improved economic confidence following the attainment of the enhanced HIPC Initiative Completion Point in April 2005, which resulted in reduced external debt service obligations, and;  v.  increased foreign direct and portfolio investment, reflecting increased market confidence in the economy stemming from the greatly improved prospects for the copper sector, the cancellation of the bulk of Zambia’s external debt, and the continued commitment to prudent fiscal and monetary policies. Mr Chairman, all these factors have accounted for the current strengthening of the Kwacha. This has led to an outcry from some of our exporters of nontraditional commodities that they are losing external competitiveness and may close down their businesses. While I appreciate this outcry, I wish to state that the exchange rate alone does not determine external competitiveness of exports. Exporters should look at those areas in their production processes where they can attain efficiency gains and improve productivity. Besides the appreciation of the Kwacha which has an impact on inflation is beneficial to non-traditional exporters in several ways: •  reducing cost of capital goods  •  reducing cost of imported raw materials  •  reducing cost of freight/fuel  On its part, the Government can assist this process by directing investment in infrastructure and structural reforms, including labour laws, so as to reduce the cost of doing business in Zambia. Mr Chairman, in the Government securities market, developments in yield rates were mixed in 2005.
This growth has been broad-based - extending beyond the recovery of the mining sector and has withstood adverse shocks such as droughts and increases in oil prices. During this period, investment was strong, particularly in the mining, agriculture and tourism sectors, which sets a basis for further favourable economic growth in the medium to long-term. More recently, in 2005, the economy grew by 5.0% in real terms, marking the seventh consecutive positive real growth in output. This impressive performance was attributed to a number of factors, including: i. Strong expansion in construction, driven by a robust demand for housing and large scale investment in the copper sector. ii. A marked pick up in mining production with the coming on line of the Kansanshi copper mine. iii. Favourable external sector performance largely driven by favourable copper prices on the world market. iv. Expansion in financial institutions and insurance sectors. Mr Chairman, inflation declined to 15.9% at the end of December 2005 from 17.5% at the end of December 2004 despite several setbacks, including the partial drought that significantly reduced food supply and high prices of oil and petroleum products. Attainment of a single digit inflation has been Government’s goal for a long time. It is, therefore, pleasing to note that, in April 2006, annual inflation declined to 9.4%, the lowest rate in the last 30 years. This inflation outturn has been largely due to the conduct of appropriately tight monetary policy aided by prudent fiscal policy and the continued relative stability of the Kwacha.