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  • 1

    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

  • 2

    OUTLINE OF PRESENTATION

    2

    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

  • 3 3

    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

  • 4

    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.).

  • 5

    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.

  • 6

    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

  • 7

    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

    8

    Thank You!

    Bank of Zambia

    Slide Number 1 Slide Number 2 Slide Number 3 Slide Number 4 Slide Number 5 Slide Number 6 Slide Number 7 END

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