Download Investment Climate in Zambia

Bank of Zambia
FINANCIAL SECTOR DEVELOPMENT AND POVERTY
REDUCTION
Presentation to the Zambia UN Country Team
Annual Retreat
Caleb M. Fundanga
Governor - Bank of Zambia
23 January, 2009, Siavonga
1
Table of Contents
Bank of Zambia
I.
II.
III.
IV.
V.
VI.
Introduction
Recent Economic Developments
Financial Sector Developments
Implications for Poverty Reduction
Collaboration with United Nations
Conclusion
2
I. Introduction
Bank of Zambia
 The Zambian economy has performed relatively well in
recent years.
 Economic reforms have yielded macro-economic
stability
 Further financial deepening and inflow of capital needed
to expand productive capacity
 Challenge remains to uplift living standards of Zambians
3
II. Recent Economic Developments
(Real GDP)
Bank of Zambia
 Real GDP averaged about 5.1% per annum between
2001-2007.
 Growth driven by mining, tourism, construction,
transport and agricultural sectors.
 GDP per capita rose from US$360.5 in 2001 to
US$934.5 in 2007
 Due to the global financial crisis and subsequent
recession, GDP growth is projected at 5.8% in 2008.
4
II. Recent Economic Developments
(Real GDP)
7
1000
900
800
700
600
500
400
300
200
100
0
6
5
%
4
3
2
1
0
2001
2002
2003
2004
GDP Growth Rate %
2005
2006
US $
Chart 1:GDP Growth Rates (%) and GDP Per Capita US $
2007
GDP Per Capita US $
5
II. Recent Economic Developments
(Inflation)
Bank of Zambia
 Zambia attained single digit inflation in 2006 and 2007
after 24 years.
 Appropriate monetary and fiscal policies credited for this
achievement.
 However, due to external shocks (food, fertiliser & fuel
and financial crisis effects), inflation rose to 16.6% in
2008.
 This was the general trend in other countries as well.
6
II. Recent Economic Developments
(Inflation)
Bank of Zambia
Chart 2: Annual Inflation and Commercial banks Average lending rate ( %)
65
60
55
50
45
40
30
25
20
15
10
5
0
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec
Feb
Apr
Jun
Aug
Oct
Dec 03
Feb
Apr
Jun
Aug
Oct
Dec 04
Feb
Apr
Jun 05
Aug
Oct
Dec 05
Feb
Apr
Jun
Aug
Oct
Dec 06
Feb
Apr
Jun
Aug
Oct
Dec 07
Feb
Apr
Jun
Aug
Oct
Dec 08
%
35
Annual Inflation
Avg Lending Rate
7
Table 1: CPI Inflation for Selected Countries /
Regions, Jan 08 - Dec 08
Country
Jan 08
Feb
08
Mar 08
Apr 08
May 08
Jun
08
Jul
08
Aug
08
Sep
08
Oct
08
Nov
08
Dec
08
USA
4.3
4.0
4.0
3.9
4.2
5.0
5.6
5.4
4.9
3.7
1.1
*
EURO ZONE
3.2
3.3
3.6
3.3
3.7
4.0
4.1
3.8
3.6
3.2
2.1
1.6
UK
2.2
2.5
2.5
3.0
3.3
3.8
4.4
4.7
5.2
4.5
4.1
*
JAPAN
0.7
1.0
1.2
0.8
1.3
1.9
2.4
2.5
2.1
1.7
*
*
SOUTH AFRICA
9.3
9.8
10.6
11.1
11.7
12.2
13.2
13.6
13.1
12.1
12.3
*
BOTSWANA
8.4
9.0
9.8
11.1
12.1
14.5
15.0
15.1
14.0
13.1
15.1
13.7
18.2
18.9
19.1
26.6
31.5
29.3
26.5
27.6
28.2
28.4
29.4
27.7
TANZANIA
8.6
8.9
9.0
9.7
9.1
9.3
9.5
9.8
11.6
11.8
12.3
*
UGANDA
7.4
7.8
8.5
10.7
11.8
12.0
13.7
15.6
15.2
14.5
14.9
14.2
GHANA
12.8
13.2
13.8
15.3
16.9
18.4
18.3
18.1
17.9
15.2
17.4
18.1
MOZAMBIQUE
10.6
13.0
12.1
11.2
10.1
10.4
10.5
10.6
10.0
*
*
*
14.8
*
NIGERIA
8.6
8.0
7.8
8.2
9.7
12.0
14.1
12.4
13.0
14.7
15.3
16.6
ZAMBIA
9.3
9.5
9.8
10.1
10.9
12.1
12.6
13.2
14.2
15.2
KENYA
8
II. Recent Economic Developments
(Interest Rates)
Bank of Zambia
 BoZ has taken measures to reduce the high cost of borrowing over
the years
 Reduction of statutory reserve ratios
 Containing inflation
 In addition, Govt. also adopted prudent fiscal policies
 Consequently, Commercial Bank lending rates have been declining
(54.6% in 2001 to 24.4% in 2007)
 With rising inflation in 2008, Av. Lending rates increased to 26.9%
at end-December 2008.
9
II. Recent Economic Developments
(External Sector)
Bank of Zambia
 Strong improvement in external sector performance exhibited by:
 Build-up of GIR to 3.6 months of import cover in 2007 from 0.9
months in 2001.
 Surplus trade balances & reduction in current account deficits
as % of GDP
 Relative stability in Kwacha exchange rate
 Good performance attributed to :
 High copper earnings
 Increased NTEs
 HIPC Debt relief
 Increased budget support from donors
 However, overall BoP narrowed in 2008 and a sharp depreciation in
the exchange rate was observed in the second half.
10
II. Recent Economic Developments
(External Sector:Table 2: Trade Statistics)
Bank of Zambia
2002
2003
2004
2005
2006
2007
2008
Total Exports
(US$’m)
979.7 1,209.9
1,843.7
2,209.8
3,826.7
4,448.5
4,592.8
Metal Exports
Copper
Cobalt
611.4
521.4
90.0
794.7
609.8
184.8
1,358.8
1,074.6
284.2
1,644.2
1,485.9
158.2
3,084.1
2,380.0
146.1
3,621.9
3,406.5
215.4
3,709.3
3,407.2
302.1
368.3
415.2
484.9
565.7
742.6
826.6
883.5
Non
Traditional
Exports
(NTEs)
–
11
II. Recent Economic Developments
(External Sector:Table 3: Major Non-Traditional Exports in US $ million (CIF), 2007
Q1- 2008 Q3)
2007
Q1
2007
Q2
2007
Q3
2007
Q4
2007
Total
2008
Q1
2008
Q2
2008
Q3
2008
Q4
2008
Copper Wire
36.8
53.4
59.0
46.2
195.4
28.1
58.7
46.7
30.3
163.8
Cane Sugar
13.7
14.7
21.5
24.5
74.4
14.3
1.5
34.5
18.8
69.1
Burley
Tobacco
10.5
18.9
18.2
15.6
63.2
4.2
21.8
25.2
25.2
76.4
Cotton Lint
Electrical
Cables
Fresh
Flowers
7.0
7.5
14.5
8.2
37.1
6.6
6.1
8.8
14.9
36.5
30.3
42.8
31.3
46.1
150.5
8.1
27.1
9.5
8.7
53.4
12.0
7.0
6.6
12.6
38.3
6.3
6.5
4.0
7.4
24.2
Cotton Yarn
4.1
3.5
2.8
2.1
12.4
4.5
2.1
1.0
1.0
8.7
Fresh Fruits
Vegetables
4.9
7.6
8.2
3.9
24.6
4.6
10.2
8.1
3.3
26.2
Gemstones
5.7
11.4
6.8
4.8
28.6
2.7
4.2
12.6
5.9
25.3
Gasoil/Petrol
eum Oils
3.3
8.6
4.9
4.1
20.9
6.0
10.1
4.1
10.8
31.0
3.3
52.1
1.7
1.3
1.0
7.3
0.8
0.7
0.6
1.0
3.0
67.6
84.8
60.4
265.0
101.9
96.3
125.4
118.2
392.1
-22.7
-22.7
-22.7
-22.7
-91.0
-6.6
-6.6
-6.6
-6.6
-26.3
161.1
221.8
237.0
206.7
826.6
181.5
238.8
274.0
238.9
883.5
Electricity
Other
Exporter
Audit
Adjustor
Total NTEs
12
II. Recent Economic Developments
(Fiscal Performance)
Bank of Zambia
 Govt. budget has continued performing well in recent years:
 Lower budget deficits
 Reduced Govt. borrowing
 However, unexpected expenditure such as presidential by-elections
put enormous pressure on budget in 2008
 Prudent budget execution results in release of domestic resources
for poverty alleviation programmes
13
III. FINANCIAL SECTOR DEVELOPMENTS
Overview
Bank of Zambia
 Since 2002, financial sector has been stable and experienced
growth:
 No bank closures
 Satisfactory performance
 Adequate capital positions, earnings and liquidity
 Branch network expansions (223 in 2008 from 173 in 2004)
 Increased ATM installations (295 in 2008 from 54 in 2004)
 (see Chart and maps)
 Govt. has restructured or re-capitalised most state owned NBFIs
 Micro Finance Iinstitutions increasingly filling the financing gap for
SMEs (See Maps)
14
Bank Branch Distribution by Province
as at 31st December 2008
Luapula
BBZ (1)
Cavmont (1)
FBZ (1)
Zanaco (3)
Northern
BBZ (3)
Cavmont (2)
FBZ (8)
Stanchart (1)
Zanaco (3)
Copperbelt
Abc (1), BBZ (13)
Cavmont (3), Citi (1)
FBZ (6), FAB (2)
Indo (3), Intermarket (1)
Investrust (2), Stanbic (5)
Stanchart (6), Zanaco (9)
17
6
North Western
BBZ (1)
Cavmont (1)
FBZ (3)
Investrust (1)
Stanbic (1)
Stanchart (1)
Zanaco (2)
10
Western
BBZ (1)
FBZ (2)
Stanchart (1)
Zanaco (2)
52
15
Central
BBZ (4)
FBZ (2)
Indo (2)
Stanbic (1)
Zanaco (6)
15
71
6
31
Southern
BBZ (10)
FBZ (6)
Indo (1)
Stanbic (1)
Stanchart (3)
Zanaco (10)
Eastern
BBZ (4)
Cavmont (1)
FBZ (2)
Indo (1)
Investrust (2)
Zanaco (5)
Lusaka
Access (1), ABC (1), BOC (1)
BBZ (15), Cavmont (4), Citi (1)
FBZ (14), FAB (1),
Indo (5), Intermarket (2)
Investrust (4), Stanbic (4)
Stanchart (5), Zanaco (13)
15
ATMs Distribution by Province
as at 31st October 2008
9
4
9
71
15
5
11
146
25
16
Microfinance Institutions Branch Distribution by Province
as at 31st December 2008
Luapula
Bayport (1)
Blue (1)
Microfin (1)
Copperbelt
Bayport (5), Blue (2)
Microfin (2), Nedfin (5)
Cetzam (3), Meanwood(3)
Unity Finance (2)
3
3
North Western
Bayport (1)
Blue (1)
Microfin (1)
Nedfin (1)
Eastern
Blue (1)
Microfin (1)
4
Western
Bayport (1)
Blue (1)
Microfin (1)
Northern
Bayport (1)
Blue (2)
2
22
Central
Blue (1)
Unity Finance
(1)
2
3
18
6
Southern
Bayport (2)
Blue (2)
Cetzam (1)
Elpe Finance (1)
Lusaka
Bayport (1), Blue (1), Microfin (1)
Nedfin (1), Butala (1), Bomach (1),
Capital Solutions (1) Cetzam (1)
Elpe(1), Finca (1) Letshego (1)
Meanwood (1), Unity (1)
Mtawila (1) Microbankers (1) Royal
MFI (1) Pulse (1),
Yakabutal (1), Pelton (1)
III. FINANCIAL SECTOR DEVELOPMENTS
FSDP
Bank of Zambia
 The World Bank/IMF led FSAP of 2002 highlighted various
weaknesses.
 Consequently, Govt. launched the FSDP in 2004
 FSDP aims at achieving a
 ‘stable, sound and market-based financial system that will
support the efficient mobilisation and allocation of financial
resources necessary to achieve economic diversification,
sustainable growth and poverty reduction.’
18
III. FINANCIAL SECTOR DEVELOPMENTS
FSDP
Bank of Zambia
 Achievements under FSDP:
 Attainment of macro-economic stability;
 Increase in number of financial institutions;
 Sovereign rating sought;
 Credit reference bureau established;
 Law review; and
 Assessment of levels of financial access in Zambia (Fin Scope
Demand Side and Supply Side studies).
 Main challenges in implementation of FSDP have been funding
constraints and lengthy tendering processes.
19
IV. IMPLICATIONS FOR POVERTY REDUCTION
Bank of Zambia
 Zambia aims to attain middle income country status by 2030.
 Vision 2030 and FNDP are instruments to attain this goal.
 Growth of financial sector is vital in order to facilitate increased
private and public sector investments.
 Hence current Financial Sector policies are aimed at enhancing
economic development and poverty reduction.
 A strong financial system will provide increased and affordable
access to finance (financial inclusion).
20
IV. IMPLICATIONS FOR POVERTY REDUCTION
Bank of Zambia
 Domestic savings needed for increased private investment.
 Greater impact on poverty requires higher employment.
 BoZ is encouraging banks and MFIs to develop more innovative
services to suit the needs of the informal sector.
 BoZ is encouraged with response particularly of commercial banks
in reaching out to the previously unbanked.
21
V. SUGGESTIONS ON HOW TO WORK WITH UN
PROGRAMMES
Bank of Zambia
 There is scope for the BoZ to collaborate with the UN in enhancing
the contribution of the financial sector to poverty reduction.
 Some of the areas of possible cooperation include:
a) Assistance in development of inclusive financial system
strategies;
b) Collaboration in financial literacy campaigns; and
c) Access of Zambian micro finance institutions to the MicroLead
Fund under the United Nations Capital Development Fund.
22
VI. CONCLUSION
Bank of Zambia
 Attainment of sustainable development and poverty reduction
remains a major challenge for Zambia.
 A strong financial system is vital to the economic empowerment of
the vulnerable in society.
 A lot has been achieved so far in the development of the financial
sector but much more remains to be done.
23
END
Bank of Zambia
For more information on the Zambian
economy, visit the Bank of Zambia
Website on:
www.boz.zm
THANK YOU
24