World s Equity Market Share December 1950 vs. December 2006

World s Equity Market Share December 1950 vs. December 2006 Market Capitalization 1950 Market Capitalization 2006 Europe 26% Other 6% Other 23% U.S. 39% Japan 9% U.S. 59% Europe 26% Japan 9% Source: World Federation of Exchanges

World s Equity Market Share December 1988 vs. December 2006 Market Capitalization 1988 Market Capitalization 2006 Europe 26% Other 14% U.S. 29% Other 23% U.S. 39% Japan Source: World Federation of Exchanges Europe 26% Japan 9%

World Equity Market Performance Top 10 USD Adjusted Returns, 2006 Percent Change, Year Ago 200 180 160 140 120 100 80 60 40 20 0 Source: Bloomberg Venezuela Cyprus Botswana Morocco Russia Peru Vietnam China Yugoslavia Croatia

Robust Global Equity Markets Despite $70 Crude Oil Jan.2003 = 100 350 300 250 200 150 100 DJIA FTSE Nikkei Emerging Markets Crude Oil US$ per Barrel 80 70 60 50 40 30 20 50 2003 2004 2005 2006 10 Source: Bloomberg, Datastream

Increasing International Financial Convergence Sum of Foreign Assets and Liabilities as a Ratio to GDP Percent 140 120 100 80 60 Emerging Markets China India 40 20 0 1981 1986 1991 1996 2001 2006 2006 (e) Sources: Lane and Schmukler and Milken Institute staff estimates

Net Direct Investment Developing Countries, 1997-2006 US$ Billions 120 Africa Middle East 100 Developing Asia Western Hemisphere 80 60 40 20 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Source: World Economic Outlook

Sources of Funds into Emerging Markets Percent 100 80 1980-1984 1990-1994 2000-2004 60 40 20 0 Foreign Direct Investment Source: International Monetary Fund Equity Debt

Foreign Investment Inflow to Emerging Markets US$ Billions 800 700 600 500 400 Direct investment Portfolio investment Other investment 300 200 100 0-100 -200 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: International Monetary Fund

$100 Invested in These Asset Classes in 2000 Would Give You: $303 $230 $201 $190 $189 $179 $171 $102 Energy Gold Mid-Cap U.S. Stocks Emerging Markets Small-Cap U.S. Stocks Hedge Funds Commodities Large-Cap U.S. Stocks Source: Bloomberg

U.S. Stock Market Plummeted on February 27, 2007: A Market Correction Made in China Dow Jones Index 12,450 12,400 The Dow dropped 241 points in 3 minutes 12,350 12,300 12,250 12,200 12,150 12,100 12,050 11:00 11:15 11:30 11:45 12:00 12:15 12:30 12:45 13:00 Source: Bloomberg

Higher Degree of Integration Between NYSE and Shanghai Stock Exchange Index, Jan. 2006 = 100 120 115 110 105 100 95 Correlation = 0.8773 January 2006 March 2007 Dow Jones Industrial Average (L) Shanghai Stock Exchange (R) Composite 300 250 200 150 100 50 90 Source: Bloomberg 2006Q1 2006Q2 2006Q3 2006Q4 2007Q1 0

21 st Century Global Equity Market Convergence Correlation with Dow, 12-Month Rolling Returns 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Source: Bloomberg S&P 500 COMPOSITE NASDAQ COMPOSITE FTSE 100 EURONEXT 100 DAX 30 MSCI WORLD 95 96 97 98 99 00 01 02 03 04 05 06 07

Converging Yield to Maturity Percent 16 14 Emerging Markets Sovereign Plus Index 12 10 8 U.S. Government Index 6 4 2 1999 2000 2001 2002 2003 2004 2005 2006 Source: Merrill Lynch

Increasing Market Volatility Standard Deviation of Weekly Returns Percent 6 5 4 S&P 500 EURONEXT 100 NIKKEI 225 SHANGHAI COMPOSITE MSCI WORLD 3 2 1 0 Source: Datastream 2003 2004 2005 2006 2007YTD

Equity Issuance ICBC IPO Accounted for 8% of The 2006 World s Issuance 2000 US$ 92 Billions 2006 US$ 240 Billions Latin America 6% Middle East 2% Africa 0.1% Developed Latin America 5% Middle East 1% Africa 1% Countries 50% Developed Countries 51% Asia 38% Asia 32% Europe Source: International Monetary Fund Europe 10%

Bond Issuance Global Growth of Bond Financing Doubled Since 2000 Latin America 21% 2000 US$ 166 Billions Middle East 3% Africa 1% Developed Countries 50% Latin America 9% 2006 US$ 350 Billions Middle East 7% Africa 2% Developed Countries 50% Asia 16% Asia 14% Europe 11% Source: International Monetary Fund Europe 16%

Raising Price-to-Equity Ratios Equity Valuation: Price-to-Equity Ratio Ratio 28 26 24 World 22 20 18 16 14 12 10 Emerging Market EM Asia EM Europe & Middle East EM Latin America 2000 2001 2002 2003 2004 2005 2006 Source: International Monetary Fund, MSCI Indices

Raising Price-to-Book Ratios Equity Valuation: Price-to-Book Ratio Ratio 3.5 3.0 World 2.5 2.0 1.5 EM Latin America EM Asia Emerging Market 1.0 EM Europe & Middle East 2000 2001 2002 2003 2004 2005 2006 Source: International Monetary Fund, MSCI Indices

Raising Dividend Yield Ratio 4.0 3.5 3.0 2.5 2.0 1.5 World Emerging Market EM Latin America EM Asia EM Europe & Middle East 1.0 2000 2001 2002 2003 2004 2005 2006 Source: International Monetary Fund, MSCI Indices

Capital Access Index 2006 Gauging Entrepreneurial Access to Capital Max = 10 9.0 Hong Kong 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 40 Source: Milken Institute United Kingdom U.S. India China Brazil Russia

Capital Access Index, 2006 70,000 60,000 GDP per Capita, US$ 50,000 40,000 30,000 20,000 10,000 y = 6,821x - 21,731 R 2 = 0.6308 0-10,000 0 1 2 3 4 5 6 7 8 9 Sources: World Economic Outlook and Milken Institute Less access More access C it l A I d

Cost of Opacity, 2005 70 60 Opacity Index Premium/Discount 6.63% China 9.45% Nigeria 10% 8% Opacity Index 50 40 30 20-1.63% UK -0.48% HK 0.00% USA 5.76% India 6.00% Russia 6% 4% 2% 0% Premuim/Discount 10-2% 0-4% Source: Milken Institute, 2006

Adjusting to Maturity of Emerging Markets We expect the top tier of EM FX to behave pretty much like G10 currencies during the next global recession This group of EM currencies have as strong or stronger country fundamentals than some G10 countries; Liquidity premiums associated with EM currencies are also expected to be limited for select EM currencies True liquidity in the FX market is associated with 24-hour liquidity, in which case some EM currencies are as liquid as SEK or NOK Source: Mark Farrington, Principal Global Investors

Select EM FX Convergence on G10 Norms Emerging market (EM) countries have converged on a range of G10 fundamental norms such as: Inflation rates; Level of interest rates; Policy credibility; Debt and debt service levels; Depth and stability of banking sector and capital markets. Countries that stand out as having G10-like characteristics across all categories include: Chile, Czech Republic, Korea, Mexico, Poland and Taiwan Source: Mark Farrington, Principal Global Investors

Select EM Convergence on G10 Norms Source: Mark Farrington, Principal Global Investors

Most Liquid Currencies During N.A. Time zone Currency Euro Japanese yen British pound Canadian Dollar Swiss franc Australian Dollar Mexican peso Brazilian real US$ Millions 2,376,854 1,257,610 929,470 590,754 513,538 307,336 265,565 153,179 MXN, BRL & CLP all rank well above 2nd Tier G10 currencies MXN is above AUD & CHF for options BRL is above CHF for options * NY Fed Survey, October 2006 * Sums total volume for Spot, Forwards & Options Source: Mark Farrington, Principal Global Investors

EM FX Volumes Rising as a Percent of Total * Goldman Sachs Research North American EUR-USD turnover between 2005 to 2006 dropped from 36% to 31% of total, imply volume shifted to USD-EM Source: Mark Farrington, Principal Global Investors

2 nd Tier G10 Volumes Becoming Similar to Top Tier EM * Goldman Sachs Research SEK, NOK & NZD at 6% of turnover are basically in the same liquidity realm as KRW, MXN, PLN, TRY Source: Mark Farrington, Principal Global Investors

Emerging Markets Diversify Correlation rise is actually just due to a small number of huge global companies Biggest 50 stocks are half the market cap of the index; rest of index has lower correlation Gazprom (Russia) is the world s largest natural gas producer Samsung (Korea) is the world s largest DRAM producer Teva Pharmaceutical (Israel) is the world s largest generic drug manufacturer Source: Ronald Peyton, Callan Associates

Emerging Markets Growth and Reform 10% 8% 6% 4% 2% Emerging Developed Real GDP Growth 0% 1995 1997 1999 2001 2003 2005 2007E Emerging markets have grown faster than the developed world and are expected to continue to do so Reform has been progressing corporate governance, transparency, and privatization are all driving forces Source: IMF World Economic Outlook, 2007

Improving Corporate Fundamentals Debt/Equity Historical Debt/Equity: Emerging H Markets vs World 1.4 World 1.22 1.2 EMF 1.0 0.8 0.6 0.92 0.68 0.88 Debt/Equity Historical ROE: Emerging H Markets vs World 25.0 World EMF 20.54 20.0 18.15 18.52 15.0 12.24 10.0 0.4 0.2 5.0 0.0 1998 2006 0.0 1998 2006 The majority of emerging market companies have deceased leverage on the back of improving cash flow generation and lower interest rates Source: Ronald Peyton, Callan Associates

Active Risk Pays Off Excellent returns to active management over long time periods Source: Ronald Peyton, Callan Associates

Valuation Advantage 6 5 4 EAFE S&P 500 EMF 3 2 1 0 Sep-93 Sep-94 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 Sep-03 Sep-04 Sep-05 Sep-06 Valuations are compelling Lower research coverage creates pricing inefficiencies, perhaps more so than for developed markets Source: Ronald Peyton, Callan Associates

Overview An Evolving Asset Class o Wide range of structural reforms o Expanding Number of Markets o Impending Graduations Index versus Active in Emerging Markets o Being There It s What Matters Most o Challenges for Active Managers o Why Use Index Strategies? Source: Steven A. Schoenfeld, Northern Trust

A Maturing Asset Class Since the late 1990s, there have been substantial micro and macroeconomic advances Structural reforms in emerging markets have provided a more stable investing environment Foreign exchange-denominated debt reduction from 90% of GDP to 10% (EM aggregate) Improved fiscal balances to a slight deficit of 0.3% of GDP last year for all emerging markets Greater transparency at both the government and corporate level as emerging market countries move to US GAAP or European IAC standards Big improvements in Big Emerging Markets Reduced systemic risk Sovereign ratings upgrades, e.g: Brazil, China, India Minimized contagion effect Diversification benefit of Emerging Markets remain, despite higher correlations with developed markets Source: Steven A. Schoenfeld, Northern Trust

Emerging Market Correlation with Developed Markets 100% 3 Year Rolling correlations 90% 80% 70% 60% 50% EM vs S&P 500 EM vs EAFE 40% EM vs R2000 S&P vs R2000 30% Jun- 96 Jun- 97 Jun- 98 Jun- 99 Jun- 00 Jun- 01 Jun- 02 Jun- 03 Jun- 04 Jun- 05 Jun- 06 Source: NTGI, Factset, June 2006

Relative P/E Emerging Markets P/E Relative to Developed World P/E 1.1 1.0 MSCI EMF +12m PER / MSCI World +12m PER 0.9 0.8 0.7 0.6 0.5 0.4 Jan- 95 Jan- 96 Jan- 97 Source: Credit Suisse, MSCI, June 2006 Jan- 98 Jan- 99 Jan- 00 Jan- 01 Jan- 02 Jan- 03 Jan- 04 Jan- 05 Jan- 06

A Maturing Asset Class but Diversification Benefit Remains 12% Historical Global Equilibrium Efficient Frontier: 12/29/2000 vs. 12/30/2005 Equilibrium Expected Return 10% 8% 6% 4% 2% 0% RF = 10-yr US Treasury 2000 2005 LB Global Aggregate MSCI Emerging Markets Russell 2000 MSCI World ex-us S&P 500 0% 5% 10% 15% 20% 25% 30% Source: NTGI, June 2006

Why Emerging Markets? Long-Term Performance The Emerging Markets index (MSCI) has greatly outperformed: Developed International markets (as measured by MSCI EAFE Index) US equities (as measured by the S&P 500) From December 2001 to December 2006, Emerging Markets rose by 225% S&P 500 rose 35% EAFE rose 101% 1500% 1200% 900% S&P 500 MSCI EAFE MSCI Emerging Markets Monthly Cumulative Returns 600% 300% 0% Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Source: NTGI, MSCI, Standard & Poor s, January 2007 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Dynamic Country Weights within EM Benchmark MSCI Emerging Markets Index - 1994 Country Malaysia Brazil Thailand Mexico India Chile Indonesia Argentina Korea Philippines Turkey Portugal Greece Colombia Pakistan Peru Venezuela Jordan Sri Lanka Weight (%) 18.42 16.71 12.38 11.22 9.13 6.66 4.89 4.14 3.98 3.86 1.51 1.47 1.36 1.35 1.13 0.90 0.47 0.21 0.20 Source: NTGI, February 28, 2007 MSCI Emerging Markets Index - 1999 Country Weight (%) Korea 13.90 Mexico 11.62 Taiwan 10.99 South Africa 10.78 Brazil 9.94 India 8.41 Greece 6.47 Israel 4.13 Turkey 4.05 Chile 3.51 Thailand 3.02 Russia 2.46 Argentina 2.08 Indonesia 1.74 Poland 1.26 Philippines 1.24 Hungary 1.21 Peru 0.67 Czech Republic 0.64 Venezuela 0.58 China 0.44 Colombia 0.35 Pakistan 0.35 Jordan 0.12 Sri Lanka 0.05 MSCI Emerging Markets Index - 2004 Country Weight (%) Korea 17.70 Taiwan 13.98 South Africa 12.38 Brazil 9.58 China 7.72 Mexico 6.44 India 5.70 Malaysia 3.93 Israel 3.66 Russia 3.56 Thailand 2.48 Poland 1.96 Chile 1.94 Indonesia 1.86 Turkey 1.82 Hungary 1.58 Czech Republic 0.83 Argentina 0.54 Philippines 0.48 Peru 0.45 Egypt 0.44 Morocco 0.32 Jordan 0.18 Colombia 0.17 Pakistan 0.16 Venezuela 0.15 MSCI Emerging Markets Index - Present Country Weight (%) Korea 15.57 Taiwan 12.61 China 11.46 Brazil 10.47 Russia 10.02 South Africa 8.56 India 6.22 Mexico 6.17 Malaysia 2.95 Israel 2.49 Poland 1.68 Chile 1.61 Turkey 1.60 Thailand 1.56 Indonesia 1.53 Hungary 0.99 Egypt 0.87 Argentina 0.79 Czech Republic 0.78 Peru 0.56 Philippines 0.53 Colombia 0.30 Morocco 0.28 Pakistan 0.24 Jordan 0.17

Impending Emerging Markets Graduation Pro-Forma outlook incorporating the potential graduation of Advanced Emerging Markets (by 2009?) MSCI Emerging Markets Index - Present Country Market Cap Weight (%) # Co's Emerging Markets 2,359,568.9 100% 853 Korea 367,501.3 15.57% 93 Taiwan 297,476.8 12.61% 103 China 270,327.8 11.46% 85 Brazil 247,034.7 10.47% 54 Russia 236,450.5 10.02% 23 South Africa 202,017.7 8.56% 50 India 146,712.2 6.22% 69 Mexico 145,476.1 6.17% 25 Malaysia -EM 69,724.0 2.95% 59 Israel 58,779.6 2.49% 33 Poland 39,688.5 1.68% 22 Chile 37,871.6 1.61% 27 Turkey 37,704.0 1.60% 33 Thailand 36,837.6 1.56% 42 Indonesia 36,161.1 1.53% 24 Hungary 23,359.0 0.99% 4 Egypt 20,541.2 0.87% 21 Argentina 18,536.5 0.79% 12 Czech Republic 18,297.5 0.78% 7 Peru 13,121.1 0.56% 5 Philippines 12,619.1 0.53% 16 Colombia 7,002.8 0.30% 6 Morocco 6,639.9 0.28% 11 Pakistan 5,689.7 0.24% 15 Jordan 3,998.7 0.17% 14 Source: NTGI, February 28, 2007 Pro-Forma MSCI Emerging Markets Index Country Market Cap Weight (%) # Co's Emerging Markets 1,635,811.3 100.00% 624 China 270,327.8 16.53% 85 Brazil 247,034.7 15.10% 54 Russia 236,450.5 14.45% 23 South Africa 202,017.7 12.35% 50 India 146,712.2 8.97% 69 Mexico 145,476.1 8.89% 25 Malaysia -EM 69,724.0 4.26% 59 Poland 39,688.5 2.43% 22 Chile 37,871.6 2.32% 27 Turkey 37,704.0 2.30% 33 Thailand 36,837.6 2.25% 42 Indonesia 36,161.1 2.21% 24 Hungary 23,359.0 1.43% 4 Egypt 20,541.2 1.26% 21 Argentina 18,536.5 1.13% 12 Czech Republic 18,297.5 1.12% 7 Peru 13,121.1 0.80% 5 Philippines 12,619.1 0.77% 16 Colombia 7,002.8 0.43% 6 Morocco 6,639.9 0.41% 11 Pakistan 5,689.7 0.35% 15 Jordan 3,998.7 0.24% 14

2. Index versus Active in Emerging Markets

Why Use Index Funds in Less Efficient Asset Classes? Being There Ensure allocation consistent with strategic policy Being There - Efficient way to achieve asset and style diversification Allocation explains 95.6% of variability (Brinson, Beebower & Hood, 1995) Including style, allocation explains 95% of variability (Sharpe, 1988) Cost effective (at least 1% cheaper than active emerging markets strategies) Commissions Bid/ask spreads Management fees Custody costs Securities lending Difficult to consistently select outperforming managers Arithmetic of Active Management (Sharpe, 1991) Survivorship bias Managing change in dynamic asset classes Within Emerging Market Universe Within International Equity asset class Source: Steven A. Schoenfeld, Northern Trust

Risk Return Characteristics The benefit of EM Equity Beta 25% Risk Return Characterisitics Five Years ending 06/30/06 Median EM Active Manager Annualized Return 20% 15% 10% 5% S&P 500 MSCI EAFE MSCI EM Russell 2000 0% Source: NTGI, Callan Associates 15% 17% 19% 21% 23% 25% 27% 29% Annualized Risk

Challenges for Active Emerging Market Managers Transaction costs and high turnover are deadweight costs for active managers to overcome Commissions Bid-ask spread Market impact Benchmark methodology improvement Fewer outlier opportunities outside the benchmark as indexes have evolved to reflect changes in asset class Growth of assets under management Propensity toward more benchmark sensitivity Capacity Constraints Managers protect existing performance by closing funds to additional investors Increasingly difficult and costly to invest new funds without market impact Improved data/information quality Information advantage has eroded Source: Steven A. Schoenfeld, Northern Trust

Active vs. Passive Management Expenses Active management fees are generally 2-4x higher than passive fees T-Costs Commission Bid/Offer Taxes Market impact Active Manager Turnover 3x passive Source: Steven A. Schoenfeld, Northern Trust

Higher Dispersion of Returns = Diminished Alpha Opportunity Dispersion of returns much higher than domestic equities and developed international large cap Survivorship bias Landscape and drivers of performance have changed significantly in the last ten years Many new managers in asset class, as well as global and developedinternational dabblers Precision with manager performance universes is warranted Institutional universes are Gross Returns (before fees) Mutual fund universes are Net Returns (after fees) Relevance of averages and median ranking versus asset-weighted universes Source: Steven A. Schoenfeld, Northern Trust

High Dispersion of Returns = More Active Risk within A Risky Asset Class 40.0 Returns for Periods Ended September 30, 2006 Group: CAI Emerging Markets Equity DB Returns for Periods Ended September 30, 2006 30.0 A (75) A (76) 20.0 A (67) 10.0 A (90) A (96) 0.0 Last Year Last 3 Years Last 5 Years Last 7 Years Last 10 Years 10th Percentile 28.10 35.68 33.93 19.18 13.20 25th Percentile 24.55 34.46 32.49 18.03 12.33 Median 22.35 33.08 31.07 16.72 10.78 75th Percentile 20.07 31.07 29.14 15.59 9.81 90th Percentile 18.44 29.34 27.81 13.20 9.00 Member Count 96 79 77 71 60 MSCI Emer Markets A 20.82 31.04 28.85 13.22 7.58 Source: Callan Associates, September 30, 2006

How is the Aggregate of Active EM Assets Performing? Average Emerging Market Performance (Asset Weighted) vs. Indexes 40 35 30 25 20 15 10 5 0 S&P/IFCI Composite MSCI EM Emerging Markets Active Managers 4Q 2006 1 Year 3 Year 5 Year S&P/IFCI Composite 17.72 35.11 32.77 28.71 MSCI EM 17.64 32.58 30.52 26.59 Emerging Markets Active Managers 16.8 30.75 30.19 27.37 Source: S&P Index Versus Active, MSCI; December 31, 2006

What Matters Most? Factors to consider when incorporating Emerging Markets into a global portfolio Efficient Beta How do you achieve it? Index vs. Active in Emerging Markets Is there a role for both? Do the management fees for active management erode the beta and alpha? Are you paying too much for beta exposure? Does the limited capacity of top managers diminish the value of historical peer universes? The importance of being there Allocation Source: Steven A. Schoenfeld, Northern Trust

Indexing Can Complement Other Emerging Market Strategies The overriding importance of being there EM Hedge Fund Regional Strategies Traditional active stock selection Long/short or market neutral Style Tilt (e.g.- Deep Value ) Core Emerging Market Index Strategy Private Equity Structured/ country selection Source: Steven A. Schoenfeld, Northern Trust

Topics for Discussion Emerging Markets remain a compelling asset class. Core exposure is warranted The index vs. active debate should be over even in emerging markets. Index-based exposure is efficient exposure Sophisticated investors can use a blend of index and higher-risk active strategies to custom tailor their risk exposure. Emerging Markets are evolving and will look very different in 2010. Use of a core broader and deeper international/global benchmark might solve both capacity and asset class evolution issues. Source: Steven A. Schoenfeld, Northern Trust

Real GDP Growth Africa recorded positive economic growth in the last five years with the highest growth of 5.7% recorded in 2004. In 2006, economic growth moderated from 5.6 percent to 4.8 percent. The impact of persistently high petroleum prices has been mitigated in many countries by rising export prices of non fuel commodities ( see Table 1 and Chart 1) The Zambian economy grew faster than other countries in Sub- Sahara Africa in 2006 Source: Dr. Caleb Fundanga, Bank of Zambia

Table 1: Real GDP Growth Year 2002 2003 2004 2005 2006 Africa 3.5 4 5.7 5.6 4.8 Zambia 3.3 5.1 5.4 5.1 5.9 Source: Dr. Caleb Fundanga, Bank of Zambia

Chart 1: Real GDP growth and Investment 2002-06 Real GDP Growth (%) 6.0 5.5 5.0 4.5 4.0 3.5 Investment Real GDP growth 20.0 19.5 19.0 18.5 18.0 17.5 17.0 16.5 16.0 15.5 Total Investment (% of GDP) 3.0 2002 2003 2004 2005 2006 15.0 Source: Dr. Caleb Fundanga, Bank of Zambia

Inflation Inflation in sub-saharan Africa, dropped from 12.5 percent in 2002 to 12.0 percent in 2006. In 2005, inflation increased to 10.8 percent from 9.6 percent in 2004 due to food scarcity and higher petroleum prices. Inflation in oil exporting countries has been above the SSA average reflecting the difficulties some of these countries, especially Angola and Nigeria, have had in sterilising inflows of oil revenues. Source: Dr. Caleb Fundanga, Bank of Zambia

Inflation The inflationary impact of high oil prices has been subdued by prudent macroeconomic policy. Over the last 10 years, SSA countries have substantially reduced dependence on bank financing with the overall fiscal balance improving from a deficit of 4.0 percent of GDP in the 1990s to a surplus of 1.0 percent of GDP in 2006. In 2006, Zambia recorded lower inflation than other countries in Sub Sahara Africa. Source: Dr. Caleb Fundanga, Bank of Zambia

Table 2: Inflation 2002 2003 2004 2005 2006 Africa 12.5 13.8 9.6 10.8 12.0 Zambia 26.7 17.2 17.5 15.9 8.2 Source: Dr. Caleb Fundanga, Bank of Zambia

Exports and Imports of Goods and Services SSA has continued to benefit from a favourable external environment as a result of increased Import demand from advanced economies. With the continued rise in oils and other commodity prices, exporters of both oil and non-fuel commodities experienced an improvement in the terms of trade (see Table 3). In Zambia, the terms of trade improved even more due to high copper prices. Exports and imports of goods and services as a fraction of GDP increased from 32.4 percent and 32.8 percent respectively in 2002 to 41.3 percent and 36.9 percent respectively in 2006 (see Table 4) Source: Dr. Caleb Fundanga, Bank of Zambia

Table 3:Terms of Trade Percentage Change Year 2002 2003 2004 2005 2006 Overall 0.5 1.2 2.6 7.8 10.8 Oil Exporters 4.5 1.5 8.5 27.8 23.2 Oil Importers -0.9 1.1 0.3-2.1 1.7 Zambia -7.1 4.4 21.4 8.3 51.6 Source: Dr. Caleb Fundanga, Bank of Zambia

Table 4: Exports of Goods and Services as a Percentage of GDP Year 2002 2003 2004 2005 2006 Exports 32.4 33.7 36.0 38.9 41.3 Imports 32.8 33.5 34.8 35.6 36.9 Source: Dr. Caleb Fundanga, Bank of Zambia

Current Account and Reserves As a result of the improved external sector environment, the current account balance improved from a deficit of 3.4 percent of GDP in 2002 to a surplus of 0.8 percent of GDP in 2006 External reserves improved from 4.4 months of imports in 2002 to 7.1 months of imports in 2006 ( see Table 5). Zambia s reserves position has improved with the improvement in the external sector. Source: Dr. Caleb Fundanga, Bank of Zambia

Table 5: Current Account (%of GDP) and Reserves in Months of Imports Year 2002 2003 2004 2005 2006 Current Account -3.4-2.7-2.0 0 0.8 (% of GDP) Reserves 4.4 4.0 4.9 5.6 7.1 (Africa, in months of imports) Reserves 2.2 1.3 1.2 1.6 2.2 (Zambia, in months of imports) Source: Dr. Caleb Fundanga, Bank of Zambia