Global Financial Crisis and East Africa - The Way Forward

East African Business Council’s Regional Conference on Global Financial Crisis4th March 2009

Arusha

Harpreet DuggalCouncillor

Confederation of Tanzania Industries

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危机Wēi + jī

Crisis = Danger + Opportunity

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Objectives: What are we looking for?

1. Ensure the Region is adequately prepared to weather the global financial crisis

2. Ensure the vulnerable sectors of the economy are not effected by the impact of the crisis

3. Ensure the Region is geared up to take advantage when the economy recovers

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Presentation Structure

Objective

SWOT Analysis

The Way Forward What can the Government do? What can the Central Bank do? What can the Private Sector do? What can the International Community do? What can the World Bank / IMF do?

The Next Steps

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SWOT Analysis for East African Economies

STRENGTHS WEAKNESSES Fewer financial linkages to West Banks sound balance sheet Good growth in last few years Sound macroeconomic

fundamentals Comfortable levels of forex

reserves Low levels of public debt Inflation moving south Real estate prices remain high Deficit spending quite small Have more time to react

High exposure to exports High sensitivity to commodity

prices Ability to withstand prolonged

crisis More exposed if economy falters Impact on the vulnerable sectors Response capacity limited

Time to respond Weak institutions

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SWOT Analysis for East African Economies

OPPORTUNITIES THREATS Reassess the economic doctrine Move away from aid dependence

More FDIs Increased trade More South-South

collaboration Enhanced access to credit Incentives for savings Expansion of capital markets

Low oil prices, high gold price Domestic – regional markets Value added exports

The crisis prolongs Lose out on the recent

macroeconomic gains Recession moves in Job losses Rising social tensions Unwise choices of regulation Reversing the reforms Erosion of competitiveness Spectre of contraction

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What can the Government do?

1. Stimulate the economy for growth

2. Increase credit to private sector

3. Ensure self sufficiency in food

4. Attract FDIs (More important: Retain FDIs)

5. Facilitate South – South Trade

6. Special support to sectors hit by the global crisis

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1. Stimulate the Economy for Growth

Increase infrastructure spending Power , ports, rail, road, water

Create jobs Increase public works spending Incentives for employing more – remove disincentives

Cut tax rates

Subsidies for fertilizers, irrigation and modernization

Special “Crisis” tax rebates for the effected sectors

Incentives for local value addition

Protect local business - Promote “Buy East African”

FISCAL

MEASURES

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But where will the Government get the money to stimulate the economy?

Increasing internal taxes not a option – it would further slow down the economy and push us to the brink

Maintain pressure on Donors for budgetary support

Reduce the size of Government – reduce recurrent expenditure

Widen tax base, improve tax admin

Cut tax exemptions - Control tax evasion

Temporarily increase EAC Common External Tariffs on products prone to dumping

Access internal borrowings through a domestic bond

Increase fiscal deficit

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2. Increase Credit to Private Sector

Ease monetary policy

Reduce key lending rate and treasury bill rates

Assist banks / FIs to offer cheaper financing

Reduce statutory Government deposit for banks Increase credit to private sector

Ease SMR (Statutory Minimum Reserve) requirement

Incentives for banks to lend more to priority sectors infrastructure agriculture & SMEs

Maintain day to day surveillance of banks balance sheet

Strengthen capacity of Government institutions and crisis management ability

MONETARY

MEASURES

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3. Ensure Self Sufficiency in Food

Subsidies for fertilizers, irrigation and modernization

Assist banks to lend to agriculture

Remove nuisance taxes

Remove VAT on agricultural products, duty on fuel, abolishing of corporate tax on agricultural production

Streamline local government

Improve of infrastructure like roads, railways, electricity

Develop agro-based clusters

Incentives for investment in large scale farming

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4. Attract FDIs / Retain FDIs

Reduce cost of doing business

Improve performance of the public utilities

Maintain policy predictability

Reform labour laws

Ensure Contract enforcement

Simplify bureaucratic procedures

Remove corruption

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5. Facilitate South-South Trade

Remove non tariff barriers on intra regional trade

EAC member states to enhance economic cooperation, harmonize taxes and macro economic policies

Speed up EAC - SADC – COMESA free trade area

Instead of focusing on AGOA and EU-EPA, look at partnerships with emerging markets

Introduce credit lines for trade with emerging markets

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6. Special support to sectors hit by the global crisis

Tourism

Agriculture exports

Fish exports

Cut-flower exports

Gem exports

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Tourism

Reduce visa fees, park entry fees, concession fees

Reduce aircraft landing charges

Special ‘Crisis’ tax rebate on tour operators

Reduce cost of doing business

Improve infrastructure

Incentives to promote domestic and regional tourism

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What can the Private Sector do?

Reduce costs

Improve productivity

Pass on drop in raw material / fuel prices to consumers

Look at new markets

Be innovative – think out of the box

Be ready with Plan B

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What can the Central banks do?

Promote inter bank liquidity

Vigilant financial supervision of banks

Reduce Banks reliance on foreign capital (specially short-term)

Step in to guarantee debt – underwrite long-term investment lending

Recapitalize stressed but healthy banks

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What can the International Community do?

Do not cut aid!

Heed and solicit views of African countries when conferring on the issue of how to address the global financial crisis

Reduce subsidies in developed countries

Facilitate trade financing

Take steps to improve effectiveness of aid delivered

More spending on action rather than seminars!

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What can World Bank and IMF do?

Comprehensive reforms to adequately reflect changing realities

Increase allocation / voting rights for Africa and developing countries

Identify need of client economies in wake of the crisis

Review bank’s programmes and projects in the region

Takeover privately funded infrastructure projects facing financial distress

Create emergency liquidity facilities

Reduce red tape – speed up loan processing time

Greater scrutiny of MNC banks / FIs

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Conclusion: The Way Forward

1. Stimulate the economy for growth

2. Increase credit to private sector

3. Ensure self sufficiency in food

4. Attract FDIs (More important: Retain FDIs)

5. Promote value-addition of local resources

6. Special support to sectors hit by the global crisis

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The Next Steps

Form a Economic Crisis Management Committee responsible for monitoring the Crisis and recommending corrective actions. It would consist of: Central Bank Governor Permanent Secretaries from the relevant ministries Chairpersons of private sector associations – Industry, agriculture, banking, mining, tourism etc

Private Sector associations to spur debate within its members and submit proposals to the Committee.

Agreed decisions to be forwarded to the cabinet for implementation

For regional interventions, the existing EAC structure consisting of High level task force, PS, Council of Ministers and the Summit can be used

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Objectives: What are we looking for?

1. Ensure the Region is adequately prepared to weather the global financial crisis

2. Ensure the Region is geared up to take advantage when the economy recovers

3. Ensure the vulnerable sectors of the economy are not effected by the impact of the crisis

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We can do it

We must do it