Speech by Jakaya Mrisho Kikwete, President of the United Republic of Tanzania
Mr. Dominique Strauss-Kahn, Managing Director of the IMF and Co-host of the Conference; H.E. Dr. Asha-Rose Migiro, United Nations Deputy Secretary General; H.E. Dr. Festus Mogae, Former President of Botswana; H.E. Koffi Annan, Former UN Secretary General; Honourable Ministers for Finance of African Countries; Governors of Central Banks of African Countries; Distinguished Participants; Invited Guests; Ladies and Gentlemen
It is with great joy and a deep sense of gratitude that I welcome you all to Tanzania and to Dar es Salaam in particular. I hope you will find your stay as comfortable as possible. As co-host, allow me to welcome you to this historic Africa-IMF High Level Conference on Changes: Successful Partnerships for Africa’s Growth Challenge. I thank you for accepting our invitation to participate at this meeting.
It was in February 2008, that the Managing Director of the IMF, Mr. Dominique Strauss-Kahn and I agreed to convene this meeting. We saw then three main objectives. First, to take stock of what difference Africa’s partnership with the Fund has made in terms of helping Africa create macroeconomic conditions conducive for supporting Africa’s development efforts. Second, to draw out lessons from the successes and challenges we faced in working together to foster macroeconomic stability. And third, to deliberate on how we could make changes going forward in order to make our partnership more effective. This also included thinking through ways of making Africa’s voice be heard more clearly in shaping the global financial and economic developments.
You will agree with me, Ladies and Gentlemen, that, this is a very crucial meeting. The opportunity to discuss and share our experiences on the evolving viable and sustainable partnership between Africa and the International Monetary Fund is very welcome indeed. Africa and the IMF have a long history of partnership. They have together done so many things in the last four decades, we are continuing do so now and we will do so in future. So sitting at a conference as we do today to discuss our partnership is the right thing to do. Africa needs the IMF and the IMF needs Africa.
Ladies and Gentlemen;
While still focused on the original objectives of this meeting, it is hard to ignore the current global financial crisis and economic downturn which have dealt a massive shock to the world economy and our own, in the wake of the shocks caused by high oil and food prices. This meeting therefore, is being held at a very opportune time. It affords the unique opportunity to reflect on the crises and discuss ways to face it out.
The current crisis poses the greatest danger ever to Africa’s development in recent history. It is, indeed, a matter of great concern to us on the African continent because the crisis threatens to reverse or even wipe out the hard won socio-economic gains made by African countries over the past few decades. Thus, if anything, the crisis sharpens the focus of our discourse at this conference given the important role the IMF can play in helping nations to overcome such a crisis or mitigate its consequences. So far, Africa’s voice on this unnerving situation has been muted as witnessed in different global initiatives and processes, which have emerged to respond to the crisis.
This meeting therefore, offers us a unique opportunity to send a clear message to the G20 in London next month, and the world as a whole regarding Africa’s concerns and views about the crisis and what we think should be done to deal with it or mitigate the impact of the crisis on our economies and livelihood.
Ladies and gentlemen;
Africa has been turning the corner: slowly but surely poverty is being reduced and prosperity is on the increase. For nearly a decade, Africa has recorded sustained growth averaging above 6 to 7 percent. Income levels are rising and in most countries inroads have been made into the improvement of social wellbeing of their people. On the whole in many nations encouraging progress is being made towards poverty reduction.
It is important that we avoid the repeat of the experience of the 1980s and early 1990s, when after the second oil shock of late 1970s and world recession of early 1980s, many of our countries lost a decade and a half of growth and experienced a reversal of some of the hard earned gains in education, health, water and infrastructure development.
Ladies and Gentlemen:
We cannot afford to “mark-time” again. We need, ourselves together with our partners, to take measures that will help us stay the cause of steady economic growth and continue with investment in building capacity for further growth and attaining the Millennium Development Goals. I urge you in particular, to work together with the IMF, to craft a clear message to the G20 meeting which will take place next month to convey our hopes and concerns.
African nations and the IMF have worked together for over 40 years. To be honest, it has not been a smooth sailing relationship. It has had its difficult and happy moments. One could rightly describe it as bitter-sweet relationship. In all countries the dialogue was difficult particularly at the beginning. Notwithstanding the difficulties in the dialogue in the end, with the support of the Fund notable successes were made. The strong economic performance being demonstrated by African nations today is, partly, a factor of this successful partnership with the Fund. Macroeconomic stability has been attained in many nations on the continent. Many nations have recorded significant reduction in inflation and fiscal deficits which have helped create more robust and stable financial markets.
Ladies and Gentlemen;
Tanzania joined the IMF in 1962, immediately after attaining independence in 1961. Our path too has not been so smooth. I recall nationwide huge anti-IMF demonstrations in the early 1980s. I also recall the time when I was the Minister for Finance in 1994-1995 how difficult some of the negotiations were especially in reaching consensus on appropriate policy options for our country. The pay off has nevertheless been substantial.
Since 1995, Tanzania has seen a steady decline in inflation to single digit level and staying within that range for more than thirteen years before the rise in oil and food prices raised it to low tens in the last five months. But, Tanzania is not alone in this kind of achievement of the continent. Until recently more than half of our countries on the continent had inflation at single digit, and fiscal deficits below 5 percent. Growth, as noted earlier, has also been sustained at an average of 6-7 percent. Partly, the successes are the result of the successful implementation of the painful reforms that have been pursued with the support of the IMF and other development partners.
Ladies and Gentlemen;
There are, certainly, lessons to be drawn from the various reform experiences in Africa, which, as I earlier said, we should take stock of and appreciate. The role of the IMF over the years in providing policy advice to African countries and elsewhere is also well known and documented. Policy advice and finance were provided via a variety of programs. Examples here include bilateral consultations with members under Article IV, Poverty Reduction and Growth Facility (PRGF) and the recent Exogenous Shocks Facility (ESF), Policy Support Instrument (PSI) and Short-term Liquidity Facility (SLF). I hope you will spend some time to evaluate how well these have worked in our region and identify ways to sustain the gains and enhance their effectiveness.
It is gratifying to note that the IMF stands ready to step up its support for Africa during this most difficult period. The IMF has already augmented its assistance under PRGF-supported arrangements and under the new Exogenous Shocks Facility. In this regard, the Fund has made financing available to African countries hit by exogenous shocks. We also note with deep appreciation and anticipation the fact that the IMF is reviewing its financing facilities for low-income countries to ensure that the Fund is sufficiently responsive and flexible to meet the diverse needs of its members, including those related to the global economic downturn. To that end, I am told, the IMF is also assessing the adequacy of its concessional resources and re-examining its policies on debt limits, with the objective of ensuring that the evolving financing needs of African countries can be accommodated while preserving debt sustainability. These are welcome developments and we congratulate the IMF for these bold steps and we look forward to seeing the initiatives become operational.
The big challenge going forward, is about how to maintain and sustain the gains in macroeconomic stability in our countries against the backdrop of the global financial and economic crisis. With the world economy at a crossroads, risks facing Sub-Saharan Africa have intensified. If the concerted efforts of policy makers around the globe fail to re-establish trust in the international financial system, the world economy risks a deeper and more prolonged recession. Sub-Saharan African countries would suffer from steeper reduction in the external demand for its commodities, dwindling foreign exchange earnings and remittances, declining corporate profitability, incomes and aid flows. Consequently, growth in Sub-Saharan Africa may drop more sharply than envisaged, risking erosion of the gains painfully achieved.
Ladies and Gentlemen;
Already we, in Tanzania, are experiencing the negative consequences of the world economic downturn. Prices for our commodities are falling and there is declining demand for our exports For example, the price of cotton, which is one of our major traditional exports, has dropped from US cents 82 per pound between March and July 2008 to US cents 45 per pound currently. Also, cotton exporters are finding it difficult to sell their cotton and some are already threatened with bankruptcy.
The same applies to the price of Arabica coffee, our other major traditional export crop. Between August 2008 when the buying season started and December 2008 prices have fallen from US$ 158 to US$ 104 per bag of 50 kg: a drop of 34 percent. Robusta coffee also experienced a drop in price from an average of US$ 93.6 to US$ 65.46 for a 50 kg bag, during the same period: a drop of 30 percent. The story is the same with other agricultural commodities and minerals. The prices of most minerals, except for gold, have fallen.
Ladies and Gentlemen;
The trend of investment flows and tourist arrivals give us cause for great concern. There is a decline in tourist arrivals in the country. It is anticipated that there will be a 7-18 percent decline of tourist arrivals this year. Investments flows are being affected as well. We are witnessing withdrawal and/or postponement of investment commitment made earlier. Among such examples are the postponements to later dates of a US$ 3.5 billion investment in aluminum smelting and a rescheduled US$ 165 million nickel mining and extraction project.
The tightening of global credit conditions is to blame for this unfortunate situation. It is most likely that foreign direct investment flows and portfolio inflows will continue to decline as investors flee into more liquid or safer assets. Trade finance flows may also be affected in a similar way. Can you imagine the consequences of such trends to the Tanzanian economy and similar economies on the continent?
Ladies and Gentlemen;
Our worries do not end there. Poor nations and weak economies on the African continent that rely on external aid to compliment their own limited resources are very nervous. They are worried that our countries would face daunting reconstruction and stabilisation challenges if external aid flows would be cut as well. Their efforts to promote growth and wrestle themselves from poverty and backwardness would be handicapped severely. Such economies may experience a sharp deceleration in growth with significant negative consequences on poverty reduction and attainment of MDGs.
Ladies and Gentlemen;
The current global crisis, therefore, highlights not only the dangers of over-reliance on free market to run the show in management of economies, but also the need for more social safety nets. Many of us on the continent are faced with the challenge of ensuring that we have in place necessary economic regulations and well designed safety nets and cash transfer programs to assist poor families as 2009 could develop into a year of tough economic challenges. Many of us on the continent are really worried and concerned that the financial crisis could turn into a humanitarian catastrophe.
We realise that as governments, we have the obligation to help households that will be affected as we tried with those affected by the recent high food and fuel price crises. The critical challenge for most of us is the capacity to finance huge bailout packages. For sure, we may not easily afford it. We look forward to our partnership with the IMF and other development partners for support.
Let me conclude my remarks by urging all of us to go out from here with clear “take away” for implementation or further work. In particular, I ask you to deliberate on the following six issues.
First, and to reiterate, let us use the opportunity of this conference to send out a message to all initiatives that are currently being conceived, designed and implemented to respond to the crisis. African countries need to protect and sustain recent achievements in raising growth and reducing poverty. As the new initiatives consider financial interventions, including stimulus packages, it would be highly appreciated to include provisions for meeting the commitments development partners have made to assist African nations to meet the targets of the Millennium Development Goals. It is critical that commitments made at several international fora should be respected and implemented. Among them are the Monterrey Consesus proclaimed at the International Conference on Financing for Development held in Monterrey, Mexico, March 18-22, 2002. The other is the recent review conference held in Doha, November 28-30 where the commitments made at Monterrey were reaffirmed.
Second, Ladies and Gentlemen, it is clear that weaknesses in the regulatory mechanisms of the international and national financial systems impact negatively on all countries irrespective of whether they are responsible or not for causing the financial crises. The impact goes beyond the borders of responsible nations. It is, therefore, important that creating effective mechanism for surveillance of the international and national financial systems should be a matter of global interest. We too, in Africa, though poor, have profound interest in the matter.
I believe, the IMF can play an important role in the conception and establishment of systems for early warning and preempting such crises in future. As such, the mandate and capacity for surveillance of the Fund needs to be strengthened for it to be able to play this role. The IMF can gather and make information available to all countries on impending difficulties to allow them to take protective measures. In carrying out this role evenhandedness is very important. There should be no untouchable countries when it comes to financial impropriety and lack of effective regulatory framework because its consequences affect all of us.
Third, now that most of our countries are faced with the fallout of the financial crisis, there is an urgent need to create a rapid response framework to help all countries in need of stemming and reversing the effects of global financial crisis and economic downturn. As expected, the IMF has to play the key role of providing support for stabilization among nations in particular the weak and vulnerable ones, the majority of whom are Africa. This should be done in a manner that is timely and unencumbered. We should take stock of how well the rapid response instruments have worked, once the world has passed through the depth of the recession and embark on the path to recovery.
Fourth, the emerging economies and developing world, including Africa, need to have the rightful voice in the shaping of the global financial system and the responses to the current crisis. In this regard, I would like to urge the Fund to continue with its in house governance reforms. The reforms have been useful because they have significantly provided greater role for emerging economies. This conference needs to look into ways that will enhance the African voice and participation in the governance structures of the International Monetary Fund.
Fifth, let us urge the IMF to increase its technical support to African countries as we appreciate the technical assistance the Fund has provided so far to our countries to enhance expertise, knowledge and ideas. We have seen the establishment of AFRITAC in three regions including one which is hosted at the Bank of Tanzania serving the East African region. We urge the Fund to continue with this crucial support while making sure that access to this noble institution is unhindered.
Finally, several developed countries and emerging economies are now putting together or executing stimulus packages. These are important for Africa too, in terms of the likely ability to revive demand for our commodities, and subsequently support the recovery of the prices for our commodities. It would be important that the Fund plays a catalytic role in leveraging these resources for purposes of supporting African programs. We count on the International Monetary Fund through its engagement with the G20 and other development partners to join hands with other multilateral institutions to call for directing some of these resources through programs to support initiatives to mitigate the effects of the crisis on African economies.
Let me end by once again thanking you for responding so well to our invitation to this meeting. I hope we will use this unique opportunity to have candid discourse and come up with substantive discussions which will help us face the future more confidently together. Lastly, since you are here with us, please take time, before you depart, to visit some parts of Tanzania and have a glimpse of our natural heritage and leisure spots for your memorable experiences.
Thank you and may I wish you fruitful deliberations.