulatory frameworks for banks and financial institutions have been attained. Ladies and Gentlemen, during the pre-liberalisation period from 1964 to 1991, monetary policy was largely characterised by administrative controls on interest rates and the exchange rate. Although the Banking Act of 1965 was created to enable the implementation of monetary policy, in the preliberalization era monetary policy involved multiple objectives, such as, financing agriculture and parastatal companies, and providing guarantees for export marketing, which at times presented the Bank with conflicting roles as a monetary authority. To the contrary, during the current liberalization period, which commenced with vigor in 1992, the Bank, in conformity with market reforms, has steadily moved towards the use of market-based structures and systems as opposed to direct instruments in the conduct of its monetary policy. In this regard, and beginning 1993, deregulation of interest rates, removal of capital controls and freeing of the foreign exchange market were implemented as part of the broader financial sector reforms. As a result, through the use of mainly market-based instruments of monetary policy, the Bank has made several notable achievements. Amongst these, has been its contribution to the reduction of annual inflation to 17.2% in December 2003 from 197.0% at the end of December 1992. Further, inflation has remained just under 20% in the first half of 2004 and it is the Bank’s desire to see single digit inflation within the foreseeable future. The benefits of lower inflation in single digits can not be over-emphasized, especially with regard to the fight against poverty. Madam Chairperson, last October the Bank took a bold stand of effecting a down-ward adjustment in the statutory reserve ratio to 14.0% from 17.5 % on both Kwacha and foreign currency deposit liabilities. This was intended to release funds to commercial banks. The outcome of this policy action has been increased loanable funds being available to commercial banks. This in turn has greatly contributed to the downward trend in lending rates in the economy. For instance, the weighted average lending base rate dropped to 29.8% in June 2004 from 39.6% in August 2003. This action was consistent with Government’s objective to ensure increased credit to priority sectors such as agriculture. I am glad to inform the conference participants that a noticeable increase in credit to key growth sectors namely agriculture, tourism, manufacturing and mining has been recorded since this policy action by the Bank. This process has been greatly assisted by a significant reduction in Government borrowing from the banking sector. In its continued effort to develop a fully functional foreign exchange market, in July last year the Bank established a broad-based inter-bank foreign exchange management (IFEM) system as the new mechanism for determining the exchange rate in Zambia. Under this system market making has been transferred to commercial banks with the Bank performing mainly an oversight role. Coupled with favourable developments in exports, the IFEM has to-date yielded encouraging results as evidenced in the relative stability of the Kwacha against currencies of most major trading partners. Mr President, Ladies and Gentlemen, one area that has seen remarkable reforms is that of the payment systems in Zambia, for which the Bank has been actively involved. These reforms include the establishment in September 1999 of the Zambia Electronic Clearing House Limited which provides a speedier mechanism of clearing funds to customers. It also reduces the risk of errors during processing of payments. Another development arising out of electronic clearing was the establishment of an electronic funds transfer system called Direct Debits and Credits Clearing (DDACC) in October 2001. The DDACC system provides unparalleled convenience to both payer and payee for processing bulk and small value regular payments such as salaries and utility bills. Owing to its fully electronic nature, funds are cleared within 24 hours. In a further development, in June 2004, the Bank of Zambia launched the Real Time Gross Settlement (RTGS) system. This system facilitates real time settlement of large value and time critical payments. This is a significant step towards easing the payments side of economic activities in our country. The above accomplishments not withstanding, challenges still remain and we in the Bank of Zambia are set to drive the payment system towards one that will be secure, efficient, cost effective and accessible to the majority of Zambians. The rural population and the unbanked majority will have a prominent focus in our reform process. The Bank has also been instrumental in other reforms in the financial sector which include preparation of the Financial Sector Development Plan (FSDP) whose overall objective is to increase financial intermediation and promote efficiency of the financial system. Madam Chairperson, the theme “40 years of Central Banking: Facing the Challenges of the 21st Century” during this anniversary is meant to make us reflect on the achievements that the Bank has made so far and then focus our attention to the challenges that lie ahead. This follows from the Mission of the Bank, which states “To formulate and implement monetary and supervisory policies that will ensure price and financial system stability”. The Bank of Zambia acknowledges the need for improved terms and conditions under which money and credit are provided to the economy. The increased number of registered domestic and domestically incorporated international banks has led to augmented credit creation to local businesses compared to pre-liberalisation levels. Previously, credit facilities were scarcely availed to local businesses. Efforts are currently being made to establish a Credit Reference Bureau, which should result in reduced information asymmetries and contribute to the further lowering of lending rates. It is also hoped that the bureau will provide an objective assessment of potential private sector borrowers and improve credit culture. Timely, adequate and affordable credit is required in the economy to effectively facilitate economic growth, create employment and reduce poverty. Mr President, Ladies and Gentlemen, financial stability which forms part of the Bank’s mandate is a critical component of macroeconomic stability. Our banking sector experienced an unprecedented structural evolution during the latter part of the 1990s when new bank entrants and eventual quick exits characterized it. The implications of a volatile banking sector speak for themselves. No doubt, the Bank of Zambia had met yet another daunting challenge in its role as a supervisory authority. Even in the aftermath, the Bank continues to deal with aspects of institutions in liquidation. However, one welcome outcome from this experience is the consolidation of the banking sector, which is much more aware of the constant need for prudent risk management and good corporate governance. From our end, the Bank has also undergone a significant re-orientation of its supervisory techniques and approaches. These are now largely in line with international best practices and also constitute a platform on which we shall meet the future challenges facing the financial sector in the 21st Century. Ladies and Gentlemen, from time to time developments are associated with setbacks and the Bank of Zambia is no exception. Here I am referring to the issue of polymer notes which were introduced sometime last year. The introduction of these notes as we have explained at several fora was meant and is still meant to have cleaner notes in the economy and more importantly to have notes with a relatively longer life-span before replacement, than the traditional paper notes. With a relatively longer life-span, the nation would save resources because the frequency of replacing the notes would greatly be reduced. However, due to technical problems experienced by the printer, most of the notes have been fading faster than expected. May I re-assure the nation that we have continued to work with the printer and a solution is being worked out in the quickest time possible. Needless to say that this problem has posed a big challenge for all of us at the Bank of Zambia. Madam Chairperson, with respect to its organisational and functional structure, the Bank has overtime undergone modifications to suite its role as a monetary and supervisory authority. In addition, structural changes have been necessitated by the continuously changing demands along with changes in the economy and especially in the dynamic financial markets. From a handful of departments at inception currently, the Bank comprises the following core departments, Economics, Financial Markets, Bank Supervision, Non-bank Financial Institutions Supervision, Banking, Currency and Payment Systems, and the Regional Office in Ndola. The support departments include Procurement and Maintenance, Finance, Bank Secretariat, Human Resources, Information Technology and Internal Audit as well as a Security Division. In order to streamline the operations of the Bank and improve its performance, a performance agreement system for employees was introduced in 1995. This was meant to bring about a new work culture with emphasis on professionalism, based on the philosophy, “The BoZ Way means Action”. Mr President, Ladies and Gentlemen, since the 1996 Bank of Zambia Amendment Act, the Bank has continued to enjoy operational autonomy with regard to the formulation and implementation of monetary policies and attainment of relative financial system stability. The ability of the Bank to continually meet quantitative benchmarks set by Government and cooperating partners, can be attributed to the focus of its monetary policy on creating a stable macroeconomic environment as a precondition for sustainable economic growth. Ladies and Gentlemen, as we move ahead and look to the next 40 years of central banking in Zambia, the Bank of Zambia will continue to play a catalytic role in facilitating the exchange of ideas among the banking community, the private sector, and all other key stakeholders through such gatherings as this conference. We will continue to carry out our mandate, with the objective of facilitating the work of Government and economic activities of the private sector for the betterment of all Zambians. Mr President, Madam Chairperson, Ladies and Gentlemen, I would be failing this occasion if I do not recognise that the achievements of the Bank of Zambia over the last 40 years are a result of the hard work by employees, past and present, including the former Governors. Allow me at this point to present the names of the former Governors and also to recognize those that are in our midst. These are: • Mr R C H Hallet, 1964-1967; • Dr Justin Zulu, 1967-1970; • Mr Valentine S Musakanya, 1970-1972; • Mr Bitwell R Kuwani 1972-1976 & also 1981-1984; • Mr Luke Mwananshiku, 1976-1981; • Mr David A R Phiri, 1984-1986; • Mr Leonard Chivuno, 1986-1987; • Mr Francis X Nkhoma, 1987-1989; • Mr Jacques A Bussieres, 1990-1992; • Mr Dominic C Mulaisho, 1992-1995; and • Dr Jacob Mwanza 1995-2002. May I, at this point, request that we stand and observe a moment of silence in honour of our past late Governors; R C H Hallet, Valentine S Musakanya, Bitwell R Kuwani, Luke Mwananshiku and Leonard Chivuno and many other former employees of the Bank who passed away during the last 40 years. Thank you. It is important to mention here that most of the former Governors have continued playing critical roles in the financial sector and I can proudly say that three of them today serve as chairmen of commercial banks. In conclusion, Ladies and Gentlemen, may I again welcome you all to this conference, and I urge you to be open and constructive during the deliberations. I thank you. | bank of zambia | 2,004 | 9 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the end of year cocktail party for the Zambia State Insurance Corporation Limited clients, Lusaka, 1 December 2004. | Caleb M Fundanga: The Bank of Zambia and the insurance industry Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the end of year cocktail party for the Zambia State Insurance Corporation Limited clients, Lusaka, 1 December 2004. * * * The Master of Ceremony The Registrar - Pensions and Insurance Authority The Board Chairman-Zambia State Insurance Corporation The Board Chairman-Zambia State Insurance Pension Trust Fund Madam Managing Director - Ms Muyenga Distinguished Invited Guests Ladies and Gentlemen Good Evening! I wish to thank the Managing Director of Zambia State Insurance Corporation Limited - Ms Muyenga, for inviting me and my wife to be the Guest of Honour at this end of year cocktail party. Despite the fact that the Bank of Zambia is not directly associated with the insurance industry, this function gives me a rare opportunity to say something about the relationship between the Bank of Zambia and the insurance industry. In the past few years, the Bank of Zambia has taken keen interest in the operations and performance of the insurance companies and pension funds. This is because insurance companies and pension funds have a direct impact on macro-economic variables, since most of them are leading players in the Government securities market. Whenever the Government wishes to raise funds, it is these institutions together with commercial banks that provide them. Ladies and Gentlemen, many of you will agree with me that the recent downward trend and stabilisation in the macro-economic variables, such as interest, inflation, and exchange rates, has induced high levels of investor confidence in our economy. As many of us are aware, a stable macroeconomic environment is one of the critical ingredients for achieving sustainable economic growth and, ultimately, poverty reduction, in our country. In this regard, allow me to reiterate what I have been saying at other fora that the insurance industry plays a critical role in the economic growth and development of any country. Here in Zambia, the insurance industry, with gross annual premiums of approximately K273 billion for life and non-life business, and about K550 billion for pensions, controls colossal sums of money which could be used for investment locally; and if properly regulated could contribute to developing a strong financial sector in Zambia. However, the problem has been that the insurance industry has been under-regulated for many years. In this respect, it is high time that regulations are put in place to harmonise the operations of this important industry. I have several times been told that the Insurance Act of 1997 is inadequate in many areas such as licensing, separation of life and non-life business and investment outside the country. I have similarly been told that the Pension Schemes Regulation Act of 1996 is equally deficient. To make matters worse, the Zambian public has insufficient knowledge of insurance matters. In addition, the industry itself has failed to co-operate to enable it handle mega risks and stop the externalisation of insurance funds. Unlike the Bankers Association of Zambia (BAZ), whose existence and strength is cemented by the banks themselves, the insurance industry has a very loose arrangement about how it should promote a common front. There is neither a written nor binding memorandum of understanding among the insurance companies to foster cooperation on some of the thorny issues confronting the insurance industry today! However, I must acknowledge here, that there is an organisation called the Insurers Association of Zambia (IAZ), whose membership is compulsory but which may not be very strong in guiding its membership. Ladies and Gentlemen, from my observation, the insurance and pension industry in Zambia is facing many challenges. These include: 1) Amendments to the Insurance Act of 1997 and the Pension Schemes Regulation Act of 1996 so that laws and regulations that impose stricter corporate governance practices and structures in all institutions managing pension and insurance funds are introduced; 2) The Investment Act must be harmonised with the Insurance/Pensions Acts in such a way that all insurance companies formed or already formed must have local ownership/equity partnership. This would greatly contribute to minimising capital flight and huge repatriation of dividends; 3) Need for the establishment of a national re-insurance company to avoid capital flight; 4) Insurance companies need to harmonise their operations so that clients benefit from fair competition. In other words, data on operations for all insurance companies should be captured easily for planning purposes; and 5) Along the same lines, the insurance companies should focus on their core-insurance business, as this has the effect of reducing outflow of capital. If insurance companies had an avenue for co-operation amongst themselves, some arrangements to compensate for fore-gone income on ceded commission could be worked out under the co-insurance programme. In this regard, I call upon my counterparts at the Pensions and Insurance Authority (PIA) to strictly supervise the industry in order to ensure, among other things, the proper investment of the insured funds. On our part as the Bank of Zambia, we would like to assure you of our continued support, and our doors are open for consultations. As I do not want to take much of your leisure time, I wish to conclude by thanking you, once again, for according me the opportunity to share my thoughts with you. To this end, I wish you all a Merry Christmas and profitable New Year. Please, have a pleasant evening! I thank you. | bank of zambia | 2,004 | 12 |
Closing remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the end of the Bank of Zambia lecture series to members of the University of Zambia Business and Economics Association (UNZABECA), Lusaka, 24 November 2004. | Caleb M Fundanga: The role and operations of the Bank of Zambia Closing remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the end of the Bank of Zambia lecture series to members of the University of Zambia Business and Economics Association (UNZABECA), Lusaka, 24 November 2004. * * * Chairperson Bank of Zambia Directors Members of UNZABECA Distinguished Ladies and Gentlemen As we come to the end of the series of lectures presented by the Bank of Zambia, it is my sincere hope that UNZABECA members have now gained a better understanding and appreciation of central banking, in general, and the role and operations of the Bank of Zambia, in particular. Ladies and Gentlemen, as it has been amply explained during the course of the Lecture Series, I would also like to reiterate that a central bank plays a critical role in the monetary and financial operations of any country. Through these Lectures, you have learned that the primary responsibility of a central bank includes, among others: • issuance of currency; • acts as banker to the Government; • banker to commercial banks; • management of a country’s foreign exchange reserves; • lender of last resort; • management of public debt. Although some central banks do not carry such responsibilities; • collection and interpretation of statistics, in particular, financial and monetary statistics; and • implementation of monetary and financial systems policies. Through these Lecture Series, which have successfully ended today, it has been highlighted that the central bank, like the rest of the economy, adapts to changes in the market environment. In the case of the Bank of Zambia, prior to 1991, the Bank had numerous roles, including the promotion of economic growth through the provision of credit to critical sectors such as agriculture, manufacturing, mining, etc, as well as issuance of export guarantees to exporters. As expected, the multiplicity of functions led to conflict of interest. For instance, on one hand, the Bank was expected to control the growth of money supply while, on the other hand, it was required to inject money into the system through the provision of credit to the selected sectors. The introduction of economic reforms by the Government beginning the end of 1991 therefore brought about enormous challenges for the Bank of Zambia. To meet the new challenges, the Bank’s operations needed to be more focused. In this respect, the Bank of Zambia Act was amended in 1996 to reflect the changed nature of the operating environment. By amending the Act, the Bank’s primary role was solely “to formulate and implement monetary and supervisory policies that will ensure the maintenance of price and financial system stability”. This was deliberate, as experience world-over has shown that you can only achieve sustained and high economic growth in an economic environment characterised by low and stable inflation. Thus, by working to ensure price stability as well as maintenance of a safe, sound and efficient financial sector, the Bank is contributing to the achievement of sustainable economic growth and, ultimately, poverty reduction. In a nutshell, following the amendment of the Bank of Zambia Act in 1996, the Bank’s main responsibilities comprise price and financial system stability. The Bank ensures financial system stability by licensing, supervising and regulating the activities of banks and non-bank financial institutions so as to promote the safe, sound and efficient operations and development of the financial system. Ladies and Gentlemen, I trust that, as members of UNZABECA, you have actively participated in these series of lectures and expanded your knowledge of the functions of the Bank of Zambia. On our part as Bank of Zambia, we strongly encourage investment in education, which has been demonstrated by the sponsorship of these Lectures. In this regard, I wish to take this opportunity to call upon other institutions to support our university by either sponsoring a series of lectures, like the Bank of Zambia has done, or rendering any financial assistance. As many of you may be aware, most of the companies in Zambia have benefited, in one way or the other, from the services offered by our universities. As for the Bank of Zambia, most of its management members of staff, including myself, are graduates of this university and were members of UNZABECA. Therefore, as a token of their appreciation to UNZABECA, they have made a generous donation in the sum of K9.5 million. This donation, I hope, will go a long way in supporting UNZABECA programmes. However, may I caution you to manage these funds prudently and ensure that they are applied towards the attainment of the intended UNZABECA objectives. Please, do not be wasteful now that UNZABECA coffers are liquid! In conclusion, as Patron of UNZABECA, I look forward to being involved in UNZABECA activities. In this regard, I undertake to promote your activities, at any slightest opportunity, to other institutions, which would benefit from your services. With these few remarks, it is now my honour and privilege to declare the Bank of Zambia UNZABECA Lecture Series officially closed. I thank you. | bank of zambia | 2,004 | 12 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 2nd Green Accord Media Forum, Rapolano, Italy, 3 November 2004. | Caleb M Fundanga: Economic and environmental growth of Africa Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 2nd Green Accord Media Forum, Rapolano, Italy, 3 November 2004. The references for the speech can be found on the Bank of Zambia’s website. * 1. * * Introduction The world community faces unprecedented ecological challenges in the twenty-first century. Many political and business leaders have embraced the idea of sustainable development, calling for economic growth without destroying the natural environment or depleting the natural resources on which future generations will depend. Yet the concept has remained controversial, and implementation has been difficult. The task for policy makers and corporate leaders will be to find ways to meet both economic and environmental goals in the coming decade, without sacrificing either (Post-LawrenceWeber, 1999). In Africa, environmental issues are also frequently sidelined on most policy makers’ agendas due to insurmountable economic and social problems that the continent continues to face. Notwithstanding the economic and social hardships, as Africa constantly strives towards attaining economic development, environmental sustainability remains a key area of concern (UNEP, 2003) although usually remote to most economic policy makers. In addition, environmental sustainability is hardly seen by many in Africa as an underlying factor in economic development yet it is so critical that, if adequately and promptly addressed, will have positive secondary effects on other crucial areas pertaining to economic development and people’s welfare. In this paper, I attempt to examine the interrelationships between environmental growth and sustainable economic growth from the African perspective. The paper is organised as follows; section 2 examines the current economic disposition of Africa, and attempts to determine its relationship with environmental developments. Prominence is given to the components that affect environmental sustainability, namely (i) pollution and (ii) degradation. The latter will prove to present a relatively high risk to environmental sustainability in Africa. Section 3 presents a further analysis on the effects of the environment on economic growth, and that of economic growth on the environment. Section 4 tackles issues of Africa in the world economy and its environmental prospects. Section 5 provides current solutions aimed at mitigating and/ or reducing the various negative externalities related to environmental pollution and degradation such as national, regional, and international environmental management policies. Recommendations that are considered necessary to foster environmental friendly economic development are also given as input for further improvements in environmental management in Africa. 2. Economic disposition of Africa With an estimated total population of 835,479 thousand people representing 13% of the world’s estimated 6,395, 557 thousand people,1 and spanning the 53 countries of Africa, the continent faces numerous challenges predominantly on the economic, social, and political fronts. Despite these difficulties, Africa recorded a growth rate of 3.6% in 2003, an increase from 2.7% recorded in 2002. The increasing trend in economic growth is expected to continue into 2004 [African Development Bank (AfDB), 2003]. Yet the challenge remains to meet the targets set by the Millennium Development Goals (MDGs) aimed at reducing the number of the world’s poor by half by the year 2015. Unfortunately, improvements in some economic indicators may not be sufficient enough to enable the majority of African countries to meet the MDGs targets.2 Specifically, single digit economic growth rates are not sufficient for tackling the widespread poverty in the continent. According to the African Development Bank, only Algeria, Egypt, Libya, Morocco, Tunisia, and Mauritius will attain the specified targets. The majority of the population of Africa is located in rural areas where agriculture and dependence on natural resources remains the predominant means of livelihood [United Nations As of 10/22/2004, Source: Encyclopedia Britannica Book of the Year 2004. United Nations Environment Program (UNEP) Fact Sheet, Global Environment Outlook – 3, Africa, GEO 3, Nairobi, Kenya, 2003. Development Programme (UNDP), 2003]. Soil, grasslands, freshwater sources, and oceans play a critical role to sustain crop cultivation, grazing land for livestock, and fisheries. The energy sector equally plays an important role in the African economy due to the dependence of all national economies on oil for their production activities. On one hand, significant dependence on oil exports from countries such as Angola, Chad, Equatorial Guinea, Nigeria and Libya is becoming increasingly pronounced. Consequently, rising oil prices have contributed towards augmenting revenues of these oil-producing nations, while on the other hand threatening the revenues of the other nations that only use but do not produce oil. In spite of the energy obtained largely from hydro and some geothermal and solar sources in Africa, the population continues to lag behind the rest of the developing world in terms of access to electricity. Approximately 77.5% of the sub-Saharan population has no access to electricity, with the majority of the population relying on biomass (dung and firewood) for domestic energy needs (OECD/ ADB, 2003). To a large extent, economic growth in Africa is still largely driven by production of raw materials that are hardly subjected to meaningful industrial processing. This source of economic growth has a direct dependence on the use of natural resources mainly in agriculture and mining. The lack of valueadding processing largely underpins the historical low levels of economic growth. 3. Effects of environmental growth on African economic growth 3.1 Environmental issues in African economic growth Environmental issues ought to be an important area of concern for leaders and policy makers, when making policy decisions about human development and economic welfare, especially those in the developing world. Many growth sectors are in effect directly or indirectly related to the environment. A study by Jha and Whalley (1999) argues that the main environmental issue generally affecting the developing world is degradation, as opposed to the common belief that pollution is the principal factor of environmental decay which is predominantly applicable to industrialised countries. Degradation comprises of the following key areas; soil erosion, declining soil quality due to pesticide residue, exploitation of open access resources due to ill-defined property rights, and congestion and traffic. Other perverse forms of degradation are deforestation and desertification. While Africa continues to suffer economic stagnation, the factors that result in environmental degradation are continually on the increase. Some of the factors, such as burning of fossil fuels which release carbon dioxide, are possible causes of global warming, although to a lesser extent when compared to emissions of greenhouse gases by industrial activities. Specifically, the predominant ways that these factors affect the ecosystem are as follows; Soil erosion involves the washing away of tracts of land due mainly to human activities. Such activities, while providing a source of livelihood for many, do not have safeguards to preserve the land for long-term use. Typical activities include clearing of land for crop growing and animal grazing. Related to soil erosion is the declining soil quality due to pesticide residue. This in turn leads to more clearing of virgin land once fertility reduces on existing land. Exploitation of open access resources due to ill-defined property rights presents environmental management in Africa with tremendous challenges. Most of the natural resources in Africa tend to be viewed as a common good for the entire population. As a consequence there is open access to especially land under what is commonly referred to as traditional system of land tenure. It is because of this that rampant clearing of tracts of land go unrestricted hence resulting in degradation. In urban areas, ill defined land ownership is responsible for mushrooming of shanty compounds, illegal dumping of waste, etc. Congestion and traffic is related to the population growth rates and urbanisation. In most of Africa, modern economic activities are concentrated in urban centres. These tend to be the export enclaves that support African economies. With an obvious economic tendency for the population to gravitate towards points where they can maximise economic welfare, the urban areas have found themselves faced with congestion, which in turn overstretches utility service facilities resulting in poor sanitation and rampant epidemics such as respiratory diseases, cholera, etc. In addition, the general increase of the population implies not only increased pressure on natural resources but also more carbon dioxide released through the human respiratory process. Deforestation is currently a serious concern for Africa, with forests being lost at an annual rate of more than 5 million hectares (United Nations Environmental Programme [UNEP], 2003). The growing demography of Africa has resulted in the clearing of land in order to accommodate for more houses and areas for cultivation due to the significant dependence of the majority of the population on agriculture. According to UNEP 2003, 60% of the tropical forest areas that were cleared in Africa as a whole between 1990 and 2000 were converted to permanent agricultural smallholdings. The cutting and not replacing of trees contributes to global warming. Worse still is the burning of forests to clear land for grazing or agriculture which also releases carbon dioxide. Desertification is another area of concern for the continent. Over 45% of Africa is affected by desertification, while 55% is at high-to-very-high risk of erosion (UNEP 2003). Desertification is compounded by the other major environmental concern of deforestation. In fact, studies have shown that mortality rate, maternal health, and girl child education in the region are directly linked to environmental changes such as deforestation. In rural areas, households rely on females to fetch firewood, therefore, continued deforestation implies longer walking distances for women and girls. These result in complications in pregnancy, other ailments, as well as less time for girls to do school work. Studies have also shown that women and girls in Africa spend an average of three hours a day fetching water, hence expending more than a third of their daily intake of food (UNDP 2003). Although only 26% of the oil produced in Africa was used locally in 2003, energy consumption increased by 44% in Northern African countries (ADB and UNEP, 2003). However energy consumption of liquid fuels comes at a cost. The carbon dioxide (CO2) pollution as a result of energy consumption in Africa was approximately 3.5% of the global emission of CO2, (UNEP, 2003). Growth in demand in the fishing sector has ultimately resulted in the threat of the sustainability of particular coastal and marine populations. To-date the per capita fish catch worldwide has remained static since 1972, however, this measure for Southern Africa has declined significantly (UNEP 2003). Globalisation has resulted in the specialisation of economies in areas in which they have a comparative advantage. The prevalence of cheaper labour costs has led African countries to primarily move towards the role of producing goods in labour intensive sectors such as agriculture and mining. The demand for cash crop exports from African countries by the developed world has equally soared. However the use of pesticides in cash crop production in order to maintain certain international standards has the potential to reduce soil quality due to toxic residue build up. Future population growth, expansion in the agricultural sector, and general economic expansion in Africa will see heightened competition for water resources among these sectors. Competition for water resources between households, industry, and agriculture is expected to increase in future, as currently 25% of the population is living in areas already facing severe water stress (UNEP, 2003). Although Africa’s exports at the global level are very small at about 2%, the concentration of the exports in the extraction sector is cause for concern on the environment. It means that the more Africa is integrated into the global economy the more the consequences for extraction activities on the environment will become pronounced, unless mitigating measures are taken. In addition, multinational businesses are quickly realising the existence of less strenuous environmental standards in most of the African countries, which themselves are desperately seeking for Foreign Direct Investment (FDI). As a result, these businesses are rushing to invest in these economies and realise profits but may never be available to attend to the possible redress of negative effects their business activities leave on the environment. In this respect, as African policy makers and other stakeholders pursue economic growth, it is important to appreciate the benefits presented by the natural ecosystems and diverse forms of wildlife and other species. Despite the economic benefits of constructing roads, mining areas, and farming blocks, there exists a real threat of the destruction of large areas of natural habitats. The emergence of industries and the effect of urbanisation in Africa, has largely contributed towards increased air pollution in many towns and cities. The incidence of smog and respiratory diseases in these areas has increased (UNEP, 2003), and is set to continue this trend in the foreseeable future. Africa does not contribute significantly to the emission of pollutants arising mainly from combustion in complex chemical processes of industries. This is so because of the low industrialisation characteristic of the continent, whose economy is still trapped in the shackles of economic stagnation. Sadly the rate, at which industrialised nations are emitting especially greenhouse gases, implies that Africa will also soon begin to experience effects of global warming. The effects of global warming, which include floods, hurricanes and general weather changes that can also affect agriculture production, with prospects to damage material wealth and property will negate the little gains that African economies have attained thus far. To complicate the situation further, majority of African economies do not have buffer resources to enable them rebuild infrastructure that may be damaged from the effects of global warming. Consequently, in respect to effects of global warming, the tendency in most of Africa will be increased poverty, exacerbation in poor sanitation and outbreaks of epidemic. Ignoring environmental sustainability, even if doing so leads to short-run economic gains, can hurt poor people and undermine long-run poverty reduction (UNDP, 2003). The two areas, economic growth and the environment are interrelated. Therefore developments in one coexist with developments in the other. The exclusion of accounting for the value of nature in economic indicators such as the Gross National Product (GNP) and the Human Development Index (HDI), gives a subordinate role of nature in promoting growth; in addition to this, property rights to natural capital are frequently difficult to establish (Dasgupta, 2002). Dasgupta’s analysis of World Bank estimates of genuine investment in countries, discovered that the accounts used were incomplete, as they did not include measures such as water resources, air and water pollution, and biodiversity among other measures. In addition, Dasgupta pointed out that shadow pricing strategies aimed at measuring the social worth of goods and services in an economy were questionable. Despite these setbacks, the author was appreciative of the pricing model. Dasgupta further stated that GNP and the Human Development Index as measures of economic growth at times provide contradicting evidence. Evidence supporting the findings of Dasgupta is shown by the change in the Sub-Saharan net savings rate from positive to negative in most years between 1976 and 2000, when the costs of environmental degradation and natural resource depletion were taken into account (UNDP 2003). Another measure of environmental deterioration in this case pollution, is the UNDPs Global Environment Monitoring System (GEMS), however this system does not take degradation into account (Jha and Whalley, 1999). The relationship between economic growth and its impact on the environment is ably demonstrated by the Kuznets Curve. The Kuznets Curve states that there is an inverted U-shaped relationship between economic growth and the environment. Negative environmental externalities increase steadily proportionately to economic growth up to a turning point during the initial stages of economic development (see Chart below). Once the turning point is reached, the economy then begins to place more emphasis on the importance of the environment, by devoting resources to negate further negative effects on the environment. As a consequence, environmental pollution and degradation begin to decline since the country has the capacity to invest in environmental friendly technology. Similar results were found by Grossman and Kruger (1995). Source: Robert T. Deacon and Catherine S. Norman*, Does the Environmental Kuznets Curve Describe How Individual Countries Behave? University of California, Santa Barbara April 5, 2004 However critics of the model [Common, 1995, Shafik 1994, Selden and Song, 1994, and Lopez, 1994], argue that there may be irreversible environmental damage before the top of the curve is reached, the model does not hold for all environmental indicators. Elasticity of substitution between factors of production, pollution and consumer utility must be taken into account. Empirical evidence from South Korea (Lim, 1997) shows that the relationship between economic growth and environment cannot simply be explained by a trade-off or inverted U-shape relationship. The result can be attributed to the worsening (increase) in indicators such as CO2 and industrial waste as per capita income increases in contrast to other indicators such as water quality and domestic waste which experience a U-shaped relationship. Other factors such as pollution due to transportation were found to possibly be lower when people live closer together (Selden and Song, 1994). Globalisation has resulted in the spill over of technology and knowledge from developed countries to several middle-income and many industrialising economies via Foreign Direct Investment (FDI) and Research and Development (R&D) efforts, thereby leaving developing countries lagging behind (Panayotou, 2000). Panayotou further notes the failure to provide evidence that the occurrence of lax environmental standards in emerging economies leads to FDI, on account of the fact that investment decisions by manufacturing plants and other multinationals to invest in countries is based on factors such as political stability, favourable economic policy, labour quality, and infrastructural developments. It is therefore clear that economic development is not without costs. In fact, the much desired economic growth if not carefully balanced with the need to protect the environment may result in permanent adverse effects on the environment for a country and the world. Specific to Africa, the application of these models and research findings lends itself to further caution. With the continental economy still facing numerous problems to the extent that most national economies are yet to provide sufficiently for their nationals, it is unlikely that a point would soon be reached in Africa’s economic growth, at which adequate resources become available for commitment to environmental concerns. In other words, thought needs to be given to the social background against which utilisation of resources from economic growth will depend. The various human and social challenges such as poverty and epidemics confronting the continent may well explain the relatively low emphasis by policy makers on environmental concerns when compared to their western counterparts. That said, however, it must be recognised that in respect to the ecosystem, the globe is one and benefits that accrue to one corner due to environmental preservation, accrue to the entire globe. In this regard, measures need to be developed to quickly put Africa’s high potential economic growth on a path that is environmentally sustainable. Deliberate actions need to be taken in successfully transferring environmentally friendly technologies to Africa. A case in point is the use of solar technology, for which achievements thus far are promising. Most of Africa is endowed with solar energy, and transforming it into usable energy would substitute the widespread use of wood fire energy by the majority of the continent’s population. In addition, because this is proven technology no more resources need to be devoted to Research and Development. Further, solar energy circumvents the costs related to the generation and distribution of yet another clean source of energy, hydroenergy. In addition to generation, distribution of hydroelectricity presents Africa with a unique challenge of supply network or grids due to the vast landscapes that constitute the rural setting where majority of the population resides. This is part of the wider infrastructural constraint that the continent is yet to overcome. 4. Africa and the world economy In the real sector, a number of African exports experienced an overall increase in prices in 2003. International gold prices increased, much to the benefit of the continents top producers, South Africa and Ghana. Likewise, oil prices increased during the same period leading to higher revenues for countries such as Nigeria, Equatorial Guinea, and Chad (ADB, 2003). The developments in the Middle East, Iraq in particular have resulted in soaring oil prices reaching highs of about US$50 per barrel, due to the insecurity and uncertainty pertaining to the global oil supply. Both gold and oil prices are expected to maintain high prices throughout 2004. Increased foreign assets obtained from export earnings from the real sector will in effect improve the capability of oil exporting African countries to release more funds towards the achievement of their environmental goals. In line with the expectations of the Heavily Indebted Poor Country (HIPC) initiative, many heavily indebted African states have cut their fiscal expenditure and are focussing on staying within their set targets. Attainment of the HIPC initiative completion point, will lead to the much needed debt cancellation by Paris Club members resulting in an overall improved financial position of these economies. Failure to reach the target will however prolong reduced fiscal expenditure. Despite the long-term economic benefits of the HIPC initiative in achieving the MDGs, short and medium-term growth strategies of development concerning the environment and other areas will be constricted. 4.1 Prospects of economic growth The prospects for economic growth in Africa remain bright. The African Union (AU) is currently making efforts towards ensuring political stability in the continent aimed at promoting both foreign and domestic investor confidence. International support of the New Partnership for Africa’s Development (NEPAD) had led to some increase in aid in 2002; the trend was expected to continue in 2003 (OECD, ADB). The future outlook in the performance of the real sector is set to improve due to: • low production costs (labour, electricity, and water, among other inputs); • comparative advantage in areas such as specialised agricultural production; • Numerous investment opportunities are available in the mining sector, which remains largely untapped, despite the richness and variety of minerals in Africa. The scope for improvement of environmental sustainability in Africa, hence economic growth is extremely vast; • Expansion of markets through regional integration within Africa with necessary networks will facilitate for increased capacity utilisation among existing and potential productive businesses; and • Additional areas of improvement include the expansion of hydroelectric power facilities along the major rivers such as the Nile, Congo and Zambezi to provide a viable source of clean energy to the majority of the population, which presently primarily relies on biomass fuel.3 For the African continent to embrace the potential benefits of globalisation, it is vital for African countries to implement supportive fiscal and monetary frameworks that promote investment. Prudent policies in these areas provide an important contribution to macroeconomic stability, a key prerequisite for economic growth. In addition, African countries must now commence the process of adding value to their export products as they compete and interact with a global market. 5. Environmental protection Due to the high dependence of rural communities on common property, it is necessary for local governments to implement environmental policies in order to protect the rights of the poor, who are the most affected when the quality of the environment worsens. Data from villages in Zimbabwe estimate the proportion of household income from common property as high as 40% (Dasgupta, 2002). A number of environmental protection campaigns are currently being executed in several African countries. One such campaign is the National Soil Fertility Action Plan, which is currently being prepared in 23 countries. In addition to this development, 15 National Action Plans have been submitted within the United Nations Convention to Combat Desertification (UNCCD). Natural resources need to be maintained in order to provide a livelihood to largely communal rural communities, which for the most part depend on forests, and other open natural resources for their survival. It has been shown that in Tanzania the poor derive as much as half of their cash incomes from the sale of forest products, such as charcoal, honey, firewood and wild fruits (UNDP 2003). This is true for most Sub-Saharan African countries In addition, most methods used to purify minerals such as gold by most small-scale rural people involve pollution of rivers with toxic chemicals. Regional institutions in Africa have worked towards the implementation of development programmes aimed at reducing pressure on natural resources in the various areas of the continent. General concerns for all regions in Africa primarily encompass the problems of deforestation, scarcity of water resources, access to clean water sources, and access to non-pollutant energy sources such as electricity. Primary concerns of the northern and some parts of the eastern, western, and southern The World Summit on Sustainable Development (Rio +10), African Preparatory Conference for the World Summit on Sustainable Development Nairobi, 15-18 October 2001. sub-regions however include the effects of desertification on human development and economic growth. Regional government policies in Tanzania, have led to implementation of environmental management policies aimed at promoting waste management, urban planning, and impact assessments for large projects. Government authorities have created designated protected areas aimed at conserving forests as well as supporting community-based income. This initiative is also being implemented in Zambia. Africa now has a total of 1,254 protected areas, or 7% of the landmass. The Southern African Development Community (SADC) plays an important role in the implementation of programmes aimed at improving the environmental sustainability of the region. Acknowledging the importance of water in development, the SADC Water Sector Coordination Unit was established in 1996. Prior to the formation of this Unit a Protocol on Shared Water Course Systems was ratified by the majority of the SADC Member States. This Protocol aims to promote the availability of fresh water resources in the region. In addition, a Forest Policy and Development Strategy, was implemented in 1997 by the SADC forest sector to address the issue of forest protection in the region. In order to protect marine life, agreements such as the Oil Spill Contingency Plan have been developed. The sustainability of fisheries resources is also now monitored by control agreements, and a Sustainable Fisheries Livelihoods Programme has been developed in West Africa. Other regional Protocols adhered to by some African states include cooperative efforts to implement programmes that aim to combat desertification by the Arab Magreb Union (AMU), the Common Market for Eastern and Southern Africa (COMESA), Economic Community of Central African States (ECCAS), Economic Community of West African States (ECOWAS), Intergovernmental Authority on Development (IGAD), Inter-State Committee to Combat Drought in the Sahel (CILSS), and Southern African Development Community (SADC). International Agreements such as the Vienna Protocol, which called for the formation of a co-operative framework and policy structure aimed at protecting human health and the environment from adverse effects of human activity which modify, or are likely to modify the ozone layer4 are also observed. The Vienna Protocol was, effectively signed by 46 African countries. The Montreal Protocol which was signed by 47 African countries called for the implementation of cost effective alternatives to ozonedepleting substances, and the Kyoto Protocol which was signed by 4 African countries5 out of a total of 84 countries globally, aims to curb greenhouse gas emissions that result in global warming. Despite the ratification of these protocols by some African countries, it is worth noting that rich countries with 16% of the world population emit 51% of the worlds green house gasses (UNDP, 2003). The Kyoto Protocol is yet to be implemented due to non-ratification by some key developed countries, who happen to be the emitters of substantial amounts of the worlds greenhouse gases (Russia ratified the Protocol in September 2004). A United Nations Forest Forum (UNFF) was established in 2000 to promote the management, conservation, and sustainable development of forests. The institution effectively serves to monitor national, regional, and global developments of forests. United Nations Organisations such as United Nations Environmental Program (UNEP), United Nations Development Programme (UNDP), United Nations Convention to Combat Desertification (UNCCD), and the World Bank have done a commendable job in implementing multiple projects that aim to promote environmental sustainability in Africa. These organisations provide both financial and technical support to programmes designed to promote environmental sustainability in Africa. African governments have pledged to support such programmes. 6. Recommendations From the foregoing, it is clear that environmental protection goals should be realised in order to achieve sustainable economic growth. Effective environmental protection policies relating primarily to the effects of degradation and depletion of the environment need to be implemented and maintained by institutions and individuals at all levels of society namely, local governments and national, regional, Environment Canada, International Relations, International Agreements, 1998 http://www.ec.gc.ca/international/multilat/ ozone_e.htm Kyoto Protocol, Status of Ratification, Last Modified 29th July 2004, http://unfccc.int/resource/kpstats.pdf as well as international institutional bodies. This is even more critical for Africa which is also faced with unique constraints such as rapid urbanisation, poverty, poor legislation and inadequate capacity to implement and enforce legislative controls where they exist. The trend of population growth in developing countries, estimates that 95% of the total world population growth will occur in Africa, Latin America, and Asia over the next 30 years (Post-LawrenceWeber, 1999). The resulting increasing strain on natural resources due to the imminent population boom in Africa if not checked, will cause many setbacks to economic growth and human development. It is therefore advisable that stricter environmental policies be implemented in these countries so as to offset encounters with such negative developments. The anticipated future demographic pressure on urban areas due to a shift of the expanding population to the cities and towns in search of jobs will ultimately result in increased levels of air pollution, and pressure on transportation facilities, urban sanitation, access to clean water supply, and waste disposal. The total population of Africa is projected to reach 1,941 million by the year 2050, from approximately 885 million in 2004 (Ashford, 2004). According to statistics collected by UN-Habitat 2002 and UN 2002, they indicate that out of a world total of 923,986 thousand urban slum dwellers, 869,918 thousand (94.1%) were from developing countries, with Africa accounting for 187,563 thousand or 20% (UNDP, 2003). It is important for local governments to ensure adequate planning policies in order to accommodate the predicted rising population. Local governments must also ensure the implementation of effective policies meant to regulate the activities arising from globalisation on the African economy such as the expansion in the number of urban industries, and the need for land for cultivating commercial crops, as well as to support the need for increased areas of subsistence farming. Another fundamental aspect that needs urgent attention is the issue of collecting more accurate data on environmental pollution and degradation and related statistics on the environment. Items such as farming methods employed, the pace of clearing of land for settlements, and charcoal burning, are presently not included in existing statistics. Appropriate measurements will provide a more precise indicator of the weight and quantitative value of negative environmental externalities on economic development in Africa. Chinese policy makers have now adopted the use of “green GDP” (The Economist, August 21st 2004), which takes into account the environmental costs on economic development. A well-defined weighting system of the role of the environment on economic growth will ultimately result in more attention being conferred to environmental sustainability and development of appropriate policies necessary for effective environmental management to support sustainable economic growth. 7. Conclusion While pollution largely affects developed countries, environmental degradation is a more pertinent feature for developing nations. Studies have shown that environmental sustainability is linked to factors of economic development. Therefore advancements in one cannot occur without advancements in the other. Environmental degradation in Africa is exacerbated by poverty due to the reliance of the majority of the poor on natural resources. In the world today, about 900 million people live in absolute poverty in rural areas and depend on the consumption of natural products for their livelihood (UNDP, 2003). Unfortunately, most of the activities and methods used in deriving economic value from natural resources are not environmentally sustainable. Moreover, the resultant economic benefits, in most instances, only accrue to current consumption and not sustainable development from which resources for addressing negative consequences on the environment could be drawn. In Africa, most activities include unplanned quarrying, spontaneous trench digging for small-scale mining, shifting cultivation, indiscriminate cutting of trees for energy, inappropriate small-scale mineral processing using water and poor waste management, including indiscriminate killing of wild animals (poaching) in game parks. The way forward in addressing these issues relates to the implementation of supportive government policies regarding environmental management and environmental sustainability. Regional and international policies on environmental management, governance, and conservation have an important role to play in this area, as environmental decisions of one economy may adversely affect other economies. The achievement of environmental goals will facilitate the achievement of other MDGs. Equally important are transfers of technology that is friendly to the environment as globalisation takes root. | bank of zambia | 2,004 | 12 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the memorandum of understanding between the Embassy of France and the Bank of Zambia, Lusaka, 18 January 2005. | Caleb M Fundanga: Relations between the Embassy of France and the Bank of Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the memorandum of understanding between the Embassy of France and the Bank of Zambia, Lusaka, 18 January 2005. * • • • • * * Your Excellency, the Ambassador Members of the Press Distinguished Invited Guests Ladies and Gentlemen It gives me great pleasure to welcome you all to the signing ceremony of the memorandum of understanding (MoU), governing the conduct of French lessons, between the Embassy of France and the Bank of Zambia. For some time now, our two institutions have been collaborating closely on the details of this MoU to ensure that it captures the mutual interests and aspirations of our two institutions. Although it has taken a bit of time to complete due to circumstances beyond our control, it is pleasing to note that we are now able to conclude it. Your Excellency Let me begin by stating the reason for our existence as a central bank. Our Mission Statement is to, I quote: “formulate and implement monetary and supervisory policies that ensure price and financial system stability” End of quote. In order for us to achieve this Mission Statement successfully, we need competent and skilled staff who are able to communicate effectively with a wide range of clientele at international, regional and national fora where the bank’s and, indeed, the nation’s interests are advanced. We note that whereas most of our colleagues from Francophone countries are able to speak English fluently, our employees cannot even exchange a simple greeting in French without the aid of an interpreter. As you are well aware, Your Excellency, Zambia has eight neighbouring countries amongst whom, at least, one is French speaking; two are Portuguese speaking and the rest are Anglophone. As neighbours and countries falling under the same sub-regional and regional groupings, we collaborate a lot amongst ourselves on a number of regional cooperation agreements where inability to speak, read or write French or Portuguese is sometimes a major communication barrier. For instance, in Africa Zambia belongs to three regional groupings, namely SADC, COMESA and the African Union (AU). All these groupings include Francophone member states, and, at times, our interests, as a nation, have not been well articulated to our Francophone counterparts in these regional groupings due, in part, to our inability to communicate effectively in French. Further, as I stated earlier, Zambia shares a border with one of the largest and populous country in Africa - the Democratic Republic of the Congo (DRC) - where the official language is French. However, in spite of being neighbour to this huge market, Zambian enterprises have not captured the enormous business opportunities offered by the DRC, largely, on account of their inability to communicate effectively in French. The same also applies to Angola where there is a huge reconstruction programme going on, in which Zambian enterprises could participate. But on account of communication barriers, Zambian businesses might not take advantage of our close proximity. This goes to show Your Excellency that our reliance on English as a lingua franca is detrimental to our national interest, especially in our quest to alleviate poverty in our society. In this regard, the need for us to speak, read and write French so that we communicate effectively at the regional and international level cannot be overstressed. Furthermore, recent developments in the global economy dictate that we should be able to interact effectively at various international fora where appreciation of the cultures, values and customs of other people is important. Therefore, in view of the foregoing, we, at the Bank of Zambia, have realised that there is a compelling need to overcome our communication barrier by developing our employees’ multi-lingual skills, particularly, in French so as to, among other things: (i) develop the required patience in their interactions with our non-English speaking counterparts; (ii) acknowledge the unique talents and contributions of others; (iii) uncover and show concern for the pressures and constraints which others face and modify the demands we may place on them; (iv) actively seek facts and data that explain and support others’ views and incorporate others’ feelings and values when restating their perspectives; and (v) reduce the cost of hiring external interpreters which impacts adversely on our limited resources. Your Excellency Allow me also to state one issue that is of particular importance to, especially, developing countries, like ours. It has been established that effective national capacity-building requires adoption of international best practices. But for a developing country to benefit from this process effectively it would require citizens who are not only technically competent, but also fluent in writing, reading and speaking major international languages, among which French is key. For this reason, most professionals from Anglophone countries, Zambia inclusive, have failed to secure jobs in international organisations, mainly on account of their inability to communicate in a major international language other than English, such as French, which most often is a requirement for securing employment in international organisations. In this connection, we are happy to sign this MoU, whose principal objectives are to: (a) establish a framework in which the French embassy can facilitate capacity building in the French language among the Bank of Zambia employees; (b) promote multi-cultural awareness and appreciation of a diversity of languages necessary for bank staff to transact effectively and efficiently in social and professional fora where the knowledge of French would be beneficial; and (c) enhance opportunities for bilateral and/or multilateral co-operation between the Bank and relevant French-speaking authorities and clients. Notwithstanding the above, the French lessons programme is a very challenging one to our staff in that students are not only required to attend, at least, 90 per cent of class work conducted twice a week for two hours, but are also required to take examinations every ten (10) weeks; implying that only those employees who succeed in the examinations are allowed to proceed to the next advanced level. Your Excellency Following the commencement of the French lessons, I am pleased to inform you that this programme has already started showing encouraging results, as evidenced by the fact that at the end of the first segment of the beginners’ course, all those who took the examinations passed and are progressing to the next stage. The results could have been even better had all the 78 enrolled students attended tuition and taken the examination as scheduled. Let me also clarify here that some employees missed the examinations due to the call of duty and not out of lack of commitment. In this regard, I wish to assure Your Excellency that as a sign of commitment on the part of individual employees and the bank, a crush programme has been put in place to enable those who missed the first examination to sit for it and catch up with the rest of the class by April this year. Further, may I also take this opportunity to inform Your Excellency that our French lessons programme has become so popular among staff that we are sponsoring another class of beginners and six more staff with appreciable knowledge of the language at the Alliance Française. Finally, I will be remiss in my speech if I did not thank Your Excellency for the assistance we have continued to receive in form of: (i) meeting the full cost of hiring two tutors from Alliance Francaise - Lusaka and Ndola; (ii) supply of study materials; (iii) coordination of examinations; and, most importantly, (iv) your unwavering moral support. To this end, we, at the Bank do sincerely believe that although this MoU will expire in September 2005, its legacy shall linger on and that the signing of this MoU will further cement the cordial relations existing between the Embassy of France and the Bank. I thank you. | bank of zambia | 2,005 | 2 |
Paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the CIMA Zambia annual business discussion on the theme ¿Zambia¿s economic outlook - what have we learnt in the last 40 years and where do we go from here?¿, Lusaka, 7 January 2005. | Caleb M Fundanga: Zambia’s economic outlook - what have we learnt in the last 40 years and where do we go from here? Paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the CIMA Zambia annual business discussion on the theme “Zambia’s economic outlook - what have we learnt in the last 40 years and where do we go from here?”, Lusaka, 7 January 2005. * • • • • * * Mr Chairman The President of CIMA Zambia, Mr Cleaver Mulundu Distinguished Invited Guests Ladies and Gentlemen I wish to thank the President of the Chartered Institute of Management Accountants (CIMA) Zambia Chapter, Mr. Mulundu and his Executive for inviting me to present a paper to this distinguished gathering on the theme “Zambia’s Economic Outlook: What Have We Learnt in the Last 40 Years and Where Do We Go from Here.” The topic is timely, as it is very important to take stock of our past economic development efforts, including the mistakes and good policies of the past and assess the current economic conditions in order to put up a future strategy. In this respect, I will discuss what I consider to be the key lessons of macroeconomic management and present an outlook for the period ahead. In so doing, I will also highlight the challenges that lie ahead in our quest to develop our economy. Mr Chairman May I start by reviewing our economic performance during the last 40 years. As many of you maybe aware, at independence in 1964, Zambia had one of the most vibrant economies in Sub-Saharan Africa, which was supported by a strong mining industry. The country’s external position was in surplus between 1964 and 1974; inflation rates were low, averaging 7.7 percent; and experienced high economic growth rates. In addition, GDP per capita was one of the highest in Sub-Saharan Africa at about US$ 950. Further, unemployment levels were low. Between 1968 and 1972, Government announced sweeping economic reforms under which 80 percent of industry was nationalised, giving the state greater control over the country’s resources, with which it could implement an ambitious industrialisation programme to bring about rapid economic development. In addition, nationalisation was aimed at empowering Zambians economically, which was important following political independence. However, following the outbreak of the 1973/74 international oil price shock and the world economic recession that ensued, Zambia experienced a significant change in her economic fortunes. For instance, the external position deteriorated; inflation increased; per capita GDP fell; the performance of the mining sector, which accounted for over 80 percent of total export earnings declined; and Government capacity to finance economic and social infrastructure was severely curtailed. As a result of these budgetary difficulties, Government began to run huge fiscal deficits, which were financed, primarily, by borrowing from the domestic banking system and the international financial markets. Other important events that affected Zambia’s economic development in her early stages of nationhood included: (i) The pronouncement of the Unilateral Declaration of Independence (UDI) by the Ian Smith regime in the then Southern Rhodesia (now Zimbabwe). The declaration of UDI had both positive and negative impacts on the Zambian economy, although the negative effects outweighed the positive gains. The positive gains relate, mainly, to the relocation of industries from Southern Rhodesia (now Zimbabwe) to Zambia to avoid being affected by the sanctions imposed by the International Community, as a result of the declaration of UDI in 1965. This contributed to the growth of the Zambian manufacturing sector and the increase in employment levels. However, the declaration of UDI had serious adverse effects on the blossoming Zambian economy. As you may recall, at independence, the economies of Southern Rhodesia (now Zimbabwe) and our economy were intertwined. Southern Rhodesia was Zambia’s biggest trading partner as well as the main supply route to the sea. The severing of trading, commercial and transportation relations with Southern Rhodesia on account of UDI therefore, meant that Zambia had to invest heavily in her own transportation infrastructure, which finally led to the construction of the TAZAMA oil pipeline, Indeni refinery, TAZARA, the Great North Road (which used to be known as the Hell Run), etc., in order to transport her essential imports and exports. These were huge projects whose construction required enormous borrowing from countries like China, Italy, France, etc. and other international financial creditors. This explains, in part, the huge external debt the country is overburdened with today. (ii) By 1964, most of Zambia’s neighbours, such as Mozambique, Zimbabwe, Namibia, and Angola, were at the height of their liberation struggles and Zambia had no option but to offer refuge and logistical support to the liberation movements like, FRELIMO, ZANU, ZAPU, SWAPO, UNITA, and MPLA. This meant that Zambia had to sacrifice some of its scarce developmental resources for the sake of assisting these liberation movements to gain their independence, and in some instances, Zambia had to borrow to finance this expenditure. (iii) As a result of the liberation wars in the neighbouring countries, Zambia had to arm herself, militarily, against possible foreign aggression by procuring weapons and other military hardware from friendly countries such as Russia, China, etc. This again explains why Zambia today has a huge debt with Russia. Military expenditure was unavoidable as the colonial regimes used to attack Zambia directly. In this regard, one can mention the bombing of Lusaka as well as the destruction of Luangwa bridge. Ladies and Gentlemen I have endeavoured to include these seemingly simple but critical factors so that we understand the historical context of some of the policies implemented during the last 40 years and their impact on national development. Therefore, to contain the deteriorating macroeconomic situation, the Government introduced a myriad of economic policies including price controls because the economic shocks were considered transitory and, thus, the Government would easily balance its budget. This never happened! Hence, during the 1980s, policymakers realised that economic reforms were needed as a lasting solution to Zambia’s economic woes. For instance, between 1985 and 1987, Zambia undertook an IMF/World Bank-sponsored adjustment programme. This led to a partial decontrol of interest rates and the introduction of a Dutch Foreign Exchange System as a way of allocating scarce foreign exchange through a quasi-market system. It also entailed the removal of some subsidies as a remedy to the persistent fiscal deficits. The reforms proved to be highly unpopular and culminated in public protests and abandonment of the IMF supported reform programme in May 1987. Instead, the Government pursued an indigenous programme called ‘New Economic Recovery Programme’ (NERP) whose theme was “Growth from Own Resources”. Although this programme was successful in some respects, it suffered major setbacks, such as the overvaluation of the Kwacha, soaring inflation, lack of external financing, among others, that made the programme unsustainable, thus prompting the Government to go back to the IMF and agreed on a new IMF supported programme in 1989. The main policy measures under the programme included the following: • Privatisation; • Decontrol of prices; • Decontrol of interest rates; • Abolition of exchange controls and a movement to a market-determined exchange rate regime; • A shift to the use of indirect instruments of monetary policy; • Introduction of Government securities auctions; • Establishment of an inter-bank money market; • Modernisation of the national payments system; • Strengthening of the legal framework; and • Establishment of a stock exchange. Ladies and Gentlemen After a new Government came to power in 1991, its priorities were to restore economic growth through market-based stabilisation policies and promotion of the private sector as a prime-mover of the economy. Consequently, the economy was liberalised, giving market forces a greater role in the allocation of resources. Prices were decontrolled, while subsidies on all consumer items were removed. In addition, the Government embarked on a privatisation programme, whose objectives were to: (a) Improve efficiency and service delivery in the economy; (b) Inject fresh capital and entrepreneurial skills given the ailing nature of the state owned enterprises (SOEs); (c) Secure, on a sustainable basis, employment in the privatized companies; (d) Enhance the companies’ revenue contribution to the Government budget; and (e) Overall, increase the private sector’s contribution to economic growth and, ultimately, poverty reduction. In the financial sector, the Government undertook further reforms that included the use of marketbased monetary instruments in the conduct of monetary policy. As a result of monetary tightening, inflation fell from 197 percent in December 1992 to about 40 percent in 1995; 18.7 percent in 2001 and 17.5 percent in December 2004. Similarly, the Government took fiscal reforms in 1993, such as the cash-budget to curtail the monetisation of fiscal deficits. Consequently, since 1993 we have seen the Government take measures to strengthen fiscal performance through limiting domestic borrowing as a ratio of GDP to levels below 5 per cent. This should be commended. Ladies and Gentlemen Having outlined a brief history of our economic management since 1964, allow me at this juncture to summarise the lessons learnt. From the foregoing, several macroeconomic management lessons can be drawn. These include: (i) Attaining lower rates of inflation, as in the 1960s and early 1970s, continues to be elusive. However, lower rates of inflation could be attained if the Government maintained fiscal discipline by sticking to the budget and minimising its borrowing from the central bank and the financial sector, as a whole. This would contribute to the achievement of price stability, which in turn would facilitate sustainable economic growth and poverty reduction. (ii) Lowering of interest rates requires that all key stakeholders play their part. The Government reduction of domestic borrowing contributes to lowering of yield rates on Government securities, which are sometimes used as anchors by commercial banks. The commercial banks should also respond to changing macroeconomic indicators consistent with low interest rates, while borrowers need to improve their credit culture. As for the Bank of Zambia, we continue monitoring financial conditions and take appropriate actions to contribute to lowering of interest rates. (iii) A relatively stable and competitive exchange rate has a positive impact not only on inflation, but also on the performance of the external sector. In this regard, policies for stabilising the exchange rate must aim at increasing the export earning capacity of the country through stimulation and maintenance of strong export sector by, among other things: • Developing a diversified and competitive export base; and • Ensuring food self-sufficiency to reduce food imports. In addition, continued implementation of appropriate monetary and fiscal policies, particularly the reduction in the fiscal deficits, is critical to maintaining stability in the exchange rate. (iv) External debt should be contracted to finance the productive sector so as to lessen the burden of debt service. Otherwise, it will result, as we have seen in the last 40 years, in huge outflows at the expense of expenditures on social and economic infrastructure development, which are pre-requisites to sustainable poverty reduction efforts. (v) The need to diversify the economy, including the external sector, cannot be overemphasised. Diversification is a sure way of preventing external shocks to the economy and will contribute to maintenance of macroeconomic stability. Dependence on one or a few products leaves the economy susceptible to external shocks. (vi) In the financial sector, the key lesson is that liberalisation of the industry is not tantamount to relaxing of regulatory and supervisory measures. In fact the legal, regulatory, and supervisory frameworks should be strengthened to deal with any excesses arising from entry of institutions with poor management or governance practices due to the attractive liberal environment. (vii) Legal and operational framework requires continuous reviews to remain relevant in this technologically fast moving world. Ladies and Gentlemen After learning the lessons from the past 40 years, the following are some of the challenges we have to confront: • Achievement and maintenance of price stability, i.e. low and stable single digit inflation; • Maintenance of a stable and competitive exchange rate; • Diversification of the economy and the export base; • Enhancing economic policy credibility. Policy reversals tend to undermine gains made in achieving macroeconomic stability; and • Sustained reduction of fiscal dominance (deficits) to contribute to low inflation, lowering of interest rates and release more funds for lending to the private sector. Turning to the question of where we go from here, I wish to state that all indications are that the economic outlook for Zambia, in the medium and long-term, is favourable. This is premised on the continued favourable performance of a few sectors, such as agriculture, mining and tourism. With respect to the agricultural sector, the favourable performance is, largely, on account of the affirmative Government agricultural policy that is supportive of expansion activities in the sector as well as good weather conditions. For instance, the continued improved performance in cash crops such as tobacco, sugar, cotton, groundnuts, floriculture and horticulture, among others, all point to increased economic activity in the medium term. In addition, improved investor confidence in the Government’s economic policies has also contributed to increased production in the sector. In the mining sector, the prospects are buoyant, mainly, due to favourable international metal prices as well as the increase in production due to the recapitalisation of the existing mines. Further, the coming on-stream of greenfield mines, such as Kansanshi and Lumwana, are expected to boost production in this sector. This will further enhance economic activity in the country since growth in the mining industry positively affects several sectors of the economy, such as manufacturing and construction. With regard to the tourism sector, the potential for growth is immense, as long as Government support to the sector through tax incentives and, most importantly, infrastructural development, such as improvement of access roads and airports, continues. If well nurtured, this sector could be a major employment generating and foreign exchange earner in the country. Given the above favourable economic outlook, it is anticipated that the annual rate of inflation would be in the single digit region by the end of 2006, mainly, due to the current momentum in policy implementation and developments in the real sector. This in turn will provide an environment for further stability in the exchange rate and lowering of lending interest rates. In the financial sector, enormous progress has been made towards the development and deepening of the financial markets in Zambia. Additionally, significant achievements have been made in areas, such as monetary policy formulation and implementation, broadening of the money markets, foreign exchange policy management and establishment of the capital market. Improvements have also been made in the formulation of prudential and regulatory regulations to enhance financial system stability and development. However, the development of a more active secondary financial market to enhance efficiency in the financial system remains a key challenge for all stakeholders in the financial services industry. To address this challenge therefore, the Government approved the Financial Sector Development Plan (FSDP), which, after implementation, will enhance financial intermediation and efficiency of the financial sector. Ladies and Gentlemen As I conclude, I wish to reiterate that during the past 40 years, several achievements have been made in macroeconomic management in Zambia, but more could have been done had it not been for the reasons I alluded to earlier. However, there have been a lot of challenges and lessons have been learnt from the experiences we have undergone through as a country. These lessons must be turned into a platform to design and implement more effective medium and long-term policies. It is also important to note that one of the challenges confronting developing countries such as Zambia is the need to reduce inflation and ensure affordable credit through low lending interest rates. In this regard, I wish to appeal to professional bodies, like yours, to come up with options or ideas on how the issue could be tackled within the existing liberal financial environment. Although significant steps and progress have been made in improving the performance of the foreign exchange market, a number of challenges still remain. The main challenges in this area remain that of maintaining a stable and competitive exchange rate as well as diversification of the export base in order to tap into alternative sources of foreign exchange. Zambia’s continued reliance on the mining sector as a major source of foreign exchange has contributed to volatility in the exchange rate. Hence, there is an urgent need to explore all possibilities of diversifying the export base. To this effect, the different exchange rate regimes implemented since independence have provided us with good lessons upon which we can build our foreign exchange market and contribute to the buoyancy of our external sector. With respect to the current stability obtaining in the macroeconomic arena, I wish to commend the Government for its commitment to fiscal discipline as shown in its implementation of the 2004 budget. The Government’s adherence to fiscal discipline, has, in part, contributed to macroeconomic stability during 2004. To this end, I wish to challenge the private sector to take advantage of the stable macroeconomic environment to expand their productive capacities. This would enhance the stability in the macroeconomic environment and facilitate higher economic growth and development. Finally, may I also take this opportunity to remind ourselves of the importance of staying the course. By this I mean, consistency and credibility of policy reform. As you maybe aware, experience the world over has clearly shown that for a country to benefit from policy reforms, it is important that policy remains in place for a long time. This is so because a country has to convince the investor community that it will not change course tomorrow and this takes time to do. Also remember that good policies alone do not make the economy grow. It is people who make the economy move. Policies help those that are willing to work. Remember that even in very harsh economic policy environments some people prosper! I thank you! | bank of zambia | 2,005 | 2 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the opening ceremony of a MEFMI/ACBF/IMF - East Afritac Regional Workshop on ¿Supervision of non-bank financial institutions¿, Lusaka, 14 February 2005. | Caleb M Fundanga: Supervision of non-bank financial institutions Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the opening ceremony of a MEFMI/ACBF/IMF - East Afritac Regional Workshop on “Supervision of non-bank financial institutions”, Lusaka, 14 February 2005. * * * • The Executive Director, MEFMI, Dr. Maruping • The Executive Director, Africa Capacity Building Foundation • Representative from the IMF • Distinguished Workshop Participants • Ladies and Gentlemen On behalf of the Macroeconomic and Financial Management Institute for Eastern and Southern Africa (MEFMI), the African Capacity Building Foundation (ACBF) and the East African Technical Assistance Centre (AFRITAC), I wish to welcome you all to this important workshop and to the beautiful city of Lusaka. May I also welcome our distinguished resource persons and thank them for accepting our invitations. I hope their participation will enrich the deliberations of this workshop as well as enhance the knowledge of the participants. Having perused through your programme, I noticed that you have a tight schedule. However, I urge all of you to find time in your busy schedule to visit some interesting places that the city of Lusaka has to offer, including shopping malls, museums, cultural villages, to mention but a few. Allow me also to thank the Executive Director of MEFMI, Dr. Maruping, for having invited me to officiate at this regional workshop on “Supervision of non-bank financial institutions”. I am reliably informed that this workshop is organised by MEFMI, in conjunction with the IMF through the East AFRITAC and the ACBF. The workshop is indeed timely as it is aimed at building sustainable capacity for effective financial sector supervision at a time when our region is beset with a lot of non-bank financial institutions that are financially constrained. I, therefore, wish to commend these organisations for their collaborative efforts and hope that the cooperation exhibited by these institutions through the sponsorship of this workshop will not just end here, but will also grow from strength to strength. Ladies and Gentlemen The liberalisation and continued reforms of the financial sectors in our countries has brought interesting challenges to supervisors and regulators, alike. Of particular importance, are the reforms currently taking place in the areas of regulation and supervision of financial institutions. As you are well aware, in a liberalised environment financial institutions play a critical role in the allocation of resources through intermediating between those with surplus resources (depositors) and those in need of resources (investors). In view of the foregoing, effective and efficient supervision is crucial to limit the risk of loss to depositors, henceforth maintaining public confidence in the financial system. In response to the liberalised environment, there has been a proliferation of linkages between institutions operating in various segments of the financial sector and a growing number of financial mergers and acquisitions, thus creating, in the process, huge financial conglomerates. For instance, banks and insurance companies are searching for growth through the diversification of their activities in such a way that they can no longer be considered as homogeneous institutions falling within the scope of one economic sector and one supervisory system! These conglomerates aim to exploit the synergies that exist among banking, insurance and investment. This market evolution towards huge financial conglomerates, with integrated product development is slowly blurring the traditional boundaries between banks and non-bank financial institutions, on the one hand, and the supervision of these institutions, on the other. In spite of these trends in the international financial markets, regrettably, supervisory systems, in our sub-region, are mainly structured along the traditional boundaries demarcating banks, insurance companies, investment and micro-finance institutions. These integration changes represent major challenges to the supervisors of the different sectors, especially as the financial institutions become more complex in their structures and operations. Notwithstanding the foregoing, the sluggish growth of our economies in the sub-region has also created a difficult operating environment for financial institutions, especially banks. As a result, this has contributed to the mushrooming of non-bank financial institutions, such as, micro-finance. It is a fact that the financial sector in our sub-region is dominated by commercial banks, which have continued to service only a small section of the population. The majority of the people are denied access, largely, due to numerous reasons, including perceived risks, high costs involved in dealing in small transactions and the inability to provide marketable collateral for loans. It is against this background that financial sector supervision should also be directed at financial institutions that pose the greatest risks, such as, non-bank financial institutions. In this regard, the adoption of the risk-based approach allows the supervisor to devote more supervisory effort to those areas that have a high-risk profile. This therefore, entails that supervisory authorities should shift their focus from the traditional Capital, Assets, Management, Earnings, Liquidity, and interest rate Sensitivity (CAMELS) approach to a more risk-based approach. A risk-based supervisory approach would involve the identification of key risks, the level of these risks and the key risk areas. After identifying these risk factors, a comprehensive supervisory framework with appropriate resources is then assembled to mitigate the risks. The amount of resources required is dependent on the level and intensity of the perceived risk. However, suffice to mention that this does not mean that the risk-based supervisory approach ignores the strengths of the CAMELS approach, but rather addresses the weaknesses by putting more emphasis and resources on areas with potentially higher risk. Ladies and Gentlemen As many of us are aware, financial sector operations have become complex nowadays, as they entail, among others, managing financial, market and operational risks, which depend, to a large extent, on public confidence in the financial system. In this regard, proper supervision is critical to minimising risks as well as ensuring the stability of the financial sector and engendering public confidence. This justifies the need for effective regulation and supervision of the operations of banks and non-bank financial institutions compared to other business operations. Further, with the increase in non-bank financial institutions, their level of risk has also risen. Accordingly, the sheer size of the sector is of systemic importance, hence, effective and efficient regulation and supervision is required to stem any systemic risks. Ladies and Gentlemen I am happy to note that this workshop is addressing, in greater details, issues relating to the regulation and supervision of the non-bank financial sector, so as to ensure that the financial sector is safe, secure and efficient. As I conclude therefore, I wish to urge the workshop participants to participate actively in the deliberations and use this opportunity to tap from the vast experience of the resource persons. I have every reason to believe that this workshop will provide you with the opportunity to share experiences and enhance your knowledge of issues pertaining to regulation and supervision of the non-bank financial sector. With these remarks, Ladies and Gentlemen, it is now my honour and privilege to declare this regional workshop officially open. I thank you. | bank of zambia | 2,005 | 2 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of a workshop on ¿International financial reporting standards for banks and other financial institutions¿, organised by the Bank of Zambia in conjunction with the Zambia Institute of Chartered Accountants, Lusaka, 17 February 2005. | Caleb M Fundanga: International financial reporting standards for banks and other financial institutions Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of a workshop on “International financial reporting standards for banks and other financial institutions”, organised by the Bank of Zambia in conjunction with the Zambia Institute of Chartered Accountants, Lusaka, 17 February 2005. * • The Chief Executive, ZICA • Distinguished Resource Persons • Distinguished Participants • Ladies and Gentlemen, * * I wish to welcome you all to this important workshop on International Financial Reporting Standards (IFRSs) and International Auditing Standards, (ISAs) organised for finance officers and auditors from commercial banks, non-bank financial institutions and the Bank of Zambia. This workshop is organised by the Bank of Zambia in conjunction with the Zambia Institute for Chartered Accountants (ZICAs) out of the recognition that the International Financial Reporting Standards (IFRSs) and International Auditing Standards (ISAs) are critical not only to the integrity of our financial system, but also to the Bank of Zambia’s efforts of ensuring effective supervision and regulation of banks and non-bank financial institutions. As you may be aware, three important factors have heightened the relevance of accounting and auditing standards to bank supervisors. These, include: • First, IFRS and ISAs are a set of high-quality, transparent and globally renowned accounting and auditing standards that the Financial Stability Forum (FSF) has included in its 12 Key Standards for Sound Financial Systems. The standards are, without doubt, likely to make the greatest contribution to reducing vulnerabilities and strengthening the resilience of our financial system; • Second, the adoption of IFRS is expected to result in higher quality reporting of the health of the financial institutions in Zambia. By so doing, Zambia will benefit from quality international research on accounting and finance issues and also benefit from cross-border comparability of financial performance and condition amongst banks and non-bank financial institutions; and • Third, the use of IFRS is expected to play a critical role in the implementation of risk-based supervision of financial institutions in Zambia. Ladies and Gentlemen Allow me, at this juncture, to inform you that in the recent past, the Bank of Zambia has streamlined the supervision of banks and non-bank financial institutions to make it more focused on risks. This is aimed at encouraging banks and non-bank financial institutions to implement sound risk management practices that provide for: • active oversight by management and the Board of Directors; • clearly defined policies, procedures, and delegation of authority; • comprehensive risk measurement and reporting systems; and • adequate institution of audits and other systems of internal controls. Further, the Bank of Zambia recognises that accounting, auditing, and disclosure play a crucial role in enhancing financial stability. For instance, accounting standards provide the foundation for the production of credible financial statements and other disclosures that communicate a firm’s operating results, overall health, as well as raise the transparency of its various operating activities. On the other hand, disclosure of reliable information facilitates market discipline, engenders confidence, and reduces the possibility of rumours and misleading information that could cause market instability. Disclosure of information however, should not compromise proprietary data, but must be flexible enough to accommodate future advances in risk management. Such outcomes therefore, have obvious implications for the supervisor’s ability to oversee the safety and soundness of financial institutions. The foregoing notwithstanding, the Bank of Zambia has made significant progress in strengthening the supervisory approaches and risk management guidance to banks and non-bank financial institutions. It is for this reason that the Bank will continue to attach great importance to risk-based supervision, accounting and auditing standards, so that the financial statements produced by banks and non-bank financial institutions convey adequate information about their risk management activities to key stakeholders, such as, shareholders, creditors, depositors, and any other interested parties. These are daunting challenges. Nevertheless, I am certain that as our accountants and bank supervisors acquire more expertise, new ways of viewing risks and reporting them in financial statements would be devised. As such, financial and supervisory reporting will become even more critical to the existence of efficient financial markets as well as effective supervision of banks and nonbank financial institutions. As I conclude, Ladies and Gentlemen, I would be remiss if I did not acknowledge the support of other institutions during the preparation of this workshop. To this effect, I wish to thank Standard Chartered Bank, PriceWaterhouseCoopers, KPMG, Deloitte and Touché, Grant Thornton, the Zambia Centre for Accountancy Studies and ZICAB Tuition Centre, for having agreed to provide resource persons for this workshop. With these few remarks, it is now my honour and privilege to declare this workshop officially open. I thank you. | bank of zambia | 2,005 | 3 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Stanbic Bank Matero Branch, Matero, Lusaka, 2 February 2005. | Caleb M Fundanga: Bringing banking facilities closer to the people in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Stanbic Bank Matero Branch, Matero, Lusaka, 2 February 2005. * * * • Your Excellency, the South African High Commissioner to Zambia, Mr. Mzwandile Masala • Honourable Chance Kabaghe, MP - Matero Constituency • Your Worship the Deputy Mayor of Lusaka • The Town Clerk, Lusaka City Council • Stanbic Africa Regional Director, Mr. Robert Mbugua • Representative of Stanbic Africa Retail, Mr. Lincoln Mali • Managing Director of Stanbic Bank Zambia, Mr. Larry Kalala • Distinguished Invited Guests • Ladies and Gentlemen. I feel extremely honoured to have been invited to officiate at this important occasion to mark the official opening of the Stanbic Bank Matero Branch. Sometime last year, Stanbic Bank management informed me that they would be opening two new branches, namely the Arcades Branch and the Matero branch, and asked me to choose which one I would prefer to officiate at. Without much hesitation, I choose to officiate at the opening of the Matero Branch. The reason was very simple. For those of you that are familiar with the development of the city of Lusaka, you will recall that Matero compound is one of the oldest communities in Lusaka. Yet in spite of being the oldest, Matero has not seen any growth in modern infrastructure, let alone banking facilities. For this reason therefore, as Governor of the Central bank, it gives me tremendous pleasure to see a reputable, privately owned commercial bank taking the bold step of bringing banking services, of international standards, to the doorsteps of a community like Matero. In this regard, the opening of the Stanbic Branch today has given me enormous optimism and re-assurance that banking facilities can, indeed, be extended to ‘financially excluded’ communities, like Matero. Ladies and Gentlemen Developments, like the one we are witnessing today, must not be taken for granted nor taken lightly. I am reliably informed that this has come about as a result of the policy reforms, undertaken by the Standard Bank Group, which have culminated in Stanbic Bank Zambia being conferred with the status of a ‘Universal Bank’. By assuming this status, Stanbic Bank Zambia has been given the authority to offer banking services to all the segments of the market. For obvious reasons, this move is not only uplifting to the technological advancement and capability of the Matero community through the provision of modern banking services like the AutoBank, but also goes a long way in assisting the Bank of Zambia, as a monetary authority, to have a firm control over the implementation of monetary policy. You would agree with me that it is quite difficult for a central bank, like ours, to implement monetary policy effectively in an environment characterised by inadequate banking facilities. It is for this reason therefore that I commend the Management of Stanbic Bank Zambia for bringing banking facilities closer to the people. In this regard, I wish to assure you that on our part we shall continue to support you in your endeavours to open more of such branches, because we firmly believe that you are making our work and that of the Government much easier. However, may I take this opportunity to advise the Management of Stanbic Zambia that if you want this branch or many of such branches you intend to open in future to be beneficial to the communities in which they operate, kindly be flexible on the requirements for opening accounts as well as lowering the minimum account balances to be maintained by your clients. I say so because communities like Matero and the surrounding areas comprise mainly of people who are in the informal sector. Therefore, it would be unreasonable for you to ask an unemployed prospective customer to bring a letter from their employer before an account could be opened with your branch! In other words, I strongly urge you to tailor your banking services to the needs of the community you operate in. Finally, let me also take this opportunity to urge the other commercial banks operating in Zambia to emulate Stanbic Bank Zambia by establishing community banking branches. As your regulator and supervisor, we take a lot of pride in seeing commercial banks coming up with innovative and progressive financial services, such as community banking. I believe that it is through the provision of such tailor-made banking services that banks would meaningfully fulfil their role as financial intermediaries in our economy. With these few remarks, Ladies and Gentlemen, it is now my honour and privilege to declare the Stanbic Bank Matero Branch officially open. I thank you. | bank of zambia | 2,005 | 3 |
Paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the International Conference on Investment Opportunities in Zambia - Integrating African Property Markets, Lusaka, 15 June 2005. | Caleb M Fundanga: Investment opportunities in the Zambian real estate business - the role of the Bank of Zambia Paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the International Conference on Investment Opportunities in Zambia - Integrating African Property Markets, Lusaka, 15 June 2005. * • The Chairperson • Distinguished Guests • Ladies and Gentlemen * * I feel greatly honoured to have been invited to talk to you on the theme, “Investment Opportunities in the Zambian Real Estate Business: The role of the Bank of Zambia.” From the outset I wish to express my sincere gratitude to Business Week for organising such an important Conference. You will agree with me that this Conference is, perhaps, the first of its kind to have been solely organised by the private sector to look specifically at the issue of investment in the Zambian real estate sector. As you may be aware, investment in the real estate sector is critical to the economic well being of any country, since economic growth alone is insufficient if it does not translate into development, as reflected through better living standards that includes provision of quality and adequate infrastructure, such as, real estate. Real estate can be defined to include physical property and bare land owned by an individual or organisation under freehold or non-freehold tenure. However, for purposes of my discussion this afternoon, I will use the term real estate to mean physical property. My discussion therefore, is structured as follows: i. First, I will look at the contribution of the Zambian real estate sector to gross domestic product (GDP) in Zambia. During the discussion of this issue, I will also look at the characteristics of the Zambian real estate finance sector; and ii. Secondly, I will explain the role of the Bank of Zambia in the real estate sector. Ladies and Gentlemen In Zambia, the share of the real estate sector has increased from an average of 6.8% between 1995 and 1999 to 9.4% between 2000 and 2004. This is a welcome development, as it shows that real estate business has been contributing positively to real GDP growth over the last six years. However, I strongly believe that the sector can perform even better than this, especially that most of our people have no good and affordable accommodation, as evidenced by emergence of large unplanned residential areas. This is a challenge for you experts in the real estate business to facilitate the building of more houses and office accommodation to reduce rentals for these facilities to affordable levels and stem the expansion 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 would opt to hedge against inflation. Ultimately, this leads to a reduction in the availability of loanable funds and investments. In addition, high inflation is normally associated with high interest rates and high interest rates inhibit borrowing for investment purposes, thereby slowing down economic growth and the development process; 2. Rising prices erode the public and investors’ confidence in the economy and contribute to rapid exchange rate depreciation. This leads to currency substitution or dollarisation, which in turn, reduces the effectiveness of monetary policy; 3. Rising prices also undermine the country’s external competitiveness, which may lead to a decline in export earnings, thus, worsening the balance of payments position of the country; and 4. Rising prices entrench poverty through the erosion of peoples’ incomes, particularly those on fixed incomes. Therefore, high inflation is a major source of concern to the Central Bank as it poses a threat to general economic development. With regard to the real estate sector, high inflation will affect the cost of property. In the case of the low income group, high inflation will make real estate prices unaffordable. Apart from inflation, there are other financial prices which are of great concern to the Bank of Zambia, especially in our efforts to stabilise the macro-economy. One such financial price is the level of interest rates. Interest rates, being the cost of funds, can inhibit borrowing for investment in real estate if they are too high. Inflation also affects the level of interest rates. To this effect, lowering of interest rates requires that all key stakeholders play their respective roles effectively and consistently. The Government, by reducing domestic borrowing, contributes to the lowering of yield rates on Government securities, which are often used as anchors by commercial banks in setting their interest rates. Commercial banks are, on their part, also expected to respond favourably to improving macroeconomic conditions consistent with low interest rates, while borrowers need to improve their credit culture. As for the Bank of Zambia, the greatest contribution we can make to the lowering of interest rates is reduction of inflation to single digit levels. In this regard, the Bank will continue monitoring financial conditions and take appropriate actions to contribute to the lowering of lending interest rates. Exchange rates are yet another financial price that should be stabilised to effectively contribute to the promotion of the growth of the real estate industry, particularly that a substantial amount of building materials, such as, steel are imported. An unpredictable behaviour of the exchange rate can make investment in real estate unattractive. 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 many years. In this vein, the FSDP is aimed at enhancing financial intermediation and efficiency of the financial sector, and it is anticipated that problems related to real estate finance would be resolved once the FSDP is fully functional. Ladies and Gentlemen In conclusion, I wish to reiterate the importance of the real estate sector in economic and social development in the country. With your contribution, and that of other stakeholders Zambia could easily achieve the national socio-economic goals in the medium term. Every economic unit needs the services of a booming real estate and construction sectors for them to contribute more to economic growth and development. In this regard, I trust that the various institutions represented here will continue to facilitate and promote investments in the real estate sector in Zambia. On our part as the Bank of Zambia, we will continue to facilitate real sector economic activity by continuing to improve the macroeconomic conditions in the country that are critical to the mobilisation and expansion of business. In turn, it is expected that other sectors of the economy will benefit and contribute to accelerated economic growth and development. I THANK YOU. | bank of zambia | 2,005 | 6 |
Presentation by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambian Heads of Missions Briefing Seminar, Lusaka, 19 July 2005. | Caleb M Fundanga: Monetary policy issues and the process of foreign payments Presentation by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambian Heads of Missions Briefing Seminar, Lusaka, 19 July 2005. * * * The Hon. Minister of Foreign Affairs, Lt. Gen. Ronnie Shikapwasha, MP Hon. Deputy Minister of Foreign Affairs Permanent Secretaries Your Excellencies, High Commissioners and Ambassadors Senior Government Officials Distinguished Invited Guests Ladies and Gentlemen It is an honour for me to be here this morning to talk to you on the topic of “Monetary Policy Issues and the Process of Foreign Payments”. This topic provides me with an opportunity to explain the role of the Bank of Zambia in the economy and the process of foreign payments which has been a topical issue. As you may be aware, the Bank of Zambia’s mission is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. However, in line with the topic above, my presentation this morning will focus on the first aspect of the mission of the Bank, namely, price stability. There are generally three prices of major concern to the Bank of Zambia. These are general prices of goods and services, interest rates and the exchange rate of the kwacha against major foreign currencies. I will now deal with each of these in turn. The central bank deals with general prices of goods and services in the context of inflation. In simple terms, inflation may be defined as the change in the general price level of goods and services. However, in every day usage, inflation may be defined as “too much money chasing too few goods”. Describing inflation this way makes it easier to link it to monetary policy which is the control of money supply in an economy. The Bank of Zambia is concerned that inflation has remained stubbornly high for quite sometime now. As at end-June 2005, inflation was at 19.2% which we consider too high to foster sustainable economic growth. The poor weather patterns over the last agricultural season resulted in low crop output, particularly that of maize, which induced inflationary pressures. The unyielding rise in world oil prices on account of high demand from China and India, due to high economic activity, disruptions in supply, arising from war in the Middle East, as well as processing capacity constraints in many oil consuming countries have also caused a general rise in the domestic prices of petroleum products thereby increasing the cost of domestic production. In order to moderate the inflationary pressures arising from low crop output, on a sustainable basis, efforts should be directed at diversifying and improving agricultural output away from rain-fed agricultural practices. Government’s commitment to increased investment in the agricultural sector is therefore commendable as this should assist in improving the supply of agricultural output, in particular that of food items. This has an important bearing towards reducing consumer food inflation. Similarly, although it is not possible to completely eliminate inflationary pressures stemming from rising world oil prices, efforts are nonetheless needed to moderate their impact on the economy. To this end, such efforts as conserving the use of petroleum products can go a long way in reducing the attendant inflationary pressures. Allow me now to turn to the issue of interest rates. As you may be aware, interest rates refer to the price of money. Over the last few years the general trend in commercial banks’ weighted average lending rates has been largely downwards. As at end-June 2005, the weighted average base lending rate had reduced to 28.6% from 36.2% in January 2004. The fall in lending rates has in large part been induced by a fall in yield rates on Government securities as banks in Zambia have tended to use yield rates as anchors. However, at the current levels, lending interest rates are too high to contribute to sustainable productive investment. This calls for concerted efforts among other key stakeholders, namely, the Government, commercial banks and the borrowing private sector to continue playing their respective roles effectively to bring about a further reduction in the lending interest rates. It has also to be appreciated that inflation is another major contributing factor to high interest rates as banks set their lending interest rates above the rate of inflation thus the need to reduce the high inflation that has characterised the economy. On our part, we will do all we can, using all monetary instruments at our disposal, to contribute to reducing inflation and therefore, interest rates. As regards the exchange rate, this refers to the price of one currency in terms of another. In our case, it refers to the relative price of the kwacha against other currencies. The price of the kwacha against other currencies is directly determined by supply and demand conditions in the foreign exchange market and indirectly through the conduct of monetary policy. To improve the operations of the foreign exchange market, the Bank of Zambia developed the broad-based inter-bank foreign exchange system where suppliers (traditional and non-traditional exporters) and users (importers) of foreign exchange can trade transparently. Following the introduction of this system, there has been a significant improvement in the supply of foreign exchange on the market owing to the confidence in the system by market participants, efficient flow of information among all players and improved external sector performance brought about by increased copper output and unprecedented high world copper prices in recent times. These developments have contributed to the relative stability of the kwacha against major currencies and thus moderating inflationary pressures. In addition, the containment of growth in money supply has contributed to this outcome. Furthermore, the anti-dollarisation campaign that the Bank of Zambia waged some two and half years ago has had an equally important role to play in the observed relative stability of the kwacha against major currencies. However, continued relative stability of the exchange rate of the kwacha against major currencies is heavily dependent on longer term initiatives for sustained improvement in the supply of foreign exchange. Among these strategies is a sustained increase in export earnings through the stimulation and maintenance of a strong export sector. Ladies and Gentlemen, let me now turn to the other part of the topic, namely, the process of foreign payments. The Bank of Zambia has issued Directives that put limits on cash transactions in foreign exchange with authorised dealers. For instance, bureaux de change cannot transact in excess of US dollars 1,000 or equivalent foreign currency per transaction per day with any one individual. This arises from their primary purpose of being money changers. The corresponding limit for commercial banks is US dollars 5,000 or equivalent foreign currency per transaction per day for account holders and US dollars 1,000 or equivalent foreign currency for non-account holders. It is important to stress that these limits for commercial banks pertain to cash transactions only. Account holders and nonaccount holders alike wishing to transact above these limits can do so by choosing other modes of payments, such as, direct transfers, drafts, etc. Any remittance in excess of US dollars 5,000 has to be channelled through commercial banks and the person remitting the funds is required to support the transaction with appropriate documentation for statistical purposes, as well as guarding against money laundering and financing of terrorism. The convenience of making foreign payments from Kwacha bank accounts has also been improved by introduction of new products. One such product is the VISA based electronic debit card where holders of such cards can access their kwacha balances from anywhere in the world where the card is accepted. This has not only reduced the need for people to carry huge amounts of foreign currency but also has made the kwacha a truly convertible currency. All these innovations have come about because of the relative stability of the exchange rate of the Kwacha against major currencies. Ladies and Gentlemen, in conclusion, I wish to emphasise that the role of the Bank of Zambia is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. We are committed to playing our part and will do all that is necessary to make an effective contribution to a stable macroeconomic environment. In this regard, I call upon all other stakeholders including Your Excellencies to promote and support these positive efforts in the countries of your accreditation. I hope you found my short presentation useful in understanding the conduct of monetary policy and the role that the Bank of Zambia plays. I thank you. | bank of zambia | 2,005 | 8 |
Vote of thanks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Barclays Bank home loan product, Lusaka, 25 January 2006. | Caleb M Fundanga: Barclays Bank home loan product Vote of thanks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Barclays Bank home loan product, Lusaka, 25 January 2006. * * * • The Minister of Finance and National Planning, Hon. Ng’andu Peter Magande M.P. • The Board Chairman of Barclays Bank Zambia PLC, Mr Hakainde Hichilema and Board Members present here today • The Acting Managing Director Barclays Bank Zambia PLC Mr Daniel Nel, • Barclays Bank Zambia PLC staff, • Distinguished Invited Guests, Ladies and Gentlemen I feel greatly honoured to be invited to give a vote of thanks to the Honourable minister’s speech at the launch of the Barclays Bank Home loan product. On behalf of Bank of Zambia and indeed on my own behalf, I would like to congratulate Barclays Bank Plc Zambia for leading the way in establishing long-term finance for the real estate sector. Distinguished invited guests, its just a few months ago that I was invited to talk to an audience on the theme, “Investment opportunities in the Zambia real estate business: The role of Bank of Zambia” at a workshop on Investment Opportunities in Zambia – Integrating African Property Markets. I remember telling the audience then that although the share of the real estate sector in GDP has been increasing over the years, it could perform even better if certain issues were addressed. I particularly mentioned the following as impediments to real estate sector development: 1. Lack of long term finance 2. High interest rates necessitated by among other things high inflation levels in Zambia 3. Poor credit culture among our people. 4. Lack of a more active secondary financial market The picture was not promising for the real estate sector and the only positive economic variable I remember mentioning as helping the real estate sector was the exchange rate of the Kwacha that has been stable against major currencies since July 2003 when the Bank of Zambia introduced the broadbased inter-bank foreign exchange system (IFES). Distinguished guests, today I feel honoured to tell you that most of the issues I raised a few months ago as impending real estate sector development are now being addressed. First, the exchange rate of the Kwacha against major international currencies has continued to improve drastically. Second, the issue of lack of long-term finance, an issue a few months ago has been resolved today with the announcement by Barclays Bank to offer home loans. Third, the issue of high interest rates necessitated by among other things high inflation levels in Zambia. As at end December 2005, annual inflation was at 15.9% and is expected to go down further. Fourth, the issue of poor credit culture among our people. Again I am happy to inform you that the central bank in partnership with the Bankers Association of Zambia are in the process of developing credit reference bureau guidelines and will in the near future issue licences to deserving companies. Lastly, but not the least, the issue of lack of an effective secondary financial market in Zambia is being addressed with Commencement of work on the Financial Sector Development Plan (FSDP). Let me join the Honourable Minister of Finance in wishing Barclays Bank Zambia PLC the very best of success with the launch of the Home Loan product. I thank you!! | bank of zambia | 2,006 | 2 |
Key note address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Mufulira District Advisory Committee's 2006 Business Forum, Mufulira, 18 March 2006. | Caleb M Fundanga: Corporate social responsibility - challenges that the private sector in Zambia should overcome Key note address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Mufulira District Advisory Committee’s 2006 Business Forum, Mufulira, 18 March 2006. * * * CHAIRPERSON, YOUR HONOUR THE MAYOR OF MUFULIRA MUNICIPAL COUNCIL, THE DISTRICT COMMISSIONER, THE TOWN CLERK, DISTINGUISHED INVITED PARTICIPANTS, LADIES AND GENTLEMEN On behalf of the Bank of Zambia and indeed on my own behalf, allow me to thank you for this invitation to Mufulira. It is an honour to be invited to this important Forum to share a few words with the business community on the issue of Good Corporate Citizenship. In view of the growing role of the private sector as a partner in economic development in Zambia, this topic could not have come at a better time than now. In fact, when I was invited to come here by the Municipal Council, I took a bit of time to reflect on the challenges good corporate citizens face. On the outset, it is imperative to realise that despite the moral ethics that come with being a responsible and good corporate citizen, advantages can also be exploited by strengthening the synergies between private sector growth on the one hand and social, economic and environmental development on the other. In view of this, I prepared my address within the context of the underlying theme “Corporate Social Responsibility: Challenges that the Private Sector in Zambia Should Overcome”. Your Honour the Mayor, Chairperson, Ladies and Gentlemen, there is a growing awareness world over on the importance of the role that business communities should take in contributing to the improvement in the overall welfare of the communities in which they operate. It is being realised that even though Governments are accountable to their citizens, business houses can also make valuable contributions to society without heavily compromising their corporate objectives. You would agree with me Ladies and Gentlemen that companies that practice good corporate citizenship are usually preferred employers, investment partners and neighbours in the communities they operate. To help achieve their nonfinancial objectives, many have adopted corporate creeds or ethical statements as integral parts of their behaviour. Such firms know that their acceptance into new markets could hinge upon their contribution to the social well-being of their environment. Ladies and Gentlemen, this is a phenomenon that has become generally known as ‘Corporate Social Responsibility’ and refers to the attention by companies to community involvement, environmental protection, socially responsible products and processes, and socially responsible employee relations. Put differently, Corporate Social Responsibility is the extent to which businesses meet the economic, legal, ethical and discretionary responsibilities imposed on them by their stakeholders. The world over, Corporate Social Responsibility has promoted activities in key areas, namely education, health, the environment, culture and the arts. Examples of the activities generated by good corporate citizenship include charitable donations and local community action, e.g. employee volunteering, youth projects, unemployment schemes, etc. The motivations of the business community to engage in Corporate Social Responsibility are numerous. • Firstly, investment by the business community in the promotion of social goods such as education and health can have a direct impact on the productivity of the community and profitability of the private sector. This contributes to the physical and mental health of the company’s employees, hence enhances social and human capital. • Secondly, the sensitivity of a firm to the concerns of a society can contribute positively to its reputation and the acceptability of its products. • Thirdly, beyond improving the customer-company relationship, Corporate Social Responsibility can foster harmonious relationships between various stakeholders in a society. • Lastly, it is acknowledged that a stable environment is generally good for business. Ladies and Gentlemen, institutions such as the Bank of Zambia is no exception in this respect. The core function of the Bank of Zambia is “to formulate and implement monetary and supervisory policies that ensure price and financial stability.” The overall objective of this is to contribute to the attainment of a stable macroeconomic environment i.e. low and stable prices, low and positive interest rates, stable exchange rate, stable financial system as well as fiscal prudence so that the private sector can flourish. Many of you will agree with me that since 2002, Zambia’s macroeconomic indicators have generally been improving. This has been reflected in the positive developments in real GDP growth, lower inflation, a downward trend in lending interest rates coupled with a stable exchange rate. It must be stressed here that the Bank of Zambia is optimistic that further progress will be made in lowering inflation to a single digit in the near future as appropriate monetary and fiscal policies continue to be implemented. This will be supported by the effects of the movements in the exchange rate of the Kwacha, which is reflected for instance in the adjustment of the prices of petroleum products and the expected improvement in food supplies following the favourable rainy season. Ladies and Gentlemen, beyond delivering on its core functions of attaining price and financial system stability, the Bank of Zambia recognises the importance of being a good corporate citizen. In this regard, the Bank has for many years been involved in providing financial and material support to the two state universities by sponsoring a Chair at each of these institutions as well as providing educational awards and scholarships to deserving students. In assisting the needy, the Bank of Zambia and its employees have on several occasions made donations to charitable institutions. Ladies and Gentlemen, in view of the potential benefits that can accrue to a society, the business community in Zambia, and Mufulira in particular, are hereby challenged to make Corporate Social Responsibility an integral part of every business decision and action.. Companies should demonstrate corporate citizenship in what they are as a company, how they conduct business, how they take care of their employees, as well as in how they interact with the public at large. Distinguished Ladies and Gentlemen, without being exhaustive, allow me to suggest some avenues through which good corporate citizenship can be encouraged among the Zambian business community. • As a first step for pursuing Corporate Social Responsibility, companies can focus on defining the normative directions that would be appropriate and acceptable to them. These directions can be converted into a formal statement of business values and practices. Such statements can be presented in the form of principles, guidelines, or codes of conduct. For instance, a code of conduct can aim at regulating activities of an industry within the principles of responsible business by requiring the signatories to uphold fundamental human rights, to respect the culture and customs of their employees and local communities affected by their actions. In effect, these become a commitment vehicle for the business to declare its perspective and way of doing business with respect to the challenges relating to Corporate Social Responsibility. • Secondly, integrate tenets of good corporate citizenship into corporate structures and processes, create innovative and proactive Corporate Social Responsibility solutions, and collaborate with internal and external stakeholders on social challenges, and report and account for performance in this area. • Thirdly, Corporate Social Responsibility awards can be introduced to acknowledge the works of those that make considerable effort and impact. This can help to act as an incentive to motivate employees and managers to advance Corporate Social Responsibility. The recognition can take place at different levels such as those of the project team, corporate management, company, specific industry sector, etc. • Finally, companies can also have their managers and employees participate in networks and multi-partner organizations that aim to advance responsible business practices for the benefit of business and society. The partners can include other businesses, government, civil society, labour unions, investor groups, etc. As earlier alluded to, one of the tenets of good corporate citizenship is transparency and accountability. On the part of the Councils, the major challenge they face in this regard is the delivery of quality service to their clients, which is underpinned by better management of resources. In conclusion, Chairperson, Ladies and Gentlemen, in the interest of enhancing the competitiveness of business and maximise the value of wealth creation in Mufulira District in particular and Zambia as a whole, companies are urged to make social responsibility an integral part of the wealth creation process. I am confident that the Zambian business community shall appreciate the benefits that accrue to both the company and its stakeholders in this vein, and hope I shall one day have the honour of being present at the first event to award deserving entities in this noble sphere. I thank you all. | bank of zambia | 2,006 | 4 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the annual dinner of the Insurance Brokers Association of Zambia, Lusaka, 24 May 2006. | Caleb M Fundanga: The role of insurance brokers in the growth of the Zambian economy Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the annual dinner of the Insurance Brokers Association of Zambia, Lusaka, 24 May 2006. * • The Chairperson • Distinguished Guests • Ladies and Gentlemen * * It gives me great pleasure to officiate at this annual dinner and to talk to you on the subject “The Role of Insurance Brokers in the Growth of the Economy”. It is my hope that our interaction this evening will give us a better understanding and appreciation of the important contributions that insurance brokers have made to the economic growth of this country. The insurance world will continue to have a vital role to play as we continue to move the economy towards further stability and growth. Mr Chairman, before I talk about your role in the growth of the economy, I would like to begin by giving you a brief account of the macroeconomic developments in Zambia in the recent past. I know that many of you have been following the economic developments in the country. The economy has performed relatively well in recent years, with inflation and interest rates coming down. The exchange rate has relatively stabilized, following a steep appreciation in 2005. The growth in real Gross Domestic Product (GDP) averaged 4.7 percent per annum during 20012005. This growth has been broad-based - extending beyond the recovery of the mining sector and has withstood adverse shocks such as droughts and increases in oil prices. During this period, investment was strong, particularly in the mining, agriculture and tourism sectors, which sets a basis for further favourable economic growth in the medium to long-term. More recently, in 2005, the economy grew by 5.0% in real terms, marking the seventh consecutive positive real growth in output. This impressive performance was attributed to a number of factors, including: i. Strong expansion in construction, driven by a robust demand for housing and large scale investment in the copper sector. ii. A marked pick up in mining production with the coming on line of the Kansanshi copper mine. iii. Favourable external sector performance largely driven by favourable copper prices on the world market. iv. Expansion in financial institutions and insurance sectors. Mr Chairman, inflation declined to 15.9% at the end of December 2005 from 17.5% at the end of December 2004 despite several setbacks, including the partial drought that significantly reduced food supply and high prices of oil and petroleum products. Attainment of a single digit inflation has been Government’s goal for a long time. It is, therefore, pleasing to note that, in April 2006, annual inflation declined to 9.4%, the lowest rate in the last 30 years. This inflation outturn has been largely due to the conduct of appropriately tight monetary policy aided by prudent fiscal policy and the continued relative stability of the Kwacha. With the anticipated bumper harvest of maize coming on the market as the marketing season opens this month, maize prices are expected to fall and assist in keeping food inflation in check and overall inflation at a single digit level. The challenge will be to anchor inflation at these single digit levels throughout this year and beyond. In order to do this, continued implementation of appropriate monetary and fiscal policies as well as maintaining relative stability of the exchange rate would be vital plus increased production of goods and services. Ladies and Gentlemen, recently, the exchange rate market has been characterized by a general appreciation of the Kwacha against major foreign currencies. This has been mainly due to increased supply of foreign exchange on the market relative to demand. The key factors underlying the increased foreign exchange supply include: ii. increased copper output and exports as well as record high prices. Copper exports volume has in recent year registered sustained growth, increasing from 353,000 metric tons in 2003 to 423,000 metric tons in 2005. The price of copper rose to US $4572.0 per tonne in December 2005 from US $3134.79 per tonne in December 2004. By May 19, 2006, the price of copper had increased to US $8016.29 per tonne, iii. increased non-traditional export earnings, from US $410 million in 2003 to US $476.7 million in 2005, iv. improved economic confidence following the attainment of the enhanced HIPC Initiative Completion Point in April 2005, which resulted in reduced external debt service obligations, and; v. increased foreign direct and portfolio investment, reflecting increased market confidence in the economy stemming from the greatly improved prospects for the copper sector, the cancellation of the bulk of Zambia’s external debt, and the continued commitment to prudent fiscal and monetary policies. Mr Chairman, all these factors have accounted for the current strengthening of the Kwacha. This has led to an outcry from some of our exporters of nontraditional commodities that they are losing external competitiveness and may close down their businesses. While I appreciate this outcry, I wish to state that the exchange rate alone does not determine external competitiveness of exports. Exporters should look at those areas in their production processes where they can attain efficiency gains and improve productivity. Besides the appreciation of the Kwacha which has an impact on inflation is beneficial to non-traditional exporters in several ways: • reducing cost of capital goods • reducing cost of imported raw materials • reducing cost of freight/fuel On its part, the Government can assist this process by directing investment in infrastructure and structural reforms, including labour laws, so as to reduce the cost of doing business in Zambia. Mr Chairman, in the Government securities market, developments in yield rates were mixed in 2005. Overall, the composite weighted average Treasury bill yield rate stood at 16.2% in 2005, down from 17.8% recorded in 2004. In contrast, the composite yield rate on Government bonds stood at 23.0%, up from 20.9% registered in 2004. As at May 5, 2006, the composite weighted average Treasury bill yield rate came down sharply to 7.7% while the composite yield rate on Government bonds declined to 11.0%. The sharp reduction in yield rates on Government securities has been due to low inflation expectation coupled with high demand for these securities by the non-bank financial institutions and private sector. Mr Chairman, with respect to developments in the money market, commercial banks lending rates have also been coming down, though not as fast as the decline in inflation and Treasury bills rates. Commercial banks nominal weighted average lending base rate declined from 29.8% in 2004 to 27.6 % in 2005. As at May 5, 2006, the weighted average lending base rates stood at 23.7%. Clearly, there is a need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia. Sustainable lowering of lending rates by commercial banks should occur in the current environment of low inflation. Distinguished Guests, Ladies and Gentlemen, the macroeconomic gains attained in 2005 will be consolidated in 2006. The real GDP growth is projected at 6.0% while inflation is projected at 10.0%. The Government will continue to pursue policies that would spur growth and assist in lowering inflation below the target. Distinguished Guests, Ladies and Gentlemen, at this juncture, I wish to talk about your role as insurance brokers in economic growth, as the remarkable economic gains that I have outlined above would not have been possible without your contribution. In my humble understanding insurance brokers are independent intermediaries who provide the link between clients and insurance companies. By performing this function, your firms are important economic agents acting in the best interest of clients by providing them with sound and impartial professional and practical advice regarding insurance services. The intermediary role that you play undoubtedly makes you critical in the growth of the Zambian economy in general, and the insurance services sector in particular. The advice that you provide to your clients is important because it promotes a more competitive market within the insurance industry. This may includes an analysis of the most suitable firm, the various types of cover on the market and importantly a fair price for the given product. In some instances, you even go as far as carrying out surveys on various insurance products, negotiating prices of those products for your clients and presenting reports to insurance underwriters. Ladies and Gentlemen, with your contribution, and that of other stakeholders, Zambia could easily achieve the national socio-economic goals in the medium to long-term. Every economic unit needs the services of a booming insurance sector, through your brokerage, for them to contribute more to economic growth and development. In this regard, I wish to urge you to continue facilitating and promoting investments in the insurance sector. Mr Chairman, allow me to point out that, in order for you to contribute positively to the development of the insurance sector in the country, it is imperative that you carry out your work in an honest manner, maintaining the highest degree of integrity, only then can your firms become credible enough to attract business from the public and private firms operating in Zambia. One of the most important attributes of a credible insurance broker is the ability to remit funds to insurance companies on time. As intermediaries between clients and insurance companies, you are entrusted with a heavy responsibility of looking after other people’s funds. Clients pay premiums due to insurance companies through insurance brokers. To enhance credibility of your institutions and contribute to the growth of the insurance industry, I would like to urge you to ensure that you remit your clients funds to insurance companies on time and as agreed. Delays in remitting funds may tempt you to put such funds to other uses which may lead to default and erosion of the integrity upon which your intermediary role is based. Mr Chairman, Zambia has come a long way to attain the current macroeconomic stability and economic growth. This has been as a result of Government’s sound macroeconomic management and the critical contributions that various sectors of the economy have made, of which the insurance sector is a part. Let me once again thank you for inviting me to share my thoughts with you on the role that your noble profession plays in this economy. On our part as Bank of Zambia, we shall keep on facilitating the development of, among others, the insurance sector by continuing to improve macroeconomic conditions that are critical to the expansion of your businesses. In turn, it is expected that other sectors of the economy will benefit and contribute to accelerated economic growth and development that the country is craving so much for in order to reduce poverty. May I, at this juncture, point out that in order to facilitate your work, you may track some of the developments in our economy on the Bank of Zambia website, which you can visit on www.boz.zm. You can also contact us directly for any information you may require on the economy. I thank you for your attention. | bank of zambia | 2,006 | 8 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the German Ambassador's working lunch, Lusaka, 7 June 2006. | Caleb M Fundanga: Banking in Zambia and the Kwacha appreciation Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the German Ambassador’s working lunch, Lusaka, 7 June 2006. * * * • Your Excellency, the Germany Ambassador to Zambia, Dr. Ireen Hinrichsen; • Representatives of German Banks in South Africa; • The German Business Community; • Representatives of Local Banks; • Distinguished Ladies and Gentlemen. On behalf of the Zambian people and indeed on my own behalf, it gives me great pleasure to welcome our German visitors to Zambia. I am deeply humbled to be invited for this business luncheon hosted by Your Excellency. This interaction, Distinguished Ladies and Gentlemen, is very important to foster and enhance mutual co-operation between our two great nations. Your Excellency, with your permission, I will begin my address by discussing banking in Zambia and then proceed to give some highlights on the recent economic developments in the country. Distinguished Ladies and Gentlemen, in the early 1990s, Zambia embarked on economic liberalisation, of which reforming the financial sector was a major part. Specific measures which were undertaken included, among others, the removal of all restrictions on interest rates and elimination of controls on foreign exchange rates. Interest and exchange rates are now market determined, principally based on demand and supply. A Bank of Zambia review of interest rates determination in 2003, nonetheless, showed that the key determinants of commercial banks’ interest rates, particularly the lending rate, were the yield rates on Government securities, level of statutory reserve requirements, inflation, weak policy credibility and high default risks on loans obtained. To enhance the role of the market in the determination of exchange rates, the Interbank Foreign Exchange Market (IFEM) trading system was introduced in July 2003. The entrenchment of the IFEM trading system has been characterised by increased interbank foreign exchange liquidity flows, particularly from mineral exporters. The financial sector reforms were aimed at improving the efficiency and intermediation of the banking system and also at enhancing competition amongst the players. The reforms entailed opening up entry of participants into the banking sector. With the liberalisation of the financial sector, several bank and non-bank financial institutions were established. The financial sector has expanded remarkably over time and the services provided have been improved. • The number of commercial banks has more than doubled to 13 from 4 banks prior to 1990. Currently, the banking system is made up of the Bank of Zambia, which is the central bank, and 13 commercial banks, with a branch network of 159 as at end-December 2005 compared to 123 in 1990. • Commercial banks have improved the range of products offered to customers, in line with global innovations. These include Automated Teller Machines (ATMs), foreign exchange accounts, Visa, mortgages, and leasing services. In 2005, 4 commercial banks launched the E-switch facility to allow their customers to share their ATMs and other payment delivery channels, like point of sale terminals. These services were unheard of before the reforms and were supported by the international community. • Commercial banks have also embarked on other initiatives including expansion programmes based on the community banking concept. This is consistent with the rural banking concept and is intended to provide financial services to those sectors of the community that are not currently serviced by the banking sector. Your Excellency, to meet the challenges which come with an expanded banking sector and in our desire to continue modernising the overall financial sector, it has been imperative to strengthen the prudential and supervisory mandate of the Bank of Zambia. In this regard, the key initiatives that have been endorsed, with an ultimate goal of promoting safe, sound and efficient operations have included: • The enactment and amendment of the Banking and Financial Services Acts in 1994 and 2000, respectively. • The implementation of the Banking Supervision Application Project, aimed at supporting banking supervision and providing a framework for supervision with the view of having a safer financial sector Distinguished Ladies and Gentlemen, in order to promote greater access by the population to banking and financial services, the following have been implemented: • Establishment of an automated electronic clearing house in 1999, (to speed up processing cheques from 4-10 days for local and country checks, to 2-5 days, respectively), enhancing the security of cheques and introducing machine-readable cheques. • Establishment of a direct debt and credit clearing system (DDACC) and a realtime gross settlement system (RTGS) called Zambian Interbank Payment and Settlement System (ZIPSS) in October 2001and June 2004. The DDACC system has facilitated the transfer of money by electronic means for payment of bills and salaries while RTGS allows a speedy, safer and large value clearing facility. Commercial banks have also set up a foreign currency cheque clearing system. • The adoption of the Financial Sector Development Plan (FSDP). This is a framework which aims to promote the development of a stable, sound and market-based financial system that would support efficient resource mobilisation necessary for economic diversification, sustainable growth and poverty reduction. Currently, key recommendations of the FSDP are under implementation. For example, the creation of a Credit Reference Bureau will improve the information available to credit providers in order to enable them to make better credit decisions. Your Excellency, the Zambian Government recognises the importance of expanding financial services to our rural areas, as part of its overall strategy to reduce poverty. The importance of the agricultural sector to the economy, in general, and small-scale farmers in particular, has made provision of financial services to rural areas a priority on the Government’s agenda. The need to improve financial services in economically disadvantaged areas also comes in light of the reduction in the presence of a number of banks in these areas over the last ten years. These areas need banking services from both commercial banks and non-bank financial institutions. Distinguished Ladies and Gentlemen, although this has been the case, the Microfinance Institutions (MFIs) have risen to the occasion to fill-up the gap in the provision of financial services such as small loans and savings facilities in the periurban and rural areas. In addition, the National Savings and Credit Bank (NSCB), formerly known as Postal Bank, which has a rural network has been providing financial services to the remote parts of the country. Your Excellency, coming to economic developments, I wish to state that the Zambian economy has performed relatively well in recent years. Inflation and interest rates have been coming down while the exchange rate of the Kwacha against major currencies has relatively stabilised, following a steep appreciation in 2005. Distinguished Ladies and Gentlemen, in 2005, the economy registered growth of 5.0% in real terms, marking the seventh consecutive year of positive real growth in output. This growth was largely due to the expansion in construction, driven by a robust demand for housing as well as large-scale investment which led to a marked pick-up in mineral production, particularly of copper. Other sectors such as tourism as well as transport, storage and communications also contributed to the overall economic growth. Inflation declined to 15.9% at the end of December 2005 from 17.5% at the end of December 2004 despite several setbacks. These included the partial drought that significantly reduced food supply and high prices of oil and petroleum products. Attainment of single digit inflation has been Government’s goal for a long time. It is, therefore, encouraging to see inflation coming down in recent months, reaching a single digit level of 9.4%, in April 2006 and dropping further to 8.6% in May 2006. Ladies and Gentlemen, accounting for this favourable out-turn in inflation was appropriately tight monetary policy, aided by prudent fiscal policy and the relative strengthening of the Kwacha. The bumper maize harvest this season has helped to ease pressure on food prices and to keep food inflation and thus overall inflation low. To ensure that inflation remains low and stable, it is imperative to continue maintaining a tight monetary policy, prudent fiscal policy and a relatively stable exchange rate. In the Government securities market, developments in yield rates were mixed in 2005. Overall, the composite weighted average Treasury bill yield rate stood at 16.2% in 2005, down from 17.8% recorded in 2004. In contrast, the composite yield rate on Government bonds stood at 23.0%, up from 20.9% registered in 2004. As at May 29, 2006, the composite weighted average Treasury bill yield rate came down sharply to 6.5% while the composite yield rate on Government bonds declined to 11.0%. The sharp reduction in yield rates on Government securities has been due to low inflation expectations, coupled with high demand for these securities by Banks, the non-bank Private and Public financial institutions, and foreign portfolio investors. You may wish to know, Your Excellency, that there are no restrictions with regard to foreign participation in the Government securities market. With continued improvements in the macroeconomic environment, investor confidence is heightened with foreign portfolio investment in Government securities recording appreciable growth. Foreign portfolio investments in Government securities increased to K400 billion at end-December 2005 from K5.6 billion at end-July 2005. Distinguished Ladies and Gentlemen, with respect to developments in the money market, commercial banks lending rates have also been coming down, though not as fast as the decline in inflation and Treasury bills rates. Commercial banks nominal weighted average lending base rate declined from 29.8% in 2004 to 27.6 % in 2005. As at May 30, 2006, the weighted average lending base rates stood at 22.5%. Clearly, there is a need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia. Sustainable lowering of lending rates by commercial banks should occur in the current environment of low inflation. Your Excellency, the next issue I would like to address is that of the appreciation of the Kwacha against major currencies. The appreciation has occurred mainly due to the higher supply of foreign exchange on the market than demand. The key factors underlying the increased foreign exchange supply include: • increased copper output and exports as well as record high prices of the commodity. Copper exports volume has in recent years registered sustained growth, increasing from 353,000 metric tons in 2003 to 423,000 metric tons in 2005. The price of copper rose to US $4,572.0 per tonne in December 2005 from US $3,134.79 per tonne in December 2004. The price of copper has since increased sharply and had risen to over US $8,000 per metric ton by May 2006, • increased non-traditional export earnings, from US $410 million in 2003 to US $576.7 million in 2005; • improved economic confidence following the attainment of the enhanced HIPC Initiative Completion Point in April 2005, which resulted in reduced external debt service obligations; and • increased foreign direct and portfolio investments, reflecting increased market confidence in the economy occasioned by the greatly improved prospects for the copper sector, the cancellation of the bulk of Zambia’s external debt, and anticipated continued commitment to implementation of prudent fiscal and monetary policies. Your Excellency, from this, it is clear that the current strengthening of the Kwacha has been caused mostly by changes in economic fundamentals. I recognise the concerns by some of our exporters of non-traditional commodities that they are losing external competitiveness. I wish to point out that not all has been lost as a result of the appreciation of the Kwacha. Some non-traditional exporters have benefited through, among other things, the reduction in the cost of capital goods and imported raw materials. In addition, may I mention the fact that the exchange rate alone does not determine external competitiveness of exports. Exporters should look at those areas in their production processes where they can attain efficiency gains and improve productivity. These efforts need to be complemented by Government through directing investment in infrastructure and structural reforms, including labour laws, so as to reduce the cost of doing business in Zambia. On its part, the Bank of Zambia will carry out its function of smoothing the movements in the exchange rate in a way that would not compromise the low inflation objective. At this point, Your Excellency, Distinguished Ladies and Gentlemen, allow me to humbly say once again that I am deeply honoured to be invited to address you on this occasion. I thank you for your attention. | bank of zambia | 2,006 | 8 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of the Zanaco bill muster, Lusaka, 27 June 2006. | Caleb M Fundanga: Bringing new levels of efficiency to the Zambian banking sector through technological innovation Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of the Zanaco bill muster, Lusaka, 27 June 2006. * * * • Managing Director – Zambia National Commercial Bank Plc • Senior management staff from Zanaco present • Members of the press • Invited guests • Ladies and gentlemen It is my honour and privilege to be invited to officiate at this breakfast press briefing on the launch of the Zanaco bill muster product. I am informed that the Zanaco bill muster is Zanaco’s latest product innovation. The product will enable the bank’s customers to pay their utility bills at any Zanaco branch and utility companies will receive their collection details electronically online in real time. I am further informed that the new product will make it possible for the bank’s customers to pay for their utility bills by filling in a form instructing the bank through internet banking. The product we are launching today is indeed a positive development as it should bring new levels of efficiency to the banking sector and set a precedence for other players on the market to emulate. At Bank of Zambia, we sincerely support this type of innovation, especially if such a product helps in reducing the cumbersome use of paper and tedious work of manual transmission of payment instructions. Ladies and gentlemen, you will agree with me that automation of processes brings in some efficiency which should translate into effective utilisation of resources. Instead of spending time processing bulk payments, employees will have time to concentrate on other more important assignments, such as deposit mobilisation, credit portfolio growth and administration, all of which are important for the wellbeing of an institution in terms of profits, enhanced shareholder value and growth of the economy at large. The world is changing in terms of technological advancement and new methods of doing business are being developed every day. As a country and through innovations like the product we are launching today, we need to constantly keep up with these developments. Ladies and gentlemen, as you are aware the government continues to give tax and other incentives for institutions and individuals importing computers and computer parts. This is deliberate. It is aimed at stimulating economic growth and as such we all have no excuse for not taking advantage of this development. We expect all commercial banks in Zambia to take full advantage of this for the benefit of the Zambian people through improved service delivery. In this connection, I would like to take this opportunity to call on Zambia National Commercial Bank Plc, as a national bank, to take the lead in responding to our call and indeed government’s call to reduce lending interest rates further. I am mindful of the fact that Zanaco’s base rate is one of the lowest in the country but would like to urge Zanaco to live by its slogan, “big, strong & reliable” by being proactive and set an example of supporting our efforts in developing the economy. At the central bank, we have continued to do our best, in support of government’s effort of reducing inflation, stabilising the currency and implementing sound monetary policies. With inflation of 8.4%, the lowest in the last 30 years in the history of our country and other positive developments, we surely would not be asking for the impossible for commercial banks to respond favourably and reduce their lending interest rates further. At this point, ladies and gentlemen, I would like to declare the Zanaco bill muster officially launched. Thank you. | bank of zambia | 2,006 | 8 |
Paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at a discussion sponsored by the LSA Group, Ndola, 30 June 2006. | Caleb M Fundanga: Future of the Zambian economy – a balanced look Paper presented by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at a discussion sponsored by the LSA Group, Ndola, 30 June 2006. * • Mr. Chairperson • Distinguished Guests • Ladies and Gentlemen * * On behalf of the Bank of Zambia and indeed on my own behalf, I wish to express my sincere gratitude to Lawrence Sikutwa Associates for inviting me to this very important discussion. Our interaction with the corporate world on the subject “The Future of the Zambian Economy – A Balanced Look” is indeed appreciated and very important. This subject, as you rightly pointed out in your letter of invitation to us, is vital considering that Zambia, in general, and Ndola, in particular, are in dire need of investment. It is this investment, Mr. Chairman, which would create employment and accelerate economic growth, a necessary condition to combating extreme poverty among the Zambian people. Ladies and Gentlemen, the future of the Zambian economy can only be known, if one understands the past and the present. Therefore, with your permission, I would like to begin by giving an account of the macroeconomic developments in Zambia in the recent past. I am certain that many of you have been following the economic trends and have seen that the economy has performed relatively well in recent years. Inflation and interest rates have been coming down, while the exchange rate has relatively stabilized, following a steep appreciation towards the end of 2005. Distinguished Ladies and Gentlemen, during the period 2001-2005 growth in real Gross Domestic Product (GDP) averaged 4.7 percent per annum. This growth has been broad-based - extending beyond the recovery of the mining sector. In 2005, the economy registered growth of about 5.0% in real terms, marking the seventh consecutive year of positive growth in real output. This growth was largely due to the expansion in construction, driven by a robust demand for housing as well as largescale investment, which led to a marked pick-up in mineral production, particularly of copper. Other sectors, such as, tourism and transport, storage and communications also contributed to the overall economic growth. Mr Chairman, inflation declined to 15.9% at the end of December 2005 from 17.5% at the end of December 2004 despite several setbacks. These included the partial drought that significantly reduced food supply and high prices of oil and petroleum products. Attainment of single digit inflation has been Government’s goal for a long time. It is, therefore, encouraging to see inflation coming down in recent months, reaching a single digit level of 9.4% in April 2006 and dropping further to 8.6% in May and 8.5% in June 2006. This inflation out-turn has been largely due to the conduct of appropriate monetary policy aided by prudent fiscal policy and relative strengthening of the Kwacha. The bumper maize harvest this season has helped to ease pressure on food prices and to keep food inflation and thus overall inflation low. Distinguished Ladies and Gentlemen, with respect to developments in the money market, commercial banks lending interest rates have also been coming down, though not as fast as the decline in inflation and yield rates on Treasury bills. Commercial banks nominal weighted average lending base rate declined from 29.8% in 2004 to 27.6 % in 2005. As at June 21, 2006, the weighted average lending base rate stood at 21.6%. Clearly, there is an urgent need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia. In the current environment of low inflation, sustainable lowering of lending rates by commercial banks should be a logical course of action. The next issue I would like to address is that of the appreciation of the Kwacha against major currencies. The appreciation has occurred mainly due to the higher supply of foreign exchange on the market than demand. The key factors underlying the increased foreign exchange supply include: 1. Increased copper output and exports as well as record high prices of the commodity. The volume of copper exports has in recent years registered sustained growth, increasing from 353,000 metric tons in 2003 to 423,000 metric tons in 2005. The price of copper rose to US $4,572.0 per metric tons in December 2005 from US $3,134.79 per metric tons in December 2004. The price of copper has since increased sharply and by May 2006 it had risen to over US $8,000 per metric ton; 2. Increased non-traditional export earnings, from US $410 million in 2003 to US $576.7 million in 2005; 3. Improved economic confidence following the attainment of the enhanced Highly Indebted Poor Countries(HIPC) Initiative Completion Point in April 2005, which resulted in reduced external debt service and obligations; and 4. Increased foreign direct and portfolio investments, reflecting increased market confidence in the economy, occasioned by the greatly improved prospects for the copper sector, the cancellation of the bulk of Zambia’s external debt, and anticipated continued commitment to implementation of prudent fiscal and monetary policies. Mr. Chairman, from this, it is clear that the current strengthening of the Kwacha has been caused mostly by changes in economic fundamentals. I recognise the concerns by some of our exporters of non-traditional commodities that they are losing external competitiveness. I wish to point out that not all has been lost as a result of the appreciation of the Kwacha. Some non-traditional exporters have benefited through, among other things, the reduction in the cost of capital goods and imported raw materials. In addition, may I mention the fact that the exchange rate alone does not determine external competitiveness of exports. Exporters should look at those areas in their production processes where they can attain efficiency gains and improve productivity. These efforts need to be complemented by Government through directing investment in infrastructure and structural reforms, including labour laws, so as to reduce the cost of doing business in Zambia. On its part, the Bank of Zambia will carry out its function of smoothing the movements in the exchange rate in a way that would not compromise the low inflation objective. Ladies and Gentlemen, these achievements will have been impossible without the financial sector reforms. In the early 1990s, Zambia embarked on economic liberalisation, of which reforming the financial sector was a major part. Specific measures which were undertaken included, among others, the removal of all restrictions on interest rates and, elimination of controls on foreign exchange rates and transactions. Interest and exchange rates are now market determined, that is they are being driven by underlying demand and supply factors. To enhance the role of the market in the determination of exchange rates, the Interbank Foreign Exchange Market (IFEM) trading system was introduced in July 2003. The entrenchment of the IFEM trading system has been characterised by increased interbank foreign exchange liquidity flows, particularly from mineral exporters. With the liberalisation of the financial sector, several bank and non-bank financial institutions were established. The financial sector has expanded remarkably over time and the services provided have been improved. • The number of commercial banks has more than doubled to 13 from 4 banks prior to 1990. Currently, the banking system is made up of the Bank of Zambia, which is the central bank, and 13 commercial banks, with a branch network of 159 as at end-December 2005 compared to 123 in 1990. • Commercial banks have improved the range of products offered to customers, in line with global innovations. These include Automated Teller Machines (ATMs), foreign exchange accounts, Visa debit cards, mortgages, and leasing services. In 2005, 4 commercial banks launched the E-switch facility to allow their customers to share their ATMs and other payment delivery channels, like point of sale terminals. These services were unheard of before the reforms and were supported by the international community. • Commercial banks have also embarked on other initiatives including expansion programmes based on the community banking concept. This is consistent with the rural banking concept and is intended to provide financial services to those sectors of the community that are not currently serviced by the banking sector. Ladies and Gentlemen, to meet the challenges which come with an expanded banking sector and in our desire to continue modernising the overall financial sector, it has been imperative for the prudential and supervisory mandate of the Bank of Zambia to be strengthened. In this regard, the key initiatives that have been effected, with an ultimate goal of promoting safe, sound and efficient operations have included: • The enactment and amendment of the Banking and Financial Services Acts in 1994 and 2000, respectively. • The implementation of the Banking Supervision Application Project, aimed at supporting banking supervision and providing a framework for supervision with the view of having a safer financial sector. Distinguished Ladies and Gentlemen, in order to promote greater access by the population to banking and financial services, the following have been implemented: • Establishment of an automated electronic clearing house in 1999 (to speed up processing cheques from 4-10 days for local and country checks to 2-5 days, respectively), enhancing the security of cheques and introducing machine-readable cheques. • Establishment of a direct debt and credit clearing system (DDACC) and a realtime gross settlement system (RTGS) called Zambian Interbank Payment and Settlement System (ZIPSS) in October 2001 and June 2004, respectively. The DDACC system has facilitated the transfer of money by electronic means for payment of bills and salaries while RTGS allows a speedy, safer and large value clearing facility. Commercial banks have also set up a foreign currency cheque clearing system. • The adoption of the Financial Sector Development Plan (FSDP). This is a framework which aims to promote the development of a stable, sound and market-based financial system that would support efficient resource mobilisation necessary for economic diversification, sustainable growth and poverty reduction. Currently, key recommendations of the FSDP are under implementation. For example, the creation of a Credit Reference Bureau will improve the information available to credit providers in order to enable them to make better credit decisions. Ladies and Gentlemen, at this juncture, I would like to mention that the macroeconomic gains attained in the recent past will need consolidating in 2006 and onwards. You will agree with me that the macroeconomic gains attained have set the stage for sustained future growth of our economy, employment creation and poverty reduction. In this regard, allow me now turn to the future growth focus of our economy. Mr. Chairman, Zambia has articulated its long-term development objectives in the National Long Term Vision 2030. Part of this vision is enshrined in the Fifth National Development Plan (FNDP); 20062010 whose theme is: “Broad Based Wealth and Job Creation through Citizenry Participation and Technological Advancement”. This calls for policies that accelerate and sustain economic growth, and which enable the poor to participate in, and benefit from the growth process. In this respect the broad macroeconomic objectives for the Plan period 2006-2010 are as follows: - To accelerate pro-poor economic growth; - To reduce and stabilise inflation; and - To sustain a viable balance of payments and external and domestic debt position. What then do we see as the sources of economic growth and employment creation in future? Ladies and Gentlemen, we see the growth of the Zambia economy being driven by increased activities in agriculture, mining, export-led manufacturing, tourism and energy. Agriculture Mr Chairman, this sector possesses great potential to make higher contributions to the country’s growth and employment aspirations given the abundant arable land and water supply. Water supply is abundant, accounting for 45 percent of the total water resources of the Southern African region, thus providing investment opportunities for the supply of water for irrigation, home and industrial use. Investment in agriculture is important because the majority of our people in rural areas depend on agriculture for their livelihood and income. Thus, investment in agriculture will help reduce poverty, especially if it is directed at bringing into the fore small scale farmers in the production of cash crops, such as, tobacco, sugar and cotton. In addition to increased production among small scale farmers, it will be of paramount importance to put in place strategies that will increase productivity among small scale farmers. Mining Mr. Chairman, the ongoing activities in mining suggest that the sector is poised to be, once again, one of the major contributors to the future growth of our country. It is expected that copper output in particular will soon reach and probably even exceed the mid-1970s levels. Increased output is expected from the existing mines and those under establishment such as Lumwana in North-Western Province and Konkola Deep on the Copperbelt. Exploration for other mining ventures has continued with high prospects for nickel mining in Southern Province. Although in the early stages increased employment will be created, the ability to absorb more labour in future will reduce as some mines employ more efficient and less labour intensive techniques in the production processes. I should mention here that though copper mining has again become prominent in terms of exports and to some extent employment, Government strategies and policies are focusing on reducing the country’s dependence on copper mining through economic diversification as articulated in the FNDP (2006-2010). In our diversification efforts, due attention will be paid to those that have high potential for creating employment. This will make our economy resilient to future external shocks and ensure sustained development, and have a required impact on the quality of life of the Zambian people. Manufacturing Ladies and Gentlemen, the Zambian Government has demonstrated its commitment to the development of a vibrant but competitive manufacturing sector in this year’s national budget. This is in line with its commitment to facilitate increased value addition which is one of the key ingredients in achieving sustainable development in the country. To this effect, several measures and incentives aimed at enhancing the competitiveness of the sector will be provided in conformity with the future growth objectives. One such example is the Government’s move to implement a new initiative called the Multi-Facility Economic Zone (MFEZ). This will replace the Export Processing Zones (EPZ), as special industrial zones for both export-oriented and domestic-oriented industries. The zones will have all the necessary infrastructure for the easy commencement and conduct of manufacturing activities. In addition, several concessions will be provided for those companies that will operate in the MFEZ. Ladies and Gentlemen, we see the growth in manufacturing emanating from increased investment in agro-processing whose potential has not yet been fully exploited. It is in this respect that current and future initiatives emphasise forging of stronger linkages between agriculture and manufacturing, particularly through upstream linkages to agro-related processing. The other aspect of manufacturing that we see as stimulating growth in future is increased processing of minerals, key being copper (given the rapid expansion in copper output) and precious stones. Distinguished guests, the processing of copper into various high products at ZAMEFA is commendable. However, there is still a lot of room for other investors to invest in the processing of copper and indeed gemstones and precious stones that are mined in the country and exported as rough stones. Investing in downstream processing of gemstones and other minerals will not only enhance our export earnings but create employment for our people. Government on its part will among other things facilitate improved access to capital and equipment, enhance skills, rehabilitate support infrastructure and facilitate linkages for marketing of processed gemstones and other minerals. Mr. Chairman, it is worth noting that the construction of Zambia’s third cement company by Zambezi Portland Cement and the planned establishment of an assembly plant by Tata Ltd of India, here in Ndola are all welcome developments following improved confidence in our economy, which should boost growth and create employment. I would like to urge the business community to invest in similar ventures. I am positive that with improved macroeconomic stability there will be more investment in such productive activities. Tourism Distinguished guests, tourism is another of Government’s priority sectors from which growth and employment are expected to be generated. One of the key aspects of Zambian tourism is the increasing participation of locals in the sector through among other activities establishment of lodges that are complimenting the traditional hotels and offering services with a Zambian touch. It is worth mentioning that tourism, more than any other sector, is labour intensive and provides jobs for local people in both rural and urban areas. In order to stimulate the potential of this sector, there will be need to facilitate access to affordable and sufficient credit, entrepreneurship (private sector capacity building) training, improved marketing and provision of the necessary support infrastructure. Access to most of these tenets will enable the local small scale investors to provide competitive tourist services. Ladies and Gentlemen, may I also add that tourism should not be based on wild life (visiting national game parks) alone. Here on the Copperbelt, you have a unique opportunity to develop a tourism industry based on copper mining - e.g. going underground. Collectively, we can also encourage and promote eco-tourism in much of rural Zambia. Energy sector Mr. Chairman, a growing economy needs sufficient, stable and affordable energy supply. I have here in mind the electricity sector. Given abundance of water resources in the country, as earlier alluded to, the potential for development of hydro-power for both domestic and exports is quite high. Current estimates show that the country’s hydropower resource potential stands at 6,000 mega watts (MW) while the installed capacity is somewhere around 1,715.5 MW. These estimates are a testimony to the great potential this sector has. I am aware of several investment plans that ZESCO has put in place and which are aimed at exploiting this potential. Ladies and Gentlemen, the opportunities identified above do not just happen. Zambians must make a conscious effort to exploit the opportunities identified. We must not view Government efforts of promoting investments opportunities as meant for foreigners only. To facilitate long-term planning for the productive sector, the Bank of Zambia will continue with measures that would achieve and maintain low and stable inflation and interest rates as well as a relatively stable exchange rate. This would provide a foundation for value addition in industries such as agro-processing, manufacturing, construction, and tourism, which is key to sustainable development. It is imperative that as a country, we move from being raw materials producers only to value addition in a stable macroeconomic environment. Apart from appropriate monetary policy and prudent fiscal policy, the stability in the foreign exchange market is important in achieving low and stable inflation. The objective of the Bank in this respect would be to achieve a non-volatile but competitive exchange rate. Ladies and Gentlemen, in order to achieve efficient allocation of resources and to promote savings and investment, there is need to achieve and sustain low and stable interest rates. As earlier indicated, it is worth noting that lending interest rates have trended downwards in the recent past owing to the reduction in inflation. Low and stable interest rates would create conducive credit conditions, which would improve accessibility and availability of credit to the productive sectors. This would result in expansion in investment, increased production as well as enhanced value addition. This ultimately leads to sustainable economic growth required to accelerate poverty reduction in our country. Mr. Chairman, another aspect of the Bank of Zambia mission is 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, as monetary policy actions are transmitted through financial institutions. In this regard, the Bank of Zambia will continue with its efforts of ensuring stability in the financial sector. A stable financial system plays a catalytic role for financial institutions to provide the financial products that will contribute to the development of the insurance business. In this instance, the Bank will continue to support local financial institutions in their efforts to mobilise increased savings particularly domestic, which should go towards sustained financing of the future productive activities in our economy. This calls for increased innovation on the part of the financial sector in developing products to support a growing economy. Ladies and Gentlemen, in conclusion, may I simply state that as we consolidate macro-economic stability, we are committed to achieving the necessary economic growth that will have a bearing on poverty levels in the country. In this regard, we see the future of the Zambian economy as one which is highly diversified through resuscitating the industrial base to enable increased value addition and employment creation. We strongly believe that increased value addition is key to sustained development. I would like to urge you all and those in the private sector that are not with us to take advantage of the immense investment opportunities in our country. Let me once again thank you for inviting me to share my thoughts on this important topic. I thank you for your attention. | bank of zambia | 2,006 | 8 |
Opening speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 8th Annual General Meeting of the Association of Microfinance Institutions of Zambia, Lusaka, 7 July 2006. | Caleb M Fundanga: An appeal to the Zambian microfinance industry to offer affordable financial services Opening speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 8th Annual General Meeting of the Association of Microfinance Institutions of Zambia, Lusaka, 7 July 2006. * * * • The Chairperson; • Senior Government Officials present; • His Excellencies, member of the diplomatic corps present; • Members of the Association of Microfinance Institutions of Zambia (AMIZ); • Distinguished Ladies and Gentlemen It gives me great pleasure and gratitude to be amongst you this afternoon to officiate at the 8th Annual General Meeting of the Association of Microfinance Institutions in Zambia. Mr Chairperson, as you are aware, micro-lenders are credit providers to people with limited or no access to traditional credit sources. It follows therefore that the primary impact of microfinance in Zambia has been the broadening of access to formalised financial services particularly to many people both in urban and peri-urban areas. The microfinance sector in Zambia has grown rapidly in recent years in terms of the number of service providers as well as outreach which is currently estimated at over 60,000 persons. Ladies and Gentlemen, in recognition of the need to provide a conducive regulatory environment which promotes sustainability, accountability and transparency in the conduct of micro finance business, the Bank of Zambia, in consultation with other key stakeholders in the microfinance sector, introduced the Banking and Financial Services (Microfinance Regulations) of 2006 which came into force on 31 January 2006. While the Regulations may be focusing on deposit taking microfinance institutions and relatively large non-deposit taking microfinance institutions, it is envisaged that several other smaller players in the industry will continue to be regulated under the Cooperative Societies Act and the Money Lenders Act. The Bank of Zambia will be holding a workshop for microfinance institutions and other stakeholders during the second half of 2006 to highlight the salient features of these Regulations and the importance of operating microfinance institutions to properly register their businesses. Ladies and Gentlemen, we are aware that lending of small sums of money to a large number of individuals maybe costly, and this may compel microfinance institutions to charge high lending interest rates than commercial banks and other financial institutions. However, it is also important to note that high lending interest rates can lead to high levels of delinquency. It is in this regard that the Bank of Zambia is concerned about the levels of lending interest rates charged by most financial institutions in Zambia, microfinance institutions included. With the achievement of relative macroeconomic stability in the recent years as evidenced by a significant reduction in the inflation rate to 8.5 percent as at June 2006, it is the expectation of the Bank of Zambia that all prudent lending institutions would make downward adjustments to their lending interest rates. Some commercial banks have taken the lead by reducing their base lending rates and we expect microfinance institutions will follow suit so that many more people can have access to affordable financial services. Mr Chairperson, Distinguished Guests, let me take this opportunity to inform you that following the coming into force of the Credit Reference Services (Licensing) Guidelines and the Credit Data (Privacy) Code on 30 January 2006, a credit reference bureau has since been issued with an operating licence to provide services to the Zambian market. Although the bureau will initially provide services to the banking sector, it will subsequently extend its services to other credit providers, such as, microfinance institutions. This will help in reducing credit risk through the availability of a widely accessible database on the loan repayment profile of borrowers. This should also provide another incentive for lowering of interest rates. Ladies and Gentlemen, one way of addressing concerns of limited capital and dependence on donor support to the industry is by promoting linkage banking where microfinance institutions not only maintain accounts with commercial banks but also access funds from their respective commercial banks for on lending. Before I conclude, allow me to mention one area of concern not only to the microfinance sector, but the entire financial sector in general, and that is money laundering. In the absence of effective cooperation among the various players in the financial sector, there will be no realistic change of defeating or significantly curbing money laundering. It is therefore imperative that the microfinance sector becomes more alert and report suspected cases of money laundering to the Anti-Money Laundering Investigations Unit for corrective action. Money laundering, if left unchecked can erode the integrity of our financial system. Ladies and Gentlemen, in conclusion I wish to state that the Bank of Zambia is committed to the development of a robust financial sector in Zambia, and I would therefore like in this particular instance, to call upon the microfinance industry to play its role effectively by expanding its outreach so that more poor people can have access to financial services. I implore you to discuss issues openly and now declare this 8th Annual General Meeting of AMIZ officially opened. Thank you and God bless you. | bank of zambia | 2,006 | 8 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of Stanbic Bank Limited's Mazabuka branch, Mazabuka Town, 10 October 2006. | Caleb M Fundanga: Catering for the un-banked population in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of Stanbic Bank Limited’s Mazabuka branch, Mazabuka Town, 10 October 2006. * * * • The incoming Member of Parliament for Mazabuka, Honourable Gary Nkombo, • The Regional Managing Director of Stanbic Africa, Mr. Clive Tasker • The Town Clerk, Mr. Chingangu • The District Commissioner, Mr. Chinda • Traditional leaders here present; Chief Mwanachingwala, Chief Mwenda, Chief Hanjalika, Chief Nalwama, Chief Monze • The Chairman of Stanbic Bank (Zambia) and all Board members present • The Managing Director of Zambia Sugar Plc, and Managing Director of Stanbic Bank (Zambia) Ltd • Stanbic Bank Management and staff present • Distinguished invited guests, ladies and gentlemen It is an honour and privilege to be invited to officiate at this important occasion. Today I join the Bank’s Board Chairman in thanking the people of Mazabuka for the effort and support that has been extended in establishing this Stanbic Branch, which I believe is the first in Southern Province. Distinguished Ladies and gentlemen, I have keenly followed the progress and growth of Stanbic Bank in the last few years and I must say that as Governor of the Central Bank, it has been very gratifying to witness the progressive strategies of a privately owned commercial bank. I recall that not too long ago (about 18 months or so) Stanbic Bank took the very bold step of entering the community banking sector by adding Matero Branch to the bank’s network and thereby brought superior banking services to the bottom end of the market. This was later followed by the opening of the Solwezi Branch, in what is now regarded as the new Copperbelt. Ladies and Gentlemen, what has particularly caught my attention is that Stanbic Bank expansion has gone in tandem with the introduction of ATM services to these markets via the ‘state-of-the-art’ Stanbic Auto Bank to improve service delivery to our people. This is commendable. Mr. Chairman, Ladies and Gentlemen, one of the major concerns that the Financial Sector Development Plan, and the Bank of Zambia in particular, have identified is the spectre of the unbanked public that hangs over the Zambian economy. The problem with having a greater number of our population being left out of the banking system is that it discourages the culture of saving and removes the un-banked population from the formal structure of the financial system. This ultimately leads to reduced funds being available in the economy for investment purposes. Mr Chairman Sir, The opening of Mazabuka Stanbic branch is therefore particularly significant because it will not only address the problem of catering for the un-banked population, but also tap the tremendous business growth potential that this town offers. The expansion of the Zambia Sugar Plc operations and the anticipated opening of the Nickel Mine around Munali hills will all make a significant impact in boosting the living standards and job opportunities for the community of this town and the surrounding areas. Besides, Mazabuka is a successful and expanding farming district. I therefore wish to take this opportunity, to extend my congratulations and good wishes, to the Board, Management and Staff of Stanbic Bank for the excellent business foresight in having decided to make Mazabuka the new location of your latest branch. Mr. Chairman, Ladies and Gentlemen, the Bank of Zambia, has on a number of occasions indicated that the cost of banking services is relatively high in Zambia as compared to our neighbouring countries. This contention has been backed by studies conducted by the Bank of Zambia whose results have been communicated to commercial banks. As such, we take this opportunity to implore commercial banks to reduce their lending rates and service charges in order to encourage greater economic activity. With these few words, Ladies and Gentlemen, I declare Stanbic Bank Mazabuka Branch officially open. I thank you. | bank of zambia | 2,006 | 10 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, as background to the FinScope Zambia 2005 Survey, Lusaka, 8 November 2006. | Caleb M Fundanga: Brief background to the FinScope Zambia 2005 Survey Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, as background to the FinScope Zambia 2005 Survey, Lusaka, 8 November 2006. * * * Hon. Ministers and Deputy Ministers; Secretary to the Treasury Hon. Members of Parliament; Your Excellencies and Members of the Diplomatic Corps; Representatives of Development Agencies; Chief Executives of Banks, Regulatory Authorities and Financial Institutions; Distinguished Invited Guests; and Ladies and Gentlemen. On behalf of the Financial Sector Development Plan (FSDP) Secretariat, it is my pleasure to present a brief background to the FinScope Zambia 2005 Survey. Ladies and Gentlemen - In recognition of the strategic importance of the financial sector to the country’s development and poverty reduction efforts, in 2003 Government launched a project to formulate the first Financial Sector Development Plan (FSDP) which was approved by Cabinet in 2004. This followed the joint World Bank and International Monetary Fund (IMF) Financial Sector Assessment Programme (FSAP) report of 2002, which identified various weaknesses in the Zambian financial system including the following: • Unstable macro-environment • Low financial intermediation • No formal structures for a financial safety net • Poor credit culture • Weaknesses in the regulation and supervision of non-bank financial institutions. Since the approval of the FSDP in 2004, a number of weaknesses have been addressed. These include: • Stable macroeconomic environment as reflected in single digit inflation, reduction in lending interest rates and a stable exchange rates • Amendments/Harmonisation of financial sector legislation such as the Development Bank of Zambia (DBZ) Act, the National Savings and Credit Act (NSCA), the Pensions and Insurance Act, the Building Societies Act (BSA) and the Banking and Financial Services Act (BFSA) in 2005. • Establishment of a credit reference bureau in 2006; and Promulgation of microfinance regulations in 2006. Honourable Minster – The production of market knowledge on the supply and demand for financial services in Zambia was identified as one of the priority areas under the FSDP. In this regard, FinMark Trust of South Africa was contracted by our cooperating partners the Swedish International Development Agency (Sida) and the United Kingdom’s Department for International Development (DFID) to undertake this important activity and subsequently, the FinScope Zambia 2005 Survey, a comprehensive demand-side survey of consumer interactions with financial markets in Zambia, was conducted in November 2005. The main objective of the survey was to measure access to and use of financial services, along with how people manage their finances and what drives their financial behaviour. Honourable Minister and Invited Guests - This morning we are here to share with you, the findings of the FinScope Zambia 2005 Survey. These findings are expected to play an important role in profiling demand for financial services in Zambia. It is my hope that policy makers and financial service providers will utilise this information to develop strategies that will lead to the expansion and improvement of financial access for our people. In Conclusion – May I emphasise that the nation is looking forward to the findings of the FinScope Zambia 2005 Survey which will help us fully understand the financial landscape in Zambia and therefore open up new market segments and allow us expand accessibility to financial services in Zambia necessary for reducing poverty. The report of the FinScope Zambia 2005 Survey will be posted to the Bank of Zambia website, www.boz.zm, for public information. Thank you. | bank of zambia | 2,006 | 11 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of corporate governance guidelines for banks and non-bank financial institutions, Lusaka, 28 November 2006. | Caleb M Fundanga: A brief look at corporate governance in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of corporate governance guidelines for banks and non-bank financial institutions, Lusaka, 28 November 2006. * * * ♦ The Chairperson of the Bankers Association of Zambia; ♦ The Chairperson of the Institute of Directors; ♦ The Chief Executive Officers of banks and non-bank financial institutions; ♦ Deputy Governors, Bank of Zambia; ♦ Representatives of Professional Bodies; Media Colleagues; ♦ Distinguished Invited Guests; ♦ Ladies and Gentlemen. I wish to welcome you all to the launch of the corporate governance guidelines for banks and nonbank financial institutions, in particular, deposit taking non-bank financial institutions. As you all may be aware, the recent debacle of corporate scandals has resulted in the resurgence of interest in good corporate governance. These scandals have not been restricted to large businesses in the US or Europe, but have surfaced in emerging economies as well, with equally devastating effects. This, together with concern about our environment and globalisation, has played an important role in this resurgence of interest in how companies are managed, directed and controlled. Here in Zambia, the collapse of a number of banks in the mid-1990’s has largely been attributed to poor corporate governance. Some characteristics of this included dominant key shareholders, poor transparency and inadequate disclosure. Consequently, the IMF/World Bank Financial Sector Assessment Program (FSAP) undertaken in 2002 revealed the need to enhance financial stability in Zambia by ensuring that the financial sector was adequately guided by corporate governance practices which conformed to international best practices. Ladies and gentlemen, in order to guide this process, among other things, in 2004 the Government approved a comprehensive five-year Financial Sector Development Plan (FSDP) that positioned good corporate governance as one of the pillars for promoting financial system stability. Today’s launch, therefore, is a culmination of an extensive consultative process during which the Bank of Zambia engaged the banks and non-bank financial institutions, and other key stakeholders in round table discussions. Local auditing firms, the World Bank, IFC and the IMF also contributed immensely to the production of these guidelines. In addition, the development of the guidelines took into account the standards set by the Basel Committee on Banking Supervision and the unique characteristics of the Zambian business environment within which institutions operate and the many valuable lessons we have learnt along the way. The above notwithstanding, these guidelines only define the minimum standards that the Bank of Zambia expects banks and non-bank financial institutions to adhere to. Therefore, banks and nonbank financial institutions alike are expected to strive for the highest standards possible at all times. Ladies and gentlemen, it should also be stressed that these guidelines are to be treated as a living document and thus subject to review to incorporate new developments as they emerge. To this end, the Bank of Zambia will ensure that the Committee that has been spearheading the development of these guidelines become a permanent one and meet every so often to make the necessary changes in an inclusive manner. Accordingly, you are all urged to forward any contributions you wish to make on an ongoing basis. Ladies and gentlemen, allow me now to welcome and thank Mr Mervin King for graciously agreeing to officially launch the guidelines. Mr. King is internationally renowned for his work on corporate governance, and in particular for his work on the King Committee of South Africa which issued its first report in 1994. The King Report, along with the Cadbury Report of the United Kingdom and the Sarbanes-Oxley Act of the United States have become key references on the subject and it is for this reason that we feel both proud and honoured to have Mr. King with us today. It is now my honour and privilege to call upon Mr. King to launch the Corporate Governance Guidelines. Mr. King! | bank of zambia | 2,006 | 12 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Risk Management Framework Sensitisation Workshop for Board of Directors, Chisamba, 24-26 November 2006. | Caleb M Fundanga: Bank of Zambia Risk Management Framework Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Risk Management Framework Sensitisation Workshop for Board of Directors, Chisamba, 24-26 November 2006. * * * • Chairperson • Directors • Ladies and Gentlemen I wish to welcome you all to the first in the series of the Risk Management Framework Sensitisation Workshops organised by the Risk Management Department. As the Directors are, no doubt aware, the Board approved the establishment of a Risk Management function at the Bank of Zambia in February 2006. Following this approval, the Risk Management department was created to, among other duties, coordinate Bank-wide risk management activities, for which Heads of Departments remain primarily responsible. In this regard, my vision is to move the Bank to a position where risk management becomes our way of doing things. This workshop, therefore, is one critical step towards achieving this vision. Directors would agree with me that Risk Management has always been part and parcel of the financial sector, and as financial industry authorities, central banks are no exception to this. The increasing pace of globalisation, largely, on account of advancements in Information and Communication Technologies (ICT), has provided an added impetus for institutions to strengthen their governance structures, including implementing enterprise-wide risk management strategies. It is for this reason, therefore, that the Bank, like other world-class central banks, decided to position itself, in this fast-changing financial landscape, by incorporating risk management in its operations. In this regard, it gives me much pleasure to officiate at this workshop for the Board of Directors, whose objectives are twofold: i. to raise the Directors’ awareness about the Bank of Zambia Risk Management Framework; and ii. by so doing, secure the Directors’ unwavering commitment to embedding risk management culture in the Bank. Going forward, Risk Management Department has lined up similar workshops targeting the various categories of staff ranging from the Executive to unionised staff. The workshops are designed in such a manner that they address both the strategic and practical issues involved in the risk management process. Ladies and Gentlemen It is not my intention to give a long speech, but allow me to urge the Directors to take this workshop seriously, for it is my expectation that at the end of this workshop, Directors will be better placed to not only understand the Bank of Zambia Risk Management Framework fully, but also provide guidance to the Bank on risk management issues. In conclusion, I wish to thank you for finding time from your busy schedules to attend this workshop. I urge you to ask as many questions as you could possibly can, in order to get the best out of it, as well as make the workshop more lively and interactive. With these few remarks, it is now my honour and privilege to declare the workshop officially open. I thank you! | bank of zambia | 2,006 | 12 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the opening of the Management Development Programme for Managers, Livingstone, 4-15 December 2006. | Caleb M Fundanga: The Bank of Zambia’s management development programme for managers Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the opening of the Management Development Programme for Managers, Livingstone, 4-15 December 2006. * * * • Director – Human Resources • Assistant Director – Organisation Development • The Consultants • Participants • Ladies and Gentlemen I welcome you all to this Management Development Programme. Management development programmes are crucial not only to Staff development but also to the realisation of the Bank of Zambia vision. As you are aware, our vision is “To be a world class central bank”. Our vision can only be realised if the performance of our employees measures up to world class standards, because it is employees who make an institution what it is. In other words, we can not have a world class central bank without world class employees. Ladies and Gentlemen: I would like to refer you to our strategic plan document. You will note that in its values statement, the Bank states that employees of the Bank of Zambia shall at all times endeavor to direct their efforts towards the achievement of the mission of the Bank by consistently following the values encapsulated in the BoZ Way. You will also note that the Bank has, in turn, undertaken to support employees by, inter-alia, continuously enhancing the capacity of the Bank through the development of all staff. This reflects the realisation by the Bank that without world-class employees, its aspiration to be a world class central bank as stated in its vision statement cannot be attained. For the Bank therefore, this programme is important because it is a step taken towards enhancing the skills of our staff to world class standards and is a commitment to attaining our vision. The programme you have come to participate in is unique in two respects. First, this programme is tailor-made or specifically designed for Bank of Zambia staff. Second, it focuses on middle management which is a reflection of the importance that the Bank places on the role that its middle managers play in helping it achieve its vision and mission. The programme has been designed to impart general management knowledge and skills to you our middle managers which will enhance your leadership and managerial abilities. The programme is designed to provide you with the tools that will enable you to contribute effectively towards the management of the Bank and also to prepare you for succession as and when opportunities arise. The first module you will learn is on the Functions of the Board of the Bank of Zambia. This was included to provide you with an understanding of the relevance of the Board to our strategic plan management process and ultimately to your job. Second, you will have a module on good corporate governance. Without wishing to preempt what you shall be taught, I wish to only explain that good corporate governance is one of our strategic objectives and its inclusion as a strategic objective reflects our commitment to align our operations with world best practices, consistent with our vision ‘to be a world class central bank’. The module on Risk Management was included to provide you with knowledge that will enable you appreciate why the Bank has introduced the Risk Management Department. Director - Risk Management will do a presentation during which he will explain what risk management is all about and its relevance to Bank of Zambia. Finally, the inclusion of a module on the Core Functions of the Bank of Zambia is designed to provide you with knowledge on the operations for which the Bank was established. This is important for a number of reasons. First, we want to have a cadre of enlightened and well informed managers who will portray a positive image of the Bank and reflect our standing as a world-class Bank. As managers, you have to have a reasonable understanding of how the Bank’s core activities departments operate and are organised. Second, as managers, especially as “world-class” employees, you are also expected, by the public, to have a reasonable grasp of issues pertaining to core operations of the Bank. This may sound pretty obvious, but I know that there are many of our managers who have no idea how some of our core departments function and cannot intelligently explain our role in the economy. This reflects badly on the Bank with regard to the calibre of its staff. The third point is that your understanding of core and other departments operations for that matter will facilitate staff rotation, a policy to which the Bank is commited. Finally, and most importantly, an understanding of core functions enables you to better understand and appreciate the mission of the Bank. This in turn facilitates a better understanding of the strategic plan. In closing, I wish to say that I know that the Bank has come a long way and has demonstrated marked improvements in the way that it conducts its operations and in the quality of its management. Director – Human Resources will show in his presentation on the change process in the Bank. Thank you. | bank of zambia | 2,006 | 12 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Celtel Loan Signing Ceremony, Lusaka, 12 December 2006. | Caleb M Fundanga: Strengthening and promoting the Zambian private sector Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Celtel Loan Signing Ceremony, Lusaka, 12 December 2006. * * * Managing Director, Celtel Zambia plc Senior Government officials present Chief Executives Officers of commercial banks and other financial institutions present Management and staff of Celtel Zambia plc Members of the Press Distinguished invited guests Ladies and gentlemen It gives me great pleasure to join you today at this celebratory event for the Celtel Zambia plc USD105 million 5-year, two-tranche, local and foreign currency syndicated term loan facility. Undoubtedly this event marks a high-point for all those working at strengthening and promoting the Zambian private sector. In this regard, this event clearly unveils and in so doing reveals the hitherto relatively unknown sophistication and ability of the Zambian private sector and surely the coming of age of our nascent banking and financial services sector. Ladies and gentlemen, it is gratifying to observe that the facility we are celebrating today was initially launched as a USD70 million facility but was subsequently raised to USD105 million following significant oversubscription. It is equally gratifying that of the USD105 million, USD86 million or 82 per cent was raised in Zambian Kwacha primarily from Zambian commercial banks with some participation from international development finance institutions. This is a demonstration of the growing confidence in both Zambian corporate borrowers and business climate by both domestic and international banks. As Bank of Zambia, we believe that the recent economic developments, such as, the attainment of single digit inflation for the first time in three decades in April 2006 and sustaining low-level inflation for nearly three consecutive quarters so far to November 2006 are supportive of this initiative. These developments also indicate that Zambia is able to rally foreign private capital to improve the domestic financing limitations and support efforts of encouraging faster economic growth, private sector investment and exploitation of the country’s huge potential in various sectors. Ladies and gentlemen, we also believe that events such as this complement the outcomes of Government’s economic reform agenda which in part is aimed at strengthening our country’s creditworthiness as demonstrated by the attainment of the enhanced Highly Indebted Poor Countries Initiative (HIPC) completion point in April 2005. Ladies and gentlemen, please allow me to elaborate. In order to strengthen and sustain our new status as a creditworthy economy following the attainment of the HIPC completion point, the Bank of Zambia, together with Government, is working on ensuring that our institutional arrangements are supportive of keeping the global investor audience, amongst others, informed about domestic economic developments transparently and on an ongoing basis. For instance, we believe that obtaining a formal sovereign credit rating would help us build part of the necessary institutional arrangements of keeping all stakeholders informed. Much in the same way, the Zambian private sector in general and Celtel Zambia plc in particular has the challenge of opening up to creditworthiness scrutiny and withstanding world-class due diligence by recognising and upholding good corporate governance norms of transparency, accountability and fairness. We are also aware that a formal sovereign credit rating undertaken by international credit rating agencies would not only further open up Zambia to global financial markets but also permit the appropriate reflection of our sovereign creditworthiness or risk premium in private sector financial dealings, which we believe is currently much better than generally held by both domestic and offshore market participants. In other words a good sovereign rating would improve the terms and conditions of international financial dealings for the Zambian private sector and businesses which could also be passed on to consumers in terms of affordable pricing and improved product quality. Ladies and gentlemen, today’s event therefore is an opportunity for honest introspection, though, this time not about the potential of our economy but about our own private and collective resolve of translating this potential into jobs, incomes and a quality life for all. We all need to recognise and understand that our commitment to upholding good corporate governance practices in both the public and private sectors and the resultant confidence and trust of our citizens, customers and clients be it in Government policies or private sector goods and services is inescapable for the long term health of both our society and businesses. In short, good governance works and we should all simply try it! In conclusion therefore, I would like on behalf of Bank of Zambia and indeed on my own behalf to commend the Zambian commercial banks, international banks and development finance institutions that have participated in this syndication. This is not only testimony of their confidence in Celtel Zambia plc but confidence in the Zambian people and the economy as well. I thank you. | bank of zambia | 2,006 | 12 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Launch of the Mukuyu Tree (Slave Tree), Kabwe, 23 December 2006. | Caleb M Fundanga: Corporate social responsibility in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Launch of the Mukuyu Tree (Slave Tree), Kabwe, 23 December 2006. * * * • The Provincial Minister of Central Province • Hon. Sydney Chisanga, MP • Hon. Rev. Gladys Nyirongo, MP, Minister of Lands • Hon. Kakusa, MP • Your Worship, the Mayor of Kabwe, Mr Richard Yumbe • The Deputy Mayor of Kabwe, Mr Edward Phiri • The Town Clerk, Mrs Vivian Chikoti • Distinguished Invited Guests • Ladies and Gentlemen A very good afternoon to you all. It gives me immense pleasure to be here this afternoon in the town of Kabwe, which also happens to be the place in which I spent my childhood. As you are aware, we are here to celebrate the occasion of the lighting of the legendary MUKUYU TREE, popularly known as the Slave Tree. For many of you Kabwe residents present here, especially our senior citizens, this tree rekindles many happy memories of joyous occasions such as Christmas, Independence Day and Labour Day, when the TREE would shine brightly after being adorned with beautiful multi-fluorescent lights for all to admire. The MUKUYU TREE is one of Zambia’s national monuments. Its history spans more than a century of being part of the lives of the community in this area. Ladies and Gentlemen, This historic monument invokes memories of a sad but important aspect in our beautiful country’s history. This experience, unfortunately, did not only affect us here, but the whole continent and beyond, touching lives far and wide. I am referring to the infamous Slave Trade Era. Historians, time and again, narrate to us tales of how this wonderful tree was used as the resting place for our forefathers, who were captured into slavery as they were marched across this land, being traded as commodities from Africa to far away lands. It is now common knowledge, rather than myth, that our fore-fathers were being traded under this same spot on which we stand today, proud and free. After the abolition of the Slave Trade, the TREE attained a new significance as a “rendevous” or meeting place. It was from under this very tree that some of our fore-fathers were recruited and taken to fight in the First and Second World Wars. As mentioned earlier, later came the happy times of celebrations at Christmas, Independence Day and Labour Day. In the year 2002, the Bank decided to recognize the historical significance of the Mukuyu Tree and depicted it on the highest denomination of Zambian currency, the K50,000 banknote. It was therefore a matter of concern for us when the Tree and its surroundings fell into a deplorable state due to the Municipal Council’s inability to meet the financial obligations attendant to its maintenance as a historical monument and national heritage site. The Bank therefore decided to adopt the Tree as part of its corporate social responsibility. Distinguished Guests, ladies and gentlemen The Bank of Zambia decided to formally adopt the MUKUYU Slave Tree as an on going project under its Corporate Social Responsibility Programme. Substantial resources, both human and otherwise, have gone into this project. The Bank’s aim was to assist Kabwe Municipal Council leaders to firstly restore the tree to some form of heritage status. Further, the Bank wanted to preserve and secure its immediate surroundings in order to provide a place of rest and recreation for members of the public. The exercise was also aimed at restoring levels of beauty and elegance to the MUKUYU TREE, thereby not only rekindling its former glory, but also hopefully contributing to Kabwe’s efforts to set a firm foot on the road to economic recovery through the much-heralded tourism sector. With our humble efforts, we hope that the MUKUYU Tree is now fit to be a real “meeting place” to provide a place of rest for members of the public who wish to seek refuge under its large and leafy shade. Additionally we hope that this initial humble step has contributed to the restoration of the beauty and elegance of the MUKUYU TREE to its former glory. It is, therefore, my pleasure to be here today not only in my capacity as Governor of the Bank of Zambia, but also as a Zambian citizen, to celebrate and commemorate this occasion which takes us back to many years in history. Ladies and Gentlemen, let me take this opportunity to say a few words about the phenomenon of Corporate Social Responsibility. Corporate social responsibility has become an integral part of conducting business in most internationally acclaimed and world class organizations and institutions, of which the Bank of Zambia is striving to become. The acknowledgement of the importance of corporate social responsibility, in my view, has come about as a result of most corporate bodies realizing that they actually have more than just a little responsibility towards the communities in which they exist and do business. After all, these same communities cannot be distanced from any economic activity, just as one cannot live without the other. Let me, in this regard, take this opportunity to urge all Commercial Banks, Non-Financial Banking Institutions and other corporate bodies that are involved in community work and corporate social responsibility to please continue assisting the needy. There are numerous projects that are in dire need of assistance. And to all those corporate bodies that are actively engaged in corporate social responsibility programmes, allow me to commend you and urge you not to relent in your efforts to bring the communities you serve closer to you. Distinguished Guests I hasten to add that the Bank of Zambia has not been alone in this project to restore the MUKUYU TREE. The Bank has partnered with the Kabwe Municipal Council leadership with whom we have signed a Memorandum of Understanding (MOU). This MOU outlines the accountabilities of the various parties. For Kabwe Municipal Council, the main accountability and responsibility will be to maintain and preserve the tree and its surroundings to ensure that the area is well protected and cleaned. The Bank has also worked closely with Zambia Electricity Supply Corporation (ZESCO) who have kindly facilitated the provision of power to enable us light the MUKUYU TREE on a continuous basis. We have also worked closely with the National Heritage Conservation Commission whose input has been invaluable in providing insight into the history and status of the MUKUYU TREE as a national heritage site. On behalf of the Bank of Zambia Board of Directors, senior management and staff and indeed on my own behalf I wish to thank all our partners for the good cooperation and oneness of vision that has culminated in the commemoration and re-launch of the MUKUYU TREE today. Distinguished Guests Before I conclude my speech, I wish to pose a challenge to the general members of the public and in particular to the people invited to grace this occasion today. The MUKUYU TREE has been identified and depicted as a national monument under the Laws of Zambia. By this assignment the tree belongs to all ZAMBIANS, young and old alike. My challenge to you all is to cherish it and preserve it. For the younger generation, I encourage you to learn more about the tree so that you can in turn learn to cherish the freedom that you have today in memory of all our forefathers who were sold into slavery many years ago. For our senior citizens, I request that you pass on the tales of the MUKUYU TREE which have been passed on to you from one generation to another so that the spirit of the MUKUYU TREE continues to live on. Distinguished guests, Ladies and Gentlemen On our part, the Bank of Zambia Board, Management and staff are committed to the MUKUYU TREE project. We shall ensure that the process that we have started does not end here. The MUKUYU TREE is depicted on the K50,000.00 note. It has also been featured on the Bank of Zambia Christmas card for 2006. There are long term plans to erect a kiosk which will house an information desk for information dissemination to both local and foreign tourists. The kiosk will also sell refreshments. My request is that we all work together to protect and preserve an important part of our national heritage, the MUKUYU TREE popularly known as The Slave Tree. I thank you for joining us at this great occasion and I wish you all a Merry Christmas, and a Happy 2007. MAY GOD BLESS YOU. | bank of zambia | 2,007 | 1 |
Talking notes by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the luncheon in honour of Bank of Zambia retirees, Bank of Zambia, Lusaka, 12 December 2006. | Caleb M Fundanga: Bank of Zambia retirees Talking notes by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the luncheon in honour of Bank of Zambia retirees, Bank of Zambia, Lusaka, 12 December 2006. * * * • Deputy Governor – Administration • Directors • Ladies and Gentlemen • Retirees and Potential Retirees in our midst Some people say “retirement is wonderful; it is described by many as doing nothing without worrying about getting caught at it”. That is to say, you now become accountable to yourself for your actions! Retirement marks an important milestone in one’s life, it is so important that in many cases you have to consult, and reflect extensively before you take that very important decision. It is a day one should not only anticipate during ones working life, but also plan for. Retirement can occur voluntarily as the case is with VESS, by attaining the age of 55 as provided by statute or prematurely due to a misfortune such as failing health. In all circumstances one must plan for the event. Ladies and Gentlemen, it is for this reason that the Bank has found it befitting to host a luncheon in your honor, by recognizing all the hard work that you have put in the Bank in the many years of service. Admittedly, relationships between the Bank and ex-members of staff have in certain cases not been so good. Looking ahead, I wish to take this opportunity to state that despite the bad experiences in the past, the Bank continues to extend an arm of friendship that aims to foster better relationships between the exemployees and the Bank. We shall continue to regard you as members of the Bank’s extended family. As retirees, we consider most of you as persons with vast experience and expertise coupled with a huge reservoir of institutional knowledge, which if natured well, can be a great source of information for future generations. The Bank will Endeavour to invite you to various functions as retirees whenever opportunities arise, especially when we organize historical events. We consider you as an important part of the Bank’s history. Ladies and Gentlemen, there are many ways of leaving employment including dismissal, discharge, resignation or even death. In my view, retirement is the most admirable of them all. It is the ripe way of leaving formal employment, and therefore, a goal that every employee strives for. I congratulate you for achieving this. Retirement should not be viewed as an end but rather as a beginning of a new life. It is my hope that you will find life after retirement fulfilling and a fitting reward for many years of hard work. It is my earnest appeal to all retirees to utilize all the skills and knowledge you have acquired during your working life most especially in the Bank, to use your retirement resources wisely by investing prudently. Stories of destitution among retirees is one but many of the sad stories, I would like you to avoid. Guard the assets that you have acquired in your working life jealously, because retirement does not give you multiple chances to make amends when you make unsound business decisions. It is for this reason that the Bank, through Human Resources Department, has engaged Future Search a Consultancy firm to give you tips on how to live in retirement, I urge you to attend the upcoming workshop. I therefore wish you God’s blessings as your pursue the challenges of life in retirement. Thank you. | bank of zambia | 2,007 | 1 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 2006 Business and Financial Writers, Media Awards, Lusaka, 24 January 2007. | Caleb M Fundanga: Recent significant developments in the Zambian economy Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 2006 Business and Financial Writers, Media Awards, Lusaka, 24 January 2007. * * * • Heads of Diplomatic Missions, Permanent Secretaries and senior Government officials • Heads of Economic, Financial and Business organizations • Heads of Media Institutions • Economic, business and financial writers • The ACCA International Assembly Member and the Branch President • ACCA Country Manager • Distinguished invited guests, ladies and gentlemen I am delighted both as Governor of the Bank of Zambia and as patron of the business and financial writers forum, to officiate at the 5th annual business and financial writers awards ceremony for the second consecutive time. I must say I am always delighted to interact with you my colleagues from the media because we are both stakeholders in the provision and dissemination of financial and economic information to the public. The purpose of this annual event is to recognise outstanding journalism effort demonstrated by economic, financial and business writers from various media institutions. In this room tonight are different organizations represented with a commonality, that is, we all wish to have accurate, timely, informative, creative, relevant and in-depth information. Distinguished Ladies and Gentlemen, I am pleased as patron of the business and financial writer forum to continue working with you. I would like to begin my presentation this evening by sharing with you some of the recent significant developments in our economy: 1. Positive and significant real GDP Growth rates over the last 7 years. 2. Continuous and significant drop in overall annual inflation rate to levels below 10%. As at end 2006, overall annual inflation was 8.2% compared with 15.9% at end 2005. But I must hasten to add here that the impact of increases in petroleum products and anticipated millers upward adjustment of maize prices in line with FRA maize prices pose significant threats to overall inflation. 3. A fall in commercial banks lending interest rates. In line with falling inflation and yield rates on Government securities, the average commercial bank lending rate declined to 27.8% in December 2006 from 33.9% in December 2005. Although the trend is in the right direction, the Bank of Zambia considers the levels of lending rates to be still too high and I urge commercial banks to reduce their lending rates further to stimulate growth. 4. In 2006, the exchange rate recorded depreciation. Against the US dollar, the Kwacha depreciated by 21.1 percent compared to an appreciation of 26.4 percent in 2005. The depreciation in the Kwacha was largely on account of reductions in emerging market premia due to continued interest rate hikes in major global economies, which resulted in reduced participation by foreign portfolio investors in the domestic securities market, a change in the commodities market sentiment aligned with lowering copper prices and uncertainty associated with the run-up to September 28, 2006 elections and the period immediately following the elections. 5. Another important milestone in 2006 was the licensing of credit reference bureau. As you are all aware, one important objective of a credit reference bureau is to help separate truant borrowers from good borrowers thereby help reduce the cost of borrowing in Zambia. As you endeavor to deliver daily targets of newspapers and electronic media that are in a hurry to report on a daily basis, there also needs to be some commitment to create a longer term trail of rigorously investigated news that is backed by authoritative evidence. Bank of Zambia, commercial banks, the Central Statistics Office and other information providers amass a lot of detail that is reflective of what has happened in the economy. I would encourage business and financial writers to monitor and highlight trends that can help us forecast where our economy and business sector is actually headed. If economic indicators are tracked effectively by the media and progress highlighted, it helps to generate even greater confidence in those seeking to make Zambia an investment destination. As part of its contribution to improved business reporting last year, the Bank of Zambia invited Mr Allan Beatie, International Business Editor, with one of the leading global newspapers, the Financial Times, to share views with journalists here in Zambia. Distinguished Ladies and Gentlemen, there are a myriad of pointers that can be given to where economic, business and financial information can be found. As a starting point, I would like to suggest that journalists look around this room and will no doubt recognize the rich collection of invited guests who hold significant information from which we can learn a lot. These are people who can stimulate debate, provide relevant information, validate it, and explain its proper use. Colleagues, allow me now to focus on one key stake-holder mentioned above, namely the business and financial writers’ fraternity. It is heartening to note that the judges feel that the standards of reporting have improved significantly. I am also pleased to note that those who have been past prize winners are continuing to apply themselves effectively and raising the standards of the profession as a whole. It is therefore my delight to be able to officiate at August gathering of business and financial writers knowing they are all putting in a more than average effort to attain today’s awards. Ladies and Gentlemen, the top prizes over the last 3 years have been designed to build capacity in the journalists nominated. Attachments to top business newspapers in South Africa and training our journalists in economics at the University of Zambia should give us the comfort that a specialization is being built from which we can confidently tap into and exchange ideas and analysis. One of the challenges for our writers has been a lack of specialization. As such, they have had to understand all subjects broadly rather than in-depth to help them to communicate more authoritatively. As they are being strengthened through various training interventions, we should therefore be able to see a marked improvement in their performance. In this vein, I am told that the American Centre and the Canadian High Commission have also been keen stakeholders in training our journalists in this area and to this end have worked closely with ACCA over the past two years in delivering one week workshops on key topical areas. The partnerships demonstrate that there are a number of interested stakeholders that all have a common goal – good, reliable and timely information. The announcement of the national budget is round the corner. It is that time of the year when many differing analysis are made. Don’t take these analyses at face value – examine them in your own right and come up with alternative lines of reasoning so that the public can have a holistic view of the effects of the budget pronouncements. We would indeed expect this for any other economic, business and financial pronouncement. To all the prize winners for 2006, I extend my sincere and heartfelt congratulations for well deserved awards. Please remember that it is not enough to only enjoy the glory of the moment, but also to take the responsibility to act as mentors to emergent writers. I believe that what the journalist fraternity needs is not individuals who excel alone, but a cadre of responsible reporters that leave an outstanding legacy. Let me also take this opportunity to thank ACCA, the sponsors of this event and prizes for their continuing support to economic, business and financial journalism. In conclusion, allow me to encourage our journalists to compete for international media awards as well. This will be the true barometer of where you stand as Zambian journalists because you will be judged against international best practice which is, in turn, the true barometer in global economy. As your patron, I wish you all the best in this and future endeavors that seek to raise the standards of journalism in the country. I thank you. | bank of zambia | 2,007 | 1 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the "Winning with Leasing" seminar, Lusaka, 21-23 February 2007. | Caleb M Fundanga: Winning with leasing Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the “Winning with Leasing” seminar, Lusaka, 21-23 February 2007. * * * • Mr Chairman • Chief Executives and representatives of Banks and Leasing Companies • Representatives of businesses organizations; • Distinguished ladies and gentlemen Let me first express my sincere gratitude for being invited to officiate at this important regional Leasing Seminar. It is my hope that this interaction will give us a better understanding and appreciation of the important contributions that the Leasing sector has made and continues to make to the economic growth of this country. As the title of the seminar “Winning with Leasing” suggests, it is only by winning in all our efforts that we will provide meaningful contributions to the development of this country. Mr Chairman, before I talk about your role in the growth of the economy, allow me to first give a brief account of the macroeconomic developments in Zambia in the recent past. I know that many of you have been following the economic developments in the country. The economy has performed relatively well in recent years, with positive real Gross Domestic Product (GDP) growth and inflation as well as interest rates coming down. During the period 2001-2005, growth in real GDP averaged around 5% per annum. More recently, in 2006, it is estimated that the economy grew by close to 6%, marking the eighth consecutive year of positive real growth in output. This positive economic growth has been broad-based, extending beyond the recovery of the mining sector and has withstood adverse shocks, such as, droughts and increases in oil prices. For example in 2006, real GDP growth was largely driven by the mining, construction, and transport sectors. Other sectors that registered positive growth were agriculture, tourism, manufacturing, wholesale and retail trade and the services sectors. Ladies and Gentlemen, bringing inflation down to single digits has been Government’s goal for a long time. Therefore, it is pleasing to note that last year inflation fell to its lowest level in 30 years. At end December 2006, the annual rate of inflation had fallen to 8.2 % compared to the annual target of 10% and the 15.9% outturn in 2005. In January 2007, it remained in single digit level of 9.8%. These unprecedented developments in inflation have been due to continued implementation of prudent monetary and fiscal policies, coupled with increased food supply. In line with lower inflation and yields on Government securities, the average commercial banks’ lending rate declined further to around 28 % in December 2006 from about 34 % in December 2005. In January 2007, it slightly declined to about 27 %. Mr Chairman, clearly, there is a need for commercial banks to do more to reduce lending rates in order to influence a substantial expansion of private sector credit. Lower lending rates will contribute to the reduction in the cost of doing business in Zambia. The current environment of low inflation and relatively stable exchange rate offer a good opportunity for lowering commercial banks lending interest rates. Distinguished Guests, Ladies and Gentlemen, Zambia’s external position continues to score remarkable improvements as reflected in the build-up of gross international reserves to 2 months of import cover in 2006 from 1.6 months of import cover in 2005. Furthermore, the preliminary assessment is that Zambia’s surplus trade balance increased to US $1,176.0 million in 2006 from a trade surplus of US $10 million in 2005. Similarly, the current account deficit as a percentage of GDP, excluding grants, reduced from 11.8% in 2005 to 2.3% in 2006. This improvement has been due to increased export receipts arising from record high copper prices and increased export volumes. In addition, the historic debt relief received in 2006 and the increased budget support from our cooperating partners has helped to strengthen the external position. Preliminary information indicates that the country’s external debt position stood at US $635 million as at end of December 2006 , a reduction of about 87% from the end-2005 debt stock of US $4.5 billion. In 2006, the foreign exchange market was characterized by general depreciation of the Kwacha against major currencies. In order to moderate exchange rate volatility and maintain stability in the external value of the Kwacha, the Bank of Zambia intervened by way of purchasing and selling foreign exchange. In the banking sector, there have been no bank failures in the recent past, reflecting stability in the financial sector Mr Chairman, the Government has shown commitment to continuing the economic reform programme. To this end, measures are being taken to ensure that the macroeconomic gains attained so far will be consolidated in 2007. Accordingly, Government is targeting Real GDP growth of 7.0% and inflation of 5.0%. Pursuit of these objectives is within the context of the long-term development objectives well articulated in the national long term vision, 2030. Part of this vision is enshrined in the Fifth National Development Plan (FNDP) from 2006-2010 whose broad macroeconomic objectives for the plan period are as follows: • to accelerate pro-poor economic growth; • to reduce and stabilise inflation; and • to sustain a viable balance of payments and external and domestic debt position. At this juncture, Ladies and Gentlemen, allow me to share with you my understanding of the role of the leasing sector in economic growth. Clearly, the remarkable economic gains that I have outlined above would not have been possible without the leasing sector’s contribution. Leasing companies are specialized lenders that provide asset-backed finance. The assets financed by leasing companies include plant and machinery and motor vehicles. Traditionally, these assets have excluded chattels or personal moveable assets. Though the leasing sector has existed in Zambia since independence, the formal supervision of the leasing sector by the Bank of Zambia only began in the 1990s. It is pleasing to note that the leasing sector has a bright future in Zambia as evidenced by its growth. Since the liberalisation of Zambia’s financial sector, the contribution to private sector credit of leasing companies has increased. In the period December 2001 to December 2006, total leases increased from K67,161 million to K206,972 million, representing an average annual growth rate of about 25.2 %. At the same time, the performance of the leasing sector was satisfactory as on average, leasing companies maintained adequate capital and reserves relative to their risk profiles and the sector has been consistently profitable. Notwithstanding this improved performance of the leasing sector, I am aware of a number of constraints the financial sector in general is facing, including the low financial intermediation, limited access to financial services for the rural population and low-to-middle income earners, high cost of funds, lack of product diversity and underdeveloped money and capital markets. To redress these impediments to economic growth and as an integral part of the pro-poor growth strategy, the Government’s objective is to enhance financial intermediation and improve access to financial services both in urban and rural areas. To this end, a five year Financial Sector Development Plan (FSDP) was prepared in 2004. This Plan aims at promoting the development of a financial system that is stable, sound and market-based to support efficient resource mobilization, which is necessary for economic diversification, sustainable growth and poverty reduction. Currently, the key recommendations of the FSDP are under implementation. Mr Chairman, learning from others, some of the obstacles facing the leasing companies, include inability to attract funding and lack of adequate leasing expertise, can be overcome through formation of synergies and partnership with other industry players. I understand in the USA, for example, over 70% of leases are actually written through lease intermediary companies or brokers, who use their specialised skills to structure lease transactions in the best way possible for the benefit of both the lessee and the lease underwriter. Lease syndications and funding partnerships with bigger players should also be encouraged as these help to spread risk and reduce pressures on balance sheets of individual leasing companies. Ladies and Gentlemen, you will agree with me that there is vast untapped potential of leasing activities in this country. There is need to develop this line of business further. A developed leasing sector is characterized by a diverse range of financial services that include factoring and trade finance, term lending, corporate finance and investment advisory services, and corporate restructuring, treasury management as well as traditional leasing activities. But this is not the case in Zambia at present. Currently, the leasing sector is restricted primarily to the traditional leasing activities. This seminar has thus come at the right time, as the lessons learnt are vital to complement the Government’s efforts not only to develop the leasing sector, but the financial sector as a whole. I am particularly delighted that this seminar will address the need to “match products to user needs”. This is indeed key to the success of any service oriented industry and therefore inevitable in meeting the needs of a growing economy such as ours. Without overemphasizing this point, I would like to implore you to ensure that you develop products suitable to your clients as a good and useful product is only one that meets the needs of the market. As I have already noted, on its part the Government is committed to resolving the various constraints identified in the country’s financial system through implemention of the FSDP and related initiatives. Key among the strategies includes the development of appropriate regulations and improving the capital adequacy base for the leasing and finance companies. Adequate capitalization of commercial banks and financial institutions is important if there is to be stability in the financial sector. It is for this reason that the Bank of Zambia, effective January 2007, increased the minimum paid-up capital for commercial banks from K2 billion to K12 billion. In the same vein, the start-up capital for the deposit taking leasing institutions was increased to K1.5 billion from K250 million. I wish to urge all leasing companies to make sure that they take steps to meet the required minimum capital. Let me conclude by paying tribute to the organisers of this seminar, Sapitwa Finance. Mr Sudhir Amembal the principal resource person is a renowned authority in leasing, having undertaken various leasing consultancies and training worldwide and being an author of various leasing publications and books. I am very grateful that he has found time to come to Zambia and share his vast experiences with us. I am glad to note that this seminar has brought together key players in the economy and other stakeholders. I thank you for your attention. | bank of zambia | 2,007 | 2 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the Listing of the Development Bank of Zambia Bond, Lusaka Stock Exchange, Lusaka, 4 April 2007. | Caleb M Fundanga: Local bond market developments in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the Listing of the Development Bank of Zambia Bond, Lusaka Stock Exchange, Lusaka, 4 April 2007. * * * • The General Manager – Lusaka Stock Exchange • The Chairman, DBZ Board of Directors • The Chairman, Standard Chartered • The Secretary – Securities and Exchange Commission • Mr Ade Adebajo, Director, Standard Chartered Africa Debt Capital Markets • Member of the DBZ Board • All Senior Government Officials Present • Acting Managing Director, DBZ • Managing Director – Zambia State Insurance Corporation • Chief Executive Officer – Stock Brokers (Z) Limited • Representative of DBSA • Distinguished invited guests; and • Ladies and Gentleman Today marks another important milestone in financial sector development indicative of the coming of age of the Zambian financial system in general and local bond market in particular. The issue of the K68.620 billion senior unsecured floating rate note under the Development Bank of Zambia (DBZ) K150 billion Medium Term Note Programme and listing of the note on the Lusaka Stock Exchange (LuSE) is a landmark transaction for two key reasons. The first is that this is the first time in the history of the local bond market that a local currency medium term note programme has been established. The second is that this transaction marks the largest single issue ever offered to Zambian fixedincome institutional investors. Ladies and Gentlemen, the development of the local bond market is central to Government’s strategy for diversification of the economy for one key reason. All businesses, including state owned enterprises, require finance, covering both equity and debt, and ranging from short-term to long-term. In the absence of a properly functioning local bond market, those in need of capital and qualified enough have had to turn to international financial markets to finance their local projects with the attendant exchange rate risk. Similarly, those seeking a competitive return on their investments that also meet their maturity preferences but are unable to find these features locally, have always sought out alternative avenues offshore in foreign currency, thereby creating pressures in the foreign exchange market. Therefore, Government’s involvement in improving the local bond market has been deliberate. Ladies and Gentlemen, Government’s participation in improving the functioning of the local bond markets has seen the establishment of appropriate market infrastructure that facilitates cost-effective and secure trading, and a transparent price discovery process. Further, Government’s decision to bring to market longer term bonds in 2005 have proved to be positive and catalytic for the local bond market as this has resulted in an extended yield curve that has provided a benchmark for pricing longer dated security issues by the private sector and banking industry. Ladies and Gentlemen, arising from our core responsibility for financial system stability, Bank of Zambia is deeply concerned about the proper functioning of the local bond market, in terms of its security, liquidity, transparency and ability to withstand contagious disruptions emanating from other jurisdictions. In this regard, Bank of Zambia has two broad responsibilities. The first is that of enhancing the price discovery process by promoting transparency in our own policy actions. The second is that of ensuring that the banks, as providers of liquidity, perform their proper role in supporting the trading process by making sound credit decisions. We therefore applaud this initiative from the Development Bank of Zambia and encourage the board and management not to rest on its laurels. The eyes of the outside world – local and international investors and other key stakeholders are paying close attention, and expect Development Bank of Zambia to deliver, and inescapably so, in terms of adherence to world class corporate governance standards and ensuring safe and sound operations. On these two responsibilities, I wish to remind Development Bank of Zambia board and management that the business world and stakeholders out there today do not hold two different sets of standards for effective corporate performance, a set for private sector businesses and another for state owned enterprises. Ladies and Gentlemen, we similarly welcome the role of financial advisors and intermediaries such as Standard Chartered played in bringing to market of this initiative. Their participation brought international best practice and standards to this landmark transaction which we expect will have a developmental impact on the local bond market. It is also our expectation that other intermediaries will look to this initiative to motivate them to seek to do more in this area for the benefit of our economy. So, in conclusion, what we as Bank of Zambia can do is to understand the dynamics of the debt market, how it is evolving, and whether it is sufficiently liquid and transparent. We can also help ensure that banks perform their proper role and enhance the price discovery process by promoting transparency in the conduct of our own monetary policy actions. Finally, and most importantly, we can strive to help create conditions in our economy that will support sustainable, non-inflationary growth and so promote the overall welfare of all citizens. It is this is a role that the Bank of Zambia is committed to playing effectively. Ladies and Gentlemen, with these remarks, I wish to thank all stakeholders in this important initiative. Thank you. | bank of zambia | 2,007 | 4 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the 10th Anniversary of Bank of China (Zambia) Limited, Lusaka, 13 April 2007. | Caleb M Fundanga: Overview of Zambia’s banking sector Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the 10th Anniversary of Bank of China (Zambia) Limited, Lusaka, 13 April 2007. * * * • His Excellency – the Chinese Ambassador to Zambia; • Vice-President of the Bank of China – Head Office; • Chairman of the Board of the Bank of China (Zambia) Limited; • Managing Director of the Bank of China (Zambia) Limited; • Distinguished invited guests; and • Ladies and gentlemen Let me first express my sincere gratitude for having been invited to speak on the occasion of the 10th anniversary of the Bank of China (Zambia) Limited. Ladies and Gentlemen, during the last ten years, the performance of Bank of China has been satisfactory with total assets steadily increasing to K391.4 billion in December 2006from K6.4 billion in December 1997 and total deposits increasing to K294.2 billion in December 2006 from K2 billion in December 1997. On this basis, Bank of China had grown to become the eighth largest bank in Zambia albeit operating with only one branch. Bank of China (Zambia) is a 100% subsidiary of Bank of China which went through a successful initial public offer (IPO) and has resulted in Bank of China being a top tier globally listed bank. Over the same period in Zambia, the overall financial performance and condition of the banking sector has been satisfactory. The banking sector has maintained adequate capitalization and all the banks met the minimum capital requirements of 5% for primary capital and 10% for total regulatory capital. However, in January 2007, the Bank of Zambia revised the minimum required capital to start a bank from K2 billion to K12 billion. The Bank of Zambia anticipates increased economic and investment activity in Zambia in the coming years and so banks operating in Zambia need to stand ready to safely provide the required level of financing. It is therefore the expectation of the Bank of Zambia that all banks will comply with this requirement by June 2008. Ladies and Gentlemen, since our two countries, Zambia and China, established diplomatic ties 43 years ago, the relationship has been both cordial and beneficial as seen by the growth in Chinese investment into Zambia in mining, textile, construction, banking, and agriculture. Currently, China is Zambia's third largest investor, after South Africa and the United Kingdom. The expected creation of the US$800 million special economic zone on the Copperbelt, the first of its kind in Africa, will show case the significance that the Zambia-China relationship and further strengthening the existing friendship between our two countries. This also provides an opportunity for Bank of China (Zambia) to strategically position itself to take advantage of the immense business opportunities that will arise from this development. Ladies and gentlemen, the Zambian Government is committed to the implementation of prudent economic policies aimed at economic growth and poverty reduction, and results are beginning to show. For instance, Zambia, has successfully managed to stabilize the key macroeconomic variables. For the first time in 30 years, inflation managed to fall to its lowest levels while the exchange rate has been relatively stable whilst reflecting market fundamentals. Further, the lending interest rates have been declining in response favorable macroeconomic environment. Notwithstanding the improved macroeconomic environment, the Zambian Government is aware and committed to resolving the remaining challenges facing the banking and financial services industry. Accordingly, Government adopted a 5-year Financial Sector Development Plan (FSDP), which aims, amongst other things, at promoting the development of a stable, sound and market based financial system. One of the key recommendations of the FSDP is establishment of a credit reference bureau in order to improve the credit culture in Zambia. In June 2006, the Bank of Zambia licensed one company to provide credit referencing services and commercial banks are concluding a service level agreement with this company that will allow the bureau to serve as a clearinghouse for credit history information and promote the ability of lending institutions to share both positive and negative data about their borrowing customers. Ladies and Gentlemen, this development will address one of key structural problems that the baking sector has faced for a long time. I therefore wish to implore Bank of China to continue playing an effective role and stimulate economic activity by providing well structured financial products and services, especially those aimed at boosting growth in key sectors such as mining, energy, tourism, manufacturing and agriculture. However, in order to achieve this, there is need for Bank of China and other commercial banks to do more in terms of reducing lending interest rates and influence the safe expansion of private sector credit and at the same time contribute to the reduction of the cost of doing business in Zambia. The current environment of relatively low inflation and stable exchange rate offer a good opportunity for lowering commercial banks’ lending interest rates. Ladies and Gentlemen, let me conclude by further challenging Bank of China (Zambia) Limited to expand beyond one branch and broaden its customer base and operations swiftly in order to consolidate the gains that have been achieved over the last 10 years. I thank you. | bank of zambia | 2,007 | 4 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the opening of Investrust Bank PLC 2007 Management Strategic Planning Session, Mfuwe, 11 April 2007. | Caleb M Fundanga: Important building stones for successful organisations in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the occasion of the opening of Investrust Bank PLC 2007 Management Strategic Planning Session, Mfuwe, 11 April 2007. * * * • The Managing Director • Heads of Departments • Members of the Investrust Bank Plc Management Team First of all, I wish to take this opportunity to say congratulations on your 10th anniversary attained on 19th September, 2006. Considering that the Bank opened its doors at a very difficult time when confidence in locally owned banks was at its lowest, reaching 10 years is no mean achievement. The Bank of Zambia is proud to be associated with your achievements and can assure you of our full support now and the future. It was only on 30th March 2007 that Bank of China also celebrated 10 years of operations in Zambia. It is a great privilege and honour for me to officiate at this wonderful and history making occasion in your bank. History making in the sense that you have gathered in this conference to chart a path for your Financial Institution to ensure its sustained growth. Decisions you will make in this gathering are critical to all your stake holders. The public is keenly following your growth and performance. Allow me to remind you of the following issues which I believe are important building stones for successful organizations. 1. Dynamic leadership Your role in Investrust Bank Plc is very crucial. As the Management team, you are providing leadership. Your way of doing things must be exemplary, inspirational, and analytical, with drive and with integrity. Keep abreast with current affairs. As Financial Intermediaries in the economy, the public looks up to you for innovative and effective products. 2. Customer focus The Bank of Zambia is keen to see that the Zambian public is offered quality service by the Banking industry. We wish to see more innovative products introduced on the market. I am glad to note that Investrust Bank Plc is part of some banks who teamed up under ZAMLINK to offer ATM services to their clients. Such collaboration is commended. It is in the same spirit that you have supported the RTGS and DDACC products. I will be pleased to learn that this conference will deliberate and resolve on how best the Bank will improve service delivery to greater heights. You need to develop financial products that reflect the country’s level of development and not just ape what is being done in developed countries. 3. Sound practices In recent years, we have read of how “big” institutions have been brought down due to unprofessional conduct by their senior executives. I urge Investrust Bank Plc to pro-actively propagate Corporate governance standards at all levels of Management. I commend the Bank for the newly created dedicated function of Risk Management in its structure. This will provide prudential guidance in the other areas of operations. I also commend the Bank for adopting a “Whistle-blowing” policy to help ensure professional conduct is adhered to at all times. These measures, Mr Managing Director will work to your own Bank’s benefit. The Bank of Zambia stands ready to assist in any way in your quest for Best Practice. 4. Lending rates On the banking front, we have witnessed Bank lending rates follow the downward trend. Mr Managing Director, these are positive indicators. I am aware that the perennial complaint from our local business houses has been the prohibitive interest rates charged by banks on credit facilities. There is need to continue work on reducing lending rates further as the current levels are still unbearable by most of our upcoming entrepreneurs. In certain fora, Mr Managing Director, the borrowing culture of Zambians has been heavily criticized. It is said that Zambians borrow with no intention of paying back. It is one of the reasons the Bank of Zambia is taking seriously the matter of the Credit Reference Bureau being operational as soon as possible. The Bank of Zambia is keen to ensure this negative perception is eradicated. 5. Banking services to the unbanked Mr Managing Director, late last year Bank of Zambia launched the findings of the FISCOPE SURVEY, a survey which revealed that 68% of Zambian have no access to banking services. I am glad that, true to private sector entrepreneurial spirit, you have opened a branch in Luangwa where there was no bank representation from pre-independence days. In spite of the not - so reliable electricity supply to the area and the not – so good road to Luangwa, you did not see these as impediments to bringing banking services to Luangwa but rather you have looked at them as challenges to be overcome. Mr Managing Director, the step taken by your bank is to be lauded. I take this opportunity to appeal to the entire management to take the findings of the FINSCOPE Survey as a serious challenge to the Banking Industry to reduce the percentage of the unbanked population. 6. Planned move to the Listed Tier of Lusaka Stock Exchange I am informed that due to the phenomenal growth of the Bank, Management and shareholders have agreed to move the Bank up the ladder to the Listed Tier of Lusaka Stock Exchange very soon. This has become necessary in order to raise more requisite capital and enhance the bank’s profile and oversight. This is an important step as it will mean that the bank will broaden public participation in its ownership and other public institutions will now participate as well. I therefore call upon Zambians and parastatals to take up shares in the bank. I am told that the Bank is about to venture into new products such as Women Empowerment loans and Islamic Banking. We at the Central Bank welcome innovations such as empowerment loans but urge caution with products such as Islamic Loans since an innovation of this nature needs close collaboration with the regulatory authority. 7. Closing remarks In closing, Mr Managing Director, having celebrated your 10th anniversary I urge you not sit on your laurels. May this be a time of serious reflection as you chart your path towards celebrating your next 10 years and beyond! I look forward to Investrust Bank Plc being represented in other countries as well. Regarding the strategic planning session that we are gathered here for, I wish to commend you, Mr Managing Director for coming up with this initiative. Every organization needs to plan its future actions and activities. This is a process that must be embraced by all top management. Although only senior managers are represented here today it is my expectation that what ever you will be discussing will have benefited from lower levels of your bank. For your plan to succeed it is important that all senior managers embrace the plan whole heartedly. With these remarks, I declare the Strategic Planning Conference of Investrust Bank Plc officially open. I thank you all. | bank of zambia | 2,007 | 4 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the 2007 SADC Payment Systems Regional Conference, Livingstone, 2 April 2007. | Caleb M Fundanga: Payment system developments in the region Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the 2007 SADC Payment Systems Regional Conference, Livingstone, 2 April 2007. * * * • SADC Payment Systems Project Team Leader; • SADC Payment Systems Project Country Leaders; • Chairperson, Bankers Association of Zambia; • Delegates from all SADC Countries; • Distinguished invited guests; and • Ladies and Gentlemen On behalf of the Bank of Zambia and indeed on my own behalf, I wish to welcome you all to Zambia and Livingstone in particular. For those of you coming to Livingstone for the first time, you will no doubt soon discover that this historical city, which incidentally was Zambia’s capital city until 1935 when it was moved to Lusaka, is one of the world’s pristine tourist destination and boasts of a number of magnificent sights and places of cultural interest. For those of you that have been here before, I wish you a joyous time as you renew your acquaintance with this beautiful city and enigmatic Victoria Falls. To all of you, I implore you to shop around and take a piece of Livingstone as souvenir on your return. Ladies and Gentlemen, allow me to thank you all for being here for the 2007 SADC Payment Systems Regional Conference. This event has now become interwoven into the tradition and fabric of SADC. It has come to symbolize our commitment to collaboration and consultation within the SADC Committee of Central Bank Governors (CCBG) and annually marks our contribution to the process of regional economic co-operation and integration. It is in this light that the Bank of Zambia applauds the favourable response from all central banks, individuals and other institutions represented here for allowing their members of staff to attend this event. As Bank of Zambia, we believe this event provides an excellent opportunity for exchanging views and sharing ideas in improving our national payment arrangements to foster economic growth and integration. Ladies and Gentlemen, lessons from the development of payment systems in the European Union and the United States of America provide a useful guide for emerging market economies such as ours. That be as it may, recent technological advancements and developments in China and India are also instructive as they glaringly indicate that it is possible to leap frog some of the historical development experiences of these major industrialized economies. However, it is without a doubt that this will require the concerted efforts and commitment of all those involved in the transformation of national payment systems to stay the course as challenges are abound. For instance, it is quite clear that consumer demand for payment services largely outstrip supply and more work needs to go into improving the outreach, efficiency and pricing of existing payment arrangements. In this regard, payment systems researchers warn that if left unattended or unresolved these challenges could eventually overwhelm us and hinder the effectiveness of payment systems and hence commerce. Ladies and Gentlemen, I would therefore like to salute the SADC Payment Systems Project Team for showing good leadership. This has ensured that the basis of the evolution of payment systems in the region is collaborative and consultative, which is critical to the overarching objective of regional economic co-operation and integration. In this regard, not only have most SADC member country implemented real time settlement systems, but these developments have also been anchored on common and jointly developed business and technical specifications. Other developments include the introduction of automated clearing houses. This particular development has positively contributed to improving the processing efficiency and reducing risks associated with cheque transactions. Most importantly, perhaps, is that this development has enabled the introduction of systems such as direct deposits (or credits) and direct payments (or debits) which are truly convenient mechanisms for handling the direct deposits of salaries and wages of workers amongst others. These direct-credit and direct-debit systems are also used to handle regular monthly bills for utilities and could potentially be used in administering pensions and many other government benefits. It is also instructive to note that these developments are supported by sound legal bases that ensure that payment systems in the region are safe, practical and meet international best practice. Ladies and Gentlemen, payment instruments and mechanisms are not new in this region. We all are aware from our own history that some kind of instrument and mechanism has always existed to facilitate trade and other endeavours. What is abundantly clear, however, is that given the increased mobility of the citizens within the respective SADC member countries between cities and rural areas and at times between member countries, the need for payment instruments and the attendant mechanisms to facilitate safe and efficient remittances is arguably the relatively newer phenomenon. It is therefore the expectation of the Bank of Zambia that the 2007 SADC Payment Systems Regional Conference will discuss some of the most important trends and other strategic priorities confronting banks, payment system businesses, merchants and other service providers involved in the delivery channel for payment and other financial services. This is imperative as it would facilitate the drawing up of a development agenda of future priorities and contextualise the future of payment system oversight. Ladies and Gentlemen, since the establishment of the CCBG a decade ago, methods of effecting payments and other financial transactions have quickly become sophisticated with a trend towards execution in real time electronic media. All this is taking place because consumer confidence is growing in these instruments and mechanisms, which have been supported by growing confidence in SADC member countries’ economies in general and stability of the national financial systems in particular. It is therefore the expectation of the Bank of Zambia that this Conference will discuss this trend and its implications, particularly with regard to limited accessibility to technology and technicalknow how of consumers in SADC member countries. Other themes I am sure you will deliberate upon include confidentially of financial information, money laundering and terrorist financing. Effective payment system oversight needs to be promoted so that public confidence in the safety and soundness of the national payment systems is maintained. Understandably, this is a new area and in most member countries work is still exploratory. I therefore urge you all to double your efforts in this regard and deliver on this very important central bank responsibility. Ladies and Gentlemen, another new area is that of mobile phone enabled payment services. This development has a huge potential to help the SADC region leap frog a number of financial sector development challenges particularly those related to improving access and availability of financial services. This is because mobile phone based services, particularly those focused on low-value payments where swift and convenient service is the primary goal could be a practical solution for SADC member countries. The challenge therefore is how well we all respond without damaging this sprouting and potentially cost-effective delivery channel for financial services, which can be damaged with over regulation or lack of mitigation for the risks its poses. Ladies and Gentlemen, I wish to conclude by reminding all delegates that it is my hope that at the end of the Conference all of you will have obtained a better understanding of payment systems best practice. Equally important you will also have obtained a clearer view of the purpose of payment systems within a developmental context and the need for concerted efforts in balancing our responses in a manner that is supportive of the objective of attaining economic inclusion and growth, regional economic co-operation and integration. With these remarks, I declare the Conference officially open and wish you successful deliberations. I thank you. | bank of zambia | 2,007 | 4 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the launch of the Bank of Zambia Information Dissemination Programme, Lusaka, 28 May 2007. | Caleb M Fundanga: Bank of Zambia’s Information Dissemination Programme Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, on the launch of the Bank of Zambia Information Dissemination Programme, Lusaka, 28 May 2007. * * * Governor, kindly give brief introductory remarks On behalf of the Bank of Zambia Board, management and staff, and indeed on my own behalf, I wish to sincerely thank the Zambia National Broadcasting Corporation (ZNBC) for this opportunity to launch the Bank of Zambia Information Dissemination Programme. This programme is part of our comprehensive strategy to inform the general public and all our stakeholders on the role of Bank of Zambia in the economy. What is the primary role of the Bank of Zambia? Just to remind the listeners, the Bank of Zambia’s primary role is to formulate and implement monetary and supervisory policies that will ensure price and financial system stability. Our vision, in this regard, is to become a World Class central bank. What is your general assessment of the recent performance of the Zambian economy? In the past few years, the Zambian economy has performed relatively well, recording positive real Gross Domestic Product (GDP) growth, with inflation and interest rates coming down. Specifically, what have been the developments in output? During the period 2001-2005, growth in real GDP averaged 5.0% per annum. More recently, in 2006, it is estimated that the economy grew by close to 6%, marking the eighth consecutive year of positive real growth in output. This positive growth performance has been broad-based, extending beyond the recovery of the mining sector and withstanding adverse shocks, such as droughts and record increases in oil prices. In 2006, real GDP growth was largely driven by the mining, agriculture, construction, transport and tourism sectors. Last year, Zambia achieved single-digit inflation in 30 years. What were the main contributing factors to this achievement? Bringing inflation down to single digits has been Government’s goal for a long time. It is, therefore, pleasing to note that last year, inflation fell to its lowest level in 30 years. At the end December 2006, the annual rate of inflation had fallen to 8.2 % from 15.9% achieved in 2005 and was well below the target of 10%. This positive development in inflation was due to continued implementation of prudent monetary and fiscal policies, coupled with increased food supply. This was despite the persistent rise in oil prices on the world market. This year so far, inflation has been in double digits. What are the reasons for such a development? What is the outlook for inflation at end of the second quarter? During the first quarter of 2007, containing inflation pressures was a challenge. Inflation rose to 12.7% in March 2007, reflecting both higher food and non-food inflation. Higher food inflation was explained by increased cost of most fresh vegetables, typical during this period. The other contributing factor was a rise in the price of beef, following the ban on transportation of cattle from Southern Province, a major supplier, to curb the spread of the cattle disease, Contagious Bovine Pleural Pneumonia (CBPP). Higher non-food inflation was due to increased household energy and transportation costs, following upward adjustments in prices of petrol and diesel in January 2007. During the second quarter of 2007, however, inflation is expected to slow down due largely to improved food supply. Already in April, inflation slowed down to 12.4% from 12.7% in March. What is your assessment of the recent developments in commercial banks lending interest rates? In line with lower inflation and yields on Government securities, commercial banks nominal average lending rate declined to around 28% in December 2006 from about 34% in December 2005. More recently, in April 2007, it declined further to 24%. How would you describe the recent performance of the external sector? The external sector has continued to score remarkable improvement, as reflected in the overall balance of payments surplus of US $696 million in 2006 compared to a deficit of US $284 million in 2005. Furthermore, the preliminary assessment is that the current account deficit as a percentage of GDP (excluding grants) reduced to 1.1% from 11.5% in 2005. This improvement has been due to increased export receipts arising from record high copper prices and increased export volumes. In addition, the historic debt relief under the Heavily Indebted Poor Countries (HIPC) initiative and Multilateral Debt Relief Initiative (MDRI), as well as the increased budget support from our cooperating partners, further strengthened the external position. Preliminary information indicates that the country’s external debt position of US $7.1 billion as at end-2004 fell to US $600 million at endDecember 2006. The foreign exchange market, in 2006, was characterised by a general depreciation of the Kwacha against major currencies. In order to moderate exchange rate volatility, the Bank implemented a number of measures, including purchasing and selling foreign exchange. What is your assessment of the financial sector? In the banking sector, there have been no bank failures in the recent past, reflecting stability in the financial system. To consolidate this stability, in 2006, Bank of Zambia undertook a number of measures, which included increasing the minimum primary paid-up capital for banks and non-bank financial institutions. What is the economic outlook for the year 2007 and the long-term vision of the Government? The Government, on its part, has shown commitment to continuing the economic reform programme. To this end, measures are being taken to ensure that the macroeconomic gains attained so far will be consolidated in 2007. Accordingly the Government is targeting real GDP growth of 7.0% and inflation of 5.0%. Pursuit of these objectives is within the context of the long-term development objectives, well articulated in the national long term Vision, 2030. Part of this vision is enshrined in the Fifth National Development Plan (FNDP) for 2006-2010, whose broad macroeconomic objectives are as follows: • to accelerate pro-poor economic growth; • to reduce further and stabilise inflation; and • to sustain a viable balance of payments as well as external and domestic debt position. Could you now tell us about the Information Dissemination Programme? As mentioned in my introductory remarks, the Information Dissemination Programme is part of our strategy to inform the general public on the role of Bank of Zambia in the economy. The other channels through which the Bank shares information with the general public are through: • Regular meetings with players in the financial sector, e.g. banks and other 1non-bank financial institutions; • Seminars for the media; • Seminars with senior policy makers, such as Members of Parliament; • Various publications, such as the Statistics Fortnightly, Quarterly Financial and Statistical report, Monetary Policy Statement and Annual report; and • Bank of Zambia website, among others. In an attempt to widen this platform for information sharing and dissemination, we have once again embarked on a radio programme, which will discuss topical issues such as: • Exchange rate movements; • Cost of banking services; • Developments in the payments system; • Micro finance regulations; • Currency awareness; and • Establishment of credit reference services, to name a few. These issues affect all Zambians and it is our duty to be able to discuss them through a wider forum, such as radio to which the majority of our people listen. The Bank also intends to conduct provincial sensitisation visits and to localise these visits by way of disseminating information in local languages and dealing with matters, which are peculiar to those provinces. Governor, kindly give your closing remarks It is our hope and desire that through this information dissemination programme and other similar interventions, we shall increase the public’s awareness on the role of the Bank of Zambia in the economic development of this country. It is my honour to launch this information dissemination programme and I urge you all to listen in and actively participate in the live phone-in programme, which we will hold at the end of the radio programme. I thank you. | bank of zambia | 2,007 | 5 |
Opening speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the re-launch of the Pan African Building Society (PABS), Lusaka, 24 July 2007. | Caleb M Fundanga: Broadening access to mortgage financing in Zambia Opening speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the re-launch of the Pan African Building Society (PABS), Lusaka, 24 July 2007. * * * • The Shareholders of PABS; • The Board of Directors of PABS; • Senior Government Officials present; • The Deputy Governor-Operations and Registrar of Banks and Financial Institutions; • The General Manager of PABS; • Distinguished Ladies and Gentlemen. It gives me great pleasure and gratitude for having been invited to speak on this occasion of the re-launch of the Pan African Building Society. Ladies and Gentlemen: Today marks an important day in the calendar of Pan African Building Society which brings on board new shareholders. The Bank of Zambia is happy to note that this development has turned around the financial condition of Pan African Building Society. Ladies and Gentlemen, as you are aware, there is shortage of housing in Zambia and therefore the demand for housing finance is increasing. It follows therefore, that the primary challenge of housing finance institutions in Zambia is the broadening of access to mortgage finance particularly to many people in urban areas. Due to the prevailing macro-economic stability that the country is experiencing, we have seen substantial growth in the housing finance industry in recent years. For instance, in the last four (4) years to December 2006, the mortgage portfolio of the building society industry has grown five fold. Ladies and Gentlemen, in recognition of the need to provide a conducive regulatory environment which promotes sustainability, accountability, transparency and growth of the building society industry in Zambia, the Building Societies Act was amended in October 2005 to harmonise it with the Banking and Financial Services Act pending the modernization of the Building Societies Act under the Financial Sector Development Plan law reform programme. Ladies and Gentlemen, Bank of Zambia is concerned about the levels of lending interest rates charged by most financial institutions in Zambia, building societies included. With the achievement of relative macroeconomic stability in the recent years as evidenced by a significant reduction in the inflation rate to 11.1 percent as at June 2007, it is the expectation of the Bank of Zambia that all prudent lending institutions would make downward adjustments to their lending interest rates to make financial services accessible and affordable. It is also important to note that high lending interest rates can lead to high levels of delinquency. Ladies and Gentlemen, it is in this light that we anticipate that credit referencing services will help in reducing credit risk through the provision of widely accessible information on the loan repayment profile of borrowers. This should also provide another incentive for lowering of interest rates. Ladies and Gentlemen, in conclusion I wish to state that the Bank of Zambia is committed to broadening and deepening the financial sector through effective implementation of the Financial Sector Development Plan. Bank of Zambia will endeavour to contribute towards the creation a stable macro-economic environment. I would therefore like in this particular instance, to call upon the housing finance industry to play its role effectively so that Zambian people can have access to affordable housing finance. Thank you and God bless you. | bank of zambia | 2,007 | 7 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of Standard Chartered Bank Crossroads Branch, Lusaka, 25 September 2007. | Caleb M Fundanga: Brief summary of economic and financial developments in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of Standard Chartered Bank Crossroads Branch, Lusaka, 25 September 2007. * * * The Chairman of Standard Chartered Bank Zambia, Mr George Sokota Members of the Board of Directors of Standard Chartered Bank Zambia The Managing Director of Standard Chartered Bank Zambia, Mr. Tom Aaker Distinguished Guests Members of the Press And may I simply say Ladies and Gentlemen I am very pleased to be here today to officially open the new Crossroads Branch of Standard Chartered Bank Zambia. Mr. Chairman, as I have stated at various fora before, it is important for banks in Zambia to take the lead in implementing actions, which contribute to the development of the financial infrastructure and support the development of our economy. As you may be aware, Ladies and Gentlemen, we would like banks to: • Open new branches, such as this one, to enhance convenience for our people to access banking services, thereby improving financial service delivery and empowering our citizens; • Provide loans to the productive sector to support economic activity, such as Mr. Sokota just described; and • Invest in latest state of the art technology, such as Standard Chartered’s new electronic Branch Banking platform. I must hasten to mention, however, that in striving to meet these demands, banks must always comply with the regulations as stipulated in the Banking & Financial Services Act of 1994 as amended in 2000, to ensure the safety of customers’ deposits and stability in the financial sector. Any activities by banks, which do not meet the minimum standards provided for in the law, will invite close scrutiny and possible sanctions from the Bank of Zambia to bring the banks in line with the legal framework. Mr Chairman, following implementation of sound macroeconomic policies, the economy is relatively stable as shown by various indicators: • Inflation is under control; • The Kwacha is stable; and • Interest rates are going down, although not yet as low as we would like them to be. The cost of borrowing has remained high in spite of the progress that has been made in the monetary and fiscal management of our economy. This high cost has, in turn, stifled the growth of the productive private sector, in particular the Small and Medium Enterprises (SME) sector, which should be the engine of economic growth of our country. I therefore, appeal to all banks operating in Zambia to show more commitment to the growth and development of our country by; • Opening more branches, especially among our rural communities; • Installing more ATMs; • Providing more loans that will increase the productivity of our economy; and • Encouraging more Zambian to open bank accounts through provision of easily accessible and affordable products and services. These developments, Ladies and Gentlemen, will greatly contribute to the expansion of economic activities, which will have a positive bearing on poverty alleviation. I am pleased to observe Standard Chartered’s commitment to growth and reinvestment. However, you will all agree with me that those who have more should do more. I therefore look forward to seeing more from Standard Chartered Bank Zambia, as it is one of the leading banks in the country. Mr Chairman, let me conclude by thanking you for inviting me to officiate at this important event. It’s now my pleasure to officially open the new branch of Standard Chartered Bank Zambia at Crossroads Shopping Mall. Thank you. | bank of zambia | 2,007 | 10 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Bank of Zambia 12th Media Seminar, Ndola, 5 October 2007. | Caleb M Fundanga: Media relations and the Bank of Zambia – a healthy interaction Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Bank of Zambia 12th Media Seminar, Ndola, 5 October 2007. * * * • The Chairperson • Distinguished Journalists • Invited Participants • Ladies and Gentlemen On behalf of Bank of Zambia and indeed my own behalf, I am pleased to welcome you all, to this Bank of Zambia sponsored annual seminar, which is the 13th in the series. Further, it is also my great pleasure to welcome you to the City of Ndola. Ladies and gentlemen, as it is normally the case, some of you are participating for the first time. For those of you that are participating for the first time, let me inform you that this is your seminar and I urge you to participate freely and effectively. I know that your friends who have participated in the seminars before, will agree with me that, every year that we meet at such a forum, we meet as “partners” and it is certainly in the interest, of not only us gathered here but the nation at large that this spirit is exhibited through out this seminar, and beyond. In fact, let me thank the media for having embraced this partnership and worked towards maintaining it. The Bank of Zambia-Media relations have been quite healthy, partly due to annual interaction through Media Seminars. Let me reiterate facets of the media namely, education and information to which the Bank of Zambia attaches a lot of importance, and forms the guiding principles for the formats of all media seminars Organized by the Bank. We in the Bank believe that an effective or indeed a well informed media is key in the country’s development efforts. It is in this regard that the Bank will continue to work towards the provision of quality information and/or education to the media as evidenced by the continued holding of such seminars coupled with quarterly media briefs. Such efforts as you may be aware are not for our own interests but the Zambian stakeholders. This is as it should be. Distinguished journalists; may I humbly urge you, to actively participate in the deliberations of this seminar. Let me hasten to mention, particularly to those of you that are participating for the first time that you may not be able to completely grasp the materials that will be presented during the seminar. This must not discourage you, as you are free to make followups with the respective departments (and indeed officers) at our offices in Lusaka and our Regional Office here in Ndola. Nevertheless, I am confident that the respective presenters will ensure clarity in their presentations and fully respond to any issues arising there-from. Ladies and gentlemen, allow me, at this point in time to brief you on the performance of the economy in 2006 and the period January – August 2007. As you may be aware, Zambia has in the recent past recorded macroeconomic stability and growth in the economy, reflected in low and falling inflation, relative stability in the Kwacha exchange rate, falling lending rates and positive real GDP growth rates underpinned by strong private sector investment in all growth or priority sectors. Further, the financial sector has been stable, and continues to post growth. In 2006, the performance of the Zambian economy continued to be encouraging as it registered a positive growth of 6.2% in real GDP, marking the eighth consecutive year of positive real growth. You will note that over the period 2001-2006 growth in real national output averaged 5.0% per annum and was above the average population growth over the same period, while inflation declined to 8.2% in December 2006 from 15.9% in December 2005. Distinguished journalists, it is worth-mentioning that the growth, which has been broad-based has extended beyond the recovery of the mining sector and shown resilience to adverse shocks, such as droughts and record increases in oil prices, Agriculture, construction, transport and communications, and tourism sectors have been the other key contributors to the sustained increase in economic activity. A lot of progress continue to be made on the inflation front, as shown in September 2007, when inflation declined to 9.3% despite having risen to 12.7% in March. Continued implementation of prudent monetary and fiscal policies, fairly favourable developments in the exchange rate coupled with pro-growth and pro-poor agricultural policies that have led to an increase in food supply and subsequent improvement in the country’s food security largely explain the favourable developments in inflation. For instance, the country recorded an increase in maize surplus to 250,000 metric tons (mt) this consumption period from 160,000 mt during the 2006/2007 consumption period. With respect to the money market, given lower inflation and yield rates on Government securities, commercial banks lending rates have been on the downward path. This can be illustrated by the nominal average lending rates which declined to around 28% in December 2006 from about 34% in December 2005, and further fell to 24.3% in September 2007. This is consistent with Government’s desire of making more funds available for priority sectors of our economy at reasonable cost, in line with the objectives the Fifth National Development Plan, 2006-2010. Ladies and gentlemen, testimony to this was the recent lowering of the statutory reserve ratio by the Bank of Zambia to 8% from 14% effective 1st October 2007. We expect this action, will release more funds to the commercial banks for on-ward lending to the priority sectors. Availability of investible funds to sectors such as agriculture, manufacturing, tourism and mining will stimulate further growth in the economy, create more employment and incomes, and contribute to alleviation of poverty. However, it must be noted that the economy desires much lower lending rates than so far recorded to make credit affordable and effectively contribute to expansion of economic activity. The external sector has continued to score remarkable improvement as lately reflected in a the resilience of the Kwacha against major foreign currencies, and the country posting in 2006, an estimated overall balance of payments surplus of US $696 million compared with a deficit of US $284 million in 2005. For instance, the Kwacha appreciated by 12.0% against the US dollar while the local currency gained by 10.4% against the South African Rand during the period end-December 2006 to 21st September 2007. This improvement largely occurred due to increased export, which mainly arose from continued high copper prices and complimentary higher export volumes coupled with the buoyant growth in non-traditional export earnings. The maintenance of an appropriate monetary policy, in the wake of a higher than expected inflation outcome in the first quarter of the year, also contributed to the resilience of the Kwacha. The developments in the Kwacha should not only enhance competitiveness of the country’s exports, particularly the non-traditional exports but should overall have a positive bearing on inflation developments in the coming months. Esteemed colleagues, the financial sector has continued to enjoy stability and growth this year, characterised by improved banking services and emergence of new products. The overall financial condition and performance of the banking sector has been assessed as satisfactory. The performance of the non-bank financial institutions has todate been fair as the Bank of Zambia continues to implement measures aimed at maintaining and enhancing the soundness of the financial system. Chairperson; when we met last year at Fringilla in Chisamba, I informed the participants to the 12th Media Seminar that further expansion in the banking sector was eminent, as some commercial banks had plans to re-open or indeed open more branches across the country, this has come to reality as most of you have seen the establishment of new branches by several banks. These developments are undoubtably a manifestation of the improving investment environment arising from consistent macroeconomic reforms reflected in enhanced macroeconomic stability. We have also continued to received inquiries from foreign banks that want to establish operations in our country. Under the Financial Sector Development Plan, implementation of activities has continued key among them being: a) Sovereign rating for Zambia The process of obtaining a sovereign rating for Zambia, being spearheaded by Government has made appreciable progress, with the completion of the Terms of Reference for the provision of advisory services and subsequent submission of Cabinet Memorandum for approval. The Sovereign rating is expected to compliment other government initiatives to promote foreign investment in the Zambian private sector and stimulate the development of domestic capital markets and investment by Zambians. b) Credit Reference Law and Services Following the issuance of the Credit Reference Services (Licensing) Guidelines and the Credit Data (Privacy) Code, the Bank of Zambia has drafted the Credit Reference Law. The draft law is currently undergoing legal review and is expected to be effected in the course of next year. Meanwhile, the licensed credit reference bureau – Credit Reference Bureau Africa Limited (CRBAL) has not yet commenced operations as some commercial banks are yet to provide the required data to the CRBAL. c) The National Payment Systems Law The National Payment Systems Law has been enacted and became effective on 15 June 2007. The Law is intended to mitigate the shortcomings that were in the legal framework and provide legal backing to international best practices in the payment systems. To all of you gathered here, I would like to implore you, not to only inform the public about these and other developments but to interpret what these mean to ordinary Zambians. It is only when ordinary Zambians, who are the key stakeholders, have an unquestionable understanding of these developments that they shall fully support our developmental policies and strategies. Ladies and gentlemen, allow me to remind you that our quest for development will in no doubt be without challenges. The continued higher and unstable international oil prices poses one of the strong challenges to our targeted growth of 7% this year and end year inflation of 9%. Another challenge, ladies and gentlemen, to a growing economy such as ours is the need to ensure availability of growth-supporting infrastructure. Inclusive of these are good trunk and feeder roads, communication facilities and sufficient and affordable energy supply, particularly electricity. Furthermore, current regional integration initiatives coupled with globalization, in part entail that Zambia has to appropriately re-position itself in the region. This will be with a view to create greater opportunities for expanded trade in the region and international markets as well as empowering the local business players. These and other challenges are for all of us as partners, to tackle by playing our respective roles with the aim of achieving stronger economic growth rates that will have a notable bearing on improving the standards of living of our people. Chairperson, as per the usual tradition, the topics for this Seminar, have been carefully selected aimed at not only educating and informing but also sharing views. Please as you discuss, you are encouraged to be broad not to confine your contribution to the topics presented you. We will welcome views on various issues within the Bank’s mandate. You are further encouraged to interact with members of staff outside the Seminar sessions. Let me again pay tribute to the Media for the interest it has shown and subsequent active role it has continued to play in the economic affairs of our country and in particular matters related to the mandate and functions of the Bank of Zambia. Let us continue as partners and provide checks and balances to each other for the good of our people. Let me, once again, welcome you to this Media Seminar and declare the Seminar officially open. I thank you for your attention. | bank of zambia | 2,007 | 10 |
Talking notes by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the UNDP organised workshop on Macroeconomic Analysis and Modelling in Support of Millenium Development Goals-Based Planning, Lusaka, 29 October 2007. | Caleb M Fundanga: The MDG-consistent monetary policies Talking notes by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the UNDP organised workshop on Macroeconomic Analysis and Modelling in Support of Millenium Development Goals-Based Planning, Lusaka, 29 October 2007. * * * Introduction First and foremost, I would like to thank the UNDP through the Resident Representative, Mr Aeneas C. Chuma, for inviting me to say a few remarks at the opening of this important international workshop on “Macroeconomic Analysis and Modelling in support of Millennium Development Goal (MDG)-Based Planning”. Let me also welcome you all, especially those who have traveled from other countries to come and attend this workshop. I understand that the aim of this workshop is to strengthen the foundation laid for MDGBased planning processes in Africa on the issues of pro-poor polices and macroeconomic modelling and to explain what an MDG-Consistent Medium-Term Expenditure Framework (MTEF) is all about. The workshop is also intended to sensitise and enhance your knowledge of pro-poor policies in the context of MDG-Based planning and strengthen understanding and skills in MDG-Consistent Macroeconomic Modelling and MTEF. Furthermore, at the end of the workshop, participants should be able to: • Better understand the linkages between macroeconomic programming and strategic planning; • Plan steps to be taken with respect to sustainable capacity development for macroeconomic modelling and strategic budgeting at various country levels; and • Strengthen the national ownership and leadership in MDG-based planning and implementation process. Mr Chairman, Central banks the world over have a critical role to play in a country’s economic development. As you may all be aware, central banks’ monetary and supervisory policies are implemented to ensure that there is price and financial system stability to promote macroeconomic development. In this regard, monetary policies or any other policy for that matter that are not consistent with the MDGs in the current macroeconomic dispensation should be considered irrelevant to the welfare of our countries. It is for this reason that, without exception, monetary policies in the developing countries have to be MDG-consistent. Price stability The primary objective of most central banks is price stability, which is achieved through the implementation of appropriate monetary policy. High inflation is a major source of concern to any country as it poses a threat to economic development. It is in this context that a central bank’s primary role is to reduce inflation to low and stable levels. The benefits of price stability, which are also important factors to the attainment of MDGs are: effective planning; lower investment costs; increased public and foreign investor confidence in the economy; improved external sector competitiveness; and accelerated economic growth needed to reduce poverty levels. (a) Effective planning When prices are stable, corporate institutions, governments, civil society and individuals are able to draw up their expenditure plans well into the future. In particular, companies will be able to reliably plan with some degree of certainty for their operations and long-term investment in fixed assets that will expand their production capacity and output and lead to increased employment as well as enhancement of incomes. Similarly, a government is able to make more accurate projections of revenues expected to be collected in future and thus more effectively plan its current and capital expenditures that are likely to benefit the poor. (b) Lower cost of investment Interest rates being the cost of funds will inhibit borrowing for investment if they are too high. Interest rates, therefore, are an important factor in attaining price stability. Low and stable interest rates, which are possible with the achievement of low inflation, create conducive credit conditions that improve accessibility and availability of credit to the productive sectors. Improved access to credit by the private sector will result in increased investment and production which ultimately leads to higher economic growth and improvement in standard of living. (c) Increased public and investor confidence Price stability in a country leads to investor and public confidence in the economy and results in increased foreign capital inflows. As alluded to earlier, a relatively stable exchange rate coupled with low inflation facilitates long-term planning for investors. (d) Improved external competitiveness In countries were there is low and stable inflation, exports become competitive and this has often led to the increase in export earnings, thereby improving the Balance of Payments (BoP) and ultimately contributing to accelerated economic growth. In this context, the benefits of a stable currency are clear as noted by Jeff Sachs in the UN’s recent report “A Practical Plan to Achieve the Millennium Development Goals” which states that: “The private sector needs a supportive macroeconomic framework. International and domestic macroeconomic stability minimizes uncertainty for businesses. Businesses cannot buy inputs or sell products internationally when the local currency is unstable against other currencies – or if the country is experiencing high inflation with constant readjustment of prices and loss of confidence” 1 . (e) Sustained economic growth Mr Chairman, when a country attains price stability, economic growth on sustained basis is likely to follow. Accelerated economic growth, of at least 8% per year, is a sure way of ensuring that most of the MDGs are attained in our developing countries. This has the positive impact of reducing poverty levels of the people as it increases their disposable incomes and eventually improve their standard of living. (f) Reduction of poverty Usually, some people think that achievement of low inflation is not important to the achievement of MDGs. This assertion should be dismissed using macroeconomic analysis and modelling, which I expect the participants at this workshop to actively be involved in. Even a simple econometric analysis will show that high inflation in a country erode peoples’ disposable incomes and, therefore, reduces their purchasing power, particularly the vulnerable that may not have the resources and skills to hedge or protect themselves against http://www.unmillennuimproject.org/reports/fullreport.htm. the effects of high inflation. Attainment of low and stable inflation, therefore, leads to people particularly the poor being able to afford to buy the goods and services that they need in order for them to lead a decent life. Low inflation implies that more people will have stable or improved income that may raise them above the poverty datum line and thus reduce the high incidences of poverty. Financial system stability In addition to the attainment of price stability using monetary policy, the central bank’s other pillar is the responsibility of ensuring financial system stability. Financial system stability is the prevention of disruptions to the financial sector that are likely to cause significant costs to real output. It compliments monetary policy implementation, as monetary policies are transmitted through financial institutions. If the financial system is unstable, monetary policy will not be effective. In summary, the central bank, such as ours, has a key role in the attainment of the MDGs through the implementation of appropriate monetary and supervisory policies that ensure price and financial system stability. Macroeconomic analysis and modelling are key components in arriving at sound and effective macroeconomic policies which will contribute to poverty reduction through the acceleration of economic growth and facilitate the achievement of the MDGs. In a nutshell, Mr Chairman, one can simply state that low inflation coupled with a developed and stable financial system, will enhance higher economic growth. Sustained and higher growth will create more jobs and subsequently increase people’s income. An increase in people’s incomes will contribute to alleviation of poverty as it will improve their capacities to access the human basic needs such as food, shelter, education, and health. Further, with increased investment (and a growing economy) partly on account of price and financial system stability, Government revenue is more likely to rise, therefore enabling the Government to improve the provision of education and health services, the two which are among the key tenets of poverty reduction. Furthermore, increased Government revenue will allow more investment in infrastructure such roads needed to transport produce from various production centres to markets thereby enhancing the incomes, particularly those of rural communities. This would contribute to the achievement of MDGs. With these few words, Mr Chairman, I would like to urge you, the participants, to be interactive in your discussions as this is one of the ways the workshop would add value to your knowledge and skills. I wish you fruitful discussions as you share your valuable experiences in macroeconomic analysis and modelling in support of Millennium Development Goals. I thank you for your attention. | bank of zambia | 2,007 | 10 |
Keynote speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the ACCA Professionalism and Ethics Event for Employers, Lusaka, 7 November 2007. | Caleb M Fundanga: Integrity and professionalism in finance, industry and business Keynote speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the ACCA Professionalism and Ethics Event for Employers, Lusaka, 7 November 2007. * * * • The Chairman • Mr Sundeep Takwani, ACCA Head of Ethics and Regulation – Professional Standards • Mr Chintu Mulendema, ZICA President • Senior Government Officials • Heads of Corporates • All protocols observed • Distinguished Ladies and Gentlemen I am honoured to stand before you to discuss the matter of “integrity and professionalism in finance, industry and business”. I commend ACCA Zambia for organising this forum which allows us to discuss matters which have long been considered of primary importance in the financial sector. I am certain that the importance of this subject extends beyond the financial sector to all sectors of the economy. Mr Chairman, this event, the first in the series of ACCA professionalism and ethics events to be held in Zambia coincides with the launch of the ACCA new professional qualification, which will be first examined in December 2007. Named the ACCA qualification, it will build on the success of the current professional scheme, which has become the world’s fastestgrowing international accounting qualification. Mr Chairman, The new ACCA qualification is designed to provide accounting knowledge skills and professional values which will deliver finance professionals who are capable of building successful careers across all sectors, whether they are working in the public or private sectors, practising in accounting firms or pursuing a career in business. ACCA has designed a qualification which embeds the global accounting education standards set by the International Federation of Accountants (IFAC). There is a strong focus on professional values, ethics and governance. These skills are essential as the profession moves towards strengthened codes of conduct, regulation and legislation with an increasing focus on professionalism and ethics in accounting. They will be examined at the highest level in the new ACCA Qualification, and will be a core element of students’ practical experience requirements. Mr Chairman, allow me now to dwell on the main theme of our discussion this evening. Going through the literature one finds it difficult to obtain explicit definitions as regards the concepts of “integrity” and “professionalism”. However, the associated behaviours and characteristics of the two concepts are fairly unproblematic. In this regard, behaviours associated with “integrity” include honesty, sincerity, truthfulness, punctuality, ethics, fairness and justice while professionalism is characterised by expertise, generalised and systematic knowledge, a high degree of self control and governance by a code of ethics. Mr Chairman, the behaviours and characteristics described are virtues which are desirable in finance, industry and business. I note that this forum is for employers and one fundamental aspect about being an employer is that you may not be involved in the day-to-day operational issues of your organisation, hence the need to have professional employees of integrity. This gives comfort as regards reliability of financial reporting, compliance with laws and regulations, effectiveness and efficiency of operations and safeguarding of assets. These issues which give comfort are encompassed within the framework of corporate governance. Mr Chairman, in the recent past the world has witnessed a number of corporate failures such as Enron, Worldcom and Parmalat brought about largely by fraud on the part of employees. This has brought the discussion of corporate governance to the fore in finance, industry and business. The behaviour of corporations and the people that run these corporations have come under increased scrutiny by stakeholders and the wider public, not least of all, the financial sector in Zambia following the banking failures which we experienced in the late 90’s. The financial sector thus provides a critical example of the need for integrity and professionalism, and the Bank of Zambia has a keen interest in ensuring that these principles are upheld by players in the financial sector. The Bank of Zambia’s interest stems from its mandate to protect depositor’s interests as well as to ensure financial system stability. As the examples of Enron, Worldcom and Parmalat have shown us, poor corporate governance may lead to corporate failures. For the financial sector, this can cause significant public costs and consequences due to the potential negative impact on the payment systems and the loss of confidence in the financial sector as a whole. As a result, the Bank of Zambia issued “Corporate Governance Guidelines for Commercial Banks and Financial Institutions” in November 2006 in an attempt to instil corporate responsibility in the financial sector. Mr Chairman, the corporate governance guidelines issued by the Bank of Zambia offer vital lessons to other economic sectors with regard to integrity and professionalism. In this regard, allow me, Mr Chairman, to outline just four of the principles out of a total of 15 principles that are contained in the guidelines: Principle 2 – ethical standards and corporate values “The board of directors, in keeping with their responsibilities to the shareholders and other stakeholders, is committed to the achievement of business success and the enhancement of long-term shareholder value with the highest standards of integrity and ethics. Each director, as well as each member of senior management, is therefore expected to lead by example in a culture that emphasizes trust, integrity, honesty, judgment, respect, responsibility and accountability.” The guidelines for this principle essentially call upon the board to ensure that senior management implements strategic policies and procedures that are designed to promote good and acceptable ethical behaviour. Principle 3 – board responsibilities and composition “The board of directors’ role is to oversee the proper functioning of the institution. In order to achieve this, the board shall have clear, well-defined and understood responsibilities. There shall be a balance of skills, knowledge, experience and perspectives among directors so that the board works effectively to ensure the long-term safety and soundness of the institution.” The guidelines in this respect expect the board of directors to exercise professionalism by having a formal charter that sets out its responsibilities, having a rigorous formal processes for evaluating its performance along with that of board committees and individual directors and, ensuring that the institution complies with all relevant laws, and codes of business practice, and that it communicates with its shareholders and relevant stakeholders openly and promptly Principle 6 – roles of senior management “It is the responsibility of management, under the direction of the chief executive officer, to conduct the institution’s business and affairs in an effective, responsible and ethical manner, consistent with the principles and direction established by the board through the strategic plan.” Apart from reflecting integrity in their management of the institution, the guidelines for this principle require that senior management be appropriately qualified to run the affairs of the institution. The expectation is that people of appropriate qualifications will reflect the professionalism that is required of their respective professions. Principle 7 – reporting and disclosure “The board shall demand integrity both in financial reporting and in timeliness and balance of disclosures on the institution’s affairs.” The guidelines for this principle require that the institution’s financial statements fairly present the state of affairs of the institution as at the end of the financial year and the profit or loss and cash flows for the reporting period. Furthermore, the annual report is expected to state whether the corporate governance guidelines have been adhered to or, if not, where there has not been compliance the institution is expected to give reasons. Mr Chairman, as you will note the four principles highlight the fact that the Bank of Zambia places a great deal of importance on integrity and professionalism in the financial sector. Our expectation is that this should extend to other economic sectors as well. Lessons can thus be drawn from the work that the Bank of Zambia has done and can be applied to the other sectors. Mr. Chairman, the prevalence of fraud in institutions all over the world has culminated with regulatory authorities in several jurisdictions instituting jail terms and fines against the scourge. The famous Sarbanes-Oxley is one such response. Our own corporate governance guidelines have a strong linkage to the Banking and Financial Services Act which when not adhered to may result, upon conviction, to a fine or to imprisonment for a term not exceeding two years or to both. Mr. Chairman, the international work that is being done in respect of money laundering and corruption payments or terrorist financing is such that trade and service companies, like banks, are now being held accountable for what they deal in and whom they trade with – as suppliers as well as buyers. The implications of anti-money laundering (AML) are such that they extend to all forms of finance, industry and business. It is thus critical that the principles of integrity and professionalisms are applied in all spheres of institutional activities. Mr Chairman Ladies and gentlemen I thank you for your attention. | bank of zambia | 2,007 | 11 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the symposium "Central Bank Independence: Does it hurt the Treasury?", Livingstone, 12-13 November 2007. | Caleb M Fundanga: Central bank independence – a Zambian perspective Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the symposium “Central Bank Independence: Does it hurt the Treasury?”, Livingstone, 12-13 November 2007. * * * The Chairperson The Guest of Honour, the Hon Minister of Finance and National Planning The Attorney General Honourable Minister of Southern Province Honourable Members of Parliament present Fellow Central Bank Governors present His Worship the Mayor of the City of Livingstone Deputy Central Bank Governors present Senior Treasury Officials present The Executive Secretary of SADC Members of the Diplomatic Corps and Representatives of International Organisations present Distinguished Invited Guests Ladies and Gentlemen, On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important symposium entitled “Central Bank Independence: Does it Hurt the Treasury?” To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, in particular to Livingstone, our tourist capital. Like the rest of Zambia, Livingstone is a city of tranquility with an easygoing African charm. The city is not short of interesting sites and places to visit. It hosts the Victoria Falls, also known among the locals as “Mosi-o-Tunya, the Smoke that Thunders” and is one of the world’s seven wonders! There is also a game park, a well-stocked curio market and the Mukuni Cultural Village, among the many attractions. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Livingstone can offer. Ladies and Gentlemen, this symposium comes at a time when the economic performance of our country has significantly strengthened as partly reflected in a 6.2% growth in real GDP and single digit inflation of 8.2% for 2006. During the month of October 2007 inflation edged downward to 9.0%. Commercial banks’ lending rates have also exhibited an investmentsupportive trend while the Kwacha has relatively been stable. Further, we have observed an improvement in the fiscal operations of the Government, which is supportive of the country’s inflation and growth objectives. Chairperson, despite these achievements, our country like so many other developing countries, still faces some challenges. Notable among these is the urgent need to consolidate and build the gains so far attained. In particular, the need to attain sustained price and financial systems stability can hardly be overemphasized. Chairperson, allow me to make a few comments on the issue we are all gathered here for, that is, Central Bank Independence vis-à-vis, the Treasury. The issue of central bank independence has taken some degree of prominence in the region, to the extent that it is one of the core principles underlying the draft SADC Model Central Bank Bill which is being actively pursued by the Committee of Central Bank Governors in the Southern African Development Community (SADC). In fact the issue of central bank independence, Ladies and Gentlemen, is as old as central banking itself, having been debated on and off over the past couple of hundred years. Many of the “transitional economies” of Eastern Europe also have adopted reforms aimed at making their central banks more independent. 19th and 20th century economists such as, David Ricardo and John Maynard Keynes have all added their views to the subject. There seem to be consensus that central banks must be given a charter which includes a strong commitment to price stability, and the freedom and sufficient scope to pursue it. This means that while central banks may not have goal independence, they should have instrument independence. One need not dwell on the desirability of price stability. Economies work better if investment and wage decisions are not thwarted and confused by high inflation. However, the fears in some respects are associated with the financing of fiscal deficits that governments in the developing world from time to time have to run to meet, for instance, social obligations or indeed provide public goods. This indeed is a genuine fear (including others that may be identified) that this symposium must address. There are arguments that there is a fundamental conflict between independence and an obligation to finance the budget deficit – a conflict which often is resolved at the expense of price stability. Ladies and Gentlemen, it is in this regard that the Bank of Zambia and Professor Collier with the support of the UK Department for International Development partnered to hold this international symposium whose objectives include: (i) enhancing understanding of advantages of central bank independence among central bankers, Government, banks, non-bank financial institutions, the business community, academics and other stakeholders; (ii) drawing lessons and sharing experiences of central bank independence in developed, emerging and developing countries; (iii) appreciating the political, economic and legal aspects of operationalising greater independence for central banks; and (iv) exploring ways of enhancing fiscal and monetary coordination. Ladies and Gentlemen, the selection of papers to be presented and discussed at this Symposium will provide a platform for sharing ideas required for practical solutions aimed at improving the Bank’s service delivery. As we tackle issues of inflation, exchange rates, and other key macroeconomic indicators, let us use this forum to outline some of the past developments and challenges that lie ahead of us as we aim to taking Zambia’s financial sector to higher heights. Lastly, let me say that while we can all learn from what other central banks have done, each country should establish the legal framework for its central bank, and allow for its evolution, in ways which best fit that country’s own history and institutions. I have no doubt that the symposium will be thought-provoking and highly participatory. May I wish all of you a good symposium and a memorable stay in Livingstone and Zambia in general. I thank you. | bank of zambia | 2,007 | 11 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the Memorandum of Understanding between the Bank of Zambia and the University of Zambia, Lusaka, 23 November 2007. | Caleb M Fundanga: The Bank of Zambia – placing a high premium on education Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the Memorandum of Understanding between the Bank of Zambia and the University of Zambia, Lusaka, 23 November 2007. * * * The Vice Chancellor The Deputy Vice Chancellor The Registrar The Deans of various schools Heads of Departments present Faculty Members Invited Guests Ladies and Gentlemen I feel greatly honoured to once again participate in the signing of the Memorandum of Understanding (MoU) between the Bank of Zambia (BOZ) and the University of Zambia (UNZA). The Bank of Zambia and UNZA have a long standing relationship which is intertwined in more ways than one. I am sure that the majority of employees in the Bank that possess a first degree have this University to thank for that achievement. It therefore gives me pleasure to stand here and undertake this function of signing the MOU between our two institutions. Vice Chancellor, the Bank places a very high premium on education. It is for this very reason that it has this day decided to renew its financial support to the University of Zambia’s Department of Economics. Under the new agreement, the Bank has increased the level of support to UNZA to include setting aside a special fund specifically for research purposes and procurement of personal computers (PCs) and software for the same purpose. We in the Bank consider research as very important because it forms the basis upon which we formulate our policies and execute our operations. To underscore this point, the Bank of Zambia launched the BOZ Reader series a few years ago as a means of having articles of economic interest being published for the benefit of the Zambian public. The three publications of the BOZ Reader that have been published so far have largely contained articles prepared by BOZ members of staff. However, our intention has always been to have a wider network of contributors. With the signing of this agreement, we hope to see more economics related research being undertaken by faculty members in the Department of Economics on behalf of the Bank. We further urge the University of Zambia to be a key and keen contributor to the publications. The University of Zambia Economics Department should coordinate with our Economics Department on this matter. In addition to the research fund, the monthly salary supplementation for faculty members in the Economics Department has been adjusted up by 64%. Meanwhile, the Bank has continued to recognize academic excellence among economics students at UNZA. For this reason, the bank has been providing fully funded scholarships to five outstanding economics students at third and fourth year levels. This support is also expected to shift to postgraduate economics programmes as soon as the modalities are agreed between the two institutions. Vice Chancellor, we are aware that the supplementary funds provided by BOZ cannot meet all your requisite needs with regard to enhancing your research capacity. I therefore urge you to forge other linkages that promote research. I have in mind the African Economic Research Consortium (AERC) whose principle objective is to strengthen local capacity for conducting independent, rigorous inquiry into problems pertinent to the management of economies in Sub-Saharan Africa. AERC was established in 1988 as a public not-for-profit organization devoted to advanced policy research and training in economics. However, it is rare to find Zambians utilizing the facilities which are offered by this organization. Our hope is that with this information, we will see more papers by UNZA academicians on the AERC website in the near future. In order to encourage research on local issues by our own researchers, I am contributing an book to the UNZA library by Professor Paul Collier, the Director for the Study of African Economies at Oxford University. The book, “The Bottom Billion” provides an example of the sort of issues which we expect our own authors to be able to elucidate on more clearly from their own experiences. In the book, Collier analyses the causes of failure by fifty failed states, pointing to a set of traps that snare these countries. These traps include civil war, a dependence on extraction and export of natural resources, being land-locked, and bad governance. Surely our experience with some of these “traps” should make us better experienced to explain the issues. This is what we expect of UNZA. Vice Chancellor, on our part, we will continue to assist UNZA as guided by the MOU. We are very confident that the support that UNZA is receiving from partners such as BOZ will go a long way in furthering academic excellence and uplifting the levels of morale among faculty members. I thank you! | bank of zambia | 2,007 | 11 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Information Exchange Forum on Sources of Finance, Lusaka, 10 December 2007. | Caleb M Fundanga: Financial sector challenges and progress in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Information Exchange Forum on Sources of Finance, Lusaka, 10 December 2007. * * * • Mr Chairman • Representatives of International Financial Institutions • Chief Executives and representatives of Financial Institutions • Distinguished ladies and gentlemen I am greatly honoured to be given an opportunity to make some remarks at this forum. I wish to extend a warm welcome to all participants gathered here today, particularly those who have travelled from outside the country. I hope that you will not only have fruitful deliberations but also find time to explore the beautiful scenery and experience the warm hospitality that Zambia has to offer. Mr Chairman, Ladies and Gentlemen, this forum is more than timely as Zambia is working tirelessly towards financial deepening, wealth creation and reducing the levels of unemployment. In order to achieve this, affordable financial services should be available to the majority of businesses. In fact, the forum has come at an opportune time when the economy has shown signs of macroeconomic stability and growth. The financial sector in Zambia is considered relatively under developed. In spite of this status, post independence governments have always recognised the importance of the financial sector to national economic development. This is the reason why the activities of the sector had up until 1992 been controlled by the state. Since then, the financial sector has been liberalized while simultaneously strengthening the regulatory framework. Concerned with the limited contribution of the financial sector to economic development, the Government devised and formulated policy mechanisms for addressing a number of identified obstacles within the framework of the Poverty Reduction Strategy Paper (PRSP) whose implementation started in 2002. In line with the PRSP framework, the World Bank and the International Monetary Fund undertook an assessment of the financial system through the Financial Sector Assessment Programme (FSAP) which was complimented by our own review. Some of the principle areas of concern identified included: • Low financial intermediation with limited access to financial services, especially for the rural and peri-urban population and the low-to-middle income earners; • Poor credit culture in the market; • Multiple and potentially conflicting roles of the government in the financial sector; • Weak regulatory framework for non-bank financial institutions, insurance and pension funds; • Undeveloped money and capital markets; and • Limited long-term development and housing finance. In recognition of the strategic importance of the financial sector to the country’s development and poverty reduction efforts, the Zambian government launched the Financial Sector Development Plan (FSDP) in 2004 to address weaknesses that had been identified in the financial sector. The FSDP is therefore a comprehensive strategy that is aimed at achieving a financial system that is sound, stable and market-based, that would support efficient resource mobilization necessary for economic diversification and sustainable growth. The financial sector weaknesses are being addressed through a public and private sector partnership. The implementation structure is chaired by the Secretary to the Treasury at Ministry of Finance and National Planning with the secretariat function responsible for the coordination of activities based at the Bank of Zambia. Mr Chairman, the goal of the FSDP is to have a financial system that is stable and marketbased in order to support efficient resource mobilization necessary for economic diversification and sustainable growth. A number of reforms have already been undertaken under this plan. For instance, a Credit Reference Bureau has been established and we expect it to be operational in the coming year. In addition, studies have also been taken to comprehend the constraints to broader access financial services. One of the outputs of the FSDP has been a market knowledge study called Finscope Zambia which is a nationally representative survey of the use of, and demand for, financial services. It provides insights into how consumers source their income and manage their financial lives. This is the first time a survey like this has been conducted in Zambia and provides valuable information for players in the financial market. The survey, which was conducted in 2005, notes that very few Zambians use the formal financial sector. The report reveals that most Zambians prefer to invest in non-financial instruments such as a business, livestock, land or agriculture equipment. Mr Chairman, the year 2006 marked the eighth consecutive year of positive real growth in output while inflation declined remarkably to single digit level of 8.2%. During this period, investment was strong, particularly in the mining, tourism, construction, transport and agricultural sectors. This set a good basis for further favourable economic growth in the medium to long-term. Increased private sector investment, particularly in the mining sector, contributed to this growth. Mr Chairman, Ladies and Gentlemen, Zambia’s external position has also shown remarkable improvements with the trade surplus rising to US $1,176.0 million in 2006 from US $10 million in 2005. Similarly, the current account deficit as a percent of GDP (excluding grants) reduced to 2.3% from 11.8% during the same period. This outturn was mainly attributed to high receipts from increased copper exports. Debt relief and increased budget support from cooperating partners also helped strengthen the external position. Mr Chairman, the financial system has exhibited continued stability in the last eight years with the banking sector recording an average annual growth of more than 27% in total assets. Similarly, the deposit base has recorded an annual average growth of 28% over the same period. This is evidence of rising economic activities. However, the increase in the deposit base alone can not fully support the enormous need for access to affordable loanable funds in the economy. I must mention here Ladies and Gentlemen, that financial markets in Zambia are still developing. With respect to money market developments, commercial banks lending rates have been declining but not at the rate as inflation or treasury bill rates. Commercial banks nominal average lending rate declined from 33.9% in December 2005 to 27.6% in December 2006 and stood slightly lower at 27.3% in February 2007. This is still on the high side for most entrepreneurs. However, there are positive indications from commercial banks due to the growing confidence in the economy and lower lending rates are therefore expected given the current environment of low inflation. Mr. Chairman, in the Non-Bank Financial Institutions (NBFIs) sector, institutional growth has continued to be a challenge. The number of NBFIs supervised by the Bank of Zambia has increased in the last 6 years, by 15% from 52 in 2001 when a specialized NBFIs department was established, to 60 today. The establishment of this specialised department was in response to: • the expansion of the NBFIs sector; • the increased innovation in the sector; and • the increase in the number of NBFIs supervised by BoZ after amendments to the Banking and Financial Services Act (BFSA) in 2000. The increase in the number of new entrants in the NBFI sector has been due to the stability in the macro-economic environment in general and the financial sector in particular. To illustrate this further the BOZ receives on average about 7 applications per quarter, mainly from bureaux de change. This is also being driven by the growing demand for finance by both public and private investors in this sector. In the recent past for instance, a private leasing company received structured finance of US$10 million (or approximately K38 billion at today’s exchange rate) while the Development Bank of Zambia also issued a corporate bond of K68 billion (which is just under US$18million). Increased participation in both the money and capital markets by non-bank financial institutions with proposals for issuance of other corporate bonds are also under current consideration. Mr Chairman, some of the key sectors with potential investment include agriculture, mining, manufacturing, tourism and energy. Mr. Chairman, given all these developments which I have cited, one can tell that there are enormous possibilities for the financial sector in Zambia. In this regard, our expectation, at the Bank of Zambia, is that the financial sector should take a leading role in facilitating further developments in the areas which I have discussed. However, during our interactions, key players in the financial sector have informed us that they have a limited capacity to provide the required services in this regard. This forum has therefore been organized and arranged by the Bank of Zambia to bring together Zambian financial sector players and international financial players who have an interest to see that Zambia takes its rightful place in the world economy. Our expectation is that after this forum, we shall see the emergence of an interactive and symbiotic alliance between International and Zambia financial institutions whose goal will be to provide financial services that will uplift the well-being of the Zambian populace at large. This sounds like a difficult task to achieve but it is my conviction that it is better to begin a step towards this direction rather than waiting for it happen in future. On a lighter note, Ladies and Gentlemen, let me remind you that the Soccer World Cup to be hosted by South Africa in 2010, has attracted increased demand in the construction and tourism sectors in the whole Southern African Region. Zambia needs to take advantage of this and invest heavily in the tourism industry to benefit from the event; particularly that it has a vast number of national parks and the Victoria Falls, one of the seven natural wonders of the world. Obviously this can only be done if there is long term partnerships between local financial institutions and International financial institutions like the ones invited here today. Mr. Chairman, Ladies and Gentlemen, I thank you for your attention. | bank of zambia | 2,007 | 12 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of The Barclays Bank Zambia Plc, Chilenje Branch, Chilenje, 9 January 2008. | Caleb M Fundanga: Improved financial services in Zambia Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of The Barclays Bank Zambia Plc, Chilenje Branch, Chilenje, 9 January 2008. * * * • Mr Fritz Seegers – Barclays Global Retail and Commercial Banking ChiefExecutive • Mr J J Sikazwe – Barclays Bank Zambia Plc Chairman • Mr Ahmed Khan – Barclays GRCB Emerging Markets Chief Executive Officer • Mr Michael Miebach – Barclays Sub-Sahara Africa Managing Director • Mr Zafar Masud – incoming Barclays Bank Zambia Managing Director • Mr Danie Nel – outgoing Barclays Bank Zambia Managing Director • Invited Guests • Ladies and Gentlemen I am delighted to be the Guest of Honour at the official opening of the Barclays Bank Zambia Plc Chilenje branch. My appreciation of this opening is because it reflects a fundamental change in strategy by Barclays Bank Zambia over the last few years. I recall that only a few years ago, Barclays Bank Zambia closed a number of its branches in several towns and locations. We were greatly concerned because it meant that even the few that were serviced by commercial banks would have greater problems in accessing financial services. Barclays Bank Zambia obviously had its reasons for taking such an action and we cannot fault them for attempting to curb their costs. However, it is now evident that there is a turnaround in the situation. I am reliably informed that the number of branches has increased from 17 at the beginning of April last year to 55 at the end of November 2007. What is even more impressive is that these branches are found in areas which were previously not serviced by commercial banks. This indeed is a bold move and for this we must commend Barclays Bank Zambia. I am aware that the expansion programme is backed by a capital injection of approximately K40.0 billion which will make it possible for Barclays Bank Zambia to increase its services in the country, particularly to the SMEs sector. Ladies and Gentlemen, the 2005 Finscope Survey undertaken by FinMark Trust confirmed that levels of access to financial services in Zambia are low. Fewer than 15% of adult Zambians are reported to have had access to commercial banks. The reasons given for this low accessibility varied but some of the critical reasons included the distance to banks, the time spent getting to a bank and the cost of getting a bank service. With Barclays Bank Zambia opening branches closer to the people it is our conviction that the number of Zambians to have access to banking services will increase. We therefore encourage as many Zambians as possible to use these facilities. To the residents of Chilenje, I urge you to utilize the services offered by Barclays Bank, otherwise the bank may opt to close its branch due to lack of business and you will be left with no bank in your area. You must recognize that the era of keeping monies in mattresses is long gone. We recognize that Barclays has obviously seen a window of opportunity in opening its branches in such localities. However, it is important to note that the level of incomes in such areas is not at the same levels as for those that obtain their services from high street locations. In this regard, we urge Barclays and other banks opening their branches in these communities to design suitable products. The banks should structure the related costs such that they take into account the lower income status of their clients. I have in mind the withdrawal of small sums of money without necessarily charging for the withdrawals. The challenge of extending access to financial services to the remaining adult population still remains, and for this unbanked population cost is a major consideration. Ladies and Gentlemen, I am aware that the demand for banking services is high in Chilenje and therefore Barclays Bank should consider moving to bigger premises. There are a number of longstanding neighbourhood businesses in this location. I can point at Sir Jack, Janu Plaza, Karibu Bakery and Robert’s Fish and Vegies. There are also business entities which were formally parastatals located here. I also know that private entities that have a national presence such as Zambeef Plc and Pama Meats have established branches here. This is a reflection of the economic viability of Chilenje Township and Barclays has done well to come here. Ladies and gentlemen, as you are aware the Zambian economy has taken a turn for the better over the last few years. We are fortunate that the rise in copper prices has created a greater interest to invest in the mines. We have also witnessed increased investment in other areas such as agriculture, tourism, construction and manufacturing. This has culminated in a 25.6% increase in non-traditional exports to US$845.1 million by November 2007. This obviously gives a wider spread of lending opportunities for the banking sector. It is important to note that this growth in non-traditional exports is to a large extent associated with small and medium scale enterprises. The commitment by Barclays Bank Zambia to upscale their support to the SMEs is thus very welcome. This commitment has been exemplified by your decision to locate a branch in Chilenje. I am also happy that your commitment to the community has extended to the renovation of the Community Centre, a building which carries a strong historical background for this country. We encourage you to extend this further by helping with other requirements such as the drainage system in the locality, street lighting for specific areas and enhancing other communal facilities as part of the Keep Lusaka Clean campaign. Ladies and gentlemen, without further ado, it gives me great pleasure to declare the Barclays Bank Zambia Plc Chilenje Branch officially open. I thank you! | bank of zambia | 2,008 | 1 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Eastern Province Chamber of Commerce and Industry Open Meeting, Chipata, 17 January 2008. | Caleb M Fundanga: How the Bank of Zambia’s policies are impacting Eastern Province developments Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Eastern Province Chamber of Commerce and Industry Open Meeting, Chipata, 17 January 2008. * * * • The Chairman – Eastern Province Chamber of Commerce and Industry (EPCCI) • Members of the Executive Committee – EPCCI • EPCCI Members • Invited Guests • Ladies and Gentlemen First and foremost, I must state that I am pleased to have finally made the trip to Eastern Province under the invitation of the EPCCI. The visit was planned for last year but due to other commitments I could not make it. In this regard, I made it a point to make sure that I visit the province before the end of the first quarter. I am happy that we have actualized our plans during the first month. It is our hope that we will also be able to visit other provincial towns off the line of rail during the course of the year. Mr. Chairman, one may question what is the purpose of the Bank of Zambia to visit these outlying areas? The answer is simple and is drawn from our mission statement – which is “to formulate and implement monetary and supervisory policies that will ensure price and financial system stability”. Our visit is therefore, to enable us assess the extent to which our policies are impacting development in the Eastern Province. For a start, we can rightfully boast that as a country we have achieved single digit inflation for the second year in a row and we have had no financial institution failures in the recent past. These successes are the result of monetary and fiscal policies that have changed the economic landscape of Zambia. We have been fortunate that the successes have come at a time when we are seeing renewed economic interest in Zambia. Investments in mining and other sectors have significantly increased, and more importantly, the Eastern Province has not been left out. Ladies and Gentlemen, we have been following the developments in Eastern Province with keen interest; hence our visit to see for ourselves what is going on. I must say that we are impressed with what we have been able to find out. It is clear that income levels have risen in the region and this has been driven by the boom in agriculture. This is an encouraging development. One of our primary concerns as policy makers is to ensure that development is not restricted or concentrated along the line of rail. We therefore urge you to use your enhanced income levels to invest in capital equipment so that your productive bases are sustainable. As a country, we are blessed with land and water resources. However, it is only in the recent past that we are beginning to see the value of what we have through improved agricultural output. We have the capacity to become a regional breadbasket and this is something we must explore wholeheartedly. It is important to note that there are predictions of a looming worldwide shortage of grain. In Italy, the cost of wheat has increased significantly to the extent that, in protest, people boycotted eating pasta for a day. With our natural resources, this is an agricultural avenue that we ought to explore. However, I must hasten to state that concentrating on agriculture alone also bears a risk as it is prone to the vagaries of weather. So whilst we have been able to reap well in the past, we must also consider diversifying into other economic sectors. Mr. Chairman, I have in mind sectors such as gemstone mining, tourism and manufacturing. The Luangwa region is said to be an area abundant with precious stones. However, we do not appear to have concerted efforts aimed at formalizing the process of explorations in this area. With regard to tourism, the Eastern Province has varied fauna as well as abundant wildlife and thus has the potential to become a leading tourism zone. Furthermore, the Eastern Province provides a gateway to the export markets in Malawi and Mozambique. This presents an opportunity for the manufacturing industry to explore what goods and materials are on demand in the two countries. We know for a fact that a great deal of trade is already conducted with the two countries. The completion of the Mchinji Railway project must therefore be expeditiously dealt with. As a country we need to seek more export ventures in terms of products and markets. It is important to note that by November 2007, year-to-date non-traditional exports had increased by 25.6% to US$845.1 million from US$672.7 million recorded during the corresponding period in 2006. Our statistics show that burley tobacco and cotton lint have had a significant contribution to the non-traditional export figures in the years 2005 and 2006 (although indications are that for the year 2007, the figures will be lower after farmers opted to plant maize given the lower prices offered for their tobacco and cotton produce). Ladies and gentlemen, with the improved economic activity in Eastern Province, we have noted an increased demand for cash through the sub-chest run by Barclays Bank Zambia Plc. This has been exemplified by fewer deposits at the sub-chest each successive period. Our investigations have revealed that this is driven by the high intensity of cash transactions within the region, largely because very few people, particularly the small-scale farmers, have bank accounts. We implore you to encourage the use of non-cash payments for your transactions. It is not only a safer means of transacting but it also enables the authorities to keep track of the level of economic activity in the area. In this regard, we also ask that the commercial banks design products and services whose cost structures are suitable for the economic environment of the region. Financial institutions in general need to offer structured financing that best suits the Zambian economic landscape. It is only through such activities that we will see further developments in the whole Zambia rather than the few areas along the line of rail. Mr. Chairman, ladies and gentlemen, we have come to Chipata not only to tell you what we expect of you but also to listen to what you expect of us. I therefore declare this meeting open and invite you to make your contributions. I thank you! | bank of zambia | 2,008 | 2 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the LUSE/BESA/BOZ workshop for secondary trading of government bonds, Lusaka, 3 March 2008. | Caleb M Fundanga: Develpments between the Bank of Zambia and the Lusaka Stock Exchange Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the LUSE/BESA/BOZ workshop for secondary trading of government bonds, Lusaka, 3 March 2008. * * * The Chairperson, Resource Persons, Workshop Participants, Distinguished Ladies and Gentlemen, I am honoured for the invitation extended to me this morning to officially open this important workshop on secondary market trading for Government securities. To begin with, I wish to commend the Lusaka Stock Exchange (LUSE), the organizers, on the timeliness of this workshop. I have little doubt most of you will agree with me that this discussion on the secondary market is long overdue and therefore could not have come at a better time. Dialogue among key stakeholders is invaluable to the success of market development efforts. This is particularly so because this allows each participant to share and learn from their diverse experiences in this area. I must say that this workshop addresses a subject in which I personally take keen interest. This is because I have, over the recent past, participated in a number of meetings with key investors in our securities market. At these meetings, issues surrounding the development of the secondary market have always been at the centre of our deliberations. I am glad that we have now began to address those very issues. This workshop also demonstrates the stakeholders’ commitment to support the market development efforts as outlined in the Financial Sector Development Plan. Chairperson, over the recent past, the Zambian economy has performed well. This is reflected in a number of the key macroeconomic indicators. To mention but a few; the growth rate in real Gross Domestic Product (GDP) has remained positive and above 5%, we attained single-digit inflation, relative stability in the exchange rate of the Kwacha against major currencies, stable financial sector and improved banking services. These impressive economic trends suggest that the reform programmes that have been implemented are now bearing fruit. The reforms have focused on the restructuring of the economy, to let markets determine key decisions so as to allow the private sector lead, which has provided for increased investment in the economy. It is the contention of many financial analysts that there is no better market to determine prices than the secondary market. In that regard, this workshop is vital. Ladies and gentlemen, the importance of a secondary market cannot be overemphasized. By facilitating a ready mechanism through which financial claims can be transferred from one holder to another, a secondary market provides wide possibilities for issuers of long term securities to match their cash flows in a stable and cost effective manner. Investors with their diverse liquidity needs are assured that they can convert their investments into cash at any time and at a fair market price. At the same time, issuers are assured that their financing needs, especially the long term ones, will be met in an orderly and timely way. By providing such an assurance, a secondary market ensures that savings are pooled and invested in the economy in a cost efficient manner. In this respect, a vibrant secondary market is therefore an important aspect of the price discovery process. Chairperson, an active secondary market is important to central banks as it facilitates the efficient conduct of monetary policy. This is because, to effectively implement monetary policy, central banks depend largely on the ability to influence financial markets. Therefore, with a vibrant secondary market, monetary policy effects are transmitted to the rest of the economy in a more transparent manner, which in itself contributes to price stability. At this point in time, it is opportune for me to outline briefly the efforts Government has made towards developing our secondary markets. Since the early 1990s, the government has taken steps to develop the securities market. There has been good progress made on the developing the primary market, though further refinements can be made to the structure. As for the secondary market, it has barely evolved beyond the elementary levels. Let me quickly go over some of the most important changes to the primary market: • Following the liberalization of interest rates in 1992 the auction system for Treasury bills was introduced to create a more transparent and market-based system of price determination that would encourage broader investor participation. • Alongside the introduction of the auction system, the maturity structure was extended from the only existing term of 91 days to include 28 and 182 days in order to meet the various liquidity needs of investors. • In 1995, Government bonds with a maturity term of 12 month and 18 months were added to the list of securities. • Following the increased depth of the market, the structure of Government securities was streamlined with the termination of the 28 day Treasury bill issuance and the subsequent introduction of the 273 days maturity term. • In 2005, reforms of the Government securities market continued with the cessation of the 12 months and 18 months Government bonds. In their place, a 364 day Treasury bill was introduced alongside the 3 and 5 years bonds. • More recently, in August 2007, a portfolio of Government bond maturity terms was further increased to include the 7, 10, and 15 years. Since that period, the size of the outstanding issues has grown from 7% of GDP in 1994 to 17% by the end of 2007. With regard to secondary market, policy efforts have been initiated at different stages in the development of our market. • In 1996, the Bank of Zambia attempted to jumpstart secondary market trading in Government securities by restricting the primary issues of Government securities to commercial banks. It was expected that commercial banks would take up the role of market-making. This did not materialize with most commercial banks preferring to buy and hold the securities until maturity. Consequently, authorities were obliged to re-open the primary market to other non-bank investors. • Further, since 1998, Government bonds have been listed for trading at the Lusaka Stock Exchange. The benefits have not been realised despite the fact that all banks are registered as brokers in this respect. I am sure the LUSE will provide you with more detail on this as you deliberate. • More recently, the Government and the Bank of Zambia in 2006, with the support of DIFID and the World Bank undertook a study tour of selected emerging markets in Africa and Asia. The aim of this tour was to learn the actual workings of well functioning government securities markets. Technical information was collected and a report prepared. Once the recommendations in that report have been adopted, I expect that these will complement your own efforts to activate secondary market trading. I am aware that the successful development of a secondary market needs a reliable and efficient settlement infrastructure. This is important for it addresses the concern that is normally raised on the possibilities of settlement risk. You may wish to know that the Bank of Zambia and the Lusaka Stock Exchange are already engaged to develop an efficient settlement stream within the RTGS payments system. It is my belief that once this initiative has been fully developed, settlement risk will be reduced and more credibility will be added to securities trading. Chairperson, I know there are still formidable challenges in building a vibrant secondary market. Hence, in my concluding remarks, let me reiterate what I said earlier; that setting the primary market off the ground has been a challenging task. To set up secondary markets is even a more challenging task. Yet it is not an impossible one. With the participation of every stakeholder, the challenges that seemingly look insurmountable can easily be overcome. We all know that the development of a vibrant secondary market for securities is necessary. When I look at all of you gathered here this morning, I see a determined optimism that we can get there. Each and every one of us has a role to play, be it Government, corporate institutions, or indeed a small investor. On our part as Bank of Zambia, you can rest assured that we will continue doing our part in facilitating the development of this market. Thank you very much and I wish you a very successful workshop. | bank of zambia | 2,008 | 3 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the seminar on "Trends in Central Bank Governance", Livingstone, 28-29 February 2008. | Caleb M Fundanga: Trends in central bank governance Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the seminar on “Trends in Central Bank Governance”, Livingstone, 28-29 February 2008. * * * His Honour the Vice President Her Grace the Mayor of Livingstone The Chairperson Central Bank Governors and Deputy Governors Board Members of Central Banks Resource Persons Distinguished International Participants Ladies and Gentlemen On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important seminar on “Trends in Central Bank Governance.” To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, in particular to Livingstone, our tourist capital especially at this time of the year. Like the rest of Zambia, Livingstone is a city of tranquility with an easy-going African charm. Apart from the famous Victoria Falls, there are many other tourist spots such as the Mukuni Cultural Village, curio markets, the Game Park, the National Museum, railway museum, e.t.c. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Livingstone can offer. Like other participants, I am glad to be part of this rare gathering of imminent experts. Ladies and Gentlemen, this seminar comes at a time when the economic performance of our country has significantly strengthened as partly reflected in the developments in the gross domestic product (GDP), inflation, interest rate and exchange rate. At a preliminary estimate of 5.7% in 2007, growth in real GDP has been above 5% for the fifth consecutive year. During the month of January 2008, inflation remained in single digit at 9.3%, from 8.9% and 8.2%, in December 2007 and December 2006, respectively. Commercial banks lending rates have also exhibited an investment-supportive trend while the Kwacha has remained relatively stable. Further, we have observed an improvement in the fiscal operations of the Government, which is supportive of the country’s inflation and growth objectives. The financial sector has also been very stable and registering appreciable growth in the recent years. Nevertheless, Mr. Chairman, despite these achievements, our country like so many other developing countries, still faces some challenges. Notable among these, is the urgent need to consolidate and build the gains so far attained. In particular, the need to attain sustained price and financial systems stability can hardly be over-emphasised. This is even more pronounced given the recent electricity outages experienced across the country and floods that have ravaged some parts of Zambia. Chairperson, it is also pleasing to note that, in the recent past, there has been recognition of the need to adopt economic and structural reforms in most African countries and some benefits are already evident in this regard. Inflation rates have been falling in most countries and they have registered appreciable expansion in economic activities with GDP growth rates averaging at about 5% in 2007. In addition, most countries have become more democratic in political circles, giving more say to the public on the running of governments and their institutions. Distinguished Participants, allow me now to turn to the subject we are gathered here for, that is, “Central Bank Governance”. Good corporate governance is generally acknowledged as important in economic management. In this regard, Central bank governance is arguably defined by a number of key-concepts or pillars, which together should form the basis of an effective legal framework governing a central bank and on which central bank governance should rest, that is, operational independence, democratic accountability and transparency. Despite its common usage, it is not always very clear what central bank transparency amounts to. Generally, two definitions of transparency can be distinguished in the policyoriented literature. Firstly, central bank transparency is referred to as the activities of the central bank in providing information. Thus, in this case, transparency has been defined as the degree to which information on policy actions is available. However, a somewhat broader approach to transparency includes the public’s understanding of the decisions taken by the monetary authorities and the reasoning behind it. Ladies and Gentlemen, the mere fact that a central bank has to conduct monetary policy in a transparent manner at best results in the availability of the information necessary in order to judge the bank’s performance. Discussions of this information are not only done by the government but also most importantly, the public at large. The latter’s perception of what the central bank does and how it is done may have an impact on the central bank performance. Furthermore, Mr. Chairman, our contribution therefore should set out to develop the pillars on which central bank governance must rest. These include operational independence, accountability and indeed transparency which are complementary. Yet, certain tensions between these elements of governance cannot be ignored and have to be observed when establishing a code of good governance. With respect to operational independence, there seems to be consensus among academics and central bankers that central banks must be given a charter which includes a strong commitment to price stability, and the freedom and sufficient scope to pursue it. This means that while central banks may not have goal independence, they should have operational or instrument independence to effectively pursue their primary objectives. In a democratic society, transparency and accountability are essential if central bank independence is to remain “acceptable to the public”. Providing for a sufficient degree of transparency can help not only to increase the understanding of monetary policy which ultimately enhances central bank credibility. Your Honour, This conference follows a similar one held in Botswana hosted by the Botswana Central Bank from 5 to 6 February, 2007 and supported by the BIS Governance Forum and the IMF. It also comes shortly after our very successful conference held at this same venue in November last year on the theme, “Central Bank Independence, Does It Hurt the Treasury?” All these activities are part of the building blocks to a bigger project we have been undertaking in the SADC region aimed at developing a Model Central Bank Act. For us in Zambia, efforts at perfecting the governance as well as the operational efficiency of the financial sector are being done through the Financial Sector Development Plan (FSDP). Under the Plan we have already developed Corporate Governance Guidelines for the financial sector as a whole. Many of these have a lot of relevance to the Central Bank as well. Through the FSDP, even issues such as who should chair the Board of the Central Bank are being discussed. Lastly, let me say that we expect to learn from what other central banks have done, and what challenges they have faced in their quest for enhanced central bank governance. However, it should be noted that each country should establish a legal framework for its central bank governance, which best fits that country’s own history and institutional evolution. This should also take into account international best practice. Your Honour, apart from Zambian delegates, this international seminar has drawn participation from several other countries including: Angola, Ghana, Kenya, Lesotho, Madagascar, Malawi, Mauritius and Mozambique. Other participants are from Namibia, Nigeria, Sweden, Tanzania, Swaziland and Uganda. With this wide participation, I have no doubt that the seminar will be thought-provoking and highly participatory, given also the high calibre of resource persons from institutions such as the International Monetary Fund and the Bank of International Settlements. I therefore wish all of you good deliberations and a memorable stay in Livingstone and Zambia in general. It is now my privilege to call upon His Honour the Vice President of the Republic of Zambia, Mr Rupiah Banda to deliver the official opening speech for the seminar. Your Honour Sir! Thank you. | bank of zambia | 2,008 | 3 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Financial Institutions exhibition in commemoration of International Women's Day, Lusaka, 5 March 2008. | Caleb M Fundanga: Financing for gender equality Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Financial Institutions exhibition in commemoration of International Women’s Day, Lusaka, 5 March 2008. * • • • • • • • • * * The Honourable Minister for Gender and Women in Development The Country Coordinator of the United Nations System The Permanent Secretary, Gender in Development Division The Director, Environmental Council of Zambia Chief Executives of Financial Service Providers Heads of Non Governmental Organisations Invited Guests Ladies and Gentlemen I am honoured this morning to address you at the launch of this important Financial Sector Exhibition by financial service providers, in commemoration of the International Women’s Day for 2008, under the theme “Financing for Gender Equality”. The purpose of this exhibition is for financial service providers to showcase how they are contributing to financing for gender equality. It also provides an opportunity for the various institutions to market financial products that can be accessed by women. A further objective is the sensitization of the financial service providers and indeed the public at large to the need for gender mainstreaming in access to finance. International Women’s Day began with the declaration of International Year for Women in 1975. Since then, many countries world-wide celebrate International Women’s Day to recognize the achievements of women without regard to national, ethnic, cultural, economic or political divisions. International Women’s Day is an occasion to look back on past struggles and accomplishments but even more importantly a time to look ahead to untapped potential and opportunities that await future generations of women. In Zambia today we recognize the strides that have been made by women in national development and we look ahead at the challenges that are before us as we strive to achieve our goal of gender equality. In this regard, Zambia is a signatory to many international instruments and Conventions seeking to empower women. These include the United nations Convention on the Elimination of all Forms of Discrimination Against Women and the SADC Declaration on Gender and Development. This declaration calls for the equal representation of women and men in the decision making structures of member states at all levels, and also for the achievement of at least 30 per cent target of women in political and decision-making structures. I must concede here, Ladies and Gentlemen, that although we have made significant strides as a country in women representation; we are yet to meet the target of 30 per cent. I still believe that this target is not impossible to attain. With concerted effort we can achieve and even exceed it because this country has scores of women with untapped potential. This exhibition gives us an opportunity to identify this potential and encourage our women to stand up, and be counted and contribute to the development of this country. In this regard, the Bank of Zambia and the financial service providers under its regulation and supervision are pleased to be part of the celebrations for International Women’s Day 2008 Distinguished Ladies and Gentlemen, our country has made great economic strides in the past few years. We have had positive economic growth averaging 5% in the last five years. The macroeconomic environment has stabilised with the achievement of single digit inflation as well as reduced interest rates. In addition we have seen increased investments in the mining and other productive sectors. This improved environment presents great opportunities for our country for both men and women. As you all know, women have from time immemorial taken centre stage in the running of small and medium enterprises ranging from agriculture, mining, and tourism, to manufacturing as well as cross border trading. All these economic activities need financing in order to grow and contribute to our country’s Gross Domestic Product. Ladies and Gentlemen, this brings me to the theme of International Women’s day for this year and that is “Financing for Gender Equality”. At the international level, commitments have been made on financing for gender equality and the empowerment of women by governments all over the world. A large number of governments have taken initiatives to integrate gender perspectives into their national budgets in order to reflect the differentiated needs of women and men. At a national level, Zambia is committed to financing for gender equality. The theme for the 2008 national budget is “unlocking resources for economic empowerment and wealth creation”. I believe the economic empowerment is for both men and women. Furthermore, in order to achieve our vision to be a prosperous middle income country by 2030, both women and men must be empowered equally. Women must not be left behind in the drive to this vision. I recognize the creation of the Ministry of Gender and Women in Development, as a deliberate effort by the Government to ensure that the needs of women are addressed. Let me also take this opportunity to appreciate the efforts by our cooperating partners in the financing of activities promoting gender equality. This is evident by the number of non governmental organizations looking at women’s issues, some of whom are represented here today. Ladies and Gentlemen, when we talk about financing, we must focus on the institutions through which most of this financing is channeled namely, financial service providers, most of whom are participating in this exhibition. No matter what kind of financing, be it government, donor or private financing, it is channeled through our financial institutions. As earlier stated, the main reason this exhibition is being held is to showcase how our financial institutions are contributing to financing for gender equality. I also hope that the exhibition will encourage increased access to financial services by not only women but also men from all walks of life. Ladies and Gentlemen, the 2005 Finscope Survey undertaken by Finmark Trust confirmed that levels of access to financial services in Zambia are extremely low. Fewer than 15% of adult Zambians are reported to have had access to commercial banks. Of the 15%, the majority were men. Therefore more needs to be done to enable women have increased access to financial services. This is why one of the strategic objectives of the Bank of Zambia in its 2008-2011 Strategic Plan is to promote financial inclusion. The more financial services are extended to ordinary citizens and small business enterprises, the more there will be a greater proportion of women amongst those receiving these services. We should note that it is women who have special needs in terms of access to financial services. In small businesses, such as small scale farming and market trading, it is very important to have a safe place to save money, maintain working capital and also access loan facilities. Ladies and Gentlemen, as we discuss financing for gender equality, there are fundamental questions we need to ask ourselves such as: • Are services available from a financial service provider more to the advantage of men, rather than women? • Are men’s interests served more than women’s? • Do financial service providers enable women to overcome discrimination against them in their economic life? I believe these questions will be answered positively by the institutions present here. Ladies and Gentlemen, I am happy to inform you that among the products on exhibition here, we have Finance Building Society marketing loans without collateral. This is a very welcome development as one of the challenges to women accessing finance is the requirement for collateral which most do not have. We also have the United Nations country office with all their respective agencies participating in this exhibition to show case how they are supporting women in this country. We appreciate your collaboration with us in this exhibition. The Environmental Council of Zambia has also joined with the financial institutions to increase our awareness on environmental issues and thus promote sustainable development. Distinguished Ladies and Gentlemen, I believe the next two days will be very informative and rewarding. We have 10 commercial banks, 2 building societies and over 10 microfinance institutions exhibiting their products. I understand that tomorrow, these institutions will be recognizing some of their most loyal and exemplary customers and for this I commend them. I am sure that not only women but men will find this exhibition beneficial and I wish you a productive and informative two days. Thank you. | bank of zambia | 2,008 | 3 |
Official opening speech by Dr Tukiya Kankasa-Mabula, Deputy Governor - Administration, Bank of Zambia, at the SADC Central Banks IT Forum 2008 Annual Conference, Livingstone, 3-7 March 2008. | Tukiya Kankasa-Mabula: Technological developments in Zambia and the surrounding region Official opening speech by Dr Tukiya Kankasa-Mabula, Deputy Governor – Administration, Bank of Zambia, at the SADC Central Banks IT Forum 2008 Annual Conference, Livingstone, 3-7 March 2008. * * * Protocol • The Chairman of the SADC ICT Forum, Mr Paulo Maculuve • The ICT Directors from the SADC Central Banks • Mrs. Esselina Macome (Dr), General Manager and Board Member, Banco de Moçambique • The ICT members of staff from SADC Central Banks represented here • Other members of staff from SADC Central Bank represented here • Representatives of Hardware and Software Suppliers • Members of the Press • Distinguished Ladies and Gentlemen On behalf of the Bank of Zambia Governor, I would like to extend a very warm welcome to you all to the “SADC Central Banks IT forum 2008 Annual conference”. To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, and in particular to Livingstone, our tourist capital especially at this time of the year. Like the rest of Zambia, Livingstone is a city of tranquility with an easy-going African charm. Apart from the famous Victoria Falls, other tourist spots include the Mukuni Cultural Village a well stocked curio market, among the many other attractions. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Livingstone can offer. Mr Chairman, it is pleasing to note that the SADC Information and Communications Technology (ICT) Forum will this year be hosting its 13th Annual conference in Livingstone, Zambia. Bank of Zambia, is therefore pleased to join other sister Central Banks who have previously hosted this Annual Conference. Distinguished Delegates, as you are all aware, Information and Communications Technology (ICT) plays a strategic role in the day to day operations in all our Central Banks. The rapid evolution of ICT, which is generally called the “ICT revolution”, has been exerting a profound impact on the world’s economies. As we all can acknowledge, technological innovation has brought about the speedy processing and transmission of information, resulting in substantial reduction in costs, wider networking, and globalization on an unprecedented scale and scope. Distinguished Delegates, the central banks within the SADC region have registered significant developments and advances in the areas of Payment Systems, Website development, and Banking Supervision Application, just to mention a few projects emanating from the SADC ICT Forum initiatives. These projects have been possible and successfully implemented largely due to the co-operation and collaboration that exists between the Central Banks in the region. The issues that will be discussed at this Conference are very important in the context of the realization of some of the key objectives of our central banks that can only be achieved through sound implementation of the ICT solutions. This Conference, therefore, offers all of us various opportunities to effectively contribute to positive developments of our central banks. Mr Chairman, I am informed that one of the notable projects being undertaken collaboratively is on ICT Governance implementation within the central banks using the Control Objectives for Information and related Technologies (COBIT) framework. Ladies and Gentlemen, you will be delighted to learn that just last week a number of board members from central banks in Africa and across the world converged here in Livingstone to discuss the subject “Trends in Central Bank Governance”. Indeed good corporate governance is generally acknowledged as important in economic management and therefore, the role that ICT Governance plays, in this regard, can not be over emphasized. I am also informed that this conference will discuss some of the solutions available for implementing Business Continuity Planning (BCP) and the progress so far made in this regard. Indeed business continuity planning and management for ICT resources is critical to the operations of our Central Banks. The level of investment and dependence on ICT services is significant and few organizations could operate for long today without these resources. I therefore urge you to critically review this area that is equally important to the implementation of good corporate governance. Mr Chairman, allow me also to talk about financial inclusion or access to finance for all. Ladies and Gentlemen, as you are aware most of our rural areas are mostly unbanked due to infrastructural obstacles. It is my hope, therefore, that you will include on your agenda issues to do with ICT solutions to address financial inclusion for sustainable development. Let me now turn my attention to another key issue that I expect delegates to discuss at this Conference. This relates to the crucial role that the SADC IT Forum plays in the Regional Indicative Strategic Development Plan (RISDP), which is the SADC long-term (15-Year) Strategy. It is envisaged that the Committee of Central Bank Governors (CCBG) in SADC will continue to work on the process of monetary and financial integration in the region. In order to meet this aspiration, there is a need to harmonise central banking practices and procedures across the SADC region and benchmark these against international best practices. I therefore trust that this Conference will seek to prepare a RISDP Action Plan which will steer ICTs within the SADC region to higher levels. Equally important, I also expect that this initiative will assist central banks to harmonise ICT functions and come up with shared regional communication infrastructures that promote economic development. Distinguished Delegates, at this juncture let me also thank representatives of the hardware and software suppliers for coming to this Conference. These are our partners and the technologies that have been implemented in our central banks would not have been possible without their technical advice, expertise and innovation. It is the wish of the Bank of Zambia that in future all the SADC central banks can enter into group agreements on certain ICT services that are provided by the vendors. We also believe that this would enable us share the cost of expensive ICT resources in order to achieve economies of scale and leverage effective support from vendors of common software applications. Ladies and Gentlemen, may I conclude by expressing my gratitude and thanks to the staff of the ICT Department at Bank of Zambia for successfully organizing this Conference. I wish you fruitful deliberations during this business week. It is now my pleasure and honour to declare the 2008 SADC ICT FORUM CONFERENCE OFFICIALLY OPENED. I thank you. | bank of zambia | 2,008 | 4 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Equity Capital Resources Unit Trust, Lusaka, 21 April 2008. | Caleb M Fundanga: Financial market progress in Zambia Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the Equity Capital Resources Unit Trust, Lusaka, 21 April 2008. * * * Chairperson Distinguished Ladies and Gentlemen, Let me at the onset express my gratitude to Equity Capital Resources Plc for inviting me to come and officially launch its collective investment scheme which I understand will be called “Equity Capital Resources Unit Trust” or ECRUT in short. This indeed is gratifying to everyone who is anxious to see our financial markets progress. As many of you gathered here already know, the Bank of Zambia in consultation with various stakeholders initiated and developed the Financial Sector Development Plan (FSDP) in 2004. The vision of this Plan is to have a stable, sound and market-based financial system that supports an efficient mobilisation and allocation of resources. It is therefore pleasing that the introduction of ECRUT takes us closer to fulfilling the vision of the FSDP. Ladies and Gentlemen, am sure you will agree with me that collective investment schemes are an indispensable part of market development with several benefits. One of the primary benefits of collective investment schemes is that small investors can have access to professional investment management. Many of our people are not conversant with financial investment matters, yet they are eager to enhance their wealth. Many simply do not have the capacity to identify and manage investments that are appropriate to their risk-return appetite. The people of this country are actually willing to put aside some of their earnings into safe and viable investments. However, safety and viability is only assured with professional investment management which can be offered by people like yourselves. Ladies and Gentlemen, in March 2008, the Lusaka Stock Exchange in partnership with the Bank of Zambia and the Bond Exchange of South Africa conducted a training and consultative workshop to enhance the Zambian bond market. Among the outcomes of this workshop was that one of the modes of collecting funds from the so called “small investors” in the economy is through Collective Investment Schemes. Collective investment schemes can be beneficial to small investors who may not have enough money to carry out a diversification and proper allocation of their assets. Small investor can benefit from diversification techniques usually available only to wealthy investors. With these few benefits in mind, I wish to earnestly appeal to you and other collective investment scheme providers that as you go about doing your business think innovatively about ways you can capture Zambia’s many small investors. Think about how you can provide them with an opportunity to invest in a broad range of assets at affordable cost. I have little doubt in my mind that as you take up this challenge, you will be able to create financial stability by being a good investment manager to this segment of investors. I have been informed by the Chairman of Equity Capital Resources (ECR) Plc that the Company intends to list ECRUT on the stock exchange in the near future. When this commendable intention is achieved, ECRUT will be the first collective investment scheme to be publicly traded on the Stock Exchange in Zambia. With the calibre of men and women behind this investment vehicle, I am confident this will be achieved in the required time frame. When that time comes we want to turn back to this day and say “we were part of the birth of ECRUT”. The existence of the ECRUT shall provide means of resource mobilisation, bringing on board a collection of individual participation in the capital and money markets. This vehicle will facilitate the participation of investors who previously were not capable of participating in highly denominated securities in the financial sector. Ladies and Gentlemen, before I end my speech, let me quickly touch on an important aspect of collective investment schemes, that is, investor confidence in the managers and the industry itself. I believe by far this is the most important factor in whether a scheme can attract and maintain long-term investors. There must be a strong regulatory framework. Whereas there is a strong regulatory body in the Securities and Exchange Commission that vigorously administers the law to protect investors, fund managers must be committed to strong self-regulation and exercise professional ethics to the best interests of investors. This, Chairperson, is fundamental. It now gives me great pleasure to officially launch the ECRUT scheme. Thank you. | bank of zambia | 2,008 | 4 |
Opening remarks by Dr Denny H Kalyalya, Deputy Governor Operations, Bank of Zambia, at the Risk Management Workshop for Risk Liaison Officers, Alternates and Risk Coordinating Officers, Lusaka, 15 May 2008. | Denny H Kalyalya: Practical aspects of the risk management implementation process Opening remarks by Dr Denny H Kalyalya, Deputy Governor Operations, Bank of Zambia, at the Risk Management Workshop for Risk Liaison Officers, Alternates and Risk Coordinating Officers, Lusaka, 15 May 2008. * • The Director – Risk Management • Ladies and Gentlemen * * I wish to welcome you all to this second series of workshops organized by the Risk Management Department. This series of workshops is intended to help us all understand the practical aspects of the risk management implementation process as we proceed to apply it to our respective departments. The sessions you are going to have today and tomorrow focus on the first two stages in the risk management process i.e. the Context Establishment and Risk Identification stages. I am made to believe that, during the course of this year, you shall gather again to deal with the practical aspects of the other three critical stages in the approved risk management process, namely Risk Analysis, Risk Evaluation and Risk Treatment. As you participate in these workshops, it is important to bear in mind that senior management attaches great importance to the implementation of the risk management framework. Ladies and Gentlemen: These workshops have come against a backdrop of implementation teething problems. Departments had difficulties in understanding the initial guidance given by the Risk Management Department in its efforts to facilitate the implementation of the risk management framework. It is senior management’s hope that the facilitation that will be given in these workshops will go a long way in addressing the identified teething problems. It is extremely important that you all realize from the very outset that you will be the anchors for the success of this process for your respective departments. For this reason, it is imperative that you understand in full the processes that will be discussed in this workshop. Senior management’s expectation is that you will acquire the necessary tools to enable you facilitate the proper completion of the Context Establishment and Risk Identification exercises within your respective departments. Ladies and Gentlemen: Allow me to give you a brief background on the implementation of the Risk Management Framework at the Bank of Zambia. You will recall that starting in October 2006 through April 2007, the Risk Management Department embarked on a programme of sensitizing all the members of staff and the Board of Directors on the establishment of the risk management framework at the Bank. Given that these workshops had coverage of 99% of all Bank of Zambia staff, I am more than confident that most of you were participants in those workshops. The end of this series of workshops, marked the end of Phase I of the implementation programme of the Risk Management Framework at the Bank. Following the end of the risk sensitization workshops the next stage required the implementation of the framework in the business areas. As mentioned earlier, the Bank faced a number of teething problems in the implementation process of the first stages of the framework with departments having some difficulties in following written guidance that was being given by the Risk Management Department. As one of the possible solutions to this, senior management agreed to the Risk Management Department’s suggestion that Phase II of the risk management framework implementation process also be effected through workshops, targeting the Risk Liaison Officers who are, by definition, the critical anchors of the approved risk management framework. This background therefore justifies the gathering that we have here today. Ladies and Gentlemen: Your group, as Risk Liaison Officers, Alternates and Risk Coordinating Officers, occupies and a plays a very important role in the governance structure of the Risk Management Framework. You may wish to note that your group plays a function of a “critical link” between staff from your respective departments and the Head of Department who is, by definition, the Risk Manager. For this reason, the importance of your responsibilities should be very clear and need not be overemphasized. For those who might have forgotten their roles, I wish to encourage you to re-familiarize yourselves with the Risk Management and Business Continuity Management (BCM) Policies, where your respective responsibilities are clearly spelt out. Having said this, the workshop you are attending today and tomorrow has the following key objectives: i. to explain the practical aspects of “Context Establishment” and the “Risk Identification” processes so as to ensure that you fully understand these initial, but critical steps, in the risk management process so as to enable you to assist your respective departments to complete these important stages of the process; and ii. to remind you of your role and responsibilities, as Risk Liaison Officers, Alternates and Risk Coordinating Officers, in the Risk Management Framework. Ladies and Gentlemen: Allow me to reiterate what I said during the risk sensitization workshops – the success of the Bank of Zambia Risk Management Framework will in a large measure depend on how well this process will be understood and how well its implementation at departmental level will be facilitated by you. As Risk Liaison Officers, Alternates and Risk Coordinating Officers for your respective departments, you will be expected to not only provide leadership and guidance to your respective departments on risk management matters, but you will also be required to play a catalytic role in the whole risk management process. As the proverbial saying goes, the buck for managing the risks in your respective Departments stops at you! The Risk Management Department’s role will remain confined to the coordination and facilitation of the Bank-wide risk management activities. In conclusion, I wish to urge you all to take a keen interest in the deliberations of this workshop. As officers at the frontline of risk management in the Bank, you are expected to be conversant with the risk management process that is being implemented at the Bank, and there is no better platform to provide that opportunity than now! To this end, the programme of that this workshop is organized in such a way as to be highly interactive. Therefore, I urge you to feel free to ask as many questions as possible. With these few words, it is now my singular honor and privilege to declare this workshop officially open. I thank you. | bank of zambia | 2,008 | 6 |
Opening address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, as the guest of honour, at the Zambia Book Fair 2008, organized by the Book Publishers Association of Zambia, Lusaka, 29 May 2008. | Caleb M Fundanga: Reading towards a sustainable economic future Opening address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, as the guest of honour, at the Zambia Book Fair 2008, organized by the Book Publishers Association of Zambia, Lusaka, 29 May 2008. * * * • The Master of Ceremonies • The Chairman, Book Publishers Association of Zambia • Book Sellers Association of Zambia • The Director, Lusaka Museum • Distinguished Invited Guest • Exhibitors • Ladies and Gentlemen It is a great pleasure and honour for me to have been invited to officially open the Zambia Book Fair 2008, which is the largest book event in the country. I am reliably informed that this year’s fair has attracted around 23 exhibitors, and I am proud to be able to say that the Bank of Zambia is also participating as an exhibitor. Mr. Chairman, The decision to accept the invitation from your Association to grace this occasion as the Guest of Honour was a very easy one to make. There are two important reasons for this: First of all, I love to read. This love for reading extends beyond academic and professional books to fiction, magazines, newspapers, research papers and generally any literature that stimulates me to think critically about the world around me and how I view and understand it. I believe this has broadened my own horizons and enabled me to interact with many different people from different cultures all over the world – creating and cementing many valuable friendships. The second reason is that the theme of this year’s book fair – READING TOWARDS A SUSTAINABLE ECONOMIC FUTURE – touches squarely on my own professional responsibilities as Governor of the Bank of Zambia. Our main pre-occupation at the Bank of Zambia is to help Government attain a sustainable economic future by working to keep increases in the average prices of goods and services low, the price of money (i.e. interest rates) low, and maintaining a stable exchange rate and financial system. This is the best way in which we can assist the Government as it works to advance the welfare of the Zambian people. Needless to say, one of the key pre-requisites for the Government in achieving this goal is the need to develop an educated and enlightened citizenry, which can effectively contribute to the development process. From the Bank of Zambia’s own perspective, the experience of central banks around the world is that effective communication with the public is a very important part of the success of central banks in achieving their objectives of price and financial system stability. The written word, although not the oldest form of communication, is perhaps the most powerful and enduring form for communicating and exchanging ideas. It is therefore indispensable in the work that we do. It is for this reason, for example, that the Bank of Zambia has supported the work of journalists in understanding economic issues and supported their associations in improving the standard of journalism in Zambia. Further, the Bank of Zambia publishes its own inhouse magazine “THE ZAMBANKER” as well as more technical economic articles mainly written by staff on topical issues in the Zambian economy in “THE BoZ READER”. Although most of the articles have been written by staff in the Bank, we have always encouraged the public to contribute articles on issues relating to the Zambian economy. In this regard, I wish to once more extend an invitation to you all to contribute articles for publication in the ZAMBANKER or indeed the BoZ READER. Distinguished Guests, In order to effectively address the issue of how to secure a sustainable economic future, the first point of call must surely be to address the issue of illiteracy in Zambia. A good number of our citizens especially those living in the rural areas are not able to read both in English or local languages. This is a major hindrance to sustainable economic development, as it makes it very difficult to transfer new technologies and skills to the rural populace – skills that are critical in improving health and education outcomes and harnessing the tremendous potential that this country possesses. The scenario in the urban areas, though slightly better than the rural areas, still leaves much to be desired. The culture of reading does not exist. In the past, a bookshelf was one of the most cherished assets in a typical Zambian home. Today, the picture is very different. Either books are not readily available or they are too expensive to buy relative to people’s incomes; or they have lost their place of pride in the home – to home entertainment units packed with latest movies, music and Play Stations, to mention but a few. This situation has been compounded by the non-availability of sustainable library services in our schools, colleges, universities and public libraries. At the moment the better library services are being provided mainly in the urban areas, for instance, by development partners such as the British Council in Lusaka. This clearly needs augmentation by all interested stakeholders to set up libraries both in the urban and rural areas. The other aspect that, therefore, needs to be addressed, in relation to the theme of the Book Fair, is the availability of appropriate reading materials. Achieving a sustainable economic future requires the active participation of a dynamic private sector. Such dynamism requires the availability of relevant and specialised reading materials. The agricultural sector, for example, is an important part of the Zambian economy whose success holds the key to the rapid reduction in poverty that must be achieved if Zambia is to take its place amongst the community of progressive nations. Higher literacy levels in the rural areas will help to propagate better farming methods and conservation techniques. These are methods that contribute to sustained economic growth and protect the environment. Master of Ceremonies, Ladies and Gentlemen, The development of a reading culture in our nation should be placed high on the national agenda if we are to achieve a sustainable economic future as a country. I am aware of the initiatives that the government through the Ministry of Education has come up with to encourage reading at an early stage. The primary reading programme and the concept of reading tent by the Zambia Library Service are some of the initiatives aimed at inculcating the habit of reading at an early age. Other partners in development such as the private sector and our cooperating partners have also been active. Important examples include the introduction of a reading bus by the British Council. All of these initiatives will contribute positively to the development of the reading culture. They certainly are encouraging, but more needs to be done. Particularly, the other key stakeholders who are parents and guardians of our school going children who should take interest in ensuring that children develop a culture of reading and writing. Ladies and Gentlemen, In closing my opening remarks, I wish to point out that currently most Zambian publishers are pre-occupied with the development and publication of core school textbooks where the market is readily available. I wish to challenge publishers to invest some of the profits in the publication of more diverse reading materials including Braille, music and physical education books. As you may be aware, a literate citizenry is a key prerequisite for a sustainable economic future. It is now my honour and privilege to declare the 2008 ZAMBIA BOOK FAIR officially open. I thank you all for your kind attention. | bank of zambia | 2,008 | 6 |
Keynote address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Euro-Money Zambia Investment Conference 'Narrowing Zambias investment gap for sustainable development', Lusaka, 10 June 2008. | Caleb M Fundanga: Narrowing Zambia’s investment gap for sustainable development Keynote address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the EuroMoney Zambia Investment Conference “Narrowing Zambia’s investment gap for sustainable development”, Lusaka, 10 June 2008. * 1.0 * * Introduction Over the recent past, the Zambian economy has performed relatively well. This is reflected in the positive growth rates in real Gross Domestic Product (GDP), low inflation, relative stability in the exchange rate of the Kwacha against major currencies, stable financial sector and improved banking services. The recent impressive economic trends suggest that the reform programmes that have been pursued are working and bearing fruit. These reforms have focused on the restructuring of the economy, to let markets determine prices, shift production decisions from the Government to the private sector and provide an enabling environment for increased investment. This has led to a stable macroeconomic environment and has provided a basis for growth. However, the challenge that still remains is that of meeting the basic needs of Zambians in order to uplift their living standards. Equally, the economy still has low savings needed to finance development activities and therefore needs more foreign capital to expand its productive capacity and create more jobs that contribute to the uplifting of people’s living standards. Zambia is a country with abundant natural resources and human capital. It is a centrally located country with eight neighbouring countries and close proximity to the large market of South Africa, a surface area of over 750,000 sq km, and an approximate population of over 11 million people. It also boasts of a suitable climate, peace and a multi-party competitive democratic political system. The country possesses all the necessary attributes for sustainable economic growth and development. Competitive production costs, incentives, and reforms have also enhanced the attractive investment climate for both local and foreign investors. Numerous investment opportunities exist amongst the agriculture, manufacturing, tourism and mining sectors across various regions of the country. Almost all provinces in Zambia remain potential areas of investment whose resources remain largely untapped. Its active participation in the SADC Trade protocol and the COMESA/FTA offers preferential tariff access to market potential of nearly 380 million people. The Zambian Development Agency (ZDA) Act ensures that property rights are fully respected with full compensation on market value made in case of expropriation. The country is also a signatory to the Multilateral Investment Guarantee Agency of the World Bank which guarantees foreign investment protection in cases of disasters and other disturbances. Bilateral investment treaties with a number of countries also encourage, promote and protect foreign investment. Foreign investors seeking joint venture partners can approach ZDA which registers investors together with project profiles of domestic investors seeking collaboration. 2.0 Recent economic developments 2.1 Real Gross Domestic Product (GDP) During the period 2001-2007, growth in real Gross Domestic Product (GDP) averaged about 5.1% per annum, largely due to investment in the mining, tourism, construction and transport and agriculture sectors. This has set a strong basis for further favourable economic growth in the medium to long-term. Thus GDP growth is projected to rise by no less than 7.0% in 2008 and beyond. Consistent with the developments in the economy, GDP per capita rose to US $934.5 in 2007 from US $360.5 in 2001. 2.2 Interest rates Commercial banks’ lending rates have also been declining, though not as fast as the reduction in inflation and Treasury bills rates. For instance, the commercial banks average lending rate fell from 54.6% in December 2001 to 24.4% in December 2007. Lower lending rates are expected in the current environment of low inflation and will contribute to reducing the cost of doing business in Zambia. 2.3 Inflation Inflation has declined from 18.7% recorded in 2001 to single digit level of 8.2% in 2006 and 8.9% in 2007. It is projected to slow down further to 7.0% by December 2008. This inflation outturn was largely credited to the conduct of appropriate monetary policy coupled with prudent fiscal policy and relative stability of the Kwacha, assisted by lower food prices following the favourable 2005/06 and 2006/07 farming seasons. 2.4 External sector Zambia’s external position continues to show remarkable improvements as reflected in the build up of gross international reserves to 3.6 months of import cover in 2007 from 0.9 months of import cover in 2001. Preliminary assessment is that Zambia’s surplus trade balance rose to US $983.1 million compared to the deficit of US $342.2 million in 2001. Similarly, the current account deficit as a percentage of GDP reduced to 4.4% in 2007 from 19.1% in 2001. This outturn was mainly attributed to high receipts from increased copper exports following increased production and record high prices on the international market due to strong demand mainly from China. Coupled with this, between 2000 and 2007, nontraditional export earnings rose by 260% from US$ 255.7 million in 2000 to US$ 920.7 million in 2007 with commodities such as sugar, copper wire and tobacco, coupled with receipts from tourism making notable contributions. In addition, the attainment of the enhanced HIPC completion point in April 2005 and Multilateral Debt Relief Initiative (MDRI) in 2006 provided for cancellation of (IMF, IDA and ADB) debt resulting in a reduction in debt stock to about US $2.1 billion in 2007 from the end-2001 debt stock of US $7.3 billion. The debt relief and increased budget support from cooperating partners also helped strengthen the external position. The foreign exchange market is liberalised, therefore the Kwacha is determined by demand and supply conditions in the market. In 2007, the Kwacha appreciated against the major international currencies with the exception of the euro. Against the US dollar, the Kwacha appreciated by 7.2% compared with a depreciation of 20.7% in 2006. This was attributed largely to higher inflows of foreign exchange on the market due to increased export receipts, which largely reflected high copper prices and the continued participation of foreign portfolio investors in the domestic Government securities market. The depreciation of the Kwacha against the euro can be attributed to significant gains of the euro against the US dollar and other major currencies, supported mainly by relatively buoyant growth prospects in the euro area. 2.5 Banking sector environment The overall financial condition and performance of the banking sector has been satisfactory, as reflected in adequate capitalisation and most banks meeting their minimum regulatory capital requirements. With 13 commercial banks in operation comprised of both local and foreign, investment opportunities are immense. The Government through the Bank of Zambia continues to modernise the overall commercial banking environment, by endorsing various legislation to promote safe, sound and efficient operations and development of not only the banking sector but the financial system as a whole. This is evidenced by enhanced financial stability and the emergence of a number of financial institutions offering an array of financial services. For example, the National Payments Systems Act was enacted in June 2007, while Access Bank, the fourth largest bank in Nigeria is expected to open a branch in the country by July 2008, raising the number of commercial banks to 14. 2.6 Capital market developments The Lusaka stock exchange performed remarkably well, market capitalisation increased by 45.0% to K18,872.9 billion compared to the increase of 13.9% in 2006. The Lusaka All Shares index almost doubled, rising by 92.9% to close the year at 3,533.52 points compared to an increase of 47.7% in the previous year. This robust performance was a reflection of strong macroeconomic fundamentals in the economy and positive investor expectations in the growth and earnings prospects for both listed and quoted companies. Government introduced 7, 10 and 15-year bonds to help deepen the financial markets in 2007. Foreign investments in Government securities rose to K830.5 billion as at December 2007 from K539.8 billion recorded end-December 2005, an indication of the rising confidence in the economy. 2.7 Fiscal developments On the fiscal front the Government is expected to limit domestic borrowing to 1.2 percent of GDP in 2008. By reducing levels of government borrowing and enforcing prudent budget execution, this should result in greater mobilisation of domestic resources and effective coordination with the monetary authorities. Zambia has articulated its long-term development objectives in the National Long Term Vision 2030, which is aimed at raising Zambia to a middle income status by 2030. Part of this vision is enshrined in the Fifth National Development Plan (FNDP); 2006-2010 whose theme is: “Broad Based Wealth and Job Creation through Citizenry Participation and Technological Advancement”. The growth of the economy will be driven by increased activities by the private sector in agriculture, mining, export-led manufacturing and tourism. Government will support this growth by accelerating the implementation of structural reforms and promote investing in key infrastructure such as roads, energy and telecommunication in conjunction with the private sector as well as improve legal, institutional and regulatory frameworks. 3.0 Infrastructure development In order to consolidate the recent economic successes and to realize full potential, Zambia needs to address the large infrastructure gap that is inhibiting further growth. Weak infrastructure such as: roads, rail system, airports/airstrips and other communication barriers reduce the ability to take advantage of the good location that the country has. Furthermore investment, particularly in rural infrastructure needs to be scale-up significantly. Poor infrastructure and inadequate access is resulting in significantly increased cost of doing business, making it difficult to integrate the rural population with the rest of economy. Opportunities for investment in infrastructure development exist in the following sectors: 3.1 Transport and communication The generally good land route communication networks of Zambia’s neighbouring countries have encouraged the southern connections. The government of Zambia has embarked on the process of rehabilitating the road network, which covers 35,168 km. Therefore investment opportunities are available in the areas of road rehabilitation, routine maintenance and consultancy. Although the country has international highway links with Tanzania, Democratic Republic of Congo, Botswana, Zimbabwe, Namibia, Malawi, Mozambique and South Africa, the roads can not accommodate the growing traffic due to increased trade with other countries. There is a large investment potential for multiple lane highways to cater for the smooth running of traffic for increased efficiency in trade. Further, the railway system remains the dominant mode of transport for heavy goods to local and international routes. It also links Zambia to six African seaports such as Dar es Salaam, Beira, East London, Port Elizabeth, Durban and Cape Town. The railway system however, requires substantial investment to upgrade it into an ultra modern facility that would allow speedy transportation of goods and products to the ports for delivery to other markets. In air transport, Zambia has 4 international airports at Lusaka, Livingstone, Mfuwe and Ndola. In order to support the increased transportation demand for goods and services, there is need to increase the capacity of the existing airports to provide direct links with most countries in the sub-region and other places. Connections to all countries in the subregion will also encourage large commercial airlines to set up in the country and take advantage of Zambia’s central location. Over 97 percent of the telephone exchanges are automatic, and the country enjoys direct dialling facilities, fax, e-mail and television links with the rest of the world. In the main urban centres, public telephones and independently operated cellular telephone networks are in place. Zambia also hosts ZamNet and other internet service providers. In order to continue diversifying our export base and further increase our export earnings, it is imperative that we intensify use of marketing strategies that take advantage of the fact that globalisation requires each country to develop more efficient modes of communication. Therefore, inadequate infrastructure, institutional capacity and investment in skilled human resources should continue to be aggressively addressed by targeting identified weak areas, and implement policies to tackle the weaknesses speedily so as to enhance economic growth and developments prospects. In addressing these issues, it is crucial to build strong partnerships, particularly with the private sector, for effective Information and Communication Technology (ICT) development in Zambia. The agriculture sector however, remains one of the key areas where advancements in ICTs have not yet been fully taken advantage of in order to benefit rural communities and the economy in general. In fact, communications infrastructure has been either lacking or inadequate in most rural areas of Zambia to give an opportunity to rural communities to access and distribute information at low cost, as well as facilitate interactive participation in the creation and use of agricultural information. The potential benefits of a well integrated ICT in agriculture are diverse and include: • transparent dissemination of information such as weather patterns, seed and fertilizer use, availability and distribution; • easy accessibility to suppliers of inputs; • common distribution of information on market prices of crops; and • generally bringing together of suppliers and buyers of crops. Government has put agriculture at the core of rural development and poverty reduction as well as employment creation. It is therefore important to note that the expansion of ICTs in rural communities is more required now than ever before, as most information is now disseminated through internet and cellular phones. These facilities will help uplift the living standards of rural communities. 3.2 Agriculture Zambia’s agriculture sector has enormous potential to become a major grower and exporter of agricultural and horticultural produce. The country has an abundance of quality land, water (over 40% of fresh water resources in Southern Africa) and ideal climate all suited to a wide range of agricultural products. Only 15% of Zambia’s 60 million hectares of arable land is under cultivation. The recent surge in food prices in the world presents an enormous opportunity for Zambia to become the food basket of the sub region. This can be achieved by re-doubling efforts to boost agricultural productivity coupled with substantial increase in infrastructure investment to ease supply bottlenecks that are pushing up prices. Zambia’s irrigation potential is estimated at more than 500,000 hectares while only about 40,000 hectares are irrigated despite the country having abundant water resources. Increased yields in agricultural products like maize, rice and wheat, requires inputs such as fertilizers, irrigation water and proper roads to enable the harvested crops to be transported to the main markets and to prevent crop losses. 3.3 Energy (electricity) Abundant investment opportunities exist in the energy sector in view of the huge power deficits in Southern Africa and Zambia’s potential for more hydro-power generation plants. Due to vast water resources and coal reserves, Zambia is ideal for the provision of hydroelectric power. Although most of the electricity is supplied from major hydro stations, there are also small diesel power stations in rural areas. There are plans to develop a 600-megawatt hydroelectric generation plant on the Kafue River. Currently, the development of Itezhi-Tezhi Hydro Electric Project; Kafue Gorge Lower Hydro-Electric Project; ZambiaTanzania Interconnector; and Zambia-Namibia Interconnector are underway. However, there is still potential for more power generation capacity for the private sector to invest in. Apart from the mining sector that provides a huge demand for power in the country, there is a huge demand for power in the SADC region as well as the Eastern African bloc. The expected rise of the manufacturing sector will also increase demand for power in the country. Opportunities also exist in alternative sources of power such as solar energy and gas energy for domestic cookers. With a temperatures ranging between 15 and 27 degrees for most parts of the year, the solar energy potential is high. The oil refineries in the country also emit gasses that can be tapped and turned into gas for domestic cookers. 3.4 Mining Zambia’s mineral wealth remains substantial. Quite apart from the traditional mining activities in copper and cobalt the list of investment opportunities in this sector include: • Precious metal-gold; silver; selenium; • The platinoid group – iron, tin, nickel and manganese; • Agro-minerals-rock phosphate and igneous phosphate suitable for conversion to fertilizer, peat, limestone; • Reclaiming of copper from slug tailing dumps; • Gemstones-emerald, amethyst, aquamarine, tourmaline; • Nickel; • Uranium; and • Other deposits-talc, fluorspar, graphite, barites and clays, etc. The 1995 Mines and Minerals Act provide exemption from import duty and VAT on all machinery and equipment, including specialised motor vehicles required for prospecting or mining activities. In its 2008 Budget, the Government introduced the new fiscal and regulatory framework for the mining sector. Under this framework, the mining sector will begin to adequately contribute to the advancement of and the social economic welfare of the people of Zambia. 3.5 Tourism Untapped tourism opportunities exist in all the 19 National Parks and 34 game management areas as well as the 23 million hectares devoted to the conservation of an amazing variety of animals. Major attractions include the Victoria Falls (one of the seven natural wonders of the world) and the Kariba Lake (one of the largest man-made lake). Specific areas of investment in this sector include: • Game ranching; • Provision of accommodation (i.e. high quality five and four star hotels, Lodges and Camp sites near the popular tourist areas); • Transport service – Investment potential exists in air charters in form of helicopters and/or small planes to service game areas; • Adventure holiday packages; • Organised tours; • Out door sports facilities (golf courses and stadia); and • Zambia’s cultural heritage. 3.6 Construction and real estate The construction sector is yet another area of investment as the economy expands. A lot has been done in the recent past in construction with housing schemes coming up in various parts of the country. However, there is still a large deficit in terms of housing in Zambia. This deficit in housing provides an opportunity for further investment in the construction of more houses. 4.0 Conclusion Looking ahead, the achievement and maintenance of a low and stable inflation rate, remains key to enhancement of investment, business planning, confidence in the economy, maintaining external competitiveness and stabilising people’s incomes. In the medium-term, Government continues to pursue market and structural reforms in partnership with the private sector with the view of consolidating the gains so far attained for sustained economic growth and development. Currently, there are enormous business opportunities which still lie unexploited in Zambia in virtually all sectors of the economy. The overall economic growth in the economy would be enhanced underpinned on low and single digit inflation and relative stable exchange rate. With an enabling environment, the private sector would exploit their full potential. Hence, employment would increase and poverty reduction would be achieved. This would contribute to the achievement of MDGs and towards the attainment of the Vision 2030. | bank of zambia | 2,008 | 6 |
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. | 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. * * * • 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. | bank of zambia | 2,008 | 6 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the new K10,000 banknote, Bank of Zambia, Lusaka, 16 June 2008. | Caleb M Fundanga: The new K10,000 banknote in Zambia Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official launch of the new K10,000 banknote, Bank of Zambia, Lusaka, 16 June 2008. * * * • Members of the Press • Official from commercial banks present • Ladies and Gentlemen I wish to welcome you all to the Bank of Zambia. The objective of this Press Briefing is to announce the introduction of the new K10,000 banknote in our economy. The new K10,000 banknote will be put into circulation as early as this week. By showing you the new K10,000 banknote first, we expect that you will, in turn, help us to inform the public about this new banknote. In order for us to help you understand the new K10,000 banknote, we have produced posters and will make a short power point presentation. The posters are showing the main public recognition and security features of the new K10,000 banknote. Let me from the outset inform you that although we are calling it a new K10,000 banknote, most of the features on the banknote are still the same as those on the current K10,000 banknotes. The differences can best be detected by comparing this new K10,000 banknote with the current K10,000 banknotes in circulation. Ladies and Gentlemen The new features on the K10,000 banknote are as follows: On the front of the banknote – there is a new bright silver demetallised holographic lead representing a fish eagle. This has replaced the old hologram of the head of a fish eagle. On the back of the banknote –the area around the value numeral, K10,000 in the right top corner, is printed with a special ink which shifts colour from copper to green when angle of view is changed. These are the two changes that have been made to the K10,000 banknote. All other features are basically the same. The reason for the introduction of these two features is mainly to enhance the security of the banknote. The Bank of Zambia would further like to inform the public that the new K10,000 banknote and the current circulating K10,000 banknotes shall circulate side by side. The new and current banknotes will therefore all be legal tender. The current K10,000 banknotes will be replaced by the new K10,000 banknote once they reach the end of their lifespan through soiling and/or mutilation. Therefore, I urge you to take a closer look at the new K10,000 banknote in order to inform the public correctly. I thank you. | bank of zambia | 2,008 | 6 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Microfinance and Small to Medium Enterprises Conference on 'Access to Finance: Corporate Governance and Sustainability', Lusaka, 17 June 2008. | Caleb M Fundanga: Access to finance – corporate governance and sustainability Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Microfinance and Small to Medium Enterprises Conference on “Access to Finance: Corporate Governance and Sustainability”, Lusaka, 17 June 2008. * * * • Honourable Felix Mutati, MP – Minister of Commerce, Trade and Industry; • Mr Michael Mundashi – Non-Executive Director Standard Chartered Bank; • Mrs Mizinga Melu – Managing Director Standard Chartered Bank • Mr Prashant Thakker – Global Head of Microfinance Institutions of Standard CharteredBank • Distinguished Guests, Ladies and Gentlemen I am honoured to have this opportunity to make keynote remarks at this conference on Microfinance Institutions and Small to Medium Enterprises organised by Standard Chartered Bank, whose theme is “Access to Finance: Corporate Governance and Sustainability”. I wish to extend a warm welcome to all participants, particularly those that have travelled from outside the country. I hope that you will find time to see some of the tourist spots of Lusaka and experience the warm hospitality that Zambia has to offer. Distinguished Guests, following the liberalisation of the Zambian economy in the early 1990’s, the number of small- and medium-scale enterprises (SMEs) has increased significantly as the Government divested from running business in the economy to pave way for increased participation of the private sector. For instance, in the mining sector, the supply of goods and services has been taken up by private companies including those that can be classified as SMEs. Similarly, the transport sector, which was dominated by Government through the United Bus Company of Zambia (UBZ), Zambia Railways and Zambia Airways, etc, is now largely run by the private sector, consisting mostly of small and medium entrepreneurs. One can go on to mention the tourism, manufacturing, real estate, construction and others. This development is of great benefit to the economy in general and individual entrepreneurs in particular. Therefore, small- and medium-scale enterprises have the potential to make a significant contribution to the growth of the economy, thereby improving the economic welfare of the population. As you may know, SMEs in Zambia often have a direct impact on community development. Since they are usually based in places where the owners live, they draw upon the community for their workforce and rely on it to do business. They provide employment, particularly for low-skilled workers, as well as women and the youth, who usually make up the greatest proportion of the unemployed. However, this sector has faced difficulties in accessing credit for working capital and expansion of their investments. Mr Chairman, even if more SMEs wished to modernise their plant and equipment, they would find it hard to do so because of the difficulty of obtaining financing. Many banks choose not to provide credit to SMEs as they are perceived to be more risky and yet less profitable. Some banks that might want to make such loans may lack the knowledge of how to make small loans and package them appropriately. The other challenge lenders have to work with in assessing SMEs for them to access credit is the lack of reliable data. For example, data on the share of bank credit to SMEs are almost non-existent in Zambia. Even in banks where credit data are available from credit registries, in most cases they do not include information about the size of firms. Any estimates regarding the share of credit to SMEs have to rely on proxies, such as the size of loans. Mr Chairman, it is clear that lending to SMEs is different from lending to large firms. In the case of young firms, it is more difficult to acquire information. Moreover, given the small size of the loans, it does not pay for the bank to undertake a detailed review of the creditworthiness of SMEs. Thus, for SME lending to be profitable, banks must experiment with new approaches and technologies for risk assessment and loan management. Such experimentation produces positive externalities by generating knowledge that is difficult for the bank to keep for itself, since trained agents can leave the bank to work with competitors. The other benefit we get from SMEs is that when there are adverse shocks in the market, their small size and flexibility allow them to speedily adjust to market changes. Ladies and Gentlemen, it is encouraging to note that, in the recent past, banks and non-bank financial institutions have expanded their provision of finance to SMEs, although there is still a lot of room for further improvement. We have recognised that a long-term strategy for SMEs calls for action across a wide range of policy domains, including education, research and development, financial sector regulations, competitive policies and a sound banking sector. These actions should address the need to create a healthier overall economic environment in which the business sector, SMEs in particular, operate. All key stakeholders should therefore strive to put in place SMEspecific policies and programmes that provide the sector with the support it needs to prosper. The banks are not an exception in this regard. The most recent statement of policies for SMEs are outlined in the Fifth National Development Plan, and they are in line with the country‘s long-term economic programme as enunciate in the Vision 2030. The primary stated objective of this policy is to create conditions conducive to sustainable growth in a structural context of private sector participation, openness and enhancing efficiency within a competitive environment. In order to enhance their contribution to economic growth, the Government during the Fifth National Development Plan (FNDP) period is focusing on addressing constraints that have negatively impacted on the performance of the manufacturing sector. One of the specific interventions in assisting enterprises, particularly the SMEs, is to access affordable finance. As major players in credit provision, Banks have an urgent challenge to provide products that are suitable to SMEs and within their reach. Honourable Minister, at current levels, interest rates are too high for the SMEs to access credit. We urge banks and other financial institutions to continue reviewing the cost of borrowing as part of the process to improve SMEs access to the much needed finances to expand their operations, employ more people, and thereby provide impetus to significantly reduce poverty rates in the country. Honourable Minister, distinguished ladies and gentlemen, in view of the financing gap for the SMEs, the microfinance sector in Zambia has taken a leading role to fill this vacuum. However, the services provided by the microfinance institutions fall short of meeting the demands of SMEs. The sector can be said to be relatively young with the pioneers being established in the early 1990’s. Distinguished ladies and gentlemen, I am glad to note that the conference will also focus on the very important aspect of corporate governance. Corporate governance is vital to building a solid, efficient and sustainable financial system and growth of businesses. Without these sound foundations, the institutions capable of reaching out to the poorest in society will never be encouraged. It is generally agreed that there is a strong link between corporate governance and access to finance. The following are some of the attributes of an enterprise with good corporate governance: (i) A well managed and coordinated company; (ii) Role and duties are clarified; (iii) Easier access to finance; (iv) Financial awareness and the ability to respond quickly; (v) Significant reduction in business risk and corporate failure; and (vi) Increase in monetary value of the firm. In the case of Zambia, a BoZ Microfinance Survey of 1999 highlighted that most of the MFIs were inadequately capitalised and had weak corporate governance structures. The survey also pointed out that there were about 98 MFIs operating across the country in an unregulated environment. The study further revealed that the nature of microfinance business in Zambia was generally targeted at the lower income group which have limited or no access to financial institutions offering financial services such as credit or savings. Following the study, broad consultations were held with various stakeholders, including Government, commercial banks and other financial institutions, and the general public. The purpose of the consultations was to ensure that the development of legislation relating to the microfinance sector was as comprehensive and appropriate as possible. The consultations by the Bank of Zambia were extended to various countries to obtain international best practice that could be of benefit to our local environment. Therefore, in order to ensure that the MFI sector grows in a sustainable manner and to protect public deposits, the BoZ developed the Banking and Financial Services “Microfinance Regulations” which came into effect on 31 January 2006. The Regulations were aimed at strengthening the sector and ensuring accountability and transparency in operations and providing effective smooth integration of the sector into the mainstream financial sector. Honourable Minister, distinguished ladies and gentlemen, at the time of the coming into effect of the Microfinance Regulations, there were only three microfinance institutions licensed by the Bank of Zambia. Today, the number of licensed microfinance institutions has increased to thirteen. This number is expected to increase further in light of the additional applications that are currently being considered. Ladies and Gentlemen, it is pleasing to see the extent to which commercial banks are working at providing financial services to the medium and small scale entrepreneurs. This is so because such financial inclusion is bound to lead to wealth creation. It is imperative that commercial banks, in providing financial services, ensure that the projects they are supporting are financially viable. The role of the commercial bank, in this regard, goes beyond sifting out unviable projects and providing finance for the best projects. As Bank of Zambia, we are pleased to see that the private sector, especially banks, are now taking steps to partner with Government in working towards reduction of poverty through increased provision of financial services to a wider clientele. We are also pleased to witness the unique partnership between Banks and MFIs and SMEs on sharing skills and experiences in areas of common interest. This is key to creation of common understanding. I wish to conclude by urging participants, to actively participate in the deliberations of this conference. I am certain that this conference will benefit both the local institutions and our visitors from abroad. Once again, I would like to thank Standard Chartered Bank Zambia Plc, for organising such an important workshop for MFIs and SMEs. Honourable Minister, distinguished ladies and gentlemen, I thank you. | bank of zambia | 2,008 | 6 |
Paper presented by Dr Denny H Kalyalya, Deputy Governor Operations, Bank of Zambia, at The Zambia Institute of Chartered Accountants Annual Business Conference, Livingstone, 7-8 August 2008. | Denny H Kalyalya: Financial access and sustainability of financial services in Zambia Paper presented by Dr Denny H Kalyalya, Deputy Governor Operations, Bank of Zambia, at The Zambia Institute of Chartered Accountants Annual Business Conference, Livingstone, 7-8 August 2008. * 1.0 * * Salutation • The Guest of Honour • Chairperson • Distinguished participants • Ladies and Gentlemen It is an honour and privilege for the opportunity to make a presentation to this important ZICA Annual Conference. Before going any further allow me to convey the Governor’s sincere apologies for not being able to come due to prior commitments. He did also send his good wishes for a successful conference. 2.0 Introduction In my brief intervention, I will endeavour to address the question of financial access and sustainability in Zambia. It is generally recognized that the financial sector plays a critical role in the mobilization of development finance and stimulation of economic growth and development in general. An efficient, broad-based and dynamic financial sector is an essential element in the attainment and maintenance of high rates of economic growth and sustainable development. Through their services, banks and non-bank financial institutions (NBFIs), they provide an efficient mechanism for the allocation of savings and investment and they enable financial transactions to take place at minimum cost. To discuss the issues of financial access and sustainability in Zambia in a little more detail, our presentation is organized as follows. In Section Three, we provide a brief summary of the financial sector in Zambia. This will be followed by a discussion of financial access in section Four. In sections Five and Six highlights on the issue of sustainability and concluding remarks are provided, respectively. 3.0 The financial sector in Zambia The financial sector in Zambia comprises banks and non-bank financial institutions (NBFIs) and are regulated and supervised by three agencies, namely, the Bank of Zambia (BoZ), the Pensions and Insurance Authority (PIA), and the Security and exchange Commission (SEC). 1 However, the presentation will focus on the component of the financial sector under the regulatory and supervisory ambit of the BoZ. It is expected that the rationale for such a focus will become clear as the presentation progresses. As participants may be aware, the mission statement of the Bank of Zambia is to “formulate and implement monetary and supervisory policies that achieve and maintain price stability and promote financial system stability in Zambia.” The Pensions and Insurance Authority (PIA) regulates and supervises insurance companies and pensionfunds, while the Securities and Exchange Commission (SEC) regulates securities firms. In line with this mission statement, the BoZ is responsible for regulating and supervising banks and the following types of NBFIs: • Leasing and finance companies; • Housing financial institutions (building societies); • Savings and credit institutions; • Development finance institutions; • Microfinance institutions; and • Bureaux de change. As at June 30, 2008 there were 14 commercial banks and 71 NBFIs (see Appendix I). Currently, commercial banks dominate Zambia’s financial system with total assets and liabilities amounting to K14,465,045 million as at June 30, 2008 (about 31.8% of GDP). The reference NBFIs, notably, the leasing and finance companies (11, two of which are under statutory management of the Bank of Zambia 2 ), building societies (3), microfinance institutions licensed under the BFSA (15), development finance institutions (1) and savings and credit institutions (2). The combined balance sheet of these institutions, as at June 30, 2008 amounted to about 7.9% of the aggregated balance sheet of the commercial banks (see Table 1). 4.0 Access to financial services In May 2007, here in Livingstone, the World Bank organized a Southern Africa roundtable discussion on the launch of their new report entitled, “Making Finance Work for Africa”. A common understanding arising from this debate was that financial exclusion has negative economic and social effects on society. These include the following: i. The lack of efficient financial service provision means that poor people are either forced to use inefficient provisions, often at high cost (for instance, with high transactions costs, excessively high interest rates on loans, or poor returns on savings) thereby entrenching poverty – or they do not have access to certain financial products, either because of an absolute absence of suitable products or because available products are too expensive; ii. This in turn tends to restrict the economic opportunities open to the poor and makes the poor vulnerable to adverse events and financial loss (e.g. due to the lack of insurance and secure savings products); Access Financial Services Limited and Access Leasing Limited were placed under statutory management of the Bank of Zambia on 13 January 2003. iii. The absence of savings products makes it difficult to build up capital; and iv. As the poor are faced with the high costs of accessing financial services, and are denied entrepreneurship opportunities that might provide them with a chance to earn an income, poverty becomes entrenched. In the recent past, it is gratifying to note that financial sector in Zambia has begum to demonstrate that it is reasonably efficient, sound and profitable. Since the many bank closures of the mid- to late-1990s following stiff competition and the tightening of regulation and oversight through the promulgation of the Banking and Financial Services Act (BFSA) in 1994 we have not experienced any serious banking crisis. That be as it may, like in many other developing countries the financial sector in Zambia still faces a number of challenges. The Financial Sector Assessment Programme (FSAP) Report of 2002 highlighted a number of these including limited access to financial services by the rural and peri-urban population and doubtful sustainability of financial services in Zambia. In light of these findings, and in recognition of the strategic importance of the development of the financial sector in contributing to sustainable economic growth and poverty reduction, the Government of the republic of Zambia developed and launched the Financial Sector Development Plan (FSDP) in 2004. The FSDP is a comprehensive five year strategy to build and strengthen the financial sector infrastructure to enable it to support economic diversification and sustainable growth. In addition, and in furtherance of the objectives of the FSDP, the BoZ Strategic Plan for 2008 – 2011 has made financial inclusion as one of its key strategic objectives. Under the FSDP two important studies, the FinScope™ Surveys of 2005 and 2007, on the demand for and supply of financial services in Zambia have been completed. These studies have augmented the earlier findings of the FSAP with respect to the key developmental challenges for the financial sector in Zambia. 3 The key findings of the Finscope Survey on the demand for financial services included the following: • Only 34% of the population were “financially served”, i.e., used formal and/or informal financial products, whilst 66% had no access to financial services; • 77.5% of Zambians report to have never had a bank product or service; • 40% of salaried staff reported not having bank accounts, signifying that they received money in cash rather than through the financial system; • The barriers to accessing financial services include cost, distance, time and transport to reach the bank or financial service provider; • Rather than purchase treasury bills, buy life insurance or stocks on the stock exchange, most of the respondents preferred to invest in agriculture or a business; • Microfinance institutions although used by only 5% of the adult population plays an important role in increasing levels of access to financial services; and the • The informal sector in Zambia played a significant role in the provision of financial services catering for 11% of the population, compared with other countries in the Southern African Development Community (SADC) where similar surveys have The FinScope™ 2005 survey was a representative, nationwide survey of 4,000 households, with questions on the use of a wide range of financial services focusing on four main product types: savings, credit, insurance and transactions, both formal and informal. The survey focused on the use of personal financial products and services. It was conducted by FinMark Trust of South Africa. been undertaken, namely, Botswana, Namibia and South Africa at 5%, 1% and 8%, respectively. An important point to note for policymakers is the fact that the majority of those who had no access to financial services are the rural poor, with women more disadvantaged than men. Importantly, these are the very areas and categories of people for whom support has been prioritized in the Fifth National Development Plan (FNDP) and under the Citizens Empowerment Act (2006). The Government, working with the private sector and other key stakeholders, thus already has platform from which to address these challenges. During the first half of 2007, the Supply Side Study was undertaken as a follow up to the FinScope™2005 demand side survey. The Study revealed opportunities as well as challenges in addressing access to financial services and financial sector development in general. First, macroeconomic policy and financial sector regulation were no longer viewed as a problem, following the downward trend in inflation to single digits in 2006, the consolidation of the Government’s fiscal position, strong economic growth. Second, the enabling environment to facilitate the expansion in access to credit, i.e. developments in the payment system and the greater sharing of information in the financial markets through credit bureaux is also not yet a binding constraint. The Study does, however, recognize the need to continue to develop the payment system and improve the flow of information between financial services providers as well as with their potential clients to avoid this becoming a binding constraint as the financial system develops. Third, the key constraint to expanding access related to the focus and strategies of individual banks and NBFIs. The Study points out that commercial banks have tended to provide financial services to a narrow group of clients (typically corporate entities and formal sector employees), at a high cost, within a narrow geographical location (typically the major towns and peri-urban areas, and they have made high returns in doing so (see Table 2). Disappointingly, NBFIs have typically served the same client base and have not offered effective competition to commercial banks. 4.1 Initiatives to expand access to financial services There are a number of strategies being implemented by both the private and public sectors to make the financial sector more inclusive, thereby increasing the benefits to the poor of participating in the formal economy. 4.1.1 Financial service providers Currently, there are signs that a number of financial institutions are re-positioning themselves in terms of location and product offerings. This is evidenced by an expanding branch network and the range of lower-cost products that are now available in the market. For instance, some commercial banks have begun to offer new financial products and services, particularly in retail and community banking. This expansion has also been noted in the microfinance sector which is growing to fill the supply gap for finance that arose from the closure of banks and branches in rural and peri-urban areas earlier on. With the microfinance regulations issued in 2006, the number of microfinance institutions licensed by BoZ, for instance, has grown from 3 in 2006 to 15 as at June 30, 2008, with several other applications currently under consideration. This change in strategy is partly due to the strengthened fiscal position of the Government and the significant fall in annual inflation to single digit levels in 2006 for the first time in three decades. These developments have resulted in reduced returns on investment in Treasury bills and Government bonds thus compelling banks and NBFIs to actively seek other investment avenues. To this end, domestic credit to the private sector as a percentage of GDP has increased from 18.7 percent at the end of 2005 to 43.0 percent at end of 2007. In the same period, the proportion of national savings increased from 18.1 percent to 21.6 percent. 4 These statistics are good indicators of improving access to financial services. 4.1.2 Government The Government is encouraging the state-owned NBFIs, that already deal with the lowincome market to deepen and broaden their services. Some of these already have an increasing presence country wide and have developed strategic development plans, aimed at extending financial services to the low income population. The role of Government as shareholder of public NBFIs has been to implement a coherent shareholder strategy to bring these public financial institutions back to commercial viability through provision of financial support. The Government has indicated its intention to further capitalize these institutions for this purpose. 4.1.3 Citizen economic empowerment The Government has also pushed the issue of “access” to the top of its financial policy agenda and is emphasizing on the need for financial inclusion for all citizens as evidenced by share floatation in favour of Zambian citizens in privatized state enterprises through the Citizens Economic Empowerment Act. 5.0 Sustainability of financial services 5.1 Regulatory framework The BoZ is responsible for regulating and supervising banks and the specified NBFIs. This entails, among other aspects, ensuring that financial service providers (FSPs), as these institutions may generally be referred to, are adequately capitalized and have risk management systems appropriate for their size, nature of operations and level of complexity. Safe, strong and sound FSPs are vehicles for the provision of sustainable financial services as they better cope with external shocks. A significant part of the BoZ analysis involves reviewing key ratios from financial statements. The objectives of this ratio analysis are, among other things, to discern trends, identify key risk areas to focus on and to compare performance with competitors, industry average or standard. For instance the key ratios relating to banks’ performance in the recent past is shown in Table 3. Zambia: Selected Economic Indicators, IMF 2008. The BoZ also recognizes that financial stability is essential for strong macroeconomic performance and execution of monetary policy. This is clearly reflected in the Bank’s mission statement, referred to earlier. To ensure stability, our supervisory processes are based on a robust regulatory framework, underpinned by on-site inspections and off-site surveillance, which places emphasis on banks proactively managing the risks inherent in their products and services. Financial stability can only exist when all financial system risks are adequately identified, allocated, priced and managed. FSPs face a significant number of risks, which include credit risk, operational risk, market risk and liquidity risk. As a result, a minimum regulatory capital charge is defined to cover these. In responding to the challenge, in 2006, the Capital Adequacy Regulations of 1995 were amended to provide for a tiered capital structure to encourage entrants into the financial sector (see Table 4) The review was aimed at ensuring that banks are adequately capitalised at commencement, and as they operate. In 2005 amendments were made to the Buildings Societies Act, Development Bank of Zambia Act, National Savings and Credit Bank Act and the Banking and Financial Services Act, to ensure harmonisation of these pieces of legislation under this sector. The amendments have enhanced the supervisory oversight of the BoZ on the financial sector. The Bank of Zambia Act is also being reviewed with a view to enhancing operational independence of BoZ. In 2006, Microfinance Regulations were introduced to provide a framework to set standards for the industry thereby affording the microfinance sector a chance to operate and grow in a manner that is safe, sound and sustainable. For instance, no Trust is allowed to own shares. Regulation 20 provides that an MFI shall have a board of directors of not less than 5 members, the majority of whom shall be permanent residents in Zambia. Regulation 35 provides that no person shall, without prior BoZ approval, own more than 25% shares in a deposit taking MFI, while Regulation 35(4) provides that no person shall, without prior BoZ approval, own more than 50% shares in a non-deposit taking MFI. 5.2 Prevention of money laundering The increasing threat posed by money laundering can undermine confidence in any economy. Some of the threats of Money Laundering that distort countries’ economies include the following: i. Undermining of the legitimate private sector – Money launderers use money obtain through criminal activities to set up front companies in order to hide the ill-gotten wealth. This gives the front companies an unfair competitive advantage over genuine companies as they can afford to undercut prices with subsidised laundered resources. ii. Loss of control of economic policy – Depending on the magnitude of the laundered money in an economy, these funds may dwarf government’s budgets, resulting in loss of control over economic policy by governments. iii. Economic distortion and instability – Criminal money responds not to economic or financial signals but to opportunities for further crime and the threat of being caught. Therefore money launderers will not generally invest funds in activities that are economically beneficial to the country. iv. Loss of revenue – Money laundering makes governments’ tax collection efforts difficult and diminishes tax revenues. v. Reputation risk – In today’s global economy, nations can not afford to have their reputations eroded by association with money laundering. Legitimate businesses will not want to deal with a bank or financial institution suspected to handle criminal funds. vi. Undermines the financial sector – The unchecked use of the financial system by criminal organisations risks undermining individual institutions and ultimately entire financial systems. When banks or financial institutions become part of a criminal network, they lay themselves open to loss from fraud if they do not screen out undesirable customers or if their own officers are compromised. In the face of the above economic, financial and political threats, the international financial community has recognised that public confidence in such institutions, and hence their stability, could be undermined if they became associated, even inadvertently, with criminals. In order to prevent the escalation of money laundering, the following measures have been undertaken: i. The Government has enacted the Prohibition and Prevention of Money Laundering (PPML) Act 2001 which has criminalized money laundering and provides for the forfeiture of property by offenders; ii. BoZ has issued Directives to all regulated financial institutions on combating money laundering to ensure that the potential threats posed by money launderers are limited; and iii. BoZ has also developed a supervisory framework aimed at conducting targeted inspections to ensure banks and NBFIs are complying with the anti-money laundering legislation and directives. 5.3 Improvement of credit culture In order to improve the credit culture in the country, the BoZ issued the Credit Data (Privacy) Code and the Credit Reference Services (Licensing) Guidelines to facilitate the establishment of credit reference bureaux (CRBs). The guidelines were gazetted on 30 January 2006. Subsequently, the first credit bureau, namely, Credit Reference Bureau Africa Limited (CRBAL) was licensed on June 5, 2006 and was launched on January 11, 2007. The main task of a CRB is to provide lenders with factual information upon which they can base their lending decision. While CRBs facilitate sharing of information without approving or disapproving credit, or collecting debts they also assist consumers understand the responsible use of credit and help lenders in identifying good payers from defaulters. Once fully operational the credit bureau will: i. Allow for increase in credit extension because of better risk profiles; ii. Reduce credit processing costs and times as well as loan write-offs; iii. Lower borrowing costs; and iv. Enhance the credit culture, which in turn will allow for the provision of the much needed finance for the development of various sectors. 5.4 Cost of banking services • It has been observed that the Zambian banking industry has one of the highest operating costs when compared to other countries in Sub-Saharan Africa. In turn, the cost structure makes it difficult to develop efficient, low cost services that the general populace can afford. The challenge for the industry is to come up with innovative ways and means of providing banking services at affordable costs in order to capture the larger un-banked population and also improve economic activities in productive sectors. This challenge is slowly being addressed in various ways including the following: 5.5 i. Consumer awareness through quarterly publication of bank charges in the daily papers of circulation in order to allow the public an opportunity to make informed decisions by comparing charges offered by banks; and ii. Banks are required to comply with the Cost of Borrowing Regulations of 1995 and to disclose to the borrower the cost of borrowing whenever a loan is made. Corporate governance In recent years, corporate governance has emerged on the global agenda as a key part of the pursuit of proper and effective business practice. The objective being the need for probity in business activity, compliance with the law and regulations, and to secure good reputation and confidence and thus attract investment. At the heart of the debate on good corporate governance lie the conflicts or potential conflicts of interest, between shareholders and either the board of directors as whole or individual board members. Areas where a conflict of interest might be apparent include the following: i. Financial reporting and auditing. The directors may try to disguise the true financial performance of their company by “dressing up” the published accounts and giving less than honest statements; ii. Director’s remuneration. Directors may reward themselves with huge salaries and other rewards, such as bonuses, a generous pension scheme, share options and other benefits with little regard to the needs of the shareholders and the company; and iii. Risk taking. Directors of companies might take decisions intended to increase profits without regard to the changing risk profile of their existing businesses. • Under the Companies Act, directors are liable for breaches of fiduciary duties and obligations. For instance, directors are liable for any loss suffered as a result of their acting outside their authority or for failure to exercise the degree of care, skill and diligence expected of them in the circumstances. The BFSA complements the provisions of the Companies Act by placing more duties and obligations on directors of banks and financial institutions. Chapter III, Parts III and IV of the BFSA deals with the boards of directors of banks and financial institutions. Under these parts: i. Every bank or financial institution is expected to have a board of directors in which shall vest all the powers of management and control and which shall be responsible for the formulation of policies of the bank or financial institution (Section 30(1); ii. The Board of directors shall consist of not less than 5 members (Section 30(2); iii. Every financial service provider must have a Chief Executive Officer and Chief Financial Officer who shall not qualify to hold office unless it is shown that they are fit and proper persons, above 21 years old, have not been convicted of a felony or offence involving dishonesty, are not mentally incompetent, have never been removed from office under the BFSA, have not managed a company that has gone into liquidation or entered into a composition with creditors (Section 31); iv. The majority of directors must be from outside the bank (Section 32(1); v. Directors, Chief Executive Officers and Chief Financial Officers are expected to act honestly, in good faith and in the interest of the company whilst exercising due care, diligence and skill (Section 33); vi. A director is required to declare in writing to the board annually, the names and addresses of the director’s associates and full particulars of every material interest (Section 35); vii. A director who (a) negligently or with intent to deceive, makes any false or misleading statement or entry or omits any statement or entry that should be made in any book, account, report or statement of the financial service provider, or (b) obstructs or endeavours to obstruct (i) the proper performance by an auditor of the auditor's duties in accordance with this provisions of this Act; or (ii) a lawful inspection of the service provider by a duly authorised inspector appointed by the Bank of Zambia, commits an offence and is liable on conviction to a fine or to imprisonment (Section 36). In addition to the provisions of the BFSA, the BoZ has put in place a number of regulations aimed at enhancing good corporate governance for the FSPs regulated by the BoZ, some of which are listed below: i. The Prohibition and Prevention of Money Laundering Act of 2001 (PPMLA) and the Anti-Money Laundering Directives obligate the board of directors to formulate anti-money laundering policies and ensure senior management implement these policies; and ii. 5.6 The Corporate Governance Guidelines for Financial Institutions issued in November 2006 set forth a broad framework of fundamental corporate governance principles to guide the actions of the directors and managers of the institutions operating in Zambia. Sovereign credit rating for Zambia The process of obtaining a credit rating for Zambia has reached an advanced stage. With increased funding, particularly through foreign direct investment, institutions which are involved in medium- to long-term financing, are expected to access relatively cheaper credit and increased access to finance. With an increase in access particularly to rural areas, the number of excluded people is likely to decline from the levels of 66% recorded in 2005. 6.0 Conclusion Recent developments in the financial sector offer some encouragement that working together, the Government, the BoZ, and the financial service providers can extend the range and reach of financial services that are available to both corporate and individual clients. Still a lot remains to be done to extend financial services to the majority of our people and foster ongoing sustainability of our financial institutions. In this regard, there are a number of challenges that lie ahead including the following: i. Developments in the external sector are a constant threat to macroeconomic stability in general and implementation of effective monetary policy, in particular. In this regard, maintaining single digit inflation, given the rising fuel and food prices will be quite challenging and therefore requires concerted efforts of all key stakeholders. ii. Strengthening and staying the course with regard to the recently achieved fiscal prudence as well as forging relatively stronger coordination between fiscal and monetary policies is an equally challenging task in the period ahead. iii. The provision of infrastructure, particularly in rural areas is an equally important challenge as without good infrastructure very little will happen in the way of expanding financial and other services to these areas and not to mention the resident population. iv. Innovation – the Financial Service Providers themselves need to invest in new technology and human resources that will enable them to provide lower cost financial services and expand their client base. While conventional dedicated, fullservice banks, with “brick and mortar” branches, have high costs and staffing requirements, the use of technology can aid the delivery of low-cost (and hence lowcharge) banking services. Many financial transactions do not require staffed bank branches; for instance cash can be assessed through ATMs (which could, for instance, be installed in all post offices). Another opportunity arises from mobile phone banking, which has much potential for low-cost banking and financial services and therefore able to transform financial access through extending banking to the unbanked using existing mobile communications infrastructure which already reaches many unbanked people. v. Consumer awareness, there is need to enhance financial literacy so that the public can fully appreciate the cost of financial services. Such knowledge would enable them to make informed decisions about their levels of financial commitments. Tied to this is the need to promote responsible lending. Developments in the financial system are critical for the achievement of sustainable growth in the long term. Given the undeveloped nature of Zambia’s financial system, it is evident that the diversification and strengthening of financial institutions, instruments and markets must be regarded as a prerequisite to further economic development. In this regard, the Government approved the Financial Sector Development Plan provides a framework for focused development of the financial system. Bearing the foregoing, the BoZ continue to closely monitor the financial condition and performance of the financial sector. References 1. FinMark Trust (2005). Measuring Financial Access in Zambia: Summary of Topline Findings, FinScope™(2005) Survey. 2. GRZ (2004). Financial Sector Development Plan for Zambia. 3. Honohan P., and T. Beck (20070. Making Finance Work for Africa. World Bank, Washington DC. 4. Jefferies. K. Enhancing Access to Banking and Financial Services in Botswana. Appendix I containing contact details of banking and other institutions in Zambia can be found on Bank of Zambia’s website www.boz.zm. | bank of zambia | 2,008 | 8 |
Address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Commissioning and Official Opening of Access Bank (Zambia) Ltd, Lusaka, 24 September 2008. | Caleb M Fundanga: Strengthening the Zambian banking sector Address by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Commissioning and Official Opening of Access Bank (Zambia) Ltd, Lusaka, 24 September 2008. * * * • H.E, Acting President of Republic of Zambia, Mr. Rupiah Banda M.P; • Honourable Ministers; • H.E Nigerian High Commissioner to Zambia; • Access Bank Group Deputy Managing Director; • Access Bank Zambia Chairman; • Access Bank Zambia Managing Director; • Distinguished guests; • Ladies and Gentlemen. I am greatly honoured to be given this opportunity to make brief remarks at this formal commissioning and opening of Access Bank (Zambia) Ltd. I wish to extend a warm welcome to all of you gathered here today, particularly those who have travelled from outside the country. Your Excellency, Honourable Ministers, today’s event is a crowning moment and demonstrates the fruits of the economic reforms that the Government has continued to implement in the financial sector in particular and the economy in general. Indeed it is a landmark achievement in the Government’s concerted efforts aimed at attracting foreign investors. It is also gratifying to note that Access Bank Zambia Limited is the first bank to be registered in the country since 1999. I am also happy to inform you, Ladies and Gentlemen, that the Bank of Zambia is currently reviewing other applications for banking licenses. In this regard, we expect a few more banks to be registered in the near future. This interest we are witnessing in the financial sector is due to the favourable economic environment that has been created in the last seven years. During this period, the economy has performed relatively well as reflected in the overall macroeconomic stability, which has been underpinned by sustained positive growth rates in the real Gross Domestic Product averaging over 5% in the last five years. I do hope that Access Bank Zambia, will play a special role in taking this growth to an even higher level. In the financial sector, stability has continued to characterize the financial system with all banks being adequately capitalised and non-bank financial institutions performance being satisfactory. I am convinced that this stability, among other factors, will continue to contribute to the attraction of international investors such as Access Bank to invest in Zambia. It is my hope that with new entrants in the banking sector, the provision of financial services to the public will become more competitive both in terms of the variety of services offered, efficiency and pricing. The need for provision of affordable banking services to the majority of our people can not be ever emphasised. Such services will greatly benefit our people and contribute positively to poverty reduction in the country. As Access Bank ventures into full fledged business, I urge the bank’s management to devise strategies that will contribute to Government’s efforts of reducing the cost of borrowing and increasing the level of inclusiveness in the country. I also implore management to provide support to various sectors of the economy, especially the priority sectors of agriculture, tourism, manufacturing and small-scale mining to effectively contribute to the development of the country. Ladies and Gentlemen, the introduction of the fourteenth bank in the banking sector will obviously come with its own challenges. For us at Bank of Zambia, this entails further strengthening of our supervisory capacity. We welcome this challenge and hope to rise to the occasion by providing adequate supervisory infrastructure and an environment conducive to conducting good business. In the past few years, the Bank has embarked on a process of strengthening its supervisory framework through various initiatives. One such initiative is the adoption of an enhanced riskbased approach to supervision (RBS). The enhanced RBS approach will entail more regular interaction with the banks than previously in order to understand and monitor activities and risks on a continuous basis. As part of the adoption of the enhanced RBS, the BoZ has formulated Risk Management Guidelines to banks which will serve as a minimum standard in their design and implementation of risk management frameworks, relative to their size and complexity. Further, in 2006, the Bank issued Corporate Governance Guidelines to all Financial Service Providers. The guidelines set forth a broad framework of fundamental governance principles to guide the actions of directors and managers. This will strengthen governance in institutions and minimize the risk of bank failures as a result of bad governance. Your Excellency, Honourable Ministers in order to insulate the financial system from external influences like the financial turmoil currently being experienced in some Western countries, the Bank has been working on a macro prudential approach to supervision of the financial system. Macro prudential analysis looks at the health of the underlying financial institutions in the system and performs stress tests and scenario analysis to help determine the system's sensitivity to economic shocks. This analysis also looks at macroeconomic data including GDP growth rates, inflation, interest rates, balance of payments, exchange rates, asset prices and the correlation of markets within the system. Distinguished guests, I am advised that Access Bank comes with a bouquet of banking products and excellent services, aimed at enhancing the quality of lives of Zambians and the economy in general. I urge management to remain committed to ethical standards and see themselves as a Zambian bank because you are indeed a Zambian bank now. Based on our inquiries, the Bank has a strong heritage and history of performance that will positively contribute to the health of the financial sector in Zambia. Your Excellency, Honourable Ministers, It is also exciting that the bank we are commissioning today is coming to Zambia in the context of pan-Africanism. This is an African bank investing in another African country, a demonstration of South to South cooperation. It is such investments that will accelerate the pace of the much needed economic integration in Africa. I am particularly pleased that the first Managing Director of Access Bank Zambia Limited is a Zambian who is vastly experienced in our financial sector. Finally, as we witness the commissioning of the bank, I wish to warmly welcome Access Bank (Zambia) Ltd to the Zambian banking sector and wish them the best in their operations. Thank you! | bank of zambia | 2,008 | 10 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the second AFRACA Central Banks Forum, Livingstone, 23-25 September 2008. | Caleb M Fundanga: Promoting financial inclusiveness Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the second AFRACA Central Banks’ Forum, Livingstone, 23-25 September 2008. * • • • • • • • • • • • • • * * The Guest of honour; Honourable Ng’andu P. Magande, MP Minister of Finance and National Planning; Your Worship the Mayor, Mrs Grace Shafik; Provincial Minister, Hon Daniel Munkombwe; Permanent Secretary, Southern Province, Mr Darius Hakayobe; Deputy Governor-Operations, Dr Denny Kalyalya; Chairperson; The Secretary General of the African Rural and Agricultural Credit Association (AFRACA), Mrs Mary Nandazi; Co-operating partners; Distinguished invited guests from Central Banks; Resource Persons; Chief Executive Officers of Banks and Non bank financial institutions; Distinguished invited guests; Ladies and gentlemen; On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important African Rural and Agricultural Credit Association (AFRACA) Conference. To our colleagues from outside Zambia, I wish to extend a special welcome to you to Zambia, in particular to Livingstone, our tourist capital. Like the rest of Zambia, Livingstone is a city of tranquility with an easy-going African charm. The city is not short of interesting sites and places to visit. It hosts the Victoria Falls, also known among the locals as “Mosi-o-Tunya, the Smoke that Thunders” and is one of the world’s seven natural wonders! There is also a game park, a well stocked curio market and the Mukuni Cultural Village, among the many attractions. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Livingstone has to offer. Chairperson, Central Bank of Zambia is honoured and delighted to co-host the second AFRACA Forum that begins today, the 23rd and ends on 25th September, 2008. AFRACA is an association of Central Banks and financial institutions involved in the provision of financial services to the rural population in Africa and increasing access to financial services in general. Its membership of 94 institutions consists of central banks, commercial banks, agricultural banks, development and cooperative banks, other financial institutions and microfinance operators whose networks spread throughout 26 African countries. It is through workshops and fora of this nature, among other events, that AFRACA endeavours to disseminate information and share experiences among members and other industry stakeholders across the continent. Following the first Central Banks Forum held in Accra, Ghana and in view of the need to deliberate further on the topical issue of financial inclusiveness, AFRACA felt it necessary to hold the second Central Banks Forum under the theme, “Promoting Financial Inclusiveness”. The main objectives of this second forum are to harness current views on promoting financial inclusiveness, draw lessons and recommend strategies for improvement of the levels of access to financial services, particularly among the rural communities in our countries. This year’s theme, “Promoting Financial Inclusiveness”, is also very topical for us in Zambia. Only two months ago, Zambia hosted the Smart Partnership Dialogue that brought together over 500 delegates from different parts of the world (including current and former Heads of State and Government) to discuss several developmental issues under the theme “realisation of national visions”. The conference had a session focusing on financial inclusion. Chairperson, in recognition of the importance of the financial sector towards national development, the Zambian Government formulated a five year Financial Sector Development Plan (FSDP). The FSDP is aimed at addressing various weaknesses in the Zambian financial system, among them being the low financial intermediation and limited access to finance and financial services. As a matter of fact, in recognition of the key role that financial inclusion plays in the development of the financial sector, the Bank of Zambia has in its strategic plan for 20082011 adopted financial inclusion as one of the strategic objectives. In order to determine the existing gaps in the provision of financial services in the Zambian economy, a market knowledge study called the “Finscope Demand – Side Survey” was conducted in 2005 to review the inclusiveness of the Zambian financial system under the auspices of the FSDP. Significant findings from the survey were that 66.3% of the Zambian adult population did not have access to financial services and that only 33.7% used banks, other formal and informal financial services and products (such as those offered by microfinance and savings clubs). Above all, only 15% of the adult population had access to commercial banking services. This low level of financial access therefore constitutes one of Zambia’s main challenges in facilitating economic empowerment of every citizen. Arising from these findings, the Government has since set targets or performance monitoring indicators. One such target is to increase the level of access to financial services to 48% by 2008 and 50% by the end of 2009. Following the earlier survey, a subsequent study called the “Finscope Supply – Side Survey” was conducted in 2007. Some of the key findings were that: a. bank charges are unaffordable for 90% of the rural adult population in Zambia; b. Zambian banks generally have high operating costs and interest rate spreads; and c. the physical coverage of financial outlets may not increase at current cost levels. It is therefore, my hope that this Forum will address these and other challenges that slow the pace of financial inclusion in our countries. Honourable Minister, over the past two years, we have noted with delight that financial institutions in Zambia are beginning to rise up to the challenge by beginning to broaden the scope of their financial services and extending their services beyond the traditional customers to include previously unbanked communities. In addition, the Zambian financial sector has in recent years experienced growth in numbers of both registered commercial banks and non – bank financial institutions. We in Zambia, therefore, see this Forum as being timely and providing a unique opportunity for African financial institutions to share knowledge and experiences on how best to promote financial inclusiveness, particularly among our rural and peri-urban communities who have since not been fully integrated in the financial systems of most of our countries. This entails that they are not effectively participating in the economic growth that is being experienced in these countries. This Forum also comes at a time that we in Zambia have just lost a statesman who was passionate about rural development and empowerment of all citizens. The conference theme therefore, is appropriate for us as we carry on the vision of our beloved late President, Dr. Levy Patrick Mwanawasa, SC (M.H.S.R.I.P). In this respect, we would also like to acknowledge the many expressions of sympathy extended to us during our time of mourning. Distinguished delegates, on behalf of AFRACA, I would like to thank our various presenters and panelists for accepting to facilitate our deliberations over the next two days. I would therefore, like to implore all delegates to engage fully in these discussions and make the most of the wealth of knowledge and experience represented in the house. Ladies and Gentlemen, it is my pleasure and privilege once again to welcome you to the second AFRACA Central Banks’ Forum. I now wish to invite our distinguished Guest of Honour, the Minister of Finance and National Planning, Honourable Ng’andu P. Magande MP, to officially open this Forum. Honourable Minister! | bank of zambia | 2,008 | 10 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the Islamic Banking Conference "Building partnerships for development", Lusaka, 20 October 2008. | Fundanga: Islamic banking – building partnerships for development Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the Islamic Banking Conference “Building partnerships for development”, Lusaka, 20 October 2008. * * * The Guest Speaker, Mr. Ahmad Zaini Bin Othman Chief Executive Officers of Banks and Non bank financial institutions; Distinguished invited guests; Colleagues; Ladies and gentlemen; On behalf of the Bank of Zambia and indeed on my own behalf, I would like to extend a very warm welcome to you all to this important conference on Islamic Banking. To our Guest Speaker, Mr Ahmed Zaini Othman, I wish to extend a special welcome to you to Zambia and in particular to Lusaka, the capital city. Like the rest of Zambia, Lusaka is a city of tranquility with an easygoing African charm. The city is not short of interesting sites and places to visit. I therefore urge you to find time or indeed stay an extra day or more to sample this special menu that Lusaka offers. I also wish to extend my sincere thanks to Standard Chartered Bank Zambia Plc, the Islamic Council of Zambia and the Eastern Province Chamber of Commerce and Industry for graciously accepting to make presentations at this conference. Ladies and Gentlemen, the Bank of Zambia is honoured and delighted to host the first Islamic Banking Conference in Zambia that begins today, the 20th and ends on 21st October, 2008. This Conference on Islamic Banking could not have come at a more opportune time than now, when the financial sector in the country is called upon to widen financial inclusiveness. Banks and Non-Bank Financial Institutions are being encouraged to increase availability of, and access to financial services to the population through the design of new and affordable products. It is through conferences and fora of this nature, among other events, that Bank of Zambia endeavours to disseminate information and share experiences with stakeholders about the importance of developing the financial sector. Ladies and Gentlemen, The last few decades have witnessed a rapid growth in Islamic banking both in terms of size and the number of players. Islamic banking is currently practiced in more than 50 countries worldwide. In some countries only Islamic banking is allowed while in others Islamic banking coexists with conventional banking. Islamic banking is not limited to Islamic countries. In August 2004, for instance, the Islamic Bank of Britain became the first bank licensed by a non-Muslim country to engage in Islamic banking. According to recent industry estimates, Islamic banking is set to grow at an annual rate of 15%. The increased trade between the sub-Saharan region and Islamic nations in the Middle East only reinforces our view that partnerships among the corporate players between the two regions will foster more development. The Government of the Republic of Zambia (GRZ) recognizes that the limited access to financial services and low number of products available to the different sectors of the economy has hindered the development potential of Zambia’s economy. There is need therefore, to revitalize the financial sector so that it meets the challenges of accelerated and sustained investments in key sectors of the economy. Recent developments in the financial sector world-wide offer some encouragement that working together could extend the range and reach of financial services that are available to our people. Still a lot remains to be done to extend financial services to the majority of our people and foster ongoing sustainability of our financial institutions. It is against this background that Bank of Zambia found it necessary to hold this Conference to deliberate on the topical concept of Islamic Banking under the theme “Building Partnerships for Development”. The main objectives of this conference are to get a general understanding of the operations of Islamic Banking and to share views on promoting partnership for development through Islamic Banking, draw lessons, and recommend strategies for implementing Islamic Banking in Zambia in order to improve access to financial services. The rapid growth of Islamic Banking raises a series of important questions, such as whether Islamic Banking should be regulated differently from conventional banking. Because modern Islamic Banking is relatively new to most countries rules for financial accounting, bank governance, and lending standards are continually evolving as business practices are refined. However, a basic understanding of the concept of Islamic banking should provide a basis for determining an appropriate regulatory framework for Islamic banking. Of particular importance to Zambia is an arrangement where borrowers can borrow without paying interest. Lending rates are very high in this country, thus making borrowing for capital investments prohibitive. This is one issue we have been grappling with for a long time. Therefore, an arrangement where borrowers can access funds for investments without paying interest, offered by Islamic Banking is worth exploring. Mr. Chairman, over the past two years, we have noted with delight that financial institutions in Zambia are beginning to rise to the challenge by broadening the scope of their financial services beyond the traditional customers to include previously unbanked segments of society. Ladies and gentlemen, the need to foster an enabling environment cannot be overemphasized. In this regard, the Bank of Zambia will continue to ensure stable macroeconomic policies and development of appropriate financial sector regulations that will facilitate financial inclusion. Ladies and Gentlemen, the introduction of Islamic banking would come with its own challenges. For us at Bank of Zambia, this entails further strengthening of our supervisory capacity. We would welcome this challenge and hope to rise to the occasion by providing adequate supervisory infrastructure and an environment for conducting good business. In recognition of the rapid spread of the concept of Islamic banking worldwide, Bank of Zambia undertook a survey to determine the extent of the knowledge and demand for Islamic Banking among banks as a way of enhancing the regulatory preparedness. Significant findings were that the extent of the existing knowledge on, and demand for Islamic Banking in Zambia is quite limited and that currently none of the banks offer Islamic Banking services. The results also indicated that 80% of the respondents intend to introduce Islamic banking products in the near future. Further, most banks had received enquiries from their clients on Islamic banking products. I have no doubt that this conference is very timely and that it provides a unique opportunity for stakeholders in the financial sector to share knowledge and experiences on how best to promote financial diversity and inclusiveness to all sectors of the economy by introducing and incorporating Islamic banking. Distinguished delegates, On behalf of Bank of Zambia, I would like to thank our various presenters and panelists for accepting to help facilitate our deliberations over the next two days. I therefore, would like to appeal to all delegates to engage fully in these discussions and make the most of the wealth of knowledge generated in the house. Ladies and Gentlemen, It is my pleasure and privilege to welcome you to the Islamic Banking Conference and officially open the Conference. | bank of zambia | 2,008 | 11 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of the Alumniportal Deutschland, Lusaka, 25 November 2008. | Caleb M Fundanga: The importance of cross border information exchange for Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of the Alumniportal Deutschland, Lusaka, 25 November 2008. * * * • Her Excellency the Ambassador of the Germany Embassy in Zambia • Management and staff from the Germany Embassy in Zambia • Fellow alumni • Members of the press • Distinguished invited guests • Ladies and gentlemen Guten Abend meine Damen und Herren. I am truly honoured to officiate at this important Launch of the Alumniportal Deutschland. I am informed that Africa has a rare honour of being the first continent to implement the Alumniportal Deutschland. I am certain that our implementation process will define the failure or success of the whole project. We thus have a huge challenge to ensure that we achieve success and provide a benchmark for others to emulate. However, looking at the many beaming faces present in this room, I have no doubt that we will provide more than just a benchmark for others to follow. I am glad to note that we are all optimistic on the success of this project in Zambia in particular and Africa in general. We have a duty to represent our continent and give it the honour that it so deserves. Your Excellency, the Launch of the Alumniportal could not have come at more opportune time when cross border information exchange has become cardinal in every aspects of life especially trade. I am reliably informed that almost 250,000 people from all over the world receive education or training in Germany annually. Furthermore, I am advised that about 2000 African students are awarded a degree every year. The Germany curricular is certainly becoming increasingly influential in business and other field in Africa. This is beneficial to our continent as we are in a position to benefit from interactions with a diverse human resource in alumni activities after completion of the courses or training. However, after graduation, a good number of us Zambians have a tendency to forget and cut off all windows of communications with the past. We properly pack our certificates and contacts in our archives and let them accumulate dust. We therefore, end up forgetting the precious friends that were once a great part of our lives and a source of knowledge. It is no wonder that the country’s representations at International Institutions like the United Nations, International Monetary Fund and the World Bank is very low. This is a sharp contrast to the levels of representations at such institutions by other African countries especially in West Africa. Ladies and Gentlemen, on numerous occasions, our businesses have dwindled mainly due to lack of genuine suppliers, reliable customers or due to excessive costs. These are mainly caused by a lack of knowledge of cheaper sources of inputs, little knowledge about customers and supply bottlenecks as a result of dealing with many agents in the supply line. This is costly and no business can be profitable in the medium to long term without proper networks in their business lines. Net working is about creating a set of contacts and subsequently building a trusting and genuine relationship with these people. Networking provides the opportunity to discover people who may be able to offer assistance to one’s business and who may also benefit from the assistance that one has to offer. In this global economy, millions of transactions are made on a daily basis across borders, regions and continents. For these transactions to be cost effective and profitable there is need to remove information asymmetries and to reduce the risk of moral hazard. These significant impediments can greatly be avoided by counting on the contacts that one may have in a different country region or continent. The end product would thus be increase in economic welfare for all. Your Excellency, at a country level, Zambia still requires significant levels of investment in many sectors of the economy to achieve desirable levels of growth. The country possesses abundant natural resources and human capital. It is also surrounded with eight neighbouring countries and close proximity to the large market of South Africa, a surface area of over 750,000 sq km, and an approximate population of over 11 million people. Its active participation in the SADC Trade Protocol and the COMESA/FTA offers preferential tariff access to market potential of about 380 million plus people. The country also boasts of a suitable climate, peace and a multi-party competitive democratic political system. The country thus possesses all the necessary attributes for sustainable economic growth and development. However, most economic resources remain untapped due to low investments. The low investment levels in the country could partly be attributed to the lack of knowledge of the local situation by the potential investors. In order to complement, Government’s efforts in marketing the country’s investment potential, we all need to use our contacts and friends to disseminate information on the vast economic potential that exists in the country. With the current economic challenges emanating global financial meltdown, the need for increased investment levels in the country can not be over emphasised. Therefore, I challenge all of us gathered here today, to take advantage of the Alumniportal and market not only our Curriculum Vitaes or businesses but also our country. Such initiatives will no doubt increase awareness among businessmen outside the country and lead to increased investment that would result in job creation that our citizens so much need. We are therefore in a better position to contribute a little to the economic growth of our country through this Alumniportal. Distinguished Ladies and Gentlemen, personally, since my graduation from Konstanz University in 1985, I have managed to keep my contacts close to my heart. I have continued to benefit immensely from the interactions and friendship with most alumni from my days in Germany. I can even boast that in the process my contacts have expanded ten fold. I enjoy interacting with people whom I have a common interest and even those who have different views on several issues. In closing, let me reiterate that I have no doubt that the Alumniportal Deuschland will enable alumni to tap into an invaluable source of skills, vast experience and necessary expertise in many areas of development. It will link people beyond professional and cultural boundaries and organisational sectors meaning that it will act as a catalyst for rapid and continuous success. In a global world, success can only be guaranteed from long term cooperation and constant interactions with business partners and friends. Let us build our potential through the Alumniportal and in effect add to our own successes. I thank you. | bank of zambia | 2,008 | 12 |
Opening remarks by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the workshop on "Effective banking supervision: a risk based approach", Livingstone, 1 December 2008. | Denny H Kalyalya: Effective banking supervision – a risk based approach Opening remarks by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the workshop on “Effective banking supervision: a risk based approach”, Livingstone, 1 December 2008. * * * • The Chairperson • Resource Persons • Distinguished Workshop Participants • Ladies and Gentlemen On behalf of Crown Agents and the Bank of Zambia, I wish to welcome you all to this important workshop on Effective Banking Supervision: A Risk Based Approach and to Zambia’s Tourist Capital, Livingstone. In particular, I welcome our resource persons from Crown Agents and participants from the region. Looking at the programme, it is obvious that you will have a tight schedule. However, I urge all of you to find time in your busy schedule to visit some interesting places that our Tourist City of Livingstone has to offer, especially the mighty Victoria Falls, which although not at its best at this time of the year, still presents a spectacle to behold. The ongoing global financial crisis has brought tremendous and unexpected challenges to regulatory and supervisory authorities. As you are all well aware, in any economy, more so in market-driven economy, financial institutions play a critical role in the allocation of resources through intermediating between those with surplus resources (depositors) and those in need of resources (investors). Effective and efficient supervision is therefore, crucial to manage risk and avert possible loss to depositors/investors and hence maintain public confidence in the financial system. Ladies and Gentlemen This workshop is being held at a time when the global economy has come under serious strain caused by the sub-prime mortgage crisis in the US. Appetite for profit and poor credit risk underwriting standards led to a surge in sub-prime mortgages. This brought about a real estate price bubble as demand for residential properties grew. The situation culminated into a liquidity and credit crunch in financial markets. The financial crisis has spread to other countries directly through financial market linkages and indirectly through trade. Recent projections indicate that the global financial crisis will lead to global contraction in economic output with a corresponding reduction in incomes, a rise in unemployment and decline in volumes of trade. Ladies and Gentlemen The current state our financial sector calls for a new approach to the supervision of banks and other financial institutions. Risk Based Supervision (RBS) represents a paradigm shift from the traditional rules based, historical, standardised and point-in-time assessments to a process-oriented, forward looking, continuous and risk profile driven approach to supervision and regulation of the financial sector. RBS is a structured and forward looking process designed to identify risk factors to which individual banks and other financial institutions and the entire financial industry are exposed. This approach enables supervisors to critically assess various risks and the risk management systems of banks and other financial institutions in order to assess the risk profile of these institutions. It also enables the regulator to focus supervisory attention on the areas and institutions that pose the greatest risk to financial system stability. Thus, the supervisory authorities are in a position to identify systemic risk factors and devise intervention measures aimed at forestalling systemic failures. The added advantage of this approach is that it brings about optimal utilisation of supervisory resources. Ladies and Gentlemen, I am happy to inform you that following our initial efforts dating back to 1999 to introduce risk based supervision, the Bank of Zambia has this year fully adopted RBS. As a result it is expected that there will be enhanced supervision of banks and other financial institutions. Let me also state that the BoZ is committed to implementing the Basel II Capital Accord but stands ready to review this stance in the face of the ongoing global financial crisis. As you know Basel II is intended to make banks operate at capital levels which are commensurate with their risk profiles. To this end, the BoZ just issued risk management guidelines. Distinguished Workshop Participants As I conclude, I wish to urge the workshop participants to participate actively in the deliberations and use this opportunity to tap knowledge and skills from the vast experience of the resource persons. This workshop provides us with a unique opportunity to share our respective country experiences and challenges. It is my hope that we will develop the supervisory systems in the region to a level where they will be able to interact effectively. This uniformity in the supervisory systems will prepare us to respond better to regional and global financial challenges. With these few remarks, Ladies and Gentlemen, it is now my honour and privilege to declare this important regional workshop on Effective Banking Supervision: A Risk Based Approach officially open. I thank you!!! | bank of zambia | 2,008 | 12 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Masomo Education Foundation Scholarship Presentation, Lusaka, 21 November 2008. | Caleb M Fundanga: Supporting education in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Masomo Education Foundation Scholarship Presentation, Lusaka, 21 November 2008. * * * • The President, Masomo Education Foundation, Mr. Chisanga Puta-Chekwe • Hon Members of Parliament present • The Chairman, Selection Committee, Dr Silane Mwenechanya • Managing Director of Barclays Bank (Z) Ltd, Mr Zafar Masud • Representatives from the University of Zambia • Mr. John Mwanakatwe • Representatives from the Canadian High Commission in Zambia • Members of the Press • Distinguished invited guests • Ladies and gentlemen It is an honour and privilege for me to officiate at this scholarship award presentation. I am most humbled because I am the second ever guest of honour to grace such an event following, a distinguished academician who officiated at the fist ceremony. This is someone who has inspired a lot of Zambians including me to be what we are today. He was one of the first Zambians to graduate with a university degree and has not looked back thereafter. He has continued to inspire and encourage others to climb the education ladder to the top. Ladies and Gentlemen, let us all stand and recognize the presence of one of Zambia’s finest academician, lawyer and writer, Mr. John Mwanakatwe. Ladies and Gentlemen, in the short history of post independence Zambia, we can take pride at the achievements scored in the area of education, thus far. While facing numerous and difficult challenges, the country has continued to produce university and college graduates of international standards year in year out. This situation would not have been possible, had it not be for the past tremendous contributions and personal sacrifices made by a number of citizens under the guidance of leaders who had great foresight and fortitude. The dedication and ingenuity of our teachers and lecturers both in the past and today, have also massively contributed to the economic development we have achieved to date. I have no doubt that our nation needs more of such outstanding and dedicated citizens at all levels of society to take our country’s development to a higher level. Mr President, as we speak, Zambia’s economy is facing numerous challenges emanating from the global financial turmoil. As you are no doubt aware, the crisis has already resulted in a reduction in commodity prices including that of copper. The Zambian foreign exchange market has also been partly affected as is reflected in the volatility and weakening of the Kwacha exchange rate in the recent past. The result of all this is lower Government revenues and more expensive imports which would in turn culminate in higher inflation. Unfortunately, for a low income country like Zambia, lower Government revenue entail lower spending on social amenities including Education and Health. High cost of goods and services also mean that most of our citizens would not afford to educate their families. Ladies and Gentlemen, as we strive to achieve the Vision of becoming a middle income country by the year 2030, we shall no doubt be confronted with such and many more similar challenges both economically and politically. To be well prepared for such trying times ahead, we need to groom our best talents to assume leadership positions in all sectors of the economy. To achieve this vital task of nurturing our future leaders, the Government is trying its level best to provide education to all Zambians. The Government has done well thus far and should be implored to continue doing so. However, providing education for the benefit of all citizens is never an easy task due to other budgetary pressures exerted by other competing sectors like Health, Agriculture, and Community Development etc. If we are to achieve education for the majority of our people, we need concerted efforts from all stakeholders including private institutions and charitable organisations like the Masomo Education Foundation. Mr President, I am informed that the objective of the Foundation is to educate young Zambians at local colleges. I am particularly pleased that the Foundation is utilizing local educational institutions. This should be commended as it demonstrates the confidence you have in the calibre of our learned colleagues at these institutions. Having been a lecturer at the University of Zambia in the earlier days of my career, puts me in a better position to understand the passion and deep knowledge of the local issues the Zambian teachers and lectures possesses. I have no doubt that supporting our local institutions will lead to a stronger motivation and morale in our teachers. To this end, my Institution, the Bank of Zambia, currently provides scholarships to the University of Zambia and the Copperbelt University. Additionally, we also provide salary supplements to relevant departments as a way of encouraging our Zambian academics who are working under very difficult and challenging situations. Furthermore, I am reliably told, that the Masomo Scholarship is conferred only on the best and intelligent young men and women. The stringent selection criteria ensure that only deserving candidates possessing outstanding performance in academic and co-curricular activities are selected. I am further informed that the candidates are of exemplary character and are committed to the betterment of their families, societies and the nation at large. Ladies and Gentlemen, I am also informed that this year, the Foundation received several applications from a wide section of candidates. It is gratifying to know that many young men and women wish to have an opportunity to better their education in these trying times. It is for this reason that I call on all of us to assist, foundations like Masomo, to increase the number of scholarships so that many more people could benefit from the scholarships. I therefore, urge the donors to the Foundation to increase their allocation in the coming year and in future. I also call on other well wishers in this room and outside to support this noble cause. Remember, an educated population is a pre-requisite to a country’s economic development. This year, the Masomo Scholarship is conferred on three exceptional and deserving young individuals in Ms Lenganji Nalwamba who is studying Electrical Engineering, Mr. Wapatwa Silungwe, studying Civil Engineering and Mr. Emmanuel Mwila who is pursuing Agricultural Economics. In congratulating you on this deserved achievement, let me remind you that as you accept this scholarship, you have an obligation and duty to the Masomo Foundation and to the nation at large. It is this strong sense of obligation, duty, and commitments to serve the nation that enabled our fathers and fore fathers serve the Nation wholeheartedly and brought us where we are today. As students with a Masomo Scholarship, each of you will be given a unique opportunity to prove yourself. I urge you to work hard and learn from others around you including those different from you and less endowed than you. Let me also mention that as a Masomo Scholar, your progress and performance will be closely monitored and you will be looked upon as role models. I urge you to set the standards for others to emulate. I am confident that all three of you will live up to the highest standards and will not disappoint us. I once again congratulate you and your parents, for it is only through their guidance and care that you shall continue to succeed. I wish you well in your studies and hope to see the day when all of you will graduate with flying colors. Lastly, let me commend the President of this Foundation, for the noble work that you undertaking. I hope others will emulate your commitment towards developing the youths so that they can contribute to the welfare of our country. Mr. President, I salute and urge you to keep up with the good work that you are doing. To the sponsors and the Board of Directors, may the good Lord continue blessing your deeds and may he give more to those who had a hand in helping the cause. Let me finish by saying that I can not wait to see these beaming young faces to lead our future generations into a better Zambia and a better life for all. I thank you. | bank of zambia | 2,008 | 12 |
Remarks by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the official opening of Bank of China's new premises, Lusaka, 9 December 2008. | Denny H Kalyalya: Expansion of Zambia’s banking sector Remarks by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the official opening of Bank of China’s new premises, Lusaka, 9 December 2008. * * * • Honourable Minister of Finance and National Planning, Dr. Situmbeko Musokotwane, MP; • His Excellency – the Chinese Ambassador to the Republic of Zambia; Mr. Li Qiangmin; • Managing Director of the Bank of China (Zambia) Limited; Mr Du Qiang; • Distinguished Invited Guests; • Ladies and Gentlemen. I am greatly honoured for having been invited to speak on the occasion of the official opening ceremony of Bank of China’s new premises. Ladies and Gentlemen As part of the on-going Zambia-Chinese relationship, the Bank of China was established in 1997. Since then the Bank has recorded tremendous progress. Distinguished Invited Guests During the past 8 years, the overall financial performance and condition of the banking sector has been satisfactory. The sector has continued to expand and we anticipate increased economic and investment activity in the period ahead. Banks are expected to continue to provide the required level of finance to consolidate the economic gains registered so far. The Bank has achieved tremendous growth since its inception in 1997. During the last eleven years, total assets have increased by 325% to K507.9 billion in October 2008 from K13.8 billion in December 1997. Regulatory capital increased by about 1,000% to K41.9 billion in October 2008 from K3.8 billion December 1997. Similarly, the bank’s profitability has steadily increased over the years. The Bank has been a good supporter of a number of economic activities in Zambia, especially in the mining, textile, construction, banking and agriculture sectors. However, going forward, we wish to encourage the Bank to invest more in loans and advances, which have remained low at 4% of total assets as at end of October 2008 compared to the industry average of 45%. Ladies and Gentlemen The new offices being commissioned today should enhance the Bank’s service delivery to its customers. We therefore wish to encourage the Bank to continue playing an active and effective role in stimulating economic activity through the provision of well structured financial products and services. Thus, boost growth in key sectors of the economy as well as enhancing access to finance and encourage more indigenous Zambians to establish relationships with the Bank. It is our expectation also that the Bank will expand beyond one branch and broaden its customer base and operations swiftly in order to consolidate the gains that have been achieved over the last 11 years. I thank you for your attention. | bank of zambia | 2,008 | 12 |
Speech by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the opening of Standard Chartered Bank Zambia Solwezi Branch, Solwezi, 10 December 2008. | Denny H Kalyalya: Zambian financial sector – responding to the needs of business Speech by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the opening of Standard Chartered Bank Zambia Solwezi Branch, Solwezi, 10 December 2008. * * * The Minister of Commerce, Trade and Industry, Hon. Felix Mutati The Minister, North-Western Province, Hon. Joseph Mulyata The Chairman of the Board of Standard Chartered Bank Zambia, Mr. George Sokota His Worship the mayor of Solwezi The Managing Director of Standard Chartered Bank, Mrs. Mizinga Melu Distinguished guests Members of the press Ladies and Gentlemen I am pleased to be here at the official opening of the new Solwezi Branch of Standard Chartered Bank Zambia Limited. Ladies and Gentlemen, recent times have shown a proliferation of commercial bank branches in areas which had previously been considered unattractive for business. Rural areas had even experienced closures where banks felt that they were unable to establish a case for business. The economic environment that the Government created through the reforms instituted in the early 1990’s has given new confidence to investors and has provided an opportunity for businesses to grow, thereby attracting banks to the areas which were deprived of basic financial services. The opening of this branch today, in a town which has attracted major investments, is a demonstration that the financial sector is indeed, now responding to the needs of business. The world’s financial markets have been plunged into turmoil which some say is unprecedented, or at least comparable to the levels experienced in the most severe financial crises of the last century. Notwithstanding this, our financial system has demonstrated a level of stability which to an extent has been derived from the strong capital positions that have characterised the Zambian banking industry in the past few years. However, this turbulence has already resulted in a reduction in projected global economic growth and a decline in demand for Africa’s exports. Notwithstanding this, we remain confident that the banking sector will continue to show resilience and expansion through branch networks, thereby acting as a channel through which services will be extended to the financially excluded. Ladies and Gentlemen, a recent survey established that fewer than 15% of the Zambian adult population have access to the services provided by commercial banks. The key reasons for this low level of access were cited as the distance that needs to be overcome in order to access the services and the cost of these services. It is therefore a welcome development that commercial banks have responded to these challenges by reaching out through new branches. However, banks need to be mindful of the fact that the many of our people who need these services most of all are not able to bear the heavy charges that are sometimes levied, and the goal of inclusion will stand to be compromised if this matter is not addressed. The Bank of Zambia is in the process of engaging the banks with a view to finding a solution to the high cost of banking which is often cited as the main hindrance to access to finance. I therefore appeal to all the banks operating in Zambia to critically assess the level of their charges and to continue playing the supportive role to development that they have in the past. In this regard, I am particularly pleased to make mention of the spirited efforts that Standard Chartered Bank continues to make in financing SME’s and Micro-finance. The experiences of many economies show that these sub sectors have the capacity to create a middle class and to emancipate both rural and urban dwellers from their poverty trap. Zambia has many promising entrepreneurs whose only constraint is affordable funding. As you explore the opportunities that this new venture will bring you, I urge you to focus on the customers who may appear small today, but could grow with the bank if they are given the right support. I wish you every success as you embark on this journey into North Western Province. | bank of zambia | 2,008 | 12 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Standard Chartered Bank Plc, Livingstone, 7 January 2009. | Caleb M Fundanga: Growth and development of the Zambian economy Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of the Standard Chartered Bank Plc, Livingstone, 7 January 2009. * * * The Deputy Minister of Southern Province, Hon Daniel Munkombwe; The Standard Chartered Bank – Acting Managing Director, Mr. Robin Bairstow Members of the Press; Distinguished Guests; Ladies and Gentlemen Allow me to begin by thanking Mr Bairstow and his Colleagues for inviting me to this occasion which marks the official opening of the Standard Chartered Bank Plc , Livingstone Falls Park Agency. I congratulate Standard Chartered Bank Plc for yet another milestone achievement. Hon. Minister, I have stated at various fora that it is important for banks in Zambia to take actions which support the growth and development of our economy. We need banks to open new branches, such as this one, to increase the convenience for our people to access banking services; thereby increasing the efficiency of our economy and empowering our citizens. In particular, I have been encouraging banks to expand their services to areas with vast economic potential like Livingstone, which represents a Win-Win situation for both the bank and the City. I am glad that, although, Standard Chartered Bank already has an established branch in Livingstone, it has chosen to expand its services to other areas of the City in order to bring its products and services to the customer’s door step. This strategic move speaks louder than words and confirms that there are enormous opportunities here, which the bank can benefit from, despite the stiff competition in the market. Ladies and Gentlemen, another issue that the Bank of Zambia continues to challenge commercial banks on, is the cost of borrowing which continues to be high in spite of the efforts by the Bank of Zambia and the Government in ensuring that these costs come down. As you are no doubt aware, the Bank of Zambia reduced the Statutory Reserve Ratios from 14% to 8% in October, 2007 with a primary aim of bringing the cost of borrowing down. Further, in the recent few years, the Bank had managed to contain inflation to low levels in order to further reduce the lending rates. Coupled with this, in the recent past, the Government adopted prudent fiscal policies that enabled the private sector to access more credit from the financial system. Despite these efforts, credit is still not affordable to the majority of our people. This high cost has in turn stifled the growth of the productive sector and in particular Agriculture and the SME sector, which are the engine for the economic growth of our country. Hon Minister, I am however, glad to note that credit to the private sector has increased significantly with the Personal loans category accounting for the largest beneficiary of credit followed by the Agriculture sector. I must hasten to mention however that in striving to increase credit, banks must always comply with the regulations as stipulated in the Banking & Financial Services Act to ensure the safety of customers’ deposits. Furthermore, much more credit needs to be directed to sustainable productive sectors like Agriculture, Manufacturing and Tourism. This entails increasing borrowing options available to the small scale farmers and the SME sector. At current levels, interest rates are too high for the SMEs to access credit and venture into meaningful projects. In order to reduce the incidences of default, the Bank of Zambia has through NB Circular 3/2008 of December, 2008 made it mandatory for every lender in Zambia to go through the Credit Reference Bureau. Any loans approved without passing through the Credit Reference Bureau will attract Regulatory Action. This will undoubtedly help to reduce the cost of borrowing. I therefore, urge banks and other financial institutions to continue reviewing the cost of borrowing as part of the process to improve SMEs access to the much needed finances to expand their operations, employ more people, and thereby provide impetus to significantly reduce poverty rates in the country. It is also my hope that the coming on board of the Citizens Economic Empowerment Commission will significantly aid the development of the SME sector. Hon Minister, Distinguished ladies and Gentlemen, As a direct consequence of being an open economy, Zambia has not been spared by the effects of the current global financial turmoil. As you are aware, the decline in the copper prices on the world market has negatively affected the operations of the mining sector, leading to downsizing and job losses. Contributions by the mining sector to Government revenue is also expected to decline in the 2009 while foreign exchange in the market has declined. The unprecedented high prices of fertilisers and other agricultural inputs also contributed to the current high food prices. These and several other factors have resulted in the depreciation of the Kwacha against other international currencies as well as high inflation which closed the year at 16.6% from 8.9% in 2007. Hon Minister, the economic outlook may not be rosy now. The challenges may be huge but at the same time not insurmountable. You will agree with me that as a country with vast arable land and water resources as well as a huge market of eight neighbouring countries, we cannot afford to sit and wait for assistance from other countries. We need to work extra hard so that we can feed our children as well as export the surplus to neighbouring countries. We need to look within ourselves and determine how each one of us can help overcome the challenges that we face today. It is therefore my appeal to all of us present here today to show more commitment to the growth and development of our country. Further, I call upon all banks to partner with the Government in alleviating the suffering of our people by contributing to the development of our nation. After all a growing and more developed economy will contribute more to the banking sector and therefore increase more profits. Banks need to seriously engage in activities that will contribute to the environment in which they are benefiting. This can be achieved in many ways including; • By making available more loans that will increase the productivity of our economy; • By encouraging more Zambians to open bank accounts through provision of easily accessible and affordable products and services; • By providing products and services that suit the needs of the various customers across the country and not only those that suit people in Lusaka; • By opening more branches across the country; and • By installing more ATMs All this, Ladies and Gentlemen, will greatly contribute to the emergence of a middle class in Zambia, which will bring real economic development and lead to poverty reduction. I am pleased to note that despite the recent challenges facing the financial sectors in the world, Standard Chartered Bank’s commitment to growth and re-investment is unwavering. The bank continues to be adequately capitalised with its total assets accounting for 14.4% of the banking sector’s total assets while its deposit base remained strong at 16.3% of the total industry deposits. Infact, not so long ago on December 10, 2008, I was invited to officially open the Standard Chartered Solwezi Branch. I have no doubt that with the current expansion strategy; the bank will reach greater heights. However, you will all agree with me that those who have more should do more. I therefore look forward to seeing more from Standard Chartered Bank Zambia, it being such a leading bank in Zambia. Hon. Minister, it is my sincere hope that the Falls Park Agency will live up to the expectations of the Livingstone community. Once again, I would like to thank Standard Chartered Bank Zambia Plc, through the acting Managing Director, Mr Bairstow for inviting me to witness the official opening of this agency. I thank you. | bank of zambia | 2,009 | 1 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the Agreement on Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, Lusaka, 4 February 2009. | Caleb M Fundanga: Repatriation of bank notes between Zambia and Mozambique Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the signing ceremony of the Agreement on Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, Lusaka, 4 February 2009. * * * • Your Excellency, the High Commissioner; • Governor Ernesto Gouveia Gove, Governor of the Bank of Mozambique; • Members of the Mozambican delegation; • Bank of Zambia staff present; • Distinguished Invited Guests; • Ladies and gentlemen: May I begin by extending a warm welcome to Governor Gove and members of the Mozambique delegation to Zambia in general and to this signing ceremony of the Agreement on the Repatriation of Bank Notes between the Bank of Mozambique and the Bank of Zambia, in particular. Governor, the existence of an extensive border between Mozambique and Zambia has resulted in significant cross-border trade as evidenced by the movement of people, goods and currencies across the border thereby strengthening our shared identity and background as Africans. I must however, hasten to mention that, the cross border trade has hitherto been hindered by the need for traders from both sides of the border to convert funds into United States Dollars and then convert funds back into the other currency when purchasing goods or services. By so doing, cross-border traders incur foreign exchange losses as well as other conversion costs in the process. Further, the issue of a parallel currency market existing among the cross border traders between the two countries point to the need to strengthen bilateral trade between our countries and put in place payment systems that should promote this trade based on the exchange of the two local currencies. In this regard, this agreement is critical to facilitate better trade between our sister countries. Your Excellency, there are, however, challenges associated with the currency of one country circulating in another country and these need careful scrutiny and handling. These include vices such as counterfeiting and facilitating illegal trade as well as enhancing cross border money laundering activities. Moreover, to us as monetary authorities, cross-border local currency circulation creates the potential of complicating the conduct of monetary policy, especially if a significant amount of the country’s domestic currency is being used outside the jurisdiction. For us who target monetary aggregates, this may lead to implementation of inappropriate monetary policy decisions which may adversely affect the real economy. Currency repatriation is critical as it will allow us adjust the currency in circulation, a key component of reserve money, which is the intermediate target in our monetary policy operations. We are therefore looking forward to the implementation of the agreement we are signing today to facilitate currency repatriation between our two Central Banks. I am therefore, very pleased that the long months of discussions between the Banco de Mozambique and the Bank of Zambia have resulted in the mutual agreement to repatriate both the Meticais and Kwacha. This achievement should be saluted as citizens of both countries will now be able to pay for goods originating from the other country with the currency of that country, hence eliminating the need for currency conversions by citizens. Distinguished Ladies and Gentlemen, this agreement is also a step towards further strengthening trade and financial cooperation between the two countries. It provides the legal basis for commercial banks, bureaux de change and other financial institutions to freely accept each country’s currency and repatriate it through the banking system with full accountability. The agreement will not only enhance trade cooperation but will also increase cooperation between our two central banks. Furthermore, the agreement provides a platform for sharing information on the bank notes in use by the two central banks. This information exchange initiative should not only end at central banks, but be extended to all economic entities that will use and benefit from this development, especially our hard working farmers who should be paid genuine currencies when they sell their produce. Once again, Governor, let me thank you most sincerely for initiating this agreement. Indeed, the signing of this agreement is a testament of the cordial relationship that has existed between Mozambique and Zambia since the days of the liberation struggle. I must add here that, for us, it marks a key milestone towards enhancing regional integration and macroeconomic convergence. As you are aware, Governor, this is our main goal as member countries of the Southern Africa Development Community. I thank you. | bank of zambia | 2,009 | 2 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambia Institute of Banking and Financial Services 8th Graduation Ceremony, Lusaka, 21 February 2009. | Caleb M Fundanga: Strengthening the Zambian financial services industry through education Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Zambia Institute of Banking and Financial Services 8th Graduation Ceremony, Lusaka, 21 February 2009. * * * • The President, Zambia Institute of Banking and Financial Services, Mr. David Chewe; • Distinguished Council members; • The Chairman, Bankers Association of Zambia, Mr Saviour Chibiya; • Chief executives of Banks and Financial institutions present; • Representatives from other Learning institutions; • Distinguished Parents; • Graduates; • Distinguished Invited Guests; • Ladies and gentlemen It is an honour and privilege for me to officiate at this 8th Graduation Ceremony of the Zambia Institute of Banking and financial services. There is nothing more pleasing than witnessing young men and women climbing the ladder of success in life. Mr President, as we speak, our economy is facing numerous challenges emanating from the global financial turmoil. As you are no doubt aware, the crisis has already resulted in a reduction in commodity prices including that of copper our main foreign exchange earner. The Zambian foreign exchange market has also been adversely affected as is reflected in the volatility and weakening of the Kwacha exchange rate in the recent past. The result of all this is lower Government revenues and more expensive imports which would in turn culminate in higher inflation. However, our situation is by no means unique, and both the emerging, and more developed economies have felt the effects of what has turned out to be a global recession. The challenges presented to our economy in general and the financial sector in particular, brings to the fore the critical role that the Zambia Institute of Banking & Financial Services is expected to play in equipping young men and women with the much needed capacity to strengthen the financial services industry. We shall no doubt be confronted with such and many more similar challenges as we strive to achieve economic growth and poverty reduction in our country. Ladies and Gentlemen, in order to be well prepared for such trying times ahead, we need to groom our best talents to assume leadership positions in all sectors of the economy especially in the financial sector. To achieve this vital task of nurturing our future leaders, the Government is trying its level best to provide education to all Zambians. However, providing support to education for the benefit of all citizens is never an easy task. It is for this reason that the Government recently classified Education and Health as economic sectors. This entails that private investors are now provided with incentives to invest in the area of Education. This policy is expected to provide the much needed investments in institutions such as the Zambia Institute of Banking and Financial Services. Looking around in this gathering, I see people who are very well connected to private investors. Therefore wooing investment into this institution should not be difficult task. Such investment will go a long way in enhancing the quality of graduates this Institution will produce. Mr President, it is during times of crisis such as the one we are undergoing that graduates should assist the industry in coming up with well researched constructive proposals and solutions on how challenges may be addressed within the context of our local environment. The prevailing global financial meltdown is in fact an opportunity for the institute to critically review its core operations and determine if its flagship education and training programmes as well as other learning environment initiatives such as research, consultancy, counselling and continuous professional development activities are robust enough to adequately serve our financial services sector, both in times of buoyancy and during periods of turbulence. Ladies and Gentlemen, I am reliably informed that the Institute is negotiating strategic alliances that will ensure high quality international standard flagship education and training programmes for professionals in Zambia’s financial services industry. I am equally pleased to note that that the Institute has direct representatio n on two working groups of the Financial Sector Development Plan (FSDP) – the Banking Working Group and the Human Resource Working Group. I have no doubt the FSDP stands to benefit from more representation from the Institute. I urge you Mr President and Council Members, to engage all the stakeholders in the financial sector including, Non-Bank Financial Institutions, Insurance Companies, Stock brokers and Pension Funds. I have no doubt that with increased support from other financial service providers and regulators, the institute will increase in stature in human resource capacity-building aimed at developing a critical mass of professionally qualified and competent bankers. To the graduates, the qualifications in Banking and Finance you are obtaining today will certainly not make you an instant expert to tackle challenges in the financial services sector. It will take hard work, determination, and a variety of continuing professional development programmes for you to be able to begin to understand in a comprehensive manner, the banking industry in its entirety. However as graduates from this special Institution, each of you will be given a unique opportunity to prove yourself. I therefore, urge you to work hard and learn from others around you including those with different views from yours. Let me also mention that as graduates from the Zambia Institute of Banking and Financial Services, your progress and performance will be closely monitored and you will be looked upon as role models. I urge you to set the standards for others to emulate. I am confident that all of you will live up to the highest standards and will not disappoint us. I once again congratulate you and your parents, for it is only through their guidance that you are able to achieve what you have today. I wish you all, especially those graduating and those witnessing the graduation of their loved ones, a joyful and wonderful day. Thank you. | bank of zambia | 2,009 | 3 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Standard Chartered Bank M-Banking Media Launch, Lusaka, 17 March 2009. | Caleb M Fundanga: Access to improved financial services in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Standard Chartered Bank M-Banking Media Launch, Lusaka, 17 March 2009. * * * The Standard Chartered Bank Plc – Managing Director, Ms Mizinga Melu Management and Staff – Standard Chartered Bank Zambia Plc Members of the Press; Distinguished Guests; Ladies and Gentlemen I am honoured and thankful for the invitation to officiate at this important launch of the m-Banking product. Distinguished Ladies and Gentlemen; allow me to begin by commending Standard Chartered Bank for the important role it continues to play in the financial sector in Zambia. Since 1906, when Standard Chartered Bank was established in Zambia, the bank has grown to be one of the biggest players in the market. As at 31 January 2009 the bank accounted for about 15% of the banking sector’s total assets, while its deposit base accounted for 18% of total sector deposits. More importantly, the bank’s loan portfolio accounted for 13% of the total loans in the sector. Madam Managing Director, I congratulate you for the Bank’s commitment to providing products and services that best suit the needs of customers. This, in my view, should be emulated by other banks to ensure that more people have access to banking and financial services that are tailor made to meet the needs of customers. Under your leadership the bank has continued to bring to the banking sector an array of products and services that provide convenient alternative channels that lead to customer satisfaction and improved service delivery. The introduction of new products and services such as mobile banking, internet banking and e-statements provide customers with greater flexibility in their banking requirements, enabling them to transact at their own convenience, knowing that their finances are completely secure. This will no doubt enhance customer confidence in the banking system in Zambia. Ladies and Gentlemen, I am reliably informed that the m-Banking product we are launching today, will allow the bank to reach out to many more customers. This will increase the number of people with access to the financial system. At Bank of Zambia, we believe strongly that wider access to financial services through positive action by the banking community is vital. We also believe that the driving force will be banks and other financial institutions searching for new, profitable market opportunities. Furthermore, a key element in the strategy of poverty alleviation is the provision of financial services to the majority of our people especially the small and micro entrepreneurs who are financially excluded. Access to improved financial services, through the provision of better ways of accumulating savings and access to credit to augment accumulated savings, avails funds for investment in income generating projects that help the public to lay foundation for better standards of living for themselves and their families. Madam Managing Director, as your bank introduces these products on the market, please ensure that the pricing aspect is also critically looked at. Many a time a good product is introduced on the market yet it is out of reach of ordinary citizens due to the costs associated with the products. Consumers of these products expect an affordable service if indeed these are new and innovative products. Banks need to show more commitment to the growth and development of the country by encouraging more Zambians to open bank accounts through provision of easily accessible and affordable products and services. As I end my remarks, I want to remind all players in the financial sector that some of the challenges we face in our country today can indeed be mitigated by all stakeholders playing their respective roles. In particular, we have seen food prices increasing dramatically in the past few months. This is despite Zambia possess vast arable land, relatively good weather and plenty of fresh water. Further, Zambia is predominantly an agricultural country, but lending to agriculture has been limited. The challenge therefore is to devise financial products that meet the requirements of the sector while at the same time devise means of protecting the financial institutions from the risks associated with lending to the agricultural sector. A vibrant Agriculture sector will no doubt lead to a vibrant economy less dependent on the mining sector. I hope that Standard Chartered Bank will lead the way in establishing affordable products and services for our small scale farmers throughout our country. I encourage you Madam Managing Director in your capacity as the Deputy Chairperson of the Bankers Association of Zambia to expand your horizon and collectively join hands with all stakeholders in addressing this problem. I thank you for your attention. | bank of zambia | 2,009 | 3 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the African Economic Research Consortium Senior Policy Seminar (SPS XI), Lusaka, 6 April 2009. | Caleb M Fundanga: The effects of the crisis on Africa Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the African Economic Research Consortium Senior Policy Seminar (SPS XI), Lusaka, 6 April 2009. * * * The Executive Director, African Economic Research Consortium; Government and Central Bank Officials present; Distinguished Participants; Members of the Africa Economic Research Consortium; Ladies and Gentlemen. It is with great joy and gratitude that I welcome you all to Zambia and to this seminar. I wish to extend a warm welcome to all the international participants. I hope you will have a good stay in our beautiful and friendly city of Lusaka. I feel particularly honoured and grateful to officiate at this important seminar organized by the Institution I am proud to be associated with, the Africa Economic Research Consortium (AERC). Chairperson, let me begin by thanking you and AERC for choosing Zambia to host this important seminar. I am aware that since its establishment in 1988, the AERC has played a pivotal role in developing and harnessing resources in Africa both informational and human capital. Research, workshops and seminars such as this one have helped to strengthen the capacity of undertaking policy–relevant research into the problems facing the management of economies in sub-Saharan Africa. It has, through these interventions, undoubtedly contributed to the positive strides African economies have scored in the last decade with regard to economic governance and development. AERC’s devotion to advanced policy research and training in the field of economics in Africahas built capacity in many institutions of economic management and academia in many of our countries. Today, there is no major economic and financial institution in Africa that does not boast of an AERC alumni. This could not have been possible if individual institutions across Africa were to pursue training on their own accord. This goes to show how important collaboration is in leveraging capabilities and realising the set objectives for African countries. Once again AERC is showing its valuable existence by bringing together a panel of experts from all over the world to come and share ideas on how to address the causes of the global financial crisis, short, medium and long term consequences for the global economy, the impact of the crisis on African economies, implications for growth and development of the continent’s financial sector as well as policy options. Ladies and Gentlemen, this seminar could not have come at a more opportune time than when all our economies are faced with the challenges emanating from the impact of the global financial and economic crisis. This seminar is unique in the sense that it has been organised to specifically address the effects of the crisis. We feel particularly honoured to host this important event. Chairperson, the ongoing economic crisis is not of Africa’s making but arose from advanced economies like the United States of America and United Kingdom. However, there is a risk that African countries could become the biggest casualties of a crisis they did not create. The impact is already severe and has dealt a huge shock to our continent while posing a great threat of reversal to the hard earned social and economic gains that most of our economies had achieved in the recent past. Ladies and Gentlemen, for more than a decade, most African countries had continued to register unprecedented economic growth rates averaging 5% and above. We saw a rise in income levels and a reduction in poverty among our peoples with improved education, health, water and infrastructure development. The continent also experienced a surge in investment flows in many sectors including mining, manufacturing, tourism, transport and construction. Progress in governance and accountability had also been noted in most African countries. Mr Chairman, allow me without pre-empting the deliberations to mention some problems the global financial crisis has created for most African economies. Commodity exporting countries have experienced a decline in their export receipts. This has been due to the decline in commodity prices reflecting the weak demand of such commodities arising from the scaled down output in industrialised and emerging market countries. The declining export earnings as well as changing investor sentiment toward investing in emerging markets, which has been reflected in the reversal of investment flows, have been exerting pressure on the exchange rates. The depreciation of the local currencies is creating additional inflationary pressures while fiscal operations have not been spared as the tax revenue from export earnings has been adversely affected. Furthermore, the effects have quickly extended to the real economy, with serious consequences on jobs. In particular, manufacturing has been adversely affected because of its support to the primary industries on the continent. As extractive industries on the continent face depressed commodity prices, the demand for manufactured goods will continue to decline. This is expected to negatively affect Africa’s manufacturing sector. The decline in the demand for finished goods in the advanced economies is also adversely affecting exports of our manufactured goods and thereby slowing down the manufacturing sector on our continent. Tourism is also adversely affected as many foreign tourists postpone or reschedule their visits to our continent as they grapple with severe economic conditions in their home countries. Chairperson, an additional adverse effect of the global financial crisis on our economies has been on direct foreign investment s as many projects have either been suspended or cancelled. This has been due to a failure by many investors to raise funds as a result of unfavourable conditions in international financial markets. Other investors are pulling out their interests from Africa in a bid to save money and improve their liquidity for working capital purposes back home where liquidity has been a serious issue. In Zambia, the effects of the global financial crisis have been generally felt in our mining industry, securities market, and the external sector of the economy. The drop in copper prices has led some mines closing while other have been placed on care and maintenance with massive job losses while the mining subsectors and mining related industries have also seen loss of jobs. The tourism industry is adversely affected with low occupancy rates while the horticulture industry has also recorded losses due to low export volumes as result of low demand and low commodity prices of vegetables and fresh flowers in European markets. The exchange rate has also come under severe pressure as foreign exchange inflows declined reflecting the deterioration in the balance of payments position. This is partly a consequence of reduced earnings from copper exports arising from the fall in copper prices. Further, the weakness of the local currency is a consequence of increased risk aversion to emerging and developing economy financial assets. Chairperson, the challenges arising from the global financial and economic crisis are huge but surmountable. Major economies of the world are putting in place various stimulus packages, which are expected to take the world economy out of the crisis. Without doubt, these measures will benefit emerging and developing economies as well, provided that were main committed to pursuing strong socio-economic policies. I urge all of us here present to be part of the solution and contribute to the economic recovery and prosperity of this continent. It is also important that we incorporate policy issues arising from this seminar in our domestic policy processes and thereby enrich such processes by taking into consideration regional perspectives. The challenge going forward is how to maintain and sustain the economic gains and macroeconomic stability in our countries. There is need to encourage diversification and enhance competitiveness by increasing expenditure on infrastructure and social services. We need to continue to encourage investment in our economies that will lead to a diversified export base and a greater local value addition. For monetary authorities, there is need to continue to closely monitor global developments and always stand ready to take appropriate measures in the local financial markets to ensure that confidence in the financial systems is maintained and any systemic risk is avoided. Such actions will facilitate maintenance of the macroeconomic gains achieved thus far. This is a necessary ingredient for economic growth and poverty alleviation, even against the unfolding adverse effects of the global financial crisis. Ladies and Gentlemen, let me end by urging all of us present here today to deliberate on issues that will help us face the future in a much more confident way. Let us use this unique opportunity to have a discourse on how to protect and sustain the recent achievements of higher income levels and reduced poverty. African countries need to find ways and means of coming up with a response framework to reverse the effects of the crisis. Our financial systems regulatory frameworks should be enhanced to ensure that what has happened else where does not visit us in the near future. Thank you and I wish you successful deliberations. | bank of zambia | 2,009 | 4 |
Opening remarks by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the opening of the Pilot Financial Inclusion Advisors (FIA) Programme, Lusaka, 6 April 2009. | Denny H Kalyalya: Broadening financial services provision Opening remarks by Dr Denny H Kalyalya, Deputy Governor-Operations of the Bank of Zambia; at the opening of the Pilot Financial Inclusion Advisors (FIA) Programme, Lusaka, 6 April 2009. * * * Chairperson The Deputy Minister of Finance and National Planning, Ms Chileshe Kapwepwe, MP Dr Mahaela Smith, Co-Founder and CEO, the Commonwealth Partnership for Technology Management (CPTM) Deputy Governor – Central Bank of Swaziland Distinguished Resource persons and representatives from Bank Negara Malaysia Regional Central Bank representatives Distinguished Participants Ladies and Gentlemen On behalf of the Bank of Zambia and indeed on my own behalf, it gives me great pleasure to welcome you all to this pilot Financial Inclusion Advisers programme and to Zambia for our colleagues from other countries. Before going any further, please allow me to convey the Governor’s regret for not being able to be with us. He is attending to another important assignment, the AERC Senior Policy Seminar on the Global Financial Crisis and its implications for African Economies, also here in Lusaka. Nonetheless, he extends his welcome and good wishes for a successful programme. This important conference has brought together practitioners and regulators of microfinance institutions from different countries to share experiences. I also note that participants have been drawn from Central Banks in the region, the public sector, commercial banks, microfinance institution and other non-bank financial institutions. Chairperson: The Bank of Zambia, in conjunction with the Bank Negara Malaysia (the Central Bank of Malaysia) is pleased and greatly honoured to co-host this pilot Financial Inclusion Advisers Conference. We have no doubt that this Conference will provide the necessary impetus to advance the frontiers of financial services provision to our people in the region. Ladies and Gentlemen: The genesis for this important forum goes back to the Langkawi International Dialogue, in 2007 at which the Governor of the Central Bank of Malaysia proposed this initiative. The purpose was to bring together practitioners and regulators of microfinance to learn from each other on how to deepen and broaden financial services provision. The proposal was concretized at the Global Southern Africa International Dialogue under the CPTM SMART Partnership Movement, held here in Lusaka, in August 2008 following an agreement between the Bank of Zambia and Bank Negara Malaysia to conduct the first Financial Inclusion Advisers Programme in Zambia. Distinguished Guests and Participants: As you may know, the debate on financial inclusion has been going on for some time now. A common understanding arising from this debate is that financial exclusion has negative economic and social effects on society. For instance, lack of access to financial services tends to restrict the economic opportunities open to the poor and makes them vulnerable to adverse events. The absence of savings products in particular makes it difficult to build up capital. This Conference is therefore, aimed at enhancing financial inclusion by equipping practitioners and regulators with tools to promote financial literacy and to expand the provision of financial services. Chairperson: Allow me to give some highlights of the status of financial inclusion in Zambia. Like in many other developing countries, the financial sector in Zambia still faces a number of challenges. The joint IMF/World Bank, Financial Sector Assessment Programme (FSAP) Report of 2002, highlighted a number of these, including limited access to financial services by the rural and peri-urban population and doubtful sustainability of financial services in Zambia. In light of these findings, and in recognition of the strategic importance of the development of the financial sector in contributing to sustainable economic growth and poverty reduction, the Government of the Republic of Zambia developed and launched the Financial Sector Development Plan (FSDP) in 2004. The FSDP is a comprehensive five year strategy to build and strengthen the financial sector infrastructure to enable it to support economic diversification and sustainable growth. Under the FSDP, two important studies, namely, the FinScope™ Surveys of 2005 and 2007, on the demand for and supply of financial services in Zambia have been undertaken. These studies have augmented the earlier findings of the FSAP with respect to the key developmental challenges for the financial sector in Zambia. The key findings of the Finscope Survey on the demand for financial services included the following: • Only one third (33.3%) of the population were “financially served”, i.e., used formal and/or informal financial products, whilst two thirds (66.7%) had no access to financial services; • 77.5% of Zambians report to have never had a bank product or service; • 40% of salaried staff reported not having bank accounts, signifying that they received money in cash rather than through the financial system; and • The barriers to accessing financial services include cost, distance, time and transport to reach the bank or financial service provider. In addition, the FinScope™ Survey noted that microfinance institutions although used by only 5% of the adult population plays an important role in increasing levels of access to financial services; and that the informal sector in Zambia played a significant role in the provision of financial services catering for 11% of the population. Distinguished Participants: An important point to note is the fact that the majority of those who had no access to financial services are the rural poor, with women being more disadvantaged than men. These are worrisome results, which call for concerted efforts by all stakeholders to expand the frontiers of financial services. In furtherance of the objectives of the FSDP, the BoZ Strategic Plan for 2008-2011 has made financial inclusion as one of its key strategic objectives. Government has also set a financial access target of 50 percent by the end of 2009 under the Performance Assessment Framework (PAF). The holding of this Conference is therefore, consistent with our aspirations to increase levels of financial access in the country. As earlier alluded, the aim of this Forum was to bring together practitioners and regulators of microfinance to learn from each other in order deepen and broaden financial services provision. In this regard, the forum has a number of eminent persons who will share with us their unique experiences. Ladies and Gentlemen: This FIA programme is customized and among the issues that will be addressed include the following: 1. Emerging best practice in microfinance; 2. Self-help group models for microfinance, which may be viable for countries in our region; 3. Microfinance product development knowledge and risk management strategies; and 4. Specific micro-credit practices for agricultural-related businesses, which is relevant for most our countries’ strategies to diversify into agriculture. Distinguished Participants: We consider the timing of this workshop appropriate given the impact of the on-going global financial crises. I therefore, call upon all of you to take advantage of this unique opportunity to learn and share experiences, so that we can come up with efficient and effective ways of advancing financial inclusion in our respective countries. Ladies and Gentlemen: At this point, kindly allow me to call upon our Guest of Honour, Honourable Ms Chileshe Kapwepwe, MP, the Deputy Minister of Finance and National Planning to deliver the key note address and to officially open this Conference. Honorable Minister Sir! | bank of zambia | 2,009 | 4 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of the Indo-Zambia Bank Student Loan Scheme, Mulungushi University, Kabwe, 21 April 2009. | Caleb M Fundanga: Launch of Info-Zambia Bank student loan scheme Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the launch of the Indo-Zambia Bank Student Loan Scheme, Mulungushi University, Kabwe, 21 April 2009. * * * HON. MINISTER OF EDUCATION, PROFESSOR GEOFFREY LUNGWANGWA, MP THE CHAIRMAN OF MULUNGUSHI UNIVERSITY COUNCIL, MR COSTAIN CHILALA THE VICE CHANCELLOR OF MULUNGUSHI UNIVERSITY, PROFESSOR VERNON CHINENE THE CHAIRPERSON OF INDO-ZAMBIA BANK LIMITED, MRS O MOYO THE MANAGING DIRECTOR OF INDO-ZAMBIA BANK LIMITED, MR S R SHUKLA MEMBERS OF STAFF OF MULUNGUSHI UNIVERSITY AND INDO-ZAMBIA BANK LIMITED MEMBERS OF THE PRESS INVITED GUESTS LADIES AND GENTLEMEN I am grateful to the Vice Chancellor of Mulungushi University, Professor Chinene, for extending an invitation to me to witness the Launch of the Student Loan Scheme by our Minister of Education Hon. Professor Lungwangwa. Chairperson, I am reliably informed that the Student Loan Scheme being launched today is the latest among the many product initiatives that Indo Zambia Bank Limited will be launching in the near future . The Student Loan Scheme represents a major shift from the traditional loan schemes that have for a long time characterised traditional banking models in Zambia. Chairperson, the Bank of Zambia supports the introduction of innovative products such as the Student Loan Scheme, a service that will allow parents and guardians who bank with Indo Zambia Bank Limited to access loans to meet University fees for their children at concessionary rates. Hon. Minister, this Loan Scheme being launched today provides a real opportunity for human capital development, which is necessary for national development. It enables children who would otherwise be excluded from the educational system have decent opportunities to receive education, as their parents can now access loans specifically targeted at meeting their educational expenses. Ladies and Gentlemen, a nation’s development depends on the levels of skills among its people and it is our expectation that the launch of this Scheme will contribute towards this noble cause. To this end, I would like to encourage parents and guardians to use the Student Loan Scheme in order to realise the vision of educating their children. Chairperson, what we are witnessing today represents an initiative by banks to respond to the needs of the community. As the Central Bank, we commend your bank for this initiative, which was borne out of the identified need to develop financial products that address problems in our society. Chairperson, Ladies and Gentlemen, let me end by reminding players in the banking sector that as new products and services emerge, different or heightened levels of risk also emerge. The challenges that financial innovation poses for public policy and the regulatory framework in ensuring financial stability are enormous and cannot be over looked. In this regard, let me call upon the management of Indo-Zambia Bank to not only look at the benefits, but more also on the risks that accompany financial innovation. From the Bank of Zambia’s point of view, the objective of financial stability remains key in all our activities. Financial stability depends to a large extent on the existence of robust risk management systems of financial institutions. It is therefore, important that risk management systems should keep pace with financial innovation. I have no doubt that the banking sector will rise to this challenge. Once again, thank you for the opportunity to witness this important event. | bank of zambia | 2,009 | 4 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of Standard Chartered Bank Zambia Limited Ody's Excel Centre, Lusaka, 22 April 2009. | Caleb M Fundanga: Moderating the impact of the global meltdown on the Zambian financial system Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of Standard Chartered Bank Zambia Limited Ody’s Excel Centre, Lusaka, 22 April 2009. * * * The Chairman, Standard Chartered Bank Zambia Limited, Mr Michael Mundashi The Managing Director of Standard Chartered Bank Zambia Limited, Mrs Mizinga Melu Distinguished Guests Members of the Press And may I simply say Ladies and Gentlemen I am pleased to be here today at the official opening of the new Excel Centre of Standard Chartered Bank Zambia Limited. This event is taking place at a time when our economy is faced with challenges emanating from the impact of the global financial and economic crisis. Although the Zambian financial system is not fully integrated with the world’s financial markets, the impact of the crisis is already clear. Mr Chairman, the financial turmoil has resulted in a reduction in projected global economic growth and a decline in demand for commodities. As a commodity exporting country, Zambia has experienced a decline in her export receipts due to the decline in commodity prices reflecting a weak demand for these commodities. The declining export earnings and reversals in portfolio investments have been reflected in the depreciation of the local currency and consequent inflationary pressures towards the end of 2008. Ladies and Gentlemen, the financial turmoil facing the world today has affected all of us and we as regulators are trying to ensure stability in the financial markets. In this regard, the Bank of Zambia has put in place measures to moderate the impact of the global meltdown on the Zambian financial system. The Government also remains resolved to continue with prudent fiscal policies and economic management, which have seen a buoyant financial sector in Zambia, thereby resulting in the mushrooming of branches in different locations of the country, such as the one we are inaugurating today. In spite of the uncertainties in the global economy, Distinguished Guests, we remain confident that the financial sector in Zambia will rise above the challenge and continue to provide services to the communities where they operate. Ladies and Gentlemen, I have stated at various fora that it is important for banks in Zambia to take actions which support the development of our economy: • Banks need to open more outlets such as this one, to increase our people’s access to banking services, thereby empowering our citizens • Banks should provide more loans to the productive sector, such as Agriculture and SMEs. In striving to meet these demands, banks must always comply with the regulations as stipulated in the Banking and Financial Services Act to ensure the safety of customers’ deposits. I am proud of the stability that has been exhibited by our economy. However, Mr Chairman, I am disappointed that the cost of borrowing has remained high in spite of the improvements in the fiscal management of our economy. As you know, the high cost of borrowing stifles the growth of the productive sector. I therefore appeal to all the banks operating in Zambia to show more commitment to the growth and development of our country by: • Opening more branches • Providing more loans to increase the productivity of our economy, and • Encouraging more Zambians to open bank accounts through provision of easily accessible and affordable products and services All this, ladies and gentlemen, will greatly contribute to the emergence of a middle class in Zambia, which will bring real economic development and lead to poverty reduction. I am pleased to observe Standard Chartered Bank’s commitment to growth and reinvestment. You will all agree with me, however, that those who have more should do more. I therefore look forward to seeing more from Standard Chartered Bank Zambia Limited, as it is one of the leading banks in this country. I thank you. | bank of zambia | 2,009 | 4 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of National Savings and Credit Bank, Lukulu Branch, Lusaka, 27 May 2009. | Caleb M Fundanga: Increasing access to financial services in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the official opening of National Savings and Credit Bank, Lukulu Branch, Lusaka, 27 May 2009. * * * The Guest of Honour; the Honourable Minister of Finance and National Planning; Dr. Situmbeko Musokotwane, MP The Honourable Minister for Western Province; The Deputy Permanent Secretary for Western Province; The Honourable Members of Parliament for Lukulu East and West; The Acting Ngambela Imbua Imwaka representing the Barotse Royal Establishment; The District Commissioners for Lukulu and Kaoma; The Board and Management of National Savings and Credit Bank; Distinguished invited guests; Ladies and gentlemen. 1. On behalf of the Bank of Zambia Governor, I would like to thank the Board of Directors and Management of National Savings and Credit Bank for inviting us to the occasion of the opening of another rural branch in Zambia, this time in Lukulu. 2. National Savings and Credit Bank (also commonly referred to as NATSAVE) was established on 1 April 1972 by the National Savings and Credit Bank Act of 1972 and it commenced business operations in March 1973. The amendments to the Banking and Financial Services Act of 2000 extended the supervisory authority of the Bank of Zambia to NATSAVE which was until then, supervised by the Ministry of Finance and National Planning (MoFNP). 3. NATSAVE was set up to administer savings and to provide credit facilities in urban, periurban and rural areas to individuals and small business enterprises. Its business strategy is to target the low and medium income earners through the establishment of a sustainable network of outlets and by offering sustainable financial services. The Bank has continued to be a leading public vehicle in ensuring financial inclusion to all citizens across the country through the vast branch network. Currently, NATSAVE has 27 branches (including Lukulu branch), spread across the country. 4. Honourable Ministers and Distinguished invited guests, a key element in the strategy of poverty reduction is the provision of financial services to the majority of our people, the small and micro enterprises who have traditionally been neglected by the formal banking sector. NATSAVE’s expansion program therefore has the potential to improve access to financial services and enhance competition in the financial sector. This improves financial services delivery to the Zambian people and brings more of the financially excluded population to the financial institutions. The Bank of Zambia views this development positively, particularly as recent trends indicate that many institutions in the financial sector are extending their branch networks. 5. However, it is important for financial service providers to complement branch expansion with increased product innovation. The ability to offer a broad range of products and services is the hallmark of financial sector deepening, as different types of products appeal to a wider range of clients, leading to enhanced access to financial services. The Bank of Zambia, as a regulator, is determined to facilitate viable branch expansion, and the introduction of new and innovative financial products, to tap savings and channel these savings to investment. The BoZ will therefore continue to work in close collaboration with the financial sector to cultivate partnership in order to establish the framework necessary for build ing strong institutions that will mitigate risks and build confidence in the sector. 6. As at 30th April 2009, NATSAVE held customer deposits in excess of K135 billion with a loan portfolio of K92 billion and served over 120,000 clients. NATSAVE has also endeavoured to introduce various products such as marketeer and pensioner accounts (specific savings products for people in these categories), as well as loan products such as individual loans, salary loans and money transfer services. The development in Lukulu therefore offers some hope that rural areas, and especially the agricultural sector, may eventually be offered attractive financial products. 7. Notwithstanding this, allow me now to reflect on some of the key challenges in the financial sector that all of us must strive to address: (i) Increasing access to financial services by the small and micro entrepreneurs who form the backbone of the economy. This sector provides employment for many people who cannot be absorbed into formal employment; increased access to financial services remains a key challenge to this segment. (ii) The BoZ took a step towards regulating microfinance institutions (MFIs) in 2006 because these institutions can help in narrowing the access gap in the delivery of financial services. So far, 21 MFIs have been licensed but most of these operate along the line of rail providing mainly salary-backed loans. More institutions are still needed to increase outreach and deliver financial services in a safe, sound and sustainable manner; (iii) Zambia is predominantly an agricultural country, but lending to agriculture has been limited. The challenge therefore is to devise financial products that meet the requirements of the rural and predominantly agricultural areas while at the same time devising means of protecting the financial institutions from risks associated with agricultural lending. 8. Allow me to conclude my remarks by highlighting the need for banks and non-bank financial institutions to consider their customers and potential customers when determining the pricing of their products and services. The public continues to decry the high level of charges and interest rates for banking services and products. 9. The BoZ has previously and will continue to appeal to the financial sector to review their charges and to explore ways of enhancing efficiency in service delivery. 10. The majority of Zambians cannot afford the current banking charges and are effectively shut out of the financial system. More affordable banking services will draw in a larger number of Zambians to the financial system, which will in turn be beneficial to the development of the banking system and the economy at large. 11. According to a market knowledge study called the ‘FinScope Demand – Side Survey’ which was conducted in 2005 to review the inclusiveness of the Zambian financial system, two thirds (or 66.3%) of the Zambian adult population do not have access to financial services and only one third (or 33.7%) use banks, other formal and informal financial services and products (such as those offered by microfinance and savings clubs). Furthermore, only 15% of the adult population access commercial bank services. A huge market therefore exists to tap if transaction costs are reduced. 12. Finally, Honourable Guest of Honour, let me congratulate NATSAVE for its participation in addressing the issue of increased access to financial services for the people of Lukulu despite the challenges of physical access and resultant higher transaction costs. I thank you. | bank of zambia | 2,009 | 6 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Closing and Dissemination Workshop on Foreign Private Investment and Investor Perception Survey, Lusaka, 4 June 2009. | Caleb M Fundanga: Foreign private investment in Zambia Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Closing and Dissemination Workshop on Foreign Private Investment and Investor Perception Survey, Lusaka, 4 June 2009. * * * The Chairman; Distinguished Invited Guests and Participants; Members of the Press ; Ladies and Gentlemen Mr. Chairman, It is my honour and privilege to officiate at this very important Closing and Dissemination workshop of Phase II of the survey on Foreign Private Investment and Investor Perception. As I welcome you all, I wish to convey my appreciation for your contribution to the success of the project. May I, in this regard, express our special appreciation to the private sector colleagues for their cooperation as respondents. Ladies and Gentlemen, Let me take this opportunity to extend my sincere gratitude to the Private Sector Development (PSD) Programme, for providing financial support for this very important project. Further, our thanks go to the COMESA Secretariat, United Nations Conference for Trade and Development (UNCTAD), Macroeconomic and Financial Management Institute (MEFMI), Development Finance International (DFI) and international consultants for providing financial and technical support to this survey. With their financial and technical support, the Government, through the Balance of Payments Committee, comprising representatives from the Ministry of Commerce, Trade and Industry, Ministry of Tourism and Natural Resources, Zambia Development Agency, Central Statistical Office and Bank of Zambia, was able to undertake this very important survey. Without their support, it would have been very difficult to complete this phase of the Survey. Distinguished Guests, As you are aware, the Zambian economy has recorded significant positive developments in the recent past, owing to the wide-ranging economic reforms the Government has been implementing since 1992. The reforms, which are aimed at stabilising the economy and supporting economic recovery for the purpose of reducing poverty among our people, have facilitated increased investment in various sectors of the economy, such as, agriculture, tourism, construction and manufacturing. As you may also be aware, the mining sector has attracted unprecedented amounts of investment in the recent past. Government’s economic reforms since the early 1990s have contributed immensely to the boosting both local and foreign investors’ confidence in the Zambian economy, which is an important pre-requisite for attracting capital flows. The survey findings that we are disseminating today indicate that Foreign Private Capital flows to Zambia in 2007 rose to US $1,932.8 million from the US $176.3 million recorded in 2001. The 2007 inflows were largely in form of foreign direct investment, borrowing from nonaffiliates (Loans and Trade Credits) and portfolio investment. We believe that the introduction of economic reforms led to a substantial increase in private capital flows, which regrettably, we have not been able to capture on a regular basis due to budgetary constraints. Mr. Chairman, History has taught us that high volatility in private capital flows, if not properly monitored and managed, can induce financial and macro-economic instability in the domestic economy. Evidence from South East Asia indicates that capital flows engendered a financial crisis in that region in 1997 and 1998. In light of this evidence, the results of the Foreign Private Investment and Investor Perception Survey are intended to assist the Government to effectively monitor private capital flows. Accurate and reliable data on private capital investment will be helpful in understanding recent developments in the Zambian economy. Better information on investor perceptions will assist Government in designing policies that will attract more investment into our economy. Further, the results of the survey should prove useful to the private sector and other stakeholders. On the whole, the importance of timely and reliable information on capital flows in the design of appropriate policy responses by Government and thus enhancing macroeconomic stability can hardly be overemphasised. Adequate and consistent information on capital flows will also greatly improve Balance of Payments Statistics for Zambia and serve as an early warning system for Government on potential international financial crises and other external shocks. Mr. Chairman, Zambia, like many other developing countries, has inadequate capacity to collect, analyse and disseminate data and information on foreign private capital investment. Compared with other countries in the African sub-continent, Zambia has serious gaps with respect to data on foreign private capital investment. For instance, while we are now at the second phase of the Survey, Uganda, Tanzania and Malawi are in the sixth, fourth and third phases, respectively. This only reveals to us the critical need to conduct this enterprise survey more regularly. To this end, I wish to direct that, as a way forward, the Balance of Payments Statistics Committee conducts this survey annually. The Bank of Zambia, in collaboration with Government and other Balance of Payments Statistical Committee member institutions will do everything possible to ensure that the collection of this vital information is done on an annual basis. Accordingly, it is my hope that participants at this workshop will appreciate the importance of this survey and find the results useful. Distinguished Guests, I am particularly happy to learn that the Zambian team compared to other countries in the region, has conducted this enterprise survey in record time. It shows true commitment and dedication of the team to this project. Please keep up the good work. Be reminded, however, that you have established a benchmark, which we want to be associated with, and which others will want to emulate. I have no doubt that we will beat the record we have set for ourselves when we conduct the next survey. I am confident that this workshop will achieve its intended objective of disseminating the findings of the survey and stimulate active participation and comments from the various stakeholders. Mr. Chairman, Ladies and Gentlemen, It is now my pleasure and honour to declare this Closing and Dissemination Workshop on Foreign Private Investment and Investor Perception Survey officially opened and wish you fruitful deliberations. I thank you. | bank of zambia | 2,009 | 6 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Second Private Health Sector Trade Fair, Lusaka, 5 June 2009. | Caleb M Fundanga: Strengthening Zambia’s financial and private health sector Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Second Private Health Sector Trade Fair, Lusaka, 5 June 2009. * * * The Chairperson, Banking on Health; Representatives from the Medical Council of Zambia; Representatives from The General Nursing Council; Representatives from the Zambia Medical Association; Members of the Zambia Union of Nurses Organisation; Members of the Zambia Alliance of Private Health Providers; Representatives from the Pharmaceuticals Society of Zambia; Distinguished invited guests; Ladies and Gentlemen. * * * It is with great joy and gratitude that I stand to address you at this important Second Private Health Sector Trade Fair. This occasion brings together many of our esteemed medical providers from the private sector and other important stakeholders in the delivery of medical services in Zambia like financial institutions, pharmaceutical distributors, and other commercial suppliers who support the medical industry. The Bank of Zambia as regulator of the financial system is committed to strengthening the financial sector and position it so that it is relevant to the country development agenda by providing finance to sectors like health and qualified private health providers. I believe this will lead to the improved quality of medical services provision in Zambia and contribute to the country’s economic growth. Distinguished Ladies and Gentlemen, the Bank of Zambia, recognizes the important role that the private sector continues to play in providing health services to much of Zambia’s population. These service providers, whether they are doctors, nurses, midwives, clinical officers, dentists, or pharmacists offer their clients increased choices. More choices in health provision allow people to find the best care for their own particular circumstance and needs. The expanded choices and reach provided by the private sector is a wonderful complement to the existing public health services. Furthermore, the recent decision by the Zambian Government to designate Health and Education as economic sectors will undoubtedly, assist all investors in the health and education sectors. This entails that investors in these sectors can now enjoy the various incentives previously available only to investments in the real sector. Chairperson, In order for the private health sector to truly flourish in Zambia, it is vital that the government provides an enabling environment that will ensure that private providers of health services can obtain the financing they need to expand and improve their medical practices. Most micro, small, and medium enterprise firms in Africa, including health businesses, only receive 5 percent of their financing through banks, while larger firms get 22 percent of their financing needs from banks. In Zambia, a recent survey on financial inclusiveness indicated that only about one third of the population is financially served by banks and non bank financial institutions. Barriers to access to credits identified included; high interest rates, caps on loans and excessive collateral requirements. The importance of increasing access of banking services to a larger proportion of our population cannot be overemphasized. Financial services are a critical tool to help people step onto the economic growth ladder and create a brighter future by tapping their own creativity in creating jobs and incomes. It can also be instrumental for broader human development, by letting clients invest in themselves and seek protection from shocks and bad fortune. It is however, gratifying to note that following the survey, commercial banks and other nonbank financial institutions in Zambia have increasingly become receptive to lending to small and medium-sized enterprises and have in this regard established departments dedicated to small and medium enterprise lending and introduced financial products specifically designed to meet the financing needs of these businesses. In working with Banking on Health, banks have shown interest in learning about the private health sector, a sector whose business characteristics were largely unknown to banks. However, banks can still misunderstand the risks, overestimate the costs, and underestimate the potential returns of lending to sectors, such as the health sector. In addition to the structural barriers in the financial sector that limit access to finance, many private health care providers have limited financial and business-management skills and often struggle to prepare a bankable loan applications or business proposals. It is difficult for commercial banks to assess the credit risk of a loan without the financial statements and business plans to support the loan application. Chairperson, I am happy to state that “Banking on Health”, with support from the U.S. Government, has worked to address some of the barriers to credit by providing market research information on the private medical sector to commercial banks and microfinance institutions so that they can understand the business characteristics of the sector. The financial management training that Banking on Health provides to health businesses also lowers the risk of lending to these borrowers. Ladies and Gentlemen, let me end by pointing out that the challenges arising from the global financial and economic crisis are huge but surmountable. Major economies of the world are putting in place various stimulus packages, which are expected to take the world economy out of the crisis. Without doubt, these measures will benefit emerging and developing economies as well, provided that we remain committed to pursuing strong socio-economic policies. Although the global financial crisis has negatively affected the Zambian economy in many respects and presents serious challenges to maintaining the health of the economy, macroeconomic stability has been maintained. The Bank of Zambia has continued to monitor the global developments and take appropriate measures to maintain confidence in the banking system and avoid systemic risk. It is important to note that despite the crisis, there still remains investment confidence in the Zambian economy and one example of this is the number of new commercial banks that have commenced operations in Zambia in the last 12 months. The Bank of Zambia is also committed to ensuring the availability of finance to viable businesses including qualified health businesses. Doing so will help create a foundation for greater investment in the health of the nation. We appreciate the partnership and initiatives such as the “Banking on Health” in extending health services in Zambia and look forward to greater investment in the health sector of Zambia. I thank you. | bank of zambia | 2,009 | 6 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the SADC Group of High Commissioners and Ambassadors Meeting, Lusaka, 9 July 2009. | Caleb M Fundanga: Global financial and economic crisis and its effect on the Zambian economy Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, to the SADC Group of High Commissioners and Ambassadors Meeting, Lusaka, 9 July 2009. * * * Chairperson Your Excellencies High Commissioners and Ambassadors from SADC Resident in Zambia Distinguished Guests Ladies and Gentlemen It is a great honour and privilege to be invited this afternoon to share Zambia’s experiences given the unfolding global financial and economic crisis. In discussing this topic, I will begin by highlighting, albeit briefly, the origins of the current global economic crisis. I will then underscore the effect of the crisis on the Zambian economy before I look at the policy responses, the challenges and then conclude. Origins of the crisis As Your Excellencies are already aware, the genesis of the current global economic crisis has been traced to the collapse of the sub-prime mortgage market which started between 2002 and 2006. This was when lending to the household sector in the United States of America (USA) was growing at a rate far beyond that of the broader economy (i.e. growth in GDP). The rising delinquencies in the subprime mortgage market triggered turbulences in the subprime mortgage – backed securities market leading to a financial crisis which quickly spread to other advanced economies. Subsequently, the financial crisis created a recessionary economic environment in which global trade, stock market indices, and commodity prices, such as copper and cobalt, declined significantly. The global financial and economic crises thus negatively impacted on economies around the world by adversely affecting trade and investment flows and the price of key export commodities. To respond to this crisis, several actions are being taken at global level by the major economies to address the root causes and the effects of the global financial and economic crises. These are fiscal and monetary policy stimulus measures aimed at boosting global consumption and investment demand in an effort to avoid a significantly sharper global contraction than that which has already occurred. Measures typically entailed reduction of interest rates, tax cuts and increased Government spending in form of bail-outs of strategic institutions and in some cases virtual nationalisation. Concrete steps are also now being taken to reform the regulatory and supervisory frameworks governing the financial sector. Further, increased resources have been provided to key multi-lateral institutions such as the IMF and the World Bank. These institutions have also been mandated to play a central role in leading the global response to the crisis and evaluating the efficacy of the various measures that are being implemented. Impact of the global economic crisis on Zambia The Zambian financial sector has so far not been directly adversely affected by the credit crunch as reflected in the continued stability of the banking sector with most banks being adequately capitalized and the inter-bank market operating as before. This is mainly due to the sector’s limited integration into the international financial markets. Further, our financial sector had no exposure to toxic assets, which led to the credit crunch in most developed markets. However, the current global financial crisis, with the subsequent global economic recession, has adversely affected Zambia, like most global economies, mainly through: reduced revenue earnings from mineral resources; job losses, particularly in the extractive industry; lower foreign capital inflow (both foreign portfolio investment (FPI) and foreign direct investment (FDI)); rising domestic inflation driven by pass-through effects of the depreciation in the exchange rate of the Kwacha against major currencies; and declining number of foreign tourists. Revenue earnings from mineral resources As you may know, Your Excellencies, Zambia, like many African countries, relies heavily on commodity exports. This has made the country more vulnerable to the global downturn. The global financial crisis and the plummeting commodity prices on the international market have negatively affected Government revenue. The global economic recession has resulted in a reduction in world demand for copper, which in turn, has led to the precipitous fall in copper prices. Copper prices at the London Metal Exchange (LME) fell from highs of US$8,980 per tonne in July 2008 to as low as US $2,812 per tonne in December, 2008. The dramatic decline in the price of copper has entailed reduced earnings from copper exports by mining companies and subsequently reduced earnings for the Government from mineral royalties and corporate taxes from this source as well as falling income taxes from employees in the mining and related sectors. The reduced earnings for the mining sector may translate into lower investments and production. Further, some mining companies, which were carrying out exploration works, have suspended these activities. Ultimately, all this lead to job losses in the country’s extractive industry, leading to lower income tax revenue. In addition, the downturn will reduce Government’s capacity to develop the much needed infrastructure as it may have to scaledown its capital expenditure in line with lower realized revenue. Loss of employment In the real sector of the economy, the impact of the crisis has been reflected in the scaling down of production or the closing down of some mining operations due to low copper prices. This has had the inevitable consequence of loss of jobs. However, following the reopening of some mines, the situation has slightly improved. External position The declining earnings from copper exports adversely affected Zambia’s balance of payments position. For instance, during the fourth quarter of 2008, the overall balance of payments deficit widened to US $177.6 million from US $120.6 million recorded the previous quarter. Merchandise export earnings declined to US $909.8 million from US $1,206.7 million realised in the third quarter of 2008 following a sharp reduction in metal export earnings. Metal export earnings declined by 23.1% to US $711.7 million in the fourth quarter of 2008 from US $925.6 million the previous quarter. Metal export earnings at US $575.8 million in the first quarter of 2009 were 49.8% lower than the US $1,147.2 million recorded in the similar period last year. A slide in both copper and cobalt export earnings owing to lower prices accounted for this outturn. Nonetheless, it should be noted that commodity prices on the international markets recently have been edging upwards. If this trend is sustained, Zambia’s external position may improve accordingly. Foreign capital inflow Your Excellencies, the global financial crisis has led to the decline in the foreign portfolio investment inflows as investors reduced their exposure to emerging market instruments. The risk aversion towards emerging markets has led to a reduction in foreign portfolio inflows and holdings in Zambia’s Government securities. This has resulted in a net outflow of foreign portfolio investment since funds that mature are not being rolled over and funds coming in have be en scaled down. For example, the foreign investor’s total holding of Government securities has reduced from K1,054.7 billion in the third quarter of 2008 to K446.2 billion by the second quarter of 2009. Similarly, the flow of foreign investments at the Lusaka Stock Exchange has switched from a net inflow of US$2.5 million during the period January to May 2008 to a net outflow of US$8.5 million in the same period this year. Exchange rate volatility and domestic inflation The global financial meltdown has caused a contagion effect to our foreign exchange market and has led to volatility in the exchange rate of the Kwacha against major currencies. This unfavourable development is partly a consequence of reduced earnings from copper exports arising from the fall in copper prices as reflected in the lower supply of foreign exchange on the market by mining companies. For instance, the supply of foreign exchange to the market by mining companies has declined by 35.7% to a monthly average of US $62.4 million in the first half of this year from an average of US $97.0 million in the last half of 2008. Further, the weakness of the local currency is a consequence of increased risk aversion to emerging and developing economy financial assets, as stated earlier, attributed to the deepening global financial crisis. In this regard, the supply of foreign exchange by foreign portfolio investors for the purchases of Kwacha financial assets, such as Government securities and domestic company equities, has significantly declined, with most nonresidents preferring to liquidate their investments and externalising the foreign exchange. The result of this is the volatility in the exchange rate of the Kwacha against major foreign currencies. In the last quarter of 2008, the Kwacha depreciated by 26.9% to trade at an average of K4,394.76/US$ (BoZ mid-rate) from an average of K3,462.00/US$ in the third quarter. It should also be noted that the depreciation of the Kwacha against major currencies partly contributed to higher inflation, particularly as Zambia remains dependent on imports for a wide variety of consumer goods as well as inputs for domestic production. Further, this unfavourable development has a strong role in shaping inflation expectations. Tourism Apart from mining and related companies that are affected by the effects of the global recession, tourism has also been negatively impacted. The number of foreign tourists is anticipated to decline owing to financial problems and credit crunch their countries of origin are facing. Availability of credit Perhaps the most challenging effect of the global financial crisis, especially for developing countries like Zambia, is its impact on private sector investment. Between 2006 and 2008 credit to the private sector grew strongly (at an average of 45.6% per annum), largely driven by the expansion of consumer credit and the strong growth in the domestic economy. An immediate consequence of the financial and economic crisis has been a curtailment of credit lines and a slow-down in FDI flows. In 2009, domestic credit is expected to slow down as financial institutions adopt more conservative lending practices and tighten their lending standards. In addition, the deterioration in corporate and household balance sheets is now being translated into higher non-performing loans (NPLs) as a percentage of total assets in the banking sector (from 6% in mid-2008 to 10% in May, 2009 – an increase of 67%.). The deterioration in NPLs is now across all the past due loan categories. Policy response In responding to the crisis, the Government is taking steps to maintain macroeconomic stability and continue encouraging investments that will lead to diversification of the economy and safeguard vital social services. Further, the Government is actively engaging new investors to take over the running of the closed mining operations as well as negotiating with the owners of the bigger mines on modalities of continuing with operations at the mines to forestall further job losses. The 2009 Budget has prioritised infrastructure development with the view to opening investment opportunities for diversification, particularly in agriculture, tourism, and manufacturing sectors. Some specific measures include the following: Agricultural sector: Increased allocation of funds to the sector for livestock development and creation of at least one disease-free livestock zone, Farm Block infrastructural development and irrigation projects. Further, the value added tax on selected agricultural equipment and spares, has been zero rated as incentive to increase agricultural production and productivity. Tourism sector: In order to diversify the economy and attain broad based economic growth, Government has increased the allocation to the sector to improve access to the Northern Tourism Circuit (infrastructural development in Mbala and Kasaba Bay). Further, Government will embark on the development of a new world class tourism area in Livingstone, and step-up the development of road infrastructure in key national parks namely, Luangwa and Kafue. Manufacturing: In order to expand the manufacturing base, Government is promoting the establishment of Multi-Facility Economic Zones (MFEZ) on the Copperbelt (Chambishi), and Lusaka (Lusaka south and east) provinces by providing for fiscal incentives and quality infrastructure development in the budget. The construction of the Chambishi MFEZ has already commenced. Further, the budget reclassified and re-categorised certain manufacturing materials with the aim of lowering customs duty rates. Mining sector: In light of the adverse impact of the global economic crisis on the mining sector and with the view of easing these effects, the Zambian Government introduced tax concessions, which included removal of the windfall tax, increasing capital allowance to 100 percent as an investment incentive, and reduction of customs duty on Heavy Fuel Oils. As the Central Bank, we have continued to monitor and review developments in the foreign exchange market and provide prudent support when necessary in order to dampen excessive volatility in the exchange rate and safeguard the recently achieved macroeconomic stability. To this end, the Bank has been a net seller of foreign exchange to banks. However, the Bank’s interventions are limited given the global extent and magnitude of the crisis. In addition, the Bank has enhanced its vigilance and interaction with the domestic financial system to ensure adherence to its supervisory guidelines and to enhance information flows between banks and itself. Accordingly, the Bank also introduced measures to ensure that financial market players under its supervision provide detailed information on their foreign exchange transactions. Further, the Bank has continued to reinforce the regulation and supervision of the financial sector. Effective surveillance of the financial market entails adopting appropriate risk management policies and procedures that will ensure that financial institutions do not undertake excessive risks that may increase the vulnerability of the country to external shocks. Challenges Maintaining macroeconomic stability is critical to sustaining economic growth in Zambia. The challenge is how to sustain stability and mitigate falling domestic demand within the constraints posed by increasingly scarcer external financial inflows. This has to be done in the context of implementing policies consistent with medium-term stability and development goals. The second challenge relates to mitigation of the vulnerability of the Zambian economy to the adverse external shocks. We will have to closely monitor capital flows and adopt supervisory policies that will ensure a sound and stable financial system. The pursuit of policies that promote macroeconomic stability is also important to ensure that the domestic economy remains attractive to both domestic and foreign investors for the long-term growth and development of the economy. One of the unfolding lessons of the current crisis is the need for greater transparency in the transactions players in the financial markets undertake, particularly, with respect to offbalance sheet transactions. We will therefore be acting to ensure that market players provide us with detailed information on their transactions. In addition, we will continue to work towards strengthening and developing our financial markets as well as encouraging competition and efficiency. Prospects for 2009 and beyond Your Excellencies, going forward, it remains important to accelerate diversification of the economy as a way to mitigate the effects of a prolonged global financial crisis. Currently, there are enormous business opportunities which still lie unexploited in Zambia in virtually all sectors of the economy. It is important that we continue reducing the cost of doing business, in conjunction with the private sector, in order to improve investments in various sectors of the economy. The agriculture sector, for instance, remains underdeveloped despite the country possessing large tracts of arable land, adequate water and relatively good weather. This is one sector where the country can easily take advantage of its comparative advantage. The achievement and maintenance of a low and stable inflation rate, preferably single digit, therefore remains key to promoting investment, enhancing business planning and confidence in the economy, maintaining external competitiveness and stabilising people’s incomes. In the medium-term, Government continues to pursue market and structural reforms in partnership with the private sector with the view of consolidating the gains so far attained for sustained economic growth and development. Despite the adverse effects of the global economic meltdown, there are still prospects for appreciable economic growth in 2009 and the years ahead. GDP growth is expected to be led by growth in agriculture; construction; financial services; manufacturing; transport and communication; and wholesale and retail trade. Conclusion In conclusion, we all agree that Zambia remains vulnerable to effects arising from the ongoing global financial crisis, particularly if it is prolonged. We hope that the actions that most affected countries, led by the US and the EU, have taken would help cool down the financial crisis and bring back the much needed confidence in the financial systems. For its part, the Bank of Zambia continues to closely monitor global developments and always stands ready to intervene in the local financial market with a view to prevent any systemic risks that may have negative effects on macroeconomic gains achieved thus far. Once again, Your Excellencies let me thank you most sincerely for this opportunity to discuss the challenges Zambia is facing in view of the current global economic crisis. I thank you. | bank of zambia | 2,009 | 7 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the foundation stone laying ceremony of the new Stanbic Bank Premises, Lusaka, 10 July 2009. | Caleb M Fundanga: Increasing access to financial services in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the foundation stone laying ceremony of the new Stanbic Bank Premises, Lusaka, 10 July 2009. * * * Mr. Ben Kruger, Deputy Group Chief Executive of the Standard Bank Group; Mr. Clive Tasker, Chief Executive Officer of Standard Bank Africa; Ms Pindie Nyando ro, Regional Managing Director; Mrs. Nikki Twomey, Director Brand Marketing at Standard Bank; Chairman of the Stanbic Bank Board, Mr. Larry Kalala; Directors of the Stanbic Bank Board; Managing Director, Stanbic Bank Mr. Joseph Chikolwa; Management and staff of Stanbic Bank; Representative from the Construction Company, Barnett’s and Farmers House Plc; Mr. Roger Miller Distinguished Ladies and Gentlemen. I am honoured and thankful for the invitation to officiate at this important Foundation Stone Laying Ceremony of the new Stanbic Head Office premises. Distinguished Ladies and Gentlemen; allow me to begin by commending Stanbic Bank Zambia Limited for the important role it continues to play in the financial sector in Zambia. Since, 1992 when Stanbic Bank was established in Zambia, the bank has grown to be one of the biggest players in the market. As at 31 May 2009, the bank accounted for about 14% of the banking sector’s total assets, while its deposit base accounted for 15% of total sector deposits. More importantly, the bank’s loan portfolio accounted for 15% of the total loans in the sector. The Bank has also strived to increase its customer base as well as provide convenient banking services by increasing its branches and agencies to 13 and ATM machines to 44 at end June 2009. Chairperson, I have stated at various fora that it is important for banks in Zambia to take initiatives which support growth and development of our economy. I am glad to note that Stanbic Bank Zambia Limited has embarked on this project of constructing a new Head Office at a bigger site and away from the Central Business District or town center. This reflects the bank’s growth and rising demand for convenient facilities. I must congratulate the management of the bank for their relentless efforts to facilitate its journey towards providing efficient and convenient banking services to a fast growing market. I must however, warn that the journey entails more challenges and responsibilities including the challenges of adoption of new technology and the responsibilities of serving a growing number of customers which must be addressed. I have no doubt you will rise to the occasion and deliver. As you are no doubt aware, congestion and inadequate parking space along Cairo Road has posed serious challenges for all banks whose head quarters are located in the city centre. The decision by Stanbic Zambia Limited to relocate to this very convenient area is a positive development as it will go a long way not only in decongesting Cairo Road but also in making it easier for Stanbic to service its cherished customers. Ladies and Gentlemen, you will also note that this investment is being made at a time when the Zambian economy is facing some major challenges arising from the spill-over effects of the ongoing global economic crisis. It is therefore our expectations that it will have a positive impact on the economy due to the evident backward and forward linkages that infrastructure development of this nature have on various sectors of the economy. This investment has also come at a time when new banks are entering the Zambian market. It is our expectation that the repositioning by the bank is one way of ensuring that there is healthy competition in the banking industry. It has always been the view of the Bank of Zambia that competition is the major way by which the quality of products and customer services for the banking public as well as competitive pricing of banking products can be achieved. Chairperson, let me also take this opportunity to reiterate my concern regarding the general cost of banking services in Zambia. It is my hope that as your bank continues with these well meaning initiatives, it will also be looking into ways and means of making the cost of banking services to the general public more affordable. I wish to therefore reiterate our appeal to banking service providers that include Stanbic Bank Zambia Limited, to make some meaningful efforts in addressing the high cost of banking services. This will go a long way in enabling your customers not only access affordable funds to finance their investment activities, but also make it easier for them to pay back their loans and on time. The key intermediation role of the banking sector in providing finances will remain compromised if the costs of banking remain high. Distinguished Ladies and Gentlemen, as already mentioned, Zambia is currently going through challenging times when commodity prices remain subdued as result of uncertain demand for our main export product, copper. The visible effects of the economic global crisis have been volatilities in the exchange rate and job losses in the mining sector. The Second round effects, if not managed properly, could have devastating effects in our banking industry, especially through some notable deterioration in the personal loans category of the banks’ loan book. It is my expectation that Stanbic Bank Zambia Limited and other banks’ will enhance prudence in their lending activities and strengthen their risk management systems as a way of minimising further deterioration of the banking industry’s loan portfolio. It is also my firm belief that banks will continue to conduct safe and sound practices even under challenging times and therefore help to mitigate the risks that the financial system is currently facing from the adverse developments in the global economy and the global financial system in particular. Chairperson, in conclusion, I wish to take note of the commendable step that Stanbic Bank Zambia Limited has taken to build its own offices here in Zambia after a long presence in the country. I am hopeful that this initiative will create a more expansive and customer-friendly environment for your customers. I congratulate you for this milestone. I thank you for your attention. | bank of zambia | 2,009 | 7 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 35th anniversary of the Central Bank of Swaziland, Mbabame, 21 May 2009. | Caleb M Fundanga: The central bank, the media and the legislature – can they work together? Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 35th anniversary of the Central Bank of Swaziland, Mbabame, 21 May 2009. * * * Governor M.G. Dlamini, Fellow Central Bank Governors, Your Excellencies the Members of the Diplomatic Corps, Distinguished Guests, Ladies and gentlemen, And May I simply Say All Protocol Observed, Mr. Chairman, it is indeed a great pleasure for me to be with you today as we commemorate the 35th Anniversary of the Central Bank of Swaziland. I consider it a great honour and privilege, on behalf of the Bank of Zambia and indeed on my own behalf, to have been invited to give a keynote speech at this historic event. Mr. Chairman, allow me to first of all congratulate the Central Bank of Swaziland, the Government and all other stakeholders for having come a long way in promoting the effective conduct of monetary policy in this great country over the last 35 years. We at the Bank of Zambia have noted the important role that the Central Bank of Swaziland has played not only in the development of the Swazi economy, but in enriching the knowledge of central bankers throughout the region, through its participation in the regional groupings such as the Committee of Central Bank Governor’s in SADC. Therefore, as you celebrate this great milestone, we join you in anticipating further progress and effectiveness in the execution of your mandate. Mr. Chairman, the central theme of my address today is the important role that information plays in economics in general and in financial markets in particular. In 1970, some 39 years ago, or 4 years before the establishment of the Central Bank of Swaziland, an economist called George Akerlof published a paper called “The Market for Lemons.” By lemons he was referring to used cars in the United States of America. Akerlof, who would later win the Nobel Prize in Economics for his work, demonstrated how information asymmetries between two contracting parties, a used car seller and a used car buyer, could lead to an inability of the car dealer to sell cars. More broadly, the moral of his story was that information asymmetries that allowed for no credible assessment of value of a given transaction, could lead to market collapse – in this instance the market for used cars. Mr. Chairman, if we fast forward to the year 2008, and to the current financial crisis, we note that asymmetries in information between financial institutions, this time relating to the extent of exposure to and value of complex derivative products, led to a freezing up of credit markets, the eventual collapse of some important financial institutions, and the near meltdown of the entire financial system. In these events we can see the insights of Akerlof in his 1970 paper. Mr. Chairman, the near collapse of the financial system has in turn led to a rapid and deep global recession – the sharpest since World War II and the first in which all regions of the world were suffering a downturn in fortunes at the same time. This downturn may well have its most devastating impact on poor countries, particularly in Africa – who incidentally were not responsible for the crisis. It is worth asking the question that if the basic insights on the powerful impact that a lack of information could have on markets was known as far back as 1970 – why were these lessons not assimilated into the policy making tool kit of central banks or in the financial architecture of our economies? Mr Chairman, I have no doubt that perhaps a large part of the answer to this question is in the fact that the 1970s had a very different financial environment when compared to our current environment. As the financial markets developed, driven by technological and financial innovation and the deregulation of financial services, financial institutions were able to price and sell risks through ever more complex financial products. The very nature of complexity of these products created the asymmetries in information that has proved catastrophic to the world economy. However, I wish to focus on another reason why Akerlof’s insight was never fully absorbed by policy makers and the public: I believe that we allowed the workings of the financial sector to become more and more divorced from key stakeholders such as the legislature, who had the responsibility of enacting regulations governing the financial sector, and the public for whom the media was an important source of information – and so our fate was sealed. Mr. Chairman, clearly Africa was not the source of the financial crisis, but it is being impacted by the crisis and there are many who believe that Africa may well bear the long term costs of the global economic downturn – if the broad gains of the past years are reversed and the productive capacities (e.g. human and social capital) are destroyed due to worsening health and education outcomes. From this perspective, the role of the legislature and the media in ensuring the African governments make the right policy choices in dealing with the crisis will be critical in determining how well African economies weather and recover from the crisis once it is over – as all crises do come to an end. In this regard let me offer one simple example of how critical the role of the legislature and the media may be: The conventional wisdom is that one important way in which African economies can ensure that they are able to limit long-term damage to their economies is to ensure that they do not indulge in policy reversals for short term gain that sacrifice the longterm growth prospects. Mr. Chairman, policy reversals are more likely to occur in an environment in which information flows and understanding is poor between economic managers such as central bankers on one side and the legislature and the media on the other. Populism can wreak havoc on good economic policy making. In this regard Africa does not need to rehash the false choice of market versus the state – both are part of the fabric of society and the economy. Furthermore, calls have been heard that African Governments should also nationalise banks and purchase car companies as the developed economies, the owners of capitalism, have done. These are ultimately dangerous calls as the nature of our individual economies matters in determining the appropriate remedy for our economic ills. It is for this reason that my address today is entitled “The Central Bank, the Media, and the Legislature: Can they Work Together?” My simple answer is that they can, and that they must – particularly in the unprecedented circumstances in which we find ourselves in today. Mr. Chairman, before I outline how the Bank of Zambia has engaged both the media and the legislature and the positive results that we believe we have reaped, allow me to state very quickly how a strong relationship between the media, the legislature and the central bank is a modern feature of central banking. Mr Chairman, the role of modern central banks revolves around three key functions: price stability; financial system stability; and the maintenance of the payment system. Price stability has the greatest weight in the goals of most central banks. Advances in economic theory and computing power as well as the developments in financial markets have greatly enhanced our understanding of the economy and our ability to understand and forecast inflation. Central banks act to influence inflation some periods into the future – a period determined by the individual characteristics of the economy in question. Today we understand this process as targeting inflation expectations of households and firms – either implicitly or explicitly. Central to the success of such a strategy is the extent to which central banks have credible monetary policy frameworks and key pillars in such a framework are the ability to communicate policy in a predictable and intelligible way to the public – with the media playing an important role in this process – and the notion of accountability to an appropriate body whether this is the Minister of Finance, the legislature or both bodies. Mr. Chairman, by publicising the actions of the central bank, the media has become an important agent in facilitating the desired behavioural response of economic agents to monetary policy actions of the central bank. Due to the critical role of the media in the successful execution of public policy, the central bank needs to have a clear communications policy that supports the goals of the Central Bank. One of the major goals of communication policy, for instance, is to help anchor inflation expectation by promoting credibility and understanding of monetary policy. Indeed a notable change in central banking over the past 15 years has been a world-wide movement toward increased communication by central banks about their policy decisions, the targets that they seek to achieve through those decisions, and their view of the economy's likely future evolution. Mr. Chairman, It is argued that increased willingness to share the central bank's own assumptions about future policy with the public has increased the predictability of policy, in ways that have improved central bank's ability to achieve their stabilization objectives. Public information serves the dual role of conveying fundamental information as well as serving as a focal point for better coordination. As financial markets become more efficient in a country, and as the economy becomes more open, the central bank’s communication policy needs to adapt to these on-going changes. Furthermore, given the complexity of formulating monetary policy and getting accurate projections, the role of the media and other financial commentators is not devoid of risk to the central bank’s credibility particularly, in challenging economic times. It is therefore, important for central banks to ensure that where projections on the future path of key macroeconomic variables are provided, these have to be set out in conditional forms and linked to incoming information with an assessment of the balance of risks. Mr. Chairman, turning to the role of the legislature, it is important to note that legislative oversight of monetary policy has a long history in many countries. In this respect, the USA provides a good case in point of a country with strong legislative oversight over the central bank’s operation. Congressional oversight of the Federal Reserve goes back to the founding of the central bank in 1913. However, the nature and purpose of oversight has changed overtime. Since 1978, the Federal Reserve has been subject to biannual oversight hearings before the Senate and House banking committees. Several other countries have similar arrangements where the central bank periodically appears before a committee of parliament. Parliament in New Zealand also has a role in monitoring the Bank's conduct of policy. By statute, each Monetary Policy Statement is referred to Parliament's Finance and Expenditure Committee. That Committee, with the assistance of its own professional adviser, can choose to extensively scrutinise the extent to which policy was, and has been, conducted consistent with the Policy Targets Agreement. Additionally, the Office of the Auditor General – an agent of Parliament, is also able to commission quite extensive investigations into the activities of the Bank. Similarly, the Australian Parliament undertakes particularly close scrutiny of interest-rate issues and associated economic policy through the Reserve Bank’s appearance before the House of Representatives Standing Committee on Economics, Finance and Public Administration. This is the main mechanism through which the Reserve Bank is accountable to the people of Australia. As with the case of the media, the central bank’s interface with the legislature needs to be managed strategically, so as to enhance the former’s credibility to the public which, as discussed earlier, is a necessary condition for effective transmission of monetary policy. Mr. Chairman, turning to Zambia, some seven years ago we at the Bank of Zambia commenced media seminars in which we invited a cross-section of participants from media institutions to explain our monetary policy to them. We also used these seminars to educate members of the media on basic economic concepts. This exercise was to a great extent driven by our alarm at the level of misunderstanding of monetary policy issues and decisions by the media, and their failure to communicate discussions on monetary policy effectively to the public without simply copying or paraphrasing a press statement or simply printing opposing quotes from favoured commentators on economic issues. I must admit here that initially this seemed to cause more harm than good – a little knowledge truly did seem a dangerous thing now that we had opened ourselves up to the media. The greater access to central bank officials and information, e.g. through our website, without the full understanding of issues on the part of journalists seemed to fuel erroneous stories. However, our perseverance over time has meant that the level of understanding and quality of questions has improved significantly. As a result, the level of reporting has also improved – although much work still needs to be done. Today issues surrounding the causes and likely impact of the global financial and economic crisis have been covered in a more balanced way with a greater thoughtfulness on the economic linkages and Government policy – as well as with increased reference to related developments around the world. Mr. Chairman, following on from the media seminars, six years ago the Bank of Zambia began conducting seminars for members of Parliament – particularly members of oversight committees such as the Committee of Economic and Labour Affairs and the Public Accounts Committee. Again, what we have seen is a greater appreciation by members of Parliament of the challenges facing the central bank in the implementation of monetary policy in particular and economic policy in general because the central bank is often called upon to comment on the Government’s economic policies as well. We have tried to consolidate the gains from these seminars through the holding of quarterly media briefings as well as efforts to place as much information as possible on our website http://www.boz.zm. An example of the benefits of this improved dialogue is the recent developments in the Zambian economy related to the global financial crisis. Between July 2008 and March 2009, the Zambian Kwacha depreciated by about 65% against the US dollar. However, unlike in other periods of extreme volatility in the exchange rate, although the Minister of Finance was asked to make a statement on the exchange rate – an important aspect of accountability – he was able to deliver a strong message that an adjustment in the exchange rate under such conditions of stress was an important way in which the economy could adjust to external shocks. There were no (loud) clamours for the re-imposition of exchange controls. We believe that our efforts to communicate our policies more effectively to the public and members of Parliament and the media and Parliamentarians improved understanding of the economic landscape was an important reason for this observation. Mr. Chairman, let me conclude by recapping some of my main points: The role of formulating and implementing monetary policy is very challenging and often attracts a lot of public interest. If not well addressed, this external pressure can distract the focus of the central bank. It is therefore, imperative that the central bank strategically manages its relationships with key stakeholders to promote mutual benefit. Media coverage of monetary policy actions is a central channel of a central bank’s communication with the wider public, and thus an important factor for its credibility and policy effectiveness. The evidence suggests that communication can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. Unlike the media, the legislature’s oversight over the operations of the central bank is normally enforced by statutory provisions. However, it is equally important for the central bank to proactively engage the two stakeholders in a way that maximises the transmission of accurate information to the market as well as promotes the transparency, accountability and credibility of the central bank. Finally, I thank you all for your attention and would like to reiterate my gratitude, Mr. Chairman, for inviting me to share in your celebrations. I thank you. | bank of zambia | 2,009 | 8 |
Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Celpay Mobile Banking Conference, Lusaka, 16-17 September 2009. | Caleb M Fundanga: Improving financial inclusion in Zambia Remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Celpay Mobile Banking Conference, Lusaka, 16-17 September 2009. * * * The Chairman of the Board, Celpay Zambia, Dr Jacob Mwanza; The Chief executive Officer, Celpay International, Mr L. Muchenje; Chief Executive Officers and Representatives of Banks and Financial Institutions present; Distinguished Invited Guests and Resource Persons; Members of the Press; Ladies and Gentlemen I wish to express my gratitude to Celpay Zambia Limited and in particular to Dr Jacob Mwanza, the Chairman of the Board, for inviting me to speak at this important conference. I am informed that the conference aims to pave the way for the future of mobile banking in the quest to improve financial inclusion in our country. Mr Chairman, the need to promote wider access to financial services through innovative products by financial institutions and other market players cannot be overemphasized. Financial services are a critical tool to ensure that entrepreneurs step onto the economic growth ladder and create a brighter future by tapping their own creativity in income generating activities. The provision of financial services to the majority of our people especially the small and micro entrepreneurs who are financially excluded is a key element in alleviating poverty in the country. Improved access to financial services enables availability of funds for investment in income generating activities that ensure that the public lay a foundation for better standards of living. Indeed financial services are instrumental for broader human development, as people invest in themselves and seek protection from external shocks. Distinguished Ladies and Gentlemen, as you are no doubt aware, the results arising from the 2005 FinScope demand side study which aimed at measuring access, usage, perceptions and the demand patterns on financial services offered in Zambia were not encouraging. The findings of the study indicated that only 33.7% of the adult population was financially served. This entailed that 66.3% of the Zambian population were financially excluded or not using banks or other financial institutions. Furthermore, the supply side study conducted in 2007 also highlighted a number of weaknesses in the financial sector including, limited outreach of banks and financial institutions to the general populace, high spreads between deposit and lending rates, excessive collateral requirements and poorly managed cost structures which contribute to limiting outreach. As a consequence of the low levels of access to financial services, the Bank of Zambia adopted financial inclusiveness as one of its strategic objectives to ensure improved levels of access for all. In this regard, it is gratifying to note that following the survey, commercial banks and other non-bank financial institutions including Celpay have increasingly become receptive to the calls for increased provision of financial services. A number of banks and financial services providers have increased their branch networks, lending to small and medium-sized enterprises have been increased while financial products specifically designed to meet the financing needs of the lower end of the market in both rural and peri-urban areas have been introduced. One such product that banks and other institutions in the telecommunication sector have strived to promote in order to increase inclusion is mobile banking. As you are no doubt aware, Distinguished Ladies and Gentlemen, mobile banking represents a significantly cheaper alternative to conventional branch based banking as it allows financial institutions and other commercial players to offer financial services outside the traditional brick and mortar bank concept. Mobile banking uses channels such as retail agents and mobile phones to increase financial outreach to the un-banked communities. Mobile banking has revolutionalised banking worldwide and I am glad to note that Zambia is playing a leading role in the development of the mobile banking industry in the SADC region. As you may be aware, there are three operational mobile payments companies that have successfully penetrated the market in the past seven years. While a number of banks now offer mobile banking solutions. The British Broadcasting Corporation (BBC) website recently carried an article wherein, it was acknowledged that Africa has the fastest growing mobile banking market in the world. The significance of the article was not only the growth of the industry but the acknowledgement that most of the operators are local companies. However, in acknowledging this growth and the important contribution of mobile banking to extending financial services to the poor, consumer protection should be taken as an integral component of any business model that is developed. To this end, the Bank of Zambia working with other key stakeholders such as the Communications Authority will play its role in ensuring that the provision of an enabling regulatory environment is carefully balanced with the need to protect consumers. Mr. Chairman, the Celpay conference on mobile banking could not have come at a more opportune time when the country is facing numerous challenges arising from the impact of the recent financial and economic crisis. Due to the underperformance of various sectors of the economy during the period of the crisis, provision of financial services was somehow curtailed while non-performing loans has been on the rise. In order to ameliorate the effects of this downturn and further improve financial inclusion, it is imperative to develop cost effective innovative products such as mobile banking. It is therefore expected that this conference will come up with solutions that will enhance the extension of banking services to the poor and at affordable rates. Ladies and Gentlemen, recent statistics on telecommunications indicate that there are about three million subscribers across the three mobile networks currently licensed to operate in Zambia. This extensive coverage obviously offers a great opportunity to enhance the standards of living of our people. As we embrace mobile banking, the primary objective of Zambia’s mobile banking framework should be to empower the millions of citizens who do not have access to conventional banking. The essential spirit of mobile banking should be financial inclusion. In this regard, facilitating mobile banking will contribute to the distribution of resources to productive activities such as farming as well as directing resources to areas where there are most needed. In addition the policy framework should be flexible enough to allow the industry players to explore various business models. To this end the National Payment Systems Act of 2007 has provided a platform for businesses involved in mobile banking and money transmission to be designated. The need for effective regulation to ensure a stable financial sector and protection of consumers is vital. Nevertheless, regulation should facilitate and not impede development and must create an optimal, dynamic and agile banking environment. As Regulators we must therefore be open minded to new market solutions while the developers need to constantly engage the regulator in their product development. In stressing the need for effective regulation, I must emphasise the need for providers to observe the mandate and requirements of their licences. Mobile services providers must not perform banking services as this is the domain of licensed banks. Finally, I also wish to stress that mobile service providers and mobile banking solutions developers need to have in place robust business continuity plans that will ensure minimum disruption to services in the event of disasters. It is not unusual for one to be turned away at customers counters on account of the lack of basic facilities due to for instance power failure or link failure when these can be mitigated where there are proper contingency plans in place. The Bank of Zambia will therefore ensure that sound business continuity plans are in place when evaluating new applications. Ladies and Gentlemen, as we develop these well meaning products, I wish to appeal to the service providers to ensure that investment in such infrastructure is complemented by investment in financial literacy. We need to ensure that we are providing individuals and communities with the level of financial education needed to grasp both the benefits and pitfalls of their easier access to financial services. This will in part minimize the risks associated with such innovative products as people will only make better judgments about their financial affairs if they understand the risks and returns associated with the product and services at their disposal. It is also apparent that financial illiteracy is more costly as people who make poor financial decisions will inevitably end up with a far lower standard of living than was otherwise achievable. Mr. Chairman, I wish to conclude by applauding Celpay’s initiative to host the first ever mobile conference in Zambia. The deliberations and recommendations of this conference will be keenly followed as the need to leverage access to financial services through the mobile phone is of paramount importance. Mobile banking will lead to increased outreach, increased efficiency and productivity as well as increased returns for businesses. Let me once again assure you, Mr. Chairman that, the Bank of Zambia is committed to providing an enabling environment through appropriate regulation for banks and financial businesses that wish to promote financial inclusion. We appreciate the Mobile Banking initiative by Celpay Zambia Limited and look forward to greater investment in financial inclusion in our beloved country. I thank you. | bank of zambia | 2,009 | 9 |
Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the review walk of the "Keep Lusaka clean, green and healthy campaign project", Lusaka, 17 September 2009. | Caleb M Fundanga: Campaign to keep Zambia clean and healthy Opening remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the review walk of the “Keep Lusaka clean, green and healthy campaign project”, Lusaka, 17 September 2009. * * * The Acting Minister of Local Government and Housing, Hon Bradford Machila His Worship the Mayor of Lusaka, His Worship Robert Chikwelete The Chairman of the BAZ, Mr Saviour Chibiya Chief Executive Officers of Commercial Banks Distinguished Invited Guests Members of the Press Ladies and Gentlemen I am honored to officiate at this important occasion at which banks have undertaken to conduct a review of the “Keep Lusaka Clean, Green and Healthy Campaign”. Hon Minister, as you are aware, the “Make Zambia Clean and Healthy” campaign was launched by the Government in 2007 and was aimed at keeping our surroundings clean and green in order to improve the health standards throughout the country. You may wish to know that the banking sector through the Bankers Association of Zambia and the Bank of Zambia commenced work immediately after the national launch. A project committee was formed and each bank including the BoZ embarked on implementing the campaign by making financial contributions. To ensure a uniform landscape on all islands along Cairo Road, a single company was employed to carry out landscaping and maintenance works including maintaining and keeping the pavements and gardens clean and green. The programme also included placing dustbins along the pavements and ensuring that the street lights were repaired and lit. It is highly gratifying to see how much work has been accomplished and I am sure that the results are clear for all of us to see today. This initiative, Ladies and Gentlemen, is one sure way of inculcating and promoting a culture of cleanliness amongst our people. It is also an effective way of expressing our Corporate Social Responsibility. Beautiful and clean surroundings also go a long way in complementing Government’s efforts of developing tourism. In fact another dimension of the initiative required that all banks including the BoZ maintain and keep their offices and surroundings clean at all times. In this regard, we at the Bank of Zambia have introduced regular inspections of offices while ensuring that all staff are aware of their responsibilities towards the clean campaign. Furthermore, by keeping their premises or business environment clean, banks provide the satisfaction that customer need. You would all agree with me that a business done in a clean environment leave the customer totally relaxed and in good spirit, prompting another visit in future. Ladies and Gentlemen, in line with “Goal 8” of the Millennium Development Goals on “Environmental Sustainability”, we are all expected to work together and reverse the losses of environmental resources. I am glad to report that the financial sector has taken the bold step and has become one of, if not the first, to contribute positively towards achieving this goal. In this regard I would like to call upon other corporate entities and business houses in Lusaka and other cities around the country to emulate the efforts of the financial sector and help keep Zambia a beautiful, clean and healthy place to live in. I must hasten to mention here that, by undertaking such initiatives, we are in no way trying to take over the responsibility of the local authorities but merely supplementing their efforts of keeping the country clean and healthy. Hon Minister, allow me to make an earnest appeal to the local authorities through “His Worship the Mayor” to assist in the maintenance of the islands by providing security to minimize the rampant vandalism, theft and destruction of plants and other essentials that occur on a daily basis. We also make a humble request to the Lusaka City Council to consider working on the water reticulation system, as this is one area posing a great challenge in the maintenance of the islands. Furthermore, there are still a number of places, which require urgent attention in the City. Your Worship, we have observed that a number of incomplete buildings have been abandoned posing a danger to the lives of many while others remain without a colour wash for years giving an unattractive sight to our beloved capital city. We would like to request your good office, “Your Worship” to issue mandatory directives to all business houses in the country to complete construction sites within a stipulated period and to ensure that all buildings are properly maintained and where necessary repainted on a regular basis. In conclusion, Ladies and Gentlemen, I wish to commend the Bankers Association of Zambia and in particular the Project Committee for the effective and efficient manner in which this initiative has been implemented thus far. My hope is that the initiative will not only be confined to Cairo Road but to all areas of the country. Finally, I would like to urge all of us present here today to extend this initiative to our homes. Let us keep our homes, communities and the country clean as cleanliness is next to godliness. I thank you. | bank of zambia | 2,009 | 9 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 2009 Africa Investment Forum, Istanbul, 5 October 2009. | Caleb M Fundanga: Employing African resources for African development Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the 2009 Africa Investment Forum, Istanbul, 5 October 2009. * * * Introduction I feel particularly honoured and grateful to be a discussant at this important forum, whose theme is “Employing African Resources for Africa’s Development”. This forum could not have come at a more opportune time than now when all our economies are faced with the challenges emanating from the impact of the global financial and economic crisis. This seminar is also timely in that the fiscal policy response is going to play a large role in determining how well African economies emerge from the financial crisis. This is because Africa must sustain and enhance investment flows in infrastructure, energy, health and education if it is to accelerate the growth momentum achieved prior to the crisis. The question of resource mobilisation for development, whether this is at a national, regional or international level, is thus something that policy makers in Africa are grappling with. Global financial crisis and Africa’s development For most of the current decade, several African countries have been registering positive economic growth rates averaging 5.3 percent between 1999 and 2008, with growth in SubSahara Africa slightly higher at an average of 5.6 percent over the same period. 1 This growth has contributed to rising income levels in several African countries leading increased investments in education, health, water sanitation and general infrastructure development. However, despite improvements in growth witnessed since 1999, significant reductions in poverty will not occur without a significant increase in growth rates to above 7% on a sustained basis. One of the ways in which growth can be scaled up is through the employment of the vast African resources for the development of the continent. Prior to the global financial and economic crisis, the African continent experienced a surge in investment flows in many sectors including mining, manufacturing, tourism, transport and construction. This inflow of foreign capital helped to finance the development registered in Africa over the past decade. The inflow of foreign capital coupled with high prices of commodities on the global market led to high international reserve accumulation in most commodity exporting countries, including those in Africa. However, following the global financial and economic crisis the accumulation of international reserves declined as commodity prices plunged and foreign capital inflows, both private and public slowed significantly or were reversed. This has had a negative impact on the availability of resources to finance Africa’s development. The challenge going forward is recovering, maintaining and sustaining the economic gains and macroeconomic stability that African countries experienced before the crisis hit. In view of the anticipated reduction in aid flows and foreign direct investment, African countries need to give domestic savings mobilisation as much attention as the other foreign sources of development finance. In this respect, African countries may have to consider the utilisation of domestically generated resources such as international reserves’, pension funds as well as the enhanced use of stock markets in raising financial resources required to finance development in Africa. However, it is important to stress that the effective utilisation of IMF World Economic Outlook Database, April 2009. resources will be dependent on the credibility of the institutional frameworks within which these resources are deployed and the quality of the projects themselves in terms of their economic and social returns. Sources of development finance (a) International reserves The global economy has witnessed an unprecedented accumulation of foreign exchange reserves in the last ten years, particularly in developing countries and Africa has been no exception. According to the IMFs currency composition of official foreign exchange reserves (COFER), between 2001 and 2008 total world reserves increased by 227 percent from US$ 2,049.6 billion to US$6,702.3 billion while emerging and developing country foreign reserves grew by 418 percent from US$ 818.1 billion in 2001 to US$ 4,237.7 billion in 2008. The rapid build up in foreign reserves resulted mainly from high commodity prices and increased portfolio and foreign direct investments in emerging and developing countries. Most developing country central banks approach foreign reserve asset allocation with a view of preserving capital and liquidity. This normally means that central banks invest in low risk, highly liquid assets with short-term investment horizons. It is noteworthy that the majority of the foreign reserves, which are held outside the African continent, entail an opportunity cost for developing countries as these resources are not used to finance development. In addition, the global crisis has brought to the fore the inherent risks in the placement of reserves with international fund managers with the collapse or near collapse of some of the worlds’ leading asset managers such as Lehmann Brothers, Bear Stearns and Fortis, threatening the safety of the continent’s international reserves. Further, with the reduction in interest rates in developed economies where most of the foreign reserves are held, the returns on these investments have declined drastically, thereby increasing the opportunity cost of these reserves. These developments present an opportunity for African countries to consider foreign exchange reserves as a possible source of development finance for the continent. Such a strategy could make a significant amount of additional resources available for investment in infrastructure development and the provision of trade finance to stimulate expansion and diversification of African economies. In addition, African countries could consider investing part of their reserves in African multilateral financial institutions like the African Development Bank, the PTA bank, AFREXIM Bank as well as local development banks, which play an important role in the provision of development finance in Africa. The investment of part of Africa’s foreign reserves in credible financial institutions can augment the resources available to these institutions, thereby enabling them to provide more financial resources for the development of the African continent. For instance, in 2007 total foreign reserves held by African countries amounted to US$371.4 billion translating into an average of 9.2 months of import cover for each country. In the same year the African Development Bank (AfDB) raised funding from international capital markets amounting to UA724 million (US$1,144 million) at a weighted average cost of 6-month US Dollar LIBOR minus 32 basis points. 2 The amount raised by the AfDB accounted for a mere 0.3% of the total reserves for African countries as at 2007. Hence, an allocation of some of African countries’ foreign reserves to fund African development institutions in which most of the countries are members would greatly enhance African Development Bank Annual Report, 2007. the capacity of these institutions in the provision of development finance, thereby assist the continent’s development programmes and poverty reduction efforts. In summary, it is important for African countries to consider alternative ways of making use of foreign reserves in the financing of development using resources that are already available, including the direct use of foreign reserves in financing development and making available part of the reserves to African multilateral development institutions to augment the resources available in the financing of African development. (b) Pension funds African countries need stable sources of development finance and as long-term investment vehicles, pension funds seem intuitively to be one potentially good source of domestically generated financial resources. Cognisant of the important role this resource can play, it is noteworthy that African countries embarked on financing economic development using US$300 billion held by domestic pension funds in 2007 in an effort to reduce reliance on foreign aid and foreign direct investment. 3 The report indicates that pension funds in South Africa, Ghana and Nigeria have already invested around US$625 million to fund pan-African infrastructure projects. In Zambia, a study by FinMark Trust in 2007 indicated that pension and provident funds are a major potential source of capital. As regards the total amount of funds available in pension funds, the capacity of public and private sector funds is estimated to be greater than K2.5 trillion (about US$651.5 million). This is a considerable amount of resources which could be used in infrastructure development and other economic activity without resorting to expensive external financing from international financial institutions. Currently, most pension funds in Zambia make short-term investments in highly liquid securities when they have the potential to do much more. It is imperative upon African Governments with the collaboration of cooperating partners to devote as much attention and energy to domestic savings mobilisation for investment purposes. In Zambia, for example, part of the reform process in the financial sector has been to establish investment guidelines for the public pension funds and the aspect of investment in infrastructure and other economic activity can be part of the guidelines to enhance the use of domestically generated savings in financing development in Africa. Pension reforms if correctly done can also have a significant impact on financial market development when pension funds are encouraged to act as institutional investors involved on the capital market. Participation of pension funds in the capital market can lead to improved clearing and settlement on the one hand, as well as provide more sensitive price information – resulting in better resource allocation, and increasing the availability of capital for financing development. In some developing countries such as Chile, pension funds facilitated internal resource transfers, enabling the government to service its international debts without extreme fiscal adjustment and avoided the drainage of resources that emanates from foreign debt payments. In addition, the funds provided a source of borrowing that did not require excessively high interest payments. Africa can learn from such experiences and undertake necessary reforms to unlock this kind of resource. Pension funds can therefore offer African countries an alternative source of development finance, provide an avenue for restructuring public finances and for the promotion as well as development of the capital markets. Harvey Morris, ‘African states tap pension funds’, in the Financial Times, 24 October 2007. (c) Stock markets Another important avenue for harnessing resources for the financing of development on the continent is the stock market. Stock markets have grown in number across the globe over the past two decades and emerging and developing country markets have accounted for a significant share of this growth. In Africa, new stock markets have been established in countries such as Ghana, Malawi, Swaziland, Uganda, and Zambia. Stock market development has assumed a developmental role in global economics and finance following the impact stock markets have exerted in corporate finance and economic activity. Stock markets enable firms to acquire much needed capital at relatively lower cost, hence facilitating capital allocation, investment and growth. The stock market also plays a resource mobilisation role by encouraging savings through the purchase of equities that meet investors risk preferences and liquidity needs. On the important role of stock markets in financing development, it is noteworthy that some studies undertaken by the IMF have shown that the stock markets have contributed to the financing of the growth of large corporation in certain African countries such as Ghana, South Africa, Zimbabwe and Mauritius. It is therefore imperative for African countries to develop this avenue of financing development to enable companies to raise capital at relatively lower cost. Furthermore, the development of a well functioning stock and capital market can help Africa access long-term debt in local currency thereby providing much-needed financing for the constantly growing infrastructure needs in the African continent. Developing national and regional bond markets and secondary capital markets in general can also help in channelling excess banking sector liquidity into productive sectors. (d) Natural resources There is little doubt that natural resources in Africa will continue to play a significant role in Africa’s development efforts. However, African countries must learn from the past on how well to manage commodity booms and ensure the productive use of financial resources generated from natural resources. African countries need to invest the resources arising from the exploitation of natural resources in domestic capital formation in order to generate a higher sustainable income that compensates for the depletion of a wasting asset. In this regard, it is important that commodity booms are managed in a manner that benefits African economies through careful planning and the deployment of appropriate strategies. Commodity swaps or barter system have been suggested in some quarters as an innovative way for Africa to get development finance taking into account the fact that most African countries are not able to borrow from the international financial institutions and are just coming out of heavy indebtedness. For this option of financing to be viable and profitable, there is need for commodity swaps to have a long-term positive impact of export diversification and economic growth for Africa. In this regard, commodities could be swapped for infrastructure development to address the large infrastructure gap that is inhibiting further growth and diversification, technology transfer and market access for manufactured goods. These commodity swaps would have to be carefully crafted so that future generations are not disadvantaged from the resources. Currently, China has entered into such deals with countries like the Democratic Republic of Congo, Sudan and Angola and it would be interesting to see how these work and then other countries can learn from these countries experiences. The discovery of resources on the shores of the Continent should be carefully handled so that the funds that are realised as much as possible are used in the development of the African continent. Exploitation of the natural resources by foreign investors should ideally involve value addition on the continent. This is one way through which Africa would benefit from its rich resource base. Conclusion The challenges of mobilizing domestic resources for the medium-to-long term development require higher levels of domestic resource mobilization. Africa needs a paradigm shift in terms of sources of development finance. This is because the resources that it has domestically in terms of official international reserves and pension funds can be used to finance infrastructural development and investments in other productive sectors of the economy. Capital markets can also be a source of finance for private and public sector investment projects. Africa needs to maintain the sound macroeconomic policies which led to the positive growth that the continent has witnessed in the last decade, and continue with policy reforms aimed at reducing the cost of doing business. This is the best way to ensure that domestic resources as well as foreign resources have a positive and long lasting impact on the African continent’s economic growth and poverty reduction outcomes. | bank of zambia | 2,009 | 10 |
Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Forum "Developing Africa - an opportunity for Europe, Italy and Sicily", Taormina, Sicily, 1-2 October 2009. | Caleb M Fundanga: Africa and the global financial and economic crisis – an opportunity or a curse? Speech by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Forum “Developing Africa – an opportunity for Europe, Italy and Sicily”, Taormina, Sicily, 1-2 October 2009. * * * Chairperson, Distinguished Participants, Today we gather at a time when the world economy has gone through a tremendous economic and financial shock, which may well have long lasting social consequences. When we met last year, we were on the eve of disaster although we did not, and perhaps could not, appreciate the depth and severity of the crisis that we faced. In many ways we were in the calm before the storm. What subsequently transpired in September and October 2008, when financial markets froze and stock markets collapsed, was the greatest macroeconomic challenge that many of us, as practicing economists, are likely to face in our lifetime. As we all know, trade and output contracted sharply across the globe particularly in the fourth quarter of 2008 and first quarter of 2009, the downward trend in commodity prices witnessed since the historic highs of July 2008 accelerated, and perhaps most significantly confidence and trust in the market economy was severely impaired. In this regard, estimates from the International Monetary Fund (IMF) are that in the fourth quarter of 2008 global exports contracted by an average of 15.1%, whilst global output contracted by 6.5%. 1 This broad based deterioration in the global economy was carried through into the first and second quarters of 2009. The most recent projections by the IMF suggest that global growth will contract by 1.4% in 2009 before recovering to a growth rate of 2.5% in 2010. For the United States of America and the Euro Area, growth in 2009 is projected to contract by 2.6% and 4.8%, respectively; whilst in Japan and the United Kingdom, growth is projected to contract by 6.0% and 4.2%, respectively. Although emerging and developing economies are projected to perform much better, with a projected growth rate of 1.5%, this rate of growth is significantly below the estimate of 6.0% growth in 2008. Further, growth in Sub-Saharan Africa is projected to decelerate sharply to 1.5% from 5.5% in 2008. Thankfully, as we meet today there is growing evidence that in many parts of the world, the worst of the crisis may be over. At the epicenter of the crisis, i.e. the United States of America (USA) and Europe, the collapse in output has decelerated – with the most recent evidence pointing to some increase in growth both in terms of actual output as well as some of the leading indicators of output. In the USA, second quarter GDP growth figures of -1% indicate a deceleration in the pace of contraction. Further, in the second quarter of 2009, important Euro areas economies such as Germany and France actually posted positive rate of GDP growth. More broadly industrial production, exports, and retail sales figures appear to have improved, although they remain sharply negative on an annual basis. In addition the broad-based recovery in commodity prices also suggests that the global economy is on a path to recovery. However, despite this more positive outlook for the global economy, it is not clear that Africa has seen its worst days. For many countries in Sub-Saharan Africa, the ramifications of the Source: IMF World Economic Outlook (WEO) update July, 2009. Figures for exports reflect annualized percent change of 3 month moving average over previous 3-month moving average. crisis are still working themselves through the system. Initially, financial markets rather than the financial system bore the initial brunt of the crisis in Africa, as economies experienced a sharp reversal of financial flows, and exchange rates depreciated sharply, and capital markets registered sharp declines in market capitalization and trading volumes. Thankfully there are clear signs that financial markets have now stabilized, with exchange rates appreciating and inflows of portfolio flows and FDI showing tentative signs of recovery. In Zambia, for example, between September 2008 and April 2009, the country experienced a negative portfolio inflow. Non-resident holdings of Treasury bills declined from around 16% of outstanding bills in September 2008 to zero by end March 2009. During this period the exchange rate of the Kwacha against the US dollar depreciated by around 60%. Whilst non-performing loans in the banking sector rose from around 5% in July 2008 to their current levels of around 10%, they remain within the prudential ceilings above which concerns of systemic risks would be warranted. The increase in non-performing loans thus reflects the deterioration in the real sector of the economy. It is in this sense, i.e. the absence of a significant volume of impaired assets in the financial system, that I describe “financial markets” rather than the “financial system” as bearing the brunt of the crisis. The weight of adjustment was reflected in exchange rates and the Balance of Payments – reflected in a marked draw down of international reserves. However, the ramifications of the crisis on the real sector of many sub-Saharan African economies are real and potentially far reaching, and it is to these that I now turn. In my reflections on the impact and implications of the global economic crisis on Africa, I wish to emphasize four key points: The first and perhaps the most significant effect of the global financial and economic crisis has been the marked slow-down in real GDP growth in SSA, to a projected 1.5% in 2009 from an estimated 5.5% in 2008. This slow-down in growth has occurred after a significant period of strong economic growth and investment that had laid the platform for sustained and significant reductions in poverty across the continent. Further, whilst real GDP growth is anticipated to recover to 4.1% in 2010, this is significantly below the minimum annual growth rate of 7% that is thought necessary to move SSA towards a significant achievement of its Millennium Development Goals (MDGs) by 2015. 2 There is thus a strong possibility that without an appropriate policy response, SSA may be caught in a period of much lower growth rates over the coming years than is necessary to reduce poverty on a sustainable basis – reversing the important gains that have been made this decade. Africa, with 30% of the global population, still contains a large proportion of the world’s poor. Africa’s share of global trade and investment inflows also remains small in absolute terms and relative to Africa’s vast potential. The second point I wish to make is that prior to the crisis, many Governments in SSA registered improvements in fiscal space which reflected not only the broad commodity price boom that began at the turn of the current decade, but also painful structural reforms aimed at expanding the market economy and implementation of greater fiscal discipline. In this regard, the impact of the crisis for many Governments in SSA is lower growth, the sharp contraction in imports as the external sector adjusted, and lower trade volumes in general, have led to a sharp reduction in Government revenues and a contraction in fiscal space. This contraction in fiscal space represents a grave challenge to the implementation of critical investment expenditures in the education and health sectors and in building infrastructure that supports the proper functioning of the market economy and expands its reach, particularly into the rural areas, where the majority of the poor live. With deteriorating fiscal positions in the donor Government, there also remains a real risk of cuts in donor flows to The MDGs are to: Eradicate extreme poverty and hunger; achieve universal primary education; promote gender equality and empower women; reduce child mortality; improve maternal health; combat HIV/AIDS, malaria and other diseases; ensure environmental sustainability; and develop a global partnership for development. developing countries. In Zambia for example, Government revenues during the first half of 2009 were 25% below the projections in the 2009 Budget, largely reflecting lower trade taxes as well as lower donor inflows. For Africa, as a whole, recent estimates by the IMF are that budget deficits will drop from a surplus of 2.8% of GDP in 2008 to a deficit of 5.4% of GDP in 2009 – with fiscal outturns deteriorating across both oil and non-oil commodity exporters. The global financial and economic crisis has also impacted Foreign Direct Investment (FDI) and credit flows in Africa, with serious consequences on the ability of African economies to build their productive capacities. For many countries in SSA, FDI flows as well as commercial lines of credit have been an important source of finance for growth, particularly because of insufficient domestic savings and the shallowness of domestic capital markets. In Zambia, for example, over the past 5 years FDI flows have averaged over US$ 900 million per annum, particularly in the mining, agriculture, manufacturing, construction, and tourism sectors. I believe this is an important part of the reason why Zambia’s real GDP growth in 2009 is estimated at 4.5%, well above the 1.5% forecast for SSA. As indicated earlier, FDI flows to Africa are projected to fall by 18% in 2009, relative to 2008 inflows of US$ 30 million. In addition trade credits have been impaired as has the access of Government’s to the international capital markets. Efforts, for example, by several African countries to raise longterm financing in international markets through sovereign bond issues have either failed, been cancelled (for example the Ghana Telecom bond issue for US$ 300 million) or have been delayed (for example the Eurobond issues for Kenya, Nigeria, Tanzania, and Uganda). My fourth point is related to the actual, as well as imagined, failures of the market mechanism at the heart of the advanced economies, and the inevitable institutional reforms that need to be undertaken, as the relative boundaries of the public and private sector are reassessed. This is really a point of caution for SSA, because there have been calls for the Governments in Africa to emulate the actions taken by developed economies to support private sector companies and the financial sector in general in a manner that expands the reach of government. This course of action needs to be avoided in Africa because it risks undermining both public and private institutions, whose development has been an important part of the success of African economies in generating high rates of growth during this decade. Whilst greater fiscal discipline has led to lower and more sustainable budget deficits, real yield rates on long-term government bonds remain high in many African economies, suggesting that investors have not yet fully priced in the significant improvement in macroeconomic fundamentals and that their inflation expectations remain high. Central banks in Africa are also constrained in their ability to inject liquidity into the financial system by purchasing available government or any other type of securities in the market. This constraint is at two levels: first the financial systems in Africa have not been impaired and the money markets have continued to function regularly, without a significant and prolonged liquidity crisis – largely due to the absence of any impaired or toxic assets in the banking system. Second, credit expansion to the non-Government sector remains strong. Both of these facts suggest that any rapid expansion of Central Bank balance sheets or government deficits may be viewed as inappropriate and would therefore undermine the credibility of these institutions and their ability to anchor inflation expectations, which remain fragile. It is with these four points in mind that I pose the question: Is the global financial and economic crisis an opportunity or a curse for Africa? I do not see the global crisis as a curse on Africa – some unknown force guiding us to our inevitable doom. Rather I see the global crisis as presenting a set of circumstances to which Africa is capable of responding proactively – to the great benefit of its people and indeed to the global economy. My reading of the current debates on the state of economics is that the poor predictive power of most macroeconomists in calling the financial crisis has bred the widespread belief that it is not so much that economists failed in their duties, this they certainly did; but that the science of economics itself has been found to be severely wanting. I myself have a more balanced view. There were certainly ample signs that trouble was brewing in the global economy – best reflected in the growing financial imbalances across the globe, for example between the United States and China, in an ever more interconnected financial landscape. Economists understood the broad problem, but somehow failed to draw or contemplate the correct conclusions, despite our knowledge of previous episodes of financial collapse. However, the charge against the economics profession also has merit in that ultimately these global imbalances gave rise to or produced perverse economic incentives in financial markets which existing models did not or could not contemplate. This was compounded by a lack of regulatory oversight of key sectors of the financial market. But let me return now to the question of Africa and the global financial and economic crisis. How does Africa respond to the real prospect of lower growth than is necessary to reduce poverty on a sustainable basis? I believe that Africa needs to retain open economies, expand regional markets and integration; and expand the reach and benefits of the market economy. Zambia has been an active and founder member of the Southern African Development Community (SADC) as well as the Common Market for Eastern and Southern Africa (COMESA). Through these bodies Zambia is looking to leverage its own potential through projects such as the North-South Corridor under COMESA, which seeks to open up efficient transport routes for the flow of goods, service, and people, from the south to the north of Africa. Further, under SADC Zambia is looking to develop its vast hydro-electric power potential, estimated at around 6,000MW, as well as transmission infrastructure to enable Zambia to supply countries in the East African Community which face severe power deficits. Zambia already trades power within the SADC region, through the Southern African Power Pool (SAPP). In the mining sector, Zambia is already seeing investment in value addition to raw materials being driven by the opportunities available in regional markets as close as the Democratic Republic of Congo (DRC) and as far away as Egypt. How does Africa respond to the loss of fiscal space that has robbed the Government of critical resources needed to build their economies by investing in human capital and physical infrastructure projects such as roads, irrigation schemes, and power plants? First of all it is important to recognize the extraordinary response of the international community, especially through the G20 group of countries, in mobilizing resources to address both the liquidity needs of financial markets and the fiscal challenges faced by Governments. A significant amount of this support has been channeled through the multilateral financial institutions such as the IMF, World Bank, and the various Regional Development Banks, including our own African Development Bank (AfDB). The operating procedures and practices of these institutions have also been reformed to a significant degree – although it is true to say that it will take more time to change the organizational mindset and attitude of staff. In this regard, at the end of August and the beginning of September, Zambia received an SDR allocation amounting to US$ 625 million that has augmented our reserves and provided a boost of confidence in our financial markets. Zambia has also benefitted from increased support from bi-lateral donors, with the prospect of additional resources being made available in the current calendar year from the European Union amounting to around 13% of all the grants that were scheduled to be received in 2009 from the EU and individual donors. Institutions such as the African Development Bank have also made changes to their procedures aimed at fast tracking the disbursement of critical development finance resources, against already approved projects. However, there are serious concerns that Africa has been disadvantaged in the allocation of resources made available by the international community – particularly to key institutions such as the AfDB. There is also concern that whilst the principle of increased resource flows through Institutions such as the IMF should be targeted beyond the traditional BoP needs has generally been accepted at a political level, there is some reluctance at the institutional level for institutions such as the IMF to venture outside of their traditional confines of their support. In Zambia, the Government has engaged our cooperating partners to ensure that the additional resource provided to help African countries deal with the global crisis can be utilized to do just that – and not be simply kept for a rainy day that ignores the current monsoon. In my own personal interaction with the IMF, I believe that in Zambia we do have a good common understanding on this issue. The Government has in fact been able to draw on its PRGF resources to compensate for the shortfalls in Government revenues over the first half of 2009 that I have alluded to earlier. However, when all is said and done, Africa still needs to mobilize both foreign and domestic sources of finance that provide sustainable sources of investment. How can Africa best arrest the recent reversal of FDI inflows generated by the global financial and economic crisis and encourage domestic resource mobilization i.e. boost domestic savings rates? In my view, ensuring that we retain our focus on consolidating macroeconomic stability is a critical element of Africa’s response to the current crisis. For many of our economies, inflation has been pushed beyond the single digit level, and we must all therefore work hard to re-establish low levels of inflation as soon as possible. The ability to attract FDI inflows is also a function of the supporting infrastructure and the existence of a business environment that supports innovation, initiative, and hard work. In this regard Africa must not relent on efforts to improve infrastructure development, and lower the cost of doing business. This is a process which is being actively pursued in Zambia, where great strides have been made to reduce the number of business licenses required and to streamline licensing procedures, in addition to the establishment of an organisation, the Zambia Development Agency, to spearhead and support FDI flows and domestically financed investment. We do see increased interest in cross border investments from within our region, particularly in the financial sector. With respect to the need to mobilize domestic savings, Africa certainly needs to expand the reach of the financial sector and to make the financial sector more efficient. In Zambia, the majority of the population does not have access to financial products. The Bank of Zambia has therefore made advancing financial inclusion as one of its strategic objectives. Zambia has a very low population density and there are many areas that are currently not served by any financial institution. Reaching these areas will require the application of technology and the concept of branchless banking. To facilitate such innovation, a robust regulatory regime governing the payment system has been implemented with the enactment of the National Payment Systems Act in 2007. In this regard, Zambia is learning a lot from the advances made in countries such as Uganda and Kenya, where cell phone technology has expanded the reach of financial services and products. On its part the Zambian Government is also taking concrete steps to enhance the application of Information and Communication Technology across the broad spread of Government services and the private sector. How can we build better and more resilient institutions that boost confidence in the benefits of a market economy and can act as strong anchors of inflation expectations? Earlier in my remarks I did make reference to the fact that one of the greatest dangers facing African economies is the risks that the current crisis might trigger significant policy reversals that undermine important institutions such as the Government as well as the central bank. It is important that in Africa, the critical work of consolidating fiscal positions and improving the Governance arrangements and financial management of public resources is sustained. In many ways, fiscal sector reform reflected in the curtailment of fiscal dominance, have been the central platform upon which macroeconomic stability has been built and achieved in Zambia. From the central bank perspective, the Bank of Zambia has worked to improve its own credibility by working with commercial banks and other financial institutions to improve Governance arrangements in the financial sector, improve the frequency and level of communication between the bank and the institutions that it supervises, as well as the general public. Much of this work has been done under the framework of a comprehensive Financial Sector Development Plan (FSDP) that has had broad support from our cooperating partners. At the regional level, a new SADC Model Central Bank Act has also been approved by the Ministers of Finance in SADC that enshrines important principles of independence and good corporate governance as a yardstick to be followed by all central banks in the region. Chairperson, Distinguished Participants, In conclusion, let me simply state that I believe that we in Africa have an opportunity and an obligation to consolidate reform and ensure that we can return to and surpass the high growth rates, of above 5%, witnessed in the new millennium. This is important not just for Africa and the challenge of reducing poverty, but also the world, as demographic changes shift the burden of production onto the younger generation – which is concentrated in the developing economies, including Africa. I am happy to note that my invitation for colleagues to visit Zambia and see the wonderful opportunities for investment and progress that exist have been heeded as I did receive a delegation from Italy early this year. I cannot therefore end without encouraging all of you to visit Zambia when you have the opportunity – I can assure you that you will not be disappointed. I thank you for your kind attention. | bank of zambia | 2,009 | 10 |
Welcome remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Financial Sector Development Plan (FSDP) Phase II Consultative Meeting, Lusaka, 20 October 2009. | Caleb M Fundanga: Zambia’s Financial Sector Development Plan Welcome remarks by Dr Caleb M Fundanga, Governor of the Bank of Zambia, at the Financial Sector Development Plan (FSDP) Phase II Consultative Meeting, Lusaka, 20 October 2009. * • • • • • • * * The Honourable Minister of Finance and National Planning; The FSDP Steering Committee Chairman & Secretary to the Treasury; Co-operating partners; Chief Executive Officers and Representatives from Banks and Non Bank Financial Institutions; Distinguished Invited Guests; Ladies and Gentlemen. It gives me great pleasure, on behalf of the Bank of Zambia, to welcome you all to the Financial Sector Development Plan (FSDP) Phase II Stakeholders’ Consultative Meeting. Honourable Minister, this very important forum is a demonstration of the recognition, by Government and various stakeholders, of the strategic importance of the financial sector to the country’s development and poverty reduction efforts. Distinguished invited guests, there are a number of strategies currently being implemented by both the private and public sectors to make the financial sector more inclusive, thereby increasing the benefits for the average citizen to participate in the formal economy. The Financial Sector Development Plan is one such Government initiative. The FSDP was aimed at realising the vision of a financial system that is sound, stable and market-based and one that supports efficient resource mobilisation necessary for economic diversification and sustainable growth. Ladies and Gentlemen, various countries have established specific programmes to strengthen their financial sectors. In the United Kingdom for instance, there is a Financial Inclusion Taskforce which is an independent body appointed to advise Her Majesty’s Treasury and to monitor and evaluate progress on its financial inclusion as well as oversee a 120 Million Pounds Financial inclusion Fund. A platform for collaboration between local governments and the financial institutions in the UK has been established in order to ensure that everyone has access to financial services and that such inclusion corresponds with the needs of local economic development. In other parts of Europe, the offer of basic banking accounts typically lies at the heart of many countries' efforts to increase financial inclusion and they are a common feature of economic policy in Europe. In Asia, this matter has also been dealt with in various ways. In India, the Reserve Bank of India issued guidelines (in 2006) by which banks are encouraged to enhance the level of financial inclusion in their areas of operation in a time-bound manner. In Malaysia, a Financial Sector Blueprint (2001-2010) has been used to guide interventions in the financial sector. However, financial inclusion is not an end in itself. Having a bank account, or an insurance coverage, does not mean an enhancement in the economic position or well being of a person. But it acts as a facilitator. In Zambia, following the launch in 2004 of the Financial Sector Development Plan (FSDP), a lot of work has been undertaken in addressing the weaknesses in the Zambian financial sector, including the level of financial access. Some ground-breaking market studies that have helped characterise both the demand and supply side issues peculiar to the Zambian financial sector have been undertaken. Most of you will be aware of the 2005 FinScope study findings which showed that only 33% of Zambia’s adult population had access to any formal or informal financial service or product. Arising from this, Government in collaboration with cooperating partners developed a performance assessment framework, under which a target of at least 50% by end-2009 has been set for the level of financial access. The findings of the on-going follow up Survey, whose results are due to be finalized by the end of this year, will give us an indication of the direction and level of access today. Honourable Minister, Distinguished Ladies and Gentlemen, before the end of FSDP Phase I, which ran from July 2004 to June 2009, it became quite apparent that a number of challenges and recommendations would arise which would not be possible to implement within the initial five year period approved by Cabinet in 2004. In addition, there were new developments, coupled with key recommendations from the second Financial Sector Assessment Programme (FSAP) of 2008, which required to be incorporated into the FSDP. Therefore, the second phase is envisaged to deal with longer-term issues pertaining to the overall strengthening of the legal framework for the financial system. It is for this reason that we are gathered here today as stakeholders to share information on the progress to date and to adopt a strategic implementation framework for the work that remains to be done. Distinguished Guests, the tremendous support of the various stakeholders to the agenda of the FSDP cannot go unnoticed. The technical and financial support provided by a number of our development partners, including the Swedish Government, the World Bank, IMF, DFID, the United States Treasury and FIRST Initiative have gone a long way in slowly but surely making this vision a reality. The Bank of Zambia and the Government are, therefore, most indebted to our cooperating partners for helping us build capacity in our financial sector. Honourable Minister, the support of stakeholders from financial and other institutions on the various working groups has also been instrumental in facilitating the implementation of various FSDP activities. Further, the coordinating role of the FSDP Secretariat, anchored by the Bank of Zambia, has been key to the implementation of the FSDP. For this reason, we at the Bank of Zambia hope that the same level of technical, financial, material and morale support will be accorded to Phase II of the programme by all stakeholders. Ladies and Gentlemen, in recognising the critical role played by various stakeholders represented here, the work of the FSDP has, by design, taken a consultative approach in the identification of priority areas, formulation of strategies and the design of implementation frameworks. It is for this reason that the Bank of Zambia has all the confidence that today’s consultative meeting will help advance the agenda for the second phase of the FSDP. This forum therefore, brings together the FSDP secretariat, development partners and key stakeholders to discuss the Phase II document and render support, financial and otherwise, to the process as well as facilitate consensus building for the extension of the FSDP to December 2012. During this meeting, the FSDP Secretariat will update stakeholders on the progress to-date as well as outstanding issues and new developments since 2004. The FSDP Secretariat is further expected to highlight some of the key recommendations that were made in the recent Financial Sector Assessment Programme (FSAP) and highlight proposals made by the working groups. Furthermore, representatives of Government and cooperating partners will also be at liberty to provide their comments on the programme’s achievements and the policy direction going forward. Finally, it is our view at the Bank of Zambia that the FSDP provides a unique opportunity to enhance contribution of our financial sector to economic growth & poverty reduction as well as deepening and modernising our financial system. However, the ability to move forward will depend on our collective support to achieve the Vision of the FSDP. It is therefore our expectation that this meeting will facilitate consensus among stakeholders on the way forward and update cooperating partners on the need for their continued support of the programme through direct financial support or technical assistance. Chairperson, it is now my pleasure to invite the Secretary to the Treasury who is also the Chairman of the FSDP Steering Committee to give us a few remarks before we call upon the Guest of Honour, to give us his keynote address and to officially open this forum. | bank of zambia | 2,009 | 10 |
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