Ambassador Speeches

Remarks by Ambassador Martinez at the "Hedging Risk" Workshop

Lusaka
March 29, 2006

I am very pleased to participate in the launch of today's workshop on "Hedging Risk." Earlier this month, I had the opportunity to visit farmers in the village of Masopo, just north of Choma. Along several kilometers of wet, and often treacherous roads, I saw fields of maize and other crops interspersed with the encroaching bush. I spoke with these farmers and their families, and was impressed by the tenacity, pride, and joy they exhibited when showing me their crop or livestock. I applaud their spirit.

As we bounced along the dirt road back toward Choma, I reflected on the lives of these farmers. They are, by necessity, risk takers. Risk is the dominant feature of their lives. They mitigate that risk with agricultural extension support, with fertilizer, and when possible, with irrigation. However, we all understand that agriculture is the riskiest of economic sectors. We also understand that we can only mitigate risk, not eliminate it entirely.

When Zambia embraced the market economy more than a decade ago, it recognized that the promise of profit co-existed with the potential of loss. This is the risk of the market place. In some cases risk may affect a farmer in Masopo, but it can also affect an entire industry. The question then becomes: how can we manage, or “hedge”, this risk, reducing it to an “acceptable” level?

Like the farmers in Masopo, we apply risk management strategies every day. We buy health insurance, life insurance, car insurance, home owners’ insurance--just in case we get sick, suffer damage from a fire or, as in my home state of Florida, a hurricane. Managing risk gives us piece of mind, and it removes some of the financial unpredictability in our lives. It frees our energy and resources for tackling real risks.

Entrepreneurs have long understood the importance of hedging risks. In the 16th century, Japanese rice traders developed forward sales contracts to protect themselves from adverse price fluctuations. This provided a level of predictability that both the seller and the buyer needed. Based on this principle of forward buying and selling, risk management instruments for minerals, metals, currencies, stock, and agricultural commodities developed over time and across the planet. Commodities such as copper, cotton, and maize are hedged daily on international markets.

With risk management tools in place, other positive possibilities arise. For example, a farmer who has "hedged" by securing a minimum price and thereby eliminated the risk of being wiped out by a price collapse suddenly becomes a potential client to a commercial bank. That banker understands that the farmer will obtain a certain minimum price for his crop, even if the market pays him less. That farmer, through hedging, has increased his attractiveness as a borrower. Risk management has now leveraged commercial financing, which will in turn create additional business opportunities.

The United States sees such hedging options as an essential tool in Zambia’s financial and commercial toolbox. Mitigating risk expands economic opportunity across diverse sectors, enhancing predictability and stability. Such factors are essential to spurring domestic and international investment. Broad-based expansion and development, improving the lives of all Zambians, is the result. Because we, too, want the people of Zambia to prosper, the United States is thrilled to be a partner in this event.

The presence of His Excellency, Minister Magande demonstrates the Zambian government’s appreciation for the importance of this event. Governor Fundanga, I commend your enthusiastic initiative to organize this workshop.

I would also like to highlight that today's gathering is quite symbolic. It is the first public event resulting from the cooperation created in the Private Sector Development Memorandum of Understanding. This workshop is an excellent example of Cooperating Partners sharing their expertise and resources to support Zambia’s development objectives.

Honorable Minister and Governor Fundanga, it is clear to me that you, and the government of Zambia, appreciate the courage it takes to jump into the waters of the marketplace. To the extent that we, the policy makers, can reduce the danger in those waters, we serve the Zambian people. From the farmer in Masopo to the canner in Lusaka, all are served.

I wish you a successful workshop. Thank you.