global financial crisis and east africa - the way forward
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Global Financial Crisis and East Africa - The Way Forward. Harpreet Duggal Councillor Confederation of Tanzania Industries. East African Business Council’s Regional Conference on Global Financial Crisis 4 th March 2009 Arusha. 危 机 W ēi + jī - PowerPoint PPT PresentationTRANSCRIPT
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
222.04.23 / DUG
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 EconomiesSTRENGTHS 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 EconomiesOPPORTUNITIES 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