Global Financial Crisis and East Africa - The Way Forward

1. Global Financial Crisis and East Africa - The Way Forward Harpreet DuggalCouncillor Confederation of Tanzania Industries East African Business Council’s Regional Conference on Global Financial Crisis4th March 2009 Arusha

2. 危机 Wēi + jī Crisis = Danger + Opportunity

3. Objectives: What are we looking for? • Ensure the Region is adequately prepared to weather the global financial crisis • Ensure the vulnerable sectors of the economy are not effected by the impact of the crisis • Ensure the Region is geared up to take advantage when the economy recovers

4. 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

5. SWOT Analysis for East African Economies

6. SWOT Analysis for East African Economies

7. What can the Government do? • Stimulate the economy for growth • Increase credit to private sector • Ensure self sufficiency in food • Attract FDIs (More important: Retain FDIs) • Facilitate South – South Trade • Special support to sectors hit by the global crisis

8. 1. Stimulate the Economy for Growth FISCALMEASURES • 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”

9. 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

10. 2. Increase Credit to Private Sector MONETARYMEASURES • 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

11. 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

12. 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

13. 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

14. 6. Special support to sectors hit by the global crisis • Tourism • Agriculture exports • Fish exports • Cut-flower exports • Gem exports

15. 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

16. 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

17. 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

18. 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!

19. 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

20. Conclusion: The Way Forward • Stimulate the economy for growth • Increase credit to private sector • Ensure self sufficiency in food • Attract FDIs (More important: Retain FDIs) • Promote value-addition of local resources • Special support to sectors hit by the global crisis

21. 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

22. Objectives: What are we looking for? • Ensure the Region is adequately prepared to weather the global financial crisis • Ensure the Region is geared up to take advantage when the economy recovers • Ensure the vulnerable sectors of the economy are not effected by the impact of the crisis

23. We can do it We must do it