Transcript Document

Bank of Zambia
THE EMERGENCE OF THE GLOBAL ECONOMIC CRISIS AND ITS
IMPACT TO SOCIAL ECONOMIC DEVELOPMENT OF ZAMBIA
BY
CALEB M. FUNDANGA
Governor
BANK OF ZAMBIA
Paper Presented at the ZCTU Top Leadership Workshop
3rd March, 2009
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Bank of Zambia
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1.0 INTRODUCTION
This paper discusses the origins of the global
financial and economic crisis
USA crisis and the rest of the global economy.
The social and economic impact on Zambia
Prospects for the Zambia in 2009 and beyond
Role of the trade union movement and its
leadership
Conclusion
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2.0 Origins of the Global Financial Crisis
Bank of Zambia
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Causes of the Sub-Prime Crisis:
Poor underwriting standards for mortgage loans;
Weak regulation and supervision of banks; and
Exposure to the sub-prime security backed financial
assets.
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Signs of Problem:
Inability to service debt when interest rates rose.
High loan defaults, foreclosures, and decline in
demand for homes.
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3.0 USA Crisis and the Rest of the
Global Economy.
Bank of Zambia
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Implications on World Economies:
Banking system short of liquidity (Credit Crunch);
Business scale down or closure of operations ; and
Slow down in economic growth.
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3.0 USA Crisis and the Rest of the
Global Economy (cont’d)
Bank of Zambia
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US Response to the crisis:
Stimulus measures including:
 Fiscal, interest rate and exchange rate
adjustments;
 Initially US $700 billion to unblock credit for
the financial system
 Further US $787 billion to boost economy under
the new US President, Obama.
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3.0 USA Crisis and the Rest of the
Global Economy (cont’d)
Bank of Zambia
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UK response to the crisis:
 Temporary tax cuts (reduction in VAT, 17.5% to 15.0%).
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Euro response to the crisis:
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China response to the crisis:
Stimulus package of US $586 billion to boost
demand; and
“Moderately easy” monetary policy.
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4.0 Social and Economic Impact
Bank of Zambia
Growth
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Effect on the Zambian Economy:
Withdrawals by foreign portfolio investors;
Weakening Kwacha exchange rate;
Lower commodity prices;
Reduced economic activity;
Increased unemployment; and
Low GDP.
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4.0 Social and Economic Impact (cont’d)
Bank of Zambia
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Prolonged recession may:
 Deepen risk aversion and discourage both portfolio and
FDI flows;
 Reduce Zambia’s export earnings;
 Increase inflation;
 Rise in interest rates; and
 Reduced GDP growth.
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(%)
23.0
21.0
19.0
17.0
15.0
13.0
11.0
9.0
7.0
5.0
3.0
1.0
-1.0
Dec 06
Jan 07
Feb 07
Mar 07
Apr 07
May 07
June 07
July 07
Aug 07
Sept 07
Oct 07
Nov 07
Dec 07
Jan 08
Feb 08
Mar 08
Apr 08
May 08
Jun 08
Jul 08
Aug 08
Sept 08
Oct 08
Nov 08
Dec 08
Jan 09
Feb 09
4.0 Social and Economic Impact (cont’d)
Bank of Zambia
Chart 2 : Annual Inflation, Dec 2006 – Feb 2009
Overall
Food
Non-food
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4.0 Social and Economic Impact (cont’d)
Bank of Zambia
Revenue Earnings from Mineral Resources
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Copper prices fell, hence reduced earnings;
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Reduced tax revenue;
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Reduced Government
infrastructure; and
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Constrain economic growth.
capacity
to
develop
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4.0 Social and Economic Impact (cont’d)
Bank of Zambia
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Copper Prices in US dollars per Tonne, Jan 2007 - Dec 2008
Jan 2007
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec 07
Jan 08
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec 08
10000.0
9000.0
8000.0
7000.0
6000.0
5000.0
4000.0
3000.0
2000.0
1000.0
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4.0 Social and Economic Impact (cont’d)
Bank of Zambia
• Exchange Rate Volatility
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High volatility and weakening of Kwacha due to:
 Political uncertainty;
 Global financial crisis; and
 Fall in copper prices.
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Kwacha depreciated against most major foreign
currencies.
BoZ continues to participate in foreign exchange market.
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4.0 Social and Economic Impact (cont’d)
Bank of Zambia
9500
9000
8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
3500
3000
605
585
565
545
505
485
Rand
525
465
445
USD
Pound
Euro
Dec-08
Oct-08
Aug-08
Jun-08
Apr-08
Feb-08
Dec-07
Oct-07
Aug-07
Jun-07
Apr-07
Feb-07
Dec-06
Oct-06
Aug-06
Jun-06
Apr-06
Feb-06
425
Dec-05
US$.Pound, Euro
Interbank Exchange Rates (Kwacha per Currency), Dec 05 - Jan 09
SA Rand
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4.0 Social and Economic Impact (cont’d)
Bank of Zambia
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Foreign Capital Flows
FDI fell to US $938.6 million in 2008 from US
$1,323.9 million in 2007.
Foreign Portfolio Investment showed outflow of
US $6.1 million in 2008 from inflow of US $41.8
million in 2007.
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28-Feb-05
30-Apr-05
30-Jun-05
31-Aug-05
31-Oct-05
31-Dec-05
28-Feb-06
30-Apr-06
30-Jun-06
31-Aug-06
31-Oct-06
31-Dec-06
28-Feb-07
30-Apr-07
30-Jun-07
31-Aug-07
31-Oct-07
31-Dec-07
29-Feb-08
30-Apr-08
30-Jun-08
31-Aug-08
31-Oct-08
Treasury bills and Bond Holdings by
Foreign Investors Feb 05 – Dec 08.
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
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TOTAL TB
TOTAL Bond
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5.0 Prospects for 2009 and Beyond.
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Positive growth in real GDP expected but to
slowdown.
Mainly :
 mining output to decline;
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tourism (especially foreign tourists);
Mining-related manufacturing & services
(e.g. contracts) to be lower; and
Agriculture expected to recover.
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5.0 Prospects for 2009 and Beyond (cont’d)
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Given current challenges:
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2009 National Budget aims at:
o encouraging diversification (export
base);
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enhancing competitiveness;
o
increasing local value-addition; and
o
increasing expenditure on
infrastructure and social services.
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5.0 Prospects for 2009 and Beyond (cont’d)
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Bank of Zambia will continue to monitor
global developments;
And take appropriate measures to
maintain confidence in the banking
system and avoid systemic risk.
Maintenance of the macroeconomic stability
gains achieved.
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5.0 Prospects for 2009 and Beyond (cont’d)
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Investment confidence in the Zambian economy
continues. For instance:
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New commercial banks (Access, Ecobank, FNB and
International Commercial Bank);
Construction of the Chambishi MFEZ;
Konkola Deep Mine at advanced stage (sinking the
shaft).
Zesco power rehabilitation programme.
Preparatory work on extension and construction of
Kariba North Bank and Itezhi Tezhi Hydro power 19
6.0 Role of the Trade Union
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Maintenance of industrial harmony;
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Support Government and Investor initiatives;
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Enhance education of union members; and
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Encourage labour efficiency and improving
productivity and communication amongst
members.
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Changing workers’ attitude for the better.
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7.0 Conclusion
Bank of Zambia
• Challenges from global financial crisis are
huge but surmountable;
• Major economies are taking stimulus and
mitigating measures;
• To benefit, we need to remain committed to
strong socio-economic policies.
• We are all part of the solution.
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Bank of Zambia
Thank You
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