Thank you Ambassador Schultz.  Good evening everybody!  How was Day 1 of the conference?   

First, I would like to thank our hosts, Ambassador Lena Nordstrom of Sweden and her entire team at SIDA and the Embassy.  The United States and Sweden have a very robust partnership that is helping Africa accelerate growth and eliminate extreme poverty.  In August, at the U.S.-Africa Leaders Summit, Sweden committed to provide up to $1 billion in capital to the Power Africa initiative, which is focused on helping provide 30,000 more megawatts of cleaner energy to Africans.  And, here in Zambia, SIDA and USAID jointly provide credit guarantees to the Zambia National Commercial Bank (“ZANACO”) to generate more than $9 million in lending to individuals and small businesses in the agricultural sector.

 I would also like to greet and recognize Zambian First Lady Scott, U.S. Ambassador Eric Schultz, USAID Director Susan Brems, members of the business community, Ambassadors and other diplomats, the Chairman of the Zambian Development Agency (“ZDA”), Conference speakers, other Government officials, and all others with us tonight. 

So, you’ve spent the day discussing specific sectors of the Zambian economy and listening to the leadership of Zambia speaking about its progress and plans.  Before looking forward, I thought I would discuss the past a bit because time flies and a lot of people don’t know how we got to this point.  And since I had a small role in that history, I’m well placed to recount some of it. 

Where were you on Halloween -- October 31, 1991?  Do you remember what was happening 23 years ago?  Among other things, it was the year when the referendum passed in South Africa to dismantle apartheid.  It was the year the Dow Jones stock index passed 3,000 for the very first time (it is now above 17,000).  And very relevantly for this story, it was the year the former Soviet Union dissolved.  And it became obvious that over the decades whatever benefits that may have been achieved under socialism in some countries had been overtaken by all the problems that arise when entrepreneurship is squashed, prices are set by bureaucrats as opposed to the market, and private capital is restricted and discouraged. 

And what was the picture in Zambia in 1991? To understand Zambia in 1991, we need to go back even farther.  Kenneth Kaunda had been at the forefront of the struggle for independence from British rule.  When he took office as President in 1964 -- just 50 years ago -- there were only 109 university graduates in the entire country, and it’s estimated that barely ½ of 1 percent of Zambians had completed primary school.[1]  The entire economy was under the control of foreigners.  Extreme poverty was endemic, and health statistics were abysmal, with life expectancy only 47 years.[2]  But in tackling these huge problems President Kaunda made decisions that would turn out to debilitate the economy in the long run: he opted for a centrally planned socialist economic system and a one-party state.  And they didn’t work out.  Between 1982 and 1991, per capita income had dropped 30%.  By 1991 Zambia had one of the highest per capita debt loads in the world, inflation exceeding 90%, and 61% of its households had incomes of less than $1.25 a day.[3]  Upon my first visit, in 1992, I found store shelves empty, with even the most basic items in short supply, little hard currency, few formal businesses created by entrepreneurs, virtually no external investor interest, limited tourism (tourists went to the Zimbabwe side of Victoria Falls, for instance, because even toilet paper and basic foodstuffs were in short supply on the Zambia side) and a decrepit infrastructure.  The devastating effects of HIV and AIDS were also becoming more readily apparent, and the next decade would see a tremendous number of deaths from the epidemic, deaths that exacted an extreme economic as well as human toll. 

And so that was the state of affairs on Thursday, October 31^st 1991, the day set by President Kaunda for the first multi-party elections in Zambia since 1968.  And, as you know, on that date, 1.3 million Zambians[4] voiced their strong desire for major changes, electing Frederick Chiluba as Zambia’s Second Republican President.  In 1992, he came into office initiating a wholesale remake of the entire Zambian economy, but found laws governing economic activity that were completely out of date.  For instance, the Companies Act was “the one received from the United Kingdom and enacted by that country's Parliament in 1921, before Northern Rhodesia (now Zambia) even came into being.”[5]  By my unofficial count, more than 30 pieces of major legislation[6] were passed in the first term of the new government.  Exchange rates were freed, tariffs and import controls eliminated, and protectionism ended.  These were exceedingly tough decisions – thousands of Zambians lost their jobs -- more than 15,000 in the textile industry alone.[7]  But as incredibly painful as this was, there really was no alternative – these companies were not viable, they were not competitive and they were way behind global standards. 

Thus there was a flurry of economic liberalization, moving the economy out of the Government’s control, and trying to reignite investment and growth. The new Government, aided by the World Bank, wanted to try to ensure that Zambian citizens were able to participate in the economy and the ownership of formerly state-owned assets.  This was difficult because the years of limited economic growth meant Zambians had scant savings.  Also, the Government didn’t want just a few Zambians to own pieces of Zambia’s economy, it wanted many Zambians to participate.  The new Government thought that one modest part of the solution might be a stock exchange – both as a means of attracting international investors, and as a means of enabling Zambians with small amounts of savings to purchase small stakes in government-owned companies that were being privatized.  So Ben Ngenda, a local attorney in private practice, and Mumba Kapumpa, who worked in the Ministry of Finance, and the other members of the ­Stock Exchange Council were asked to investigate how to create a stock market.  With support from UNDP, they studied the subject, visited several international exchanges and pondered the way forward.  In February 1993, they met with Teresa Barger of the International Finance Corporation (“IFC”).  The IFC said that if Zambia was willing to pay for assistance then the IFC would assemble a team, free of vested interests, to advise the Government on the best approach.  Zambia’s leadership, to its full credit for not hiding from what it did not know about creating securities markets, agreed. 

And so it came to be that a team I led arrived in Zambia in early 1993 to help the Government create a market.  The team consisted of two Brits (E. Ray Astin and Jonathan Miller), two Canadians (Gary Stephenson and Mat Ardron) and me.  We started work in Lusaka on April 19, 1993, by meeting with a wide variety of Zambians, companies and banks to understand what company shares were already held by the public, understand local preferences for the design of the market, make projections on the number of companies that had the potential to trade their shares publicly, determine the practical options for clearing and settlement, and investigate many other issues. 

In six weeks we had prepared a “Blueprint for the Zambian Securities Market,” which had benefitted from comments from the general public, companies and financial institutions, and then had been approved by the Government of Zambia.  By the end of June we had worked with Eva Jhala of the Ministry of Legal Affairs and her consultant, Peter Barrett, on loan from the Australian Parliament, to finish the draft of the Securities Act of 1993.[8]  The act was passed by Parliament just before midnight on a Friday night – showing how seriously and urgently members of Parliament were taking economic reform. 

Some commentators in the years thereafter have suggested that the securities market was foisted upon Zambia and that it was done without extensive Zambian involvement.  This is not true.  As my narrative makes clear, there was definitely interest amongst Zambians to have a securities market.  Unfortunately, there was almost no experience in Zambia with the nuts and bolts of securities regulation and stock market operations.  As a result, it was left to our consulting team to help local stakeholders think through the pros and cons of various approaches to a wide variety of technical issues, such as whether shares would be bought and sold continuously or in a single session, the time limit required to settle trades, whether shares would be dematerialized or stock certificates would be issued in paper to shareholders, etc.  But, once we had a proposed design, Mumba Kapumpa and Ben Ngenda ensured that the design was shared with the business community and general public for review and comment.  Large public meetings were held at the Intercontinental Hotel to obtain feedback, and changes in the drafts were made as a result. 

We spent the rest of 1993 drafting Securities and Exchange (“SEC”) regulations, Articles of Incorporation for the Lusaka Stock Exchange (“LuSE”), LuSE regulations, job descriptions for all positions at the SEC and LuSE, training curricula, and a 100⁺ page proposal for 18 months of operations funding by UNDP and UNIDO.  The regulations, more than a dozen in all totaling several hundred pages, were then distributed for public comment and finalized based on that input.  Meanwhile, two organizations decided to become founding members of the LuSE: Cavmont, Securities, a subsidiary of a local bank, and Meridian Securities, a local subsidiary of a pan-African bank under the leadership of Bruce E. Bouchard.

The end of 1993 was spent putting all of the pieces into place, such as obtaining premises for the SEC and LuSE, hiring and training brokers and staff, obtaining clearing and settlement software, incorporating the LuSE, licensing the stock exchange and its members, and taking a myriad of other steps needed to get the SEC and LuSE underway.  Charles Mate was hired as the first CEO of the Lusaka Stock Exchange, while an Englishman, David Lister, provided start-up advice to Charles for the first two years of operations.  Mumba Kapumpa was named the Chief Executive of the SEC.  On February 21, 1994, the Lusaka Stock Exchange opened for business, only ten months after our consulting team first arrived in Lusaka.  A world record to this day, this result would have been impossible without the commitment of the people, Government and Parliament of Zambia. 

The LuSE was set up in complete compliance with G-20 standards for modern stock exchanges; for example, settlement of trades was on a rolling T+3 basis (at a time when the NYSE was T+5).  From the start, the market was structured as a scriptless system; that is, “physical” share certificates were not issued and traded. Rather, a central securities depository was put in place to hold “global” certificates of the publicly listed companies, and a shareholder register was maintained by the depository.  As trades took place, the changes were reflected in the shareholder register managed by the depository.  Shareholders who traded shares were issued broker notes to confirm their respective trades.  These and other measures made trading quick and efficient, and helped to prevent fraud.  Most importantly for the very young Exchange, such measures went a long way toward instilling confidence among investors, both local and foreign.

With the stock market operational, what was it going to trade?  Prior to the LuSE, the common stock of four companies had been traded informally in Zambia: Standard Chartered Bank Zambia, Zambia Bata Shoe Company, Chilanga Cement, Farmers House (led by Robin Miller who is here tonight) and Rothmans.  Typically, shares were offered for sale via an advertisement in a newspaper or via informal contacts arranged by the companies' corporate secretaries (sometimes at the Annual General Meetings).  The average number of trades in a month was about 20, but in some months no shares in any companies were traded. 

The Government hoped that over time companies would be created or grow, and, when ready, offer their shares for trade.  But until that happened, Government wanted to utilize the exchange for the public issuance of shares of companies being privatized.  To start, it wanted to publicly issue and list on the LuSE some of the shares of at least one privatization "Tranche 2 company" (e.g., Chilanga Cement, ZAMEFA or Zambian Breweries) directly to a broad spectrum of the public within the first year of operations.  Public distribution was intended to provide concrete evidence of Government's progress with privatization.

In 1994, Chilanga became the first large state-owned company to be privatized when Commonwealth Development Corporation increased its shareholding to 50% and assumed management control.  The residual Government shares were sold in May 1995 to Zambians in the country's first initial public offering via the Lusaka Stock Exchange.  That said, it must be noted that this was a tiny offering of only $4.2 million Nevertheless, 3,909 people bought shares in that first IPO, a significant start. 

We knew that the stock exchange would have a slow start, and that was the case.  For all of 1994, there were only 977 trades (barely 20 a week), for a total value of $370,000.[9]  The Government and World Bank had told the consultants to assume that 25 parastals would be privatized via the stock exchange by 1999, but that never occurred.  Instead, activity rose and fell based on the state of the Zambian economy, global macro-economic conditions and specific corporate activities in Zambia.  By 1997 the annual value of share trades had risen more than twenty-fold to a still tiny $8.77 million[10], on the strength of modest economic growth and optimism over privatization.

Indeed, investor interest could have absorbed another $30 million of share sales[11], but the Minister of Finance and the Zambian Privatisation Trust Fund (“ZPTF”) failed to sell shares held by the ZPTF.  And, when the Government and Anglo-American failed to agree on the privatization of the copper mines, due to a reported difference of $30 million, the market and the economy suffered.  Four years later though,  volumes and investor interest had returned, largely due to completion of debt-relief negotiations, the privatization of ZCCM and the beginning of the overall turnaround in the economy.  Annual trade volumes rose to more than $48 million, but then quickly fell back.  Then, once copper prices began sustainably rising by 2003-4, and GDP growth began reaching 5% or above,[12] the market started rising for a sustained period.  In 2008, more than $168-million worth of shares traded on the exchange.  The $200 million Celtel IPO that year showed the progress: it was five times over-subscribed, there was domestic demand for the entire issue, and more than 5,800 Zambians became shareholders of the company.  Similar volumes were seen in both 2010 and 2011.

Since then, the volumes have shriveled again, in part due to the lack of new stock issues, the lack of free float in the existing issues, and the introduction of some government policies that shook investor confidence.  Ultimately, the policies that were a throwback to the failed “controlled economy” policies in the pre-1991 period were rescinded, but the damage was done; the market suffered and is only now beginning to recover.    

So, as we stand here this evening, we see that the Lusaka Stock Exchange has had a mixed history in its first two decades of existence.  On the one hand, it has enabled more than 50,000 people to own part of major Zambian businesses.  It also enabled Zambia to attract a small portion of the hundreds of billions of dollars invested in developing countries by global fund managers over the last couple of decades.  It enabled more than 35 listed and unlisted companies to raise more than $2.5 billion to expand their operations.  And, compared to some other major markets, it has been largely free of fraud and deception.  But, at the same time, it has yet to hit the 25 listings predicted to occur by 1999.  It has been very susceptible to large price and volume fluctuations, partly because it is such a tiny market.  Investor education has come a long way, but still has a long way to go.  We have seen how government policies can help or hurt the market and investment.  And, we still have very few publicly traded companies where a majority of the shares are widely held by investors. 

That brings me to the importance of this investor conference and its underlying theme of promoting Zambian businesses and Zambian entrepreneurship.  Historically, and largely through to the present, Zambia’s capital market and the LuSE have been significantly driven by multi-national companies and investors.  The parastatals that were sold during the privatization program in the 1990s were acquired by foreign multinationals.  For example, ZCCM’s assets were sold to foreign mining companies, Zambian Breweries was acquired by (at the time) South African Breweries, etc.  Even today, most of the publicly listed companies are majority-owned by foreign entities. 

Nonetheless, I firmly believe that the future development and growth of Zambia’s capital market and, indeed, the broader economy, should and will be driven by Zambian businesses and entrepreneurs.  Foreign direct investment in Zambia during 2013 approached $ 2.0 billion[13] and will exceed that level for this year.  This is a clear demonstration of the foreign investment community’s confidence in the future prospects for Zambia and its growing economy.  What Zambia must now do is encourage domestic investment, not by trying to legislate it through ownership restrictions and limitations, but through a macro-economic policy and enabling environment that make it attractive for local businesses to expand and thrive; and by providing tax and related incentives that encourage Zambian businesses to list on the Exchange.  Through the growing pension fund and insurance industries, the capital is available locally to support such listings; because the vast majority of these investors have investment portfolios that are considerably under-weighted in listed securities.  The large domestic demand for the Celtel IPO in 2008 shows what is possible. 

And so I hope government and business will work jointly, with the ZSEC, LuSE and the Zambia Development Agency (“ZDA”), as partners, to develop, and for government to implement, a set of forward-looking policies that will encourage and make it highly attractive for Zambian-owned businesses to come to the market.  The time is now to take bold steps that will demonstrate a strong commitment to support the growth of the economy through Zambian business development and expansion.

Notwithstanding some of the challenges, it is important to take a step back and recognize the progress Zambia has made in just over two decades.  If an investor could have purchased all the shares in the LuSE index when the index was created in 1997, their money would have increased 1,900% by now, while the same investment in the New York Stock Exchange Dow Jones index at that time would have only led to a 125% increase in their money.   With so much potential in tourism, agriculture, mining and other sectors still to be realized, good economic leadership, operations and policies in Zambia and in the securities market can lead to greater benefits in the formal sector. 

Today, the greatest challenge for Zambia’s economy is the lack of small-scale producers and low-income households in the formal financial sector.  Broadening access of these groups to financial institutions would both strengthen the country’s financial base and offer greater opportunities to escape from poverty.  One of the reasons I joined USAID in 2011 at the request of the White House is because development assistance agencies, such as SIDA and USAID, can help Zambia make that happen. 

How can we do this? 

Well, most of Zambia’s poverty is found in rural areas.  With limited to no access to financial markets and lack of collateral (due in part to the customary land tenure system), most rural households are trapped in subsistence-level production with little opportunity to grow in scale and produce for commercial markets.

USAID has supported a number of initiatives to increase the access of rural smallholders to banking facilities and market opportunities.  The credit guarantees USAID and SIDA provide are one example. 

USAID has also supported the establishment of the Zambia Agricultural Commodity Exchange (ZAMACE).  Unfortunately, ZAMACE has faced many constraints that prevented its effective implementation, but it is clear that such an exchange would have the potential to play a key role in establishing more efficient agricultural marketing, to the benefit of both producers and consumers.  The strong participation of banks and other financial institutions would be pivotal to encourage the volumes of trade needed for the commodity exchange to be effective.

As part of the U.S. Feed the Future Initiative, we have also invested $24 million in a 4-year project to help turn subsistence farmers into rural entrepreneurs.  Community-based centers connect farmers to markets by scaling-up trading volumes per transaction through crop aggregation.  This brings more smallholders into the formal commercial sector.  Producer groups are also trained in business management and financial literacy skills, to better enable them to utilize financial institutions.  In the past year, project participants increased their agricultural sales by over $12 million. 

In addition to development agencies, American businesses are also eager to continue to expand trade and investment in Zambia.  The American Chamber of Commerce has already grown to more than 100 members since its founding in 2011.  Major American corporations have already invested greatly in the Zambian market,  including:  AGCO, Cargill, Coca-Cola, Citibank, Deloitte, Ernst & Young, Federal Express, General Electric, IBM, KPMG, Monsanto, and PriceWaterhouse Coopers.

American companies bring to Zambia cutting-edge technology; substantial investment; respect for Zambian laws; a desire to hire, train and promote Zambians; and a fundamental respect for good governance.  American businesses are great partners for Zambia's future. 

And lastly, I would like to emphasize that all parts of the U.S. Government stand ready to help with Zambian commercial development.  In addition to our Trade Africa and Power Africa trade and investment initiatives, our U.S. Export-Import Bank and U.S. Overseas Private Investment Corporation (OPIC) are increasingly active in seeking opportunities to finance trade and investment in sub-Saharan Africa.

Both development practitioners and private businesses require consistent, full public information and stakeholder consultation regarding changes to Zambian economic policies, without which the country will be limited in its ability to foster a better environment for businesses and to attract international investors.  To encourage investors, policy decisions must be predictable and transparent, and allow stakeholders an opportunity to provide comments in advance.