Johannesburg - The world’s large economies were beginning to understand that “their actions, or lack of action”, had an impact on the rest of the world, Finance Minister Pravin Gordhan said on Friday.
The recent decision by the US Federal Reserve to delay tapering its liquidity programme signalled a recognition of the spillover effects of US policy, he added. Gordhan was speaking at a conference arranged by the Association of Black Securities and Investment Professionals (Absip) in Johannesburg.
“It is a welcome sign that we are getting global dialogue at the right level,” he said, referring to the concerns raised at a recent summit of the Group of 20 (G20) countries by developing economies. He stressed the need for the US to create “a climate of certainty” through “calibrated and predictable tapering”. Certainty would allow emerging economies to adapt to the changing situation.
A quantitative easing (QE) programme – injecting money into financial markets – was introduced in the US to counter the impact of the 2008/09 financial crisis and the economic recession. High levels of liquidity meant abnormally low interest rates in the US, as well as in other developed economies, sending international investors into emerging economies seeking higher returns.
In May and June, the Fed signalled a shift in this policy. Anticipating the reversal would start this month, investors drew money out of emerging markets, weakening their currencies and slowing their economic growth. At the G20 summit, South Africa and other affected countries highlighted the collateral damage inflicted on their economies by the Fed decision to taper QE.
Gordhan warned that developments in the US would create another bout of uncertainty next month.
Democrats and Republicans are deeply divided on whether to lift the country’s debt ceiling and allow the US government to borrow more. If the US Congress cannot agree on the next move by October 17, the government will run out of cash to pay its bills. A similar stand-off in August 2011 destabilised global financial markets and sent the rand from R6.7 to the dollar at the start of that month to R8.6 over the next two months.
Gordhan went on to discuss how Africa could create a buffer against adversity elsewhere. He noted that intra-African trade was the lowest of all the regions in the world. “We all know there is a huge infrastructure and logistics deficit on the continent. In many cases, we have to travel to Europe to travel from one African country to another African country.”
He challenged the young generation of entrepreneurs to remedy the deficit. “We need to get over this period of talking and get on with doing.”
He spoke of the need for “sustained and sustainable growth” in Africa. “Resources don’t last forever,” he warned. “And the population of Africa will double over the next 20 or 30 years. We need to ask ourselves how we plan for that eventuality.”
In this context he stressed the need for trade flows within Africa and also with the rest of the world. He argued that customs administrations should be given more responsibility to ease trade between African countries. He pointed out that transport barriers eroded the competitiveness of African countries. - Business Report