Twice in the past 40 years we have succumbed to the temptation of living above our means. The first time was in the late 1970s, when the Norwegian state borrowed substantial amounts abroad. Our current account deficit in 1977, at 15 per cent of GDP, set an OECD record and we were probably on the brink of having to ask for an IMF program. We were investing heavily in the welfare state and in North Sea projects at the same time, and these investments could not be fully financed on the basis of economic growth. The second time was during the years of economic crisis before and around 1990, when levels of domestic spending, private and public, far exceeded our economic limits. It was not until 30 years after oil had been discovered off our shores that Norway was in a position to put some money aside. We are nonetheless frequently reminded that petroleum production has reached a plateau and will begin to decline in a few years’ time. Our welfare system, including old-age pensions, is basically financed by current income. It is not fundbased, as pensions are in a number of other countries. Even though it is likely that the Pension Fund will grow considerably in the years ahead, estimates show that the capital in the Fund will only cover some 60 per cent of public pension expenditure in the future. It cannot therefore be argued that the government’s savings are large relative to its obligations.
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 in 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 a market of nearly 380 million people. A key challenge in developing this economic potential and enhancing the wealth creation capability of Zambians to drive growth and development is the ability to access long term investment capital especially for economically viable projects at start-up level. Financial institutions are critical in this process of mobilising and channeling these investment resources. To do so successfully, the industry must identify the constraints to the provision of finance and credit and provide innovative solutions to address them. Such innovations may include venture capital funds, structured finance products, equity and other innovations that allow a more efficient management of risks during the initial stages of the business cycle. On its part, the Bank of Zambia needs to ensure that there is sustainable stable macroeconomic environment first. But we also need to have a good understanding of the financial innovations that may be needed to attract and disburse investment capital.