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Panel Discussion Points:
Presented By; Dr. Tukiya K. Mabula
Deputy Governor -Administration Bank of Zambia
@ the IMF-UK DID Conference on Managing Capital Flows
Mauritius 2nd March 2015
Managing Capital Flows in Frontier and Emerging Markets: The Case of Zambia
Bank of Zambia
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OUTLINE OF PRESENTATION
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1.0 General Overview of Capital Flows in
Zambia
2.0 Source Countries, Recipient Sectors, Costs and Benefits of Capital Flows
3. Future Prospects and Policy Options
Bank of Zambia
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1.0 General Overview of Capital Flows in Zambia
Zambia has in recent years recoded a notable increase in capital flows Driven by; o Economic liberalization and other institutional reforms
implemented since the early 1990’s, o Positive macroeconomic performance o Natural resource endowments o Favourable commodity prices on the international market o Supportive investment policies.
The stock of private capital rose to US $19.8 billion -Dec 2014 (73.7% of GDP) from US $7.4 billion in 2006. o Annual average growth of 12.5%. o Composition : o FDI (83.1%), Other investments(I4.2%), Portfolio (2.6%), Financial derivatives (0.1%).
Bank of Zambia
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Bank of Zambia
1.0 General Overview of Capital Flows in Zambia (Cont.)
5,834.0 7,072.0
8,222.0 8,880.0 9,957.0
10,917.0 12,975.8
14,971.7 16,479.5
217.7
273.1 218.8
156.3 166.2
202.8
248.7
327.1
510.8
1,351.7
1,796.6
1,899.9 2,045.7
2,135.0 2,154.9
2,121.3
2,439.1
2,812.4
7,403.4
9,141.7
10,360.7 11,194.2
12,394.6 13,280.0
15,352.5
17,751.2
19,831.8
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
18,000.0
20,000.0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Foreign Direct Investment Portfolio Investment Financial Derivatives Other Investments TOTAL
Chart 1: Recent Trends in the Stock of Foreign Private Capital in Zambia, 2006-2014 (US $ mn.).
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2.0 Source Countries, Recipient Sectors, Costs and Benefits of Capital Flows
Bank of Zambia
FDI - largely from Canada, UK, China and RSA, mainly in mining manufacturing, telecom and the financial sector,
Portfolio -from UK and the United States of America. Other investments - predominantly from RSA, UK and China, -mainly in
mining, manufacturing and the agriculture sectors. Private capital flows have been instrumental in:
o Providing financing for investments, o Stimulating growth, o Contributing to exchange rate stability, o Creating opportunities for reserves accumulation, o Development of our financial market.
Macroeconomic and financial-stability challenges include; o Increased exchange rate volatility o High sterlisation costs associated with withdrawing excess liquidity
arising from high reserves accumulation.
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Private capital flows in Zambia are projected to maintain the recent growth momentum, driven by;
o Investments in new mining projects which are already in the development stage,
o Favourable investment climate o High interest rates on Government securities
which are expected to attract more portfolio investment.
3.0 Future Prospects and Policy Options Bank of Zambia
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3.0 Future Prospects and Policy Options (Cont.)
To maximize gains, and minimize vulnerability to capital flows, there is need to: o Improve private capital flows data quality and timeliness o Maintaining solid/stable macroeconomic fundamentals through
sound monetary, exchange rate and prudent fiscal policy. o Maintain a flexible exchange rate system, while minimizing
volatility o Building adequate international reserves buffers o Monitor performance of financial institutions by implement
macro-prudential measures that improve the resilience of the financial sector.
o Promote investments in long term debt securities o Closely collaborate with fiscal authorities to minimize adverse
effects associated with high fiscal deficits.
Bank of Zambia
END
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Thank You!
Bank of Zambia
