Addressing the first ever meeting of the Committee of Ten African Finance Ministers and Central Bank Governors, in Cape Town, Finance Minister Trevor Manuel urged African collaboration to bring about equity and change in global economic affairs.
The global economic downturn has brought the collapse of commodity prices, huge currency volatility, the collapse of equity prices across all stock markets, the virtual inability of most firms to access trade finance and the dawn of a period when capital markets were effectively closed to all developing countries. We are witnessing how the rich world has speedily moved to re-flate its financial sectors with most G7 countries now in an environment of negative real interest rates. The UK, for example, has interest rates at the lowest level in the Bank of England’s 314-year history, while we remain trapped in poverty.
There are also daily additions to fiscal stimulus packages in the rich world, the US, for example, is running a fiscal deficit of ,2 trillion, while we remain paralysed because of our dependence on Bretton Woods Institutions for fiscal support. Bretton Woods Institutions are the World Bank Group and International Monetary Fund, founded by delegates of 44 nations in July 1944 in Bretton Woods, New Hampshire in the US. The aim of these institutions is to support the structure of the world’s economic and financial order.
Our concern is those countries have had their power enhanced by the economic growth model with its emphasis in financialisation of the past three decades. They have found the means to dig themselves out, while Africa remains trapped in a cycle of poverty. People find it strange Africa can’t have huge deficits in the same way as the wealthy countries, yet we need additional finance to provide even elementary services. We’re therefore calling for equity and change.
Impact of global downturn
There are some impacts of the global downturn we can measure in almost each of our economies. Many of our countries are witnessing significant outflows of capital as investors retreat to square their positions in their own domestic markets. Increasingly, African states are encountering significant fiscal pressure as our revenue sources dry up, as expenditure rises to meet elementary levels of service provision, and as we battle to retain expenditure levels in the face of significantly reduced GDP growth. Export markets developed with enormous sacrifice are suddenly closed to imports as a result of falling consumer demand and increased protectionism. There’s also a rise in aggressive marketing of products into our markets.
These imports often bypass customs systems through which we might collect some revenue respite. The absence of the conclusion of a development round accentuates this problem. There is intense liquidity pressure as our domestic banking sector battles to secure the finance to on-lend. Significant changes to financial regulation must be undertaken. Many countries witness the drying up of remittance flows, which have been a reliable source of finance offsetting the impact of the skills drain. The first wave of unemployment is also evident as many foreign direct investors scale back or shut down operations.
There has been a continuous decline in Official Development Assistance (ODA) flows to support, among other things, the delivery of the Millennium Development Goals, of which the over-arching goal is to end poverty by 2015. Already there is a cumulative shortfall of 0 billion on the Gleneagles commitments, wherewith the G8 countries pledged to scale up aid flow and devote half the increases to Africa. This resulted in a doubling of aid to the continent from 2004 to 2010.
The mainstay of recent development in sectors such as tourism is already in decline as numbers decrease. Also, we haven’t recovered from the severe impact of high food and fuel prices of the past 15 months. But this is not a reason to lament our misfortunes. Instead, we’ll take collective stock to understand the impact of these features. We are duty-bound to raise these matters. Each of our heads of state should be asked to evaluate specific impacts within their countries and advise the collective. We must know the detail, share these observations and plan to be heard.
We must amplify the call, neither for alms nor for charity, but to deliver to our citizens what they deserve. We must evaluate every aspect of what we do and each institution that takes decisions affecting our lives, and make the case for fairness and opportunity. This meeting is the beginning of such African collaboration. We offer no apologies for doing what we must. – Glenneis Erasmus
Contact the Ministry of Finance on (012) 323 8911. |fw
