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I can’t quite make up my mind on the following multilateral institution statement. Is this a ‘call to action’ or a ‘call of desparation’? Clearly no amount of money and consultants will make this happen. Me thinks its more to do with the ‘National’ versus ‘Regional’ dilemma, and, the political will of sovereign governments to engage or trust the globalisation agenda. And…… time is running out!
These multilateral institutions issued the following joint statement today at the Annual meetings of the World Bank and IMF: African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, European Investment Bank, Inter, American Development Bank, International Monetary Fund, and World Bank Group
“The Ninth WTO Ministerial Conference in Bali, Indonesia on 3-6 December 2013 offers an opportunity to conclude a WTO Trade Facilitation Agreement that will deliver tangible economic benefits for developing and least-developed countries. We urge WTO Members to seize this opportunity.
“At our meetings here in Washington we had the opportunity to discuss preparations for the Bali Ministerial meeting. We are encouraged by the renewed engagement by WTO members on trade facilitation and other issues of interest to developing countries, including least-developed countries.
“We would like to reiterate our strong collective commitment to support trade facilitation. A growing body of research points to the positive development impact of trade facilitation. Tackling inefficiency in clearing goods and shortening delays can reduce the cost of getting goods to market with positive effects on competitiveness and consumer welfare.
“Our institutions are engaged in a broad range of trade-related infrastructure projects. Since 2008, we have disbursed USD 22 billion in concessional support for economic infrastructure and building productive capacity in developing countries. With strong evidence that trade facilitation reforms help maximize the economic impact of our trade-related infrastructure assistance, our support to trade facilitation programs has more than doubled since 2008.
“A WTO Trade Facilitation Agreement would add significant momentum to efforts to increase developing country competitiveness, and provide a multilateral framework to shape and guide trade facilitation efforts taking place at the regional and national level. In July 2013, together with more than 20 other organizations and governments, we stated our strong commitment to support developing countries, and in particular least-developed countries, in the full and effective implementation of a WTO Trade Facilitation Agreement.
“We recognize that concerns persist in the negotiations about access to and coherence of assistance. We will work with the WTO and its members to help ensure that the new commitments that a trade facilitation agreement would bring are supported. We will also work to ensure that our support for the implementation of commitments is coordinated with our support for complementary infrastructure development.
“To implement a WTO Trade Facilitation Agreement, we recognize we will need to discuss further how to ensure a coordinated and effective response to requests for support from developing countries, and in particular least-developed countries.” Source: International Monetary Fund
A not-so-sobering look into the immediate future of emerging market darlings who have lost their lustre as investors ponder life without US quantitative easing. Even more worrying considering the possible impact for IBSA countries.
India, 1991. Thailand and east Asia, 1997. Russia, 1998. Lehman Brothers, 2008. The eurozone from 2009. And now, perhaps, India and the emerging markets all over again.
Each financial crisis manifests itself in new places and different forms. Back in 2010, José Sócrates, who was struggling as Portugal’s prime minister to avert a humiliating international bailout, ruefully explained how he had just learned to use his mobile telephone for instant updates on European sovereign bond yields. It did him no good. Six months later he was gone and Portugal was asking for help from the International Monetary Fund.
This year it is the turn of Indian ministers and central bankers to stare glumly at the screens of their BlackBerrys and iPhones, although their preoccupation is the rate of the rupee against the dollar.
India’s currency plumbed successive record lows this week as investors decided en masse to withdraw money from emerging markets, especially those such as India with high current account deficits that are dependent on those same investors for funds. Black humour pervaded Twitter in India as the rupee passed the milestone of Rs65 to the dollar: “The rupee at 65 – time to retire”.
The trigger for market mayhem in Mumbai, Bangkok and Jakarta was the realisation that the Federal Reserve might – really, truly – soon begin to “taper” its generous, post-Lehman quantitative easing programme of bond-buying. That implies a stronger US economy, rising US interest rates and a preference among investors for US assets over high-risk emerging markets in Asia or Latin America.
The fuse igniting each financial explosion is inevitably different from the one before. Yet the underlying problems over the years are strikingly similar.
So are the three principal phases – including the hubris and the nemesis – of the economic tragedies they endure. No one who has examined the history of the nations that fell victim to previous financial crises should be shocked by the way the markets are treating India or Brazil today.
First comes complacency, usually generated by years of high economic growth and the feeling that the country’s success must be the result of the values, foresight and deft policy making of those in power and the increasing sophistication of those they govern. Sceptics who warn of impending doom are dismissed as “Cassandras” by those who forget not only their own fragilities but also the whole point about the Trojan prophetess: it was not that she was wrong about the future, it was that she was fated never to be believed.
So high was confidence only a few months ago in India – as in Thailand in the early 1990s – that economists predicted that the local currency would rise, not fall, against the dollar.
Indian gross domestic product growth had topped 10 per cent a year in 2010, and the overcrowded nation of 1.3bn was deemed to be profiting from a “demographic dividend” of tens of millions of young men and women entering the workforce. The Indian elephant was destined to overtake the Chinese dragon in terms of GDP growth as well as population size.
Deeply ingrained in the Indian system, says Pratap Bhanu Mehta, head of the Centre for Policy Research in New Delhi, was an “intellectual belief that there was some kind of force of nature propelling us to 9 per cent growth … almost of a sense of entitlement that led us to misread history”.
In the same way, the heady success of the southeast Asian tigers in the early 1990s had been attributed to “Asian values”, a delusional and now discredited school of thought that exempted its believers from the normal rules of economics and history because of their superior work ethic and collective spirit of endeavour.
The truth is more banal: the real cause of the expansion that precedes the typical financial crisis is usually a flood of cheap (or relatively cheap) credit, often from abroad.
Thai companies in the 1990s borrowed dollars short-term at low rates of interest and made long-term investments in property, industry and infrastructure at home, where they expected high returns in Thai baht, a currency that had long been held steady against the dollar.
The same happened in Spain and Portugal in the 2000s, although the low-interest loans that fuelled the unsustainable property boom were mostly north-to-south transfers within the eurozone and therefore in the same currency as the expected returns. Indeed, the euro was labelled “a deadly painkiller” because the use of a common currency hid the dangerous financial imbalances emerging in southern Europe and Ireland.
Phase Two of a financial crisis is the downfall itself. It is the moment when everyone realises the emperor is naked; to put it another way, the tide of easy money recedes for some reason, and suddenly the current account deficits, the poverty of investment returns and the fragility of indebted corporations and the banks that lent to them are exposed to view.
That is what has started happening over the past two weeks as investors take stock of the Fed’s likely “tapering”. And the fate of India – the rupee is one of the “Fragile Five”, according to Morgan Stanley, with the others being the currencies of Brazil, Indonesia, South Africa and Turkey – is particularly instructive. (Emphasis mine).
It is not that all of India’s economic fundamentals are bad. As Palaniappan Chidambaram, finance minister, said on Thursday, the public debt burden has actually fallen in the past six years to less than 70 per cent of GDP – but then the same was true of Spain as it entered its own grave economic crisis in 2009.
Like Spain, India has tolerated slack lending practices by quasi-official banks to finance the huge property and infrastructure projects of tycoons who may struggle to repay their loans.
Ominously, bad and restructured loans have more than doubled at Indian state banks in the past four years, reaching an alarming 11.7 per cent of total assets. According to Credit Suisse, combined gross debts at 10 of India’s biggest industrial conglomerates have risen 15 per cent in the past year to reach $102bn.
For those who take the long view, a more serious failing is that India has manifestly missed the kind of economic opportunity that comes along only once in an age.
Instead of welcoming investment with open arms and replacing China as the principal source of the world’s manufactured goods, India under Sonia Gandhi and the Congress party, long suspicious of business, has opted to enlarge the world’s biggest welfare state, subsidising everything from rice, fertiliser and cooking gas to housing and rural employment.
Former fans of her prime minister, Manmohan Singh – who as finance minister liberalised the economy, ended the corrupt “licence Raj” and extracted India from a severe balance of payments crisis with the help of an IMF loan – could only shake their heads when he boasted last week that no fewer than 810m Indians would be entitled to subsidised food under a new Food Security Bill.
The bill is a transparent attempt by Congress to improve its popularity ahead of the next general election, but the government’s critics are horrified at the idea of offering Indians more handouts rather than creating the conditions that would give them jobs and allow them to buy their own. The resulting strain on the budget may also worsen the risk of “stagflation”, a toxic mixture of economic stagnation and high inflation.
India’s annual growth rate has already halved in three years to about 5 per cent and could fall further towards the 3 per cent “Hindu rate of growth” for which the country was mocked in the 1980s.
If currency declines and balance-of-payments difficulties develop into a full-blown financial crisis in the coming months, India will be propelled unwillingly into the third and final phase of the trauma.
Phase Three is when ministers and central bank governors survey the wreckage of a once-vibrant economy and try to work out how to rebuild it.
It is traditional for those governments that survive, and for the ones replacing those that do not, to announce several false dawns and to see “green shoots” that turn out to be illusory.
It is hard when times are bad to impose financial discipline that would have been easier to apply before. Indian policy makers are already torn between the need to lower interest rates to boost growth and the necessity of raising them to protect the rupee and tackle inflation – the same kind of tension between austerity and easy money that has afflicted developed economies since 2008.
India’s underlying economy is nevertheless sound and its banks are safe, say Mr Chidambaram and other senior officials. There is therefore no need to contemplate asking for help from the IMF or anyone else.
Mr Sócrates said much the same in Lisbon three years ago. “Portugal doesn’t need any help,” he said, almost leaping from his chair. “We only need the understanding of the markets.” The markets did not understand, and Portugal did need the help.
Source – Victor Mallet of the Financial Times August 23, 2013
To reap the benefits of its recent membership of BRICS, South African businesses are looking at gaining a competitive edge through achieving global-standard supply chain performance, reports Supply Chain Junction, Manhattan Associates’ Geo Partner in South Africa. Unlike many other countries, South Africa was cushioned from the full impact of the world financial crisis thanks to the strict pre-existing credit controls it had in place. There were some knock on affects from close trading economies but over the last 15 months South Africa has enjoyed a growth economy. The International Monetary Fund (IMF) say this group will account for 61 per cent of global growth in three years time.
While South Africa’s economy (£506.91bn GDP) is dwarfed by those of the original BRIC constituents, the country is seen as the gateway to the continent of Africa, which as a whole has an equivalent sized economy ($2,763bn GDP), a population of one billion and rich resources. This has all made it a valued investment region for China in particular.
However, there are many cultural, logistical and geographical challenges the further one travels North from South Africa towards the Sahara. As an example, while there is 24,487 km of rail track in South Africa, there is just 259 km in Uganda; there are 92 mobile phones per 100 people in South Africa but just two per 100 in Eritrea. However, there is a great deal of raw potential, especially in countries such as Angola and Nigeria.
Participation in BRICS will drive a new competitiveness for South Africa and a key factor will be developing world-class supply chain management. Unlike in Europe, the US and Australia, few supply chain directors in South Africa sit on the board, which makes it harder for them to demonstrate how effective management of the supply chain can deliver competitive advantage. But this is likely to change as companies realise that they must align their supply chain and business strategies. If the recession failed to drive home the need for this, then the presence of Chinese companies in Africa will create significant pressure to do so.
This was an observation of the 2011 Supply Chain Foresight survey, conducted by Frost & Sullivan, which annually samples the opinions of South African supply chain executives. It found that while over three quarters of the respondents feel that the supply chain and business strategies of their companies are aligned, less than a third felt that the supply chain and logistics operations are fully optimised. Businesses are looking at how to optimise their distribution networks through building new facilities, streamlining existing processes or collaboration between trading partners. This has seen a lot of current activity surrounding warehouse management systems, forecasting, planning, replenishment and collaboration technologies, in particular.
Two thirds of respondents are considering investment in technology to enable collaboration with service providers. With the recession claiming many key suppliers the environment is changing from one where major companies squeeze suppliers on cost to one where they adopt a more collaborative approach. Cost reduction was the focus of the past recession, but now the objective is to satisfy customer expectations and to deliver value. Just over half of respondents to the Supply Chain Foresight survey cited customer service as the top supply chain objective. Reducing waste and improving efficiency in the supply chain are the perennial shorter term challenges with companies looking for better forecasting and planning tools to bring down inventory and shorten lean times. One interesting aspect of South African supply chain technology is the large number of in-house designed legacy systems, which is a consequence of the country’s isolation during the times of Apartheid. A propensity towards in-house designed systems remains today.
In terms of industry sectors, retail dominates but it remains firmly entrenched in the traditional channels. While some retailers have online retail websites, online and multi-channel is by no means a significant part of the current retail picture. Internet use is still quite low compared to other countries there are 4.42 million internet users in a population of 49 million and this figure is expected to remain low for some time yet. A further obstacle to the expansion of online sales is a high crime rate which leads to security issues in delivering goods to customers.
Wholesale distribution is quite small in size and complexity so the supply chain challenges tend not to be too complicated. There remain companies that feel they have been reasonably successful – being self-sufficient – and want to maintain that approach, along with a general tendency to look within, when it comes to benchmarking supply chains. However, a growing number of companies in South Africa recognise that there are other organizations across the globe doing similar things, but perhaps, a lot more efficiently.
Supply chain managers within these businesses are evolving a mindset focused on global best practice and the means of achieving it. These South African companies want to be best in their class. By building knowledge, benchmarking and improving against those benchmarks the win for this retailer is a supply chain that gives competitive advantage. As in other countries, companies looking to benefit from external expertise and a reduction in their capital costs will often outsource their logistics to third party logistics (3PL) operators. South Africa has numerous small local players and a handful of large lead logistics providers who tend to drive innovation. It is a small but highly competitive market. Logistics infrastructure and skills shortage in the supply chain continue to be huge issues in South Africa. The Supply Chain Foresight survey found that to deal with the skills shortage, in almost all areas companies either expose employees to new jobs through rotation, or development programs, or mentoring. These are generally in-house driven schemes. South Africa is an emerging market that is growing fast and offers a tremendous wealth of opportunities. In fact, the country has a great many successful businesses, and while many talk about becoming world class, many have already achieved it. Source: Supply Chain Junction
South African Minister in the Presidency in charge of the National Planning Commission Trevor Manuel says Africa has a lot to learn from the ongoing European economic crisis in order to avoid making the same mistakes. Delivering a presentation under the theme “Africa and the European Financial Crisis — Opportunities and Risks” at the AMH Conversations dinner in Harare on Monday, Manuel said while the European Union (EU) moved at a fast speed towards convergence “we in Africa have been rather painfully too slow about convergence”.
“In fact, it’s so bad for us as Africans that 21 years after the Abuja Treaty was adopted and set out exactly what we need to do if we want to get to an African common market…we still need to focus on regional building blocks,” he said.
“We aren’t building blocks, I am afraid that we are just pebbles without mortar to hold us together. Its not about EU, not about the US (United States), not about the IMF (International Monetary Fund) and World Bank, its about us and the way we relate to each other, and in this context it is fundamentally important that we talk to each other as Africans about some of the hard truths that confront us.”
The former South Africa Finance minister said regional integration required hard work, honesty and convergence, adding that in a global economy, African countries would not be able to survive as individual entities. “As individual countries, we will not make it in the world. We will be picked off and become markets for the rest,” he said.
“So we can’t look to the rest of the world. We have to look to each other in our neighbourhood and understand that’s where change will be driven from. As we learn from Europe we look at ourselves in understanding what we should not do.”
He said institutions mattered both in good times and during a crisis, adding that it mattered for Africa to understand the speed at which countries develop as it builds regional institutions. Manuel said the Lisbon accord brought everybody together in a short space of time without ensuring that each country in the EU was moving at the same rate.
Meanwhile, speaking at the same event, Finance minister Tendai Biti described regional integration as imperative. “For me, with great respect to our principals and leaders, my great disappointment is with the structure of our regional bodies,” he said.
“If you go into the main summit of a SADC meeting, we spend 90% of the time discussing Madagascar, Zimbabwe, Lesotho and now the Democratic Republic of Congo. The actual reports from key ministers like Ministries of finance, regional integration and trade are basically footnotes that Head of States just sift through.” Source: Newsday (Zimbabwe).
Comment: The sad reality of it all is that it is Africa’s politicians which drive this process – they preside over the regional secretariat’s. Its time to provide the necessary guidance to the regional bodies. Moreover, if the ultimate goal is an African Union, why are multiple (overlapping) regional economic unions being promoted?
- SADC Member States driving the Customs regional integration agenda (mpoverello.com)