African Finance Ministers Speak on Global Meltdown

Published on 26th April 2010

Participants:

Mr. Essimi Menye, Minister of Finance of Cameroon; Mr. Gilbert Ondongo, Minister of Finance, Budget, and Public Portfolio for the Republic of Congo; Mr. Augustine Ngafuan, Minister of Finance of Liberia; Syda Bbumba, Minister of Finance of Uganda and  Mr Dieng of the press briefing Webcast. 

Mr. Dieng: Welcome to the African Finance Ministers Press Conference. Each minister will have some brief remarks and then we'll open it to questions. So Minister Menye from Cameroon will start. 

Menye: Thank you very much. I would like to deal here with the economic activity in our country over the last 6 months. I'd like to talk about what has been done within major institutions, including the G-20. Let me say that the crisis which we thought in the first place was still a bit far away from us ended up hitting us through lower income from the sale of our goods and products. As we mainly produce raw materials, forest products, for example, are difficult to sell, as well as agricultural products. 

For those countries which sell major raw materials such as oil, of course they are faced with price fluctuations. But their income is based on volumes they manage to sell. We are continuing to pay for our debt. In spite of the agreements we had reached, we still had some amounts to pay and we did pay them. 

The main concern is our internal debt because our income is limited and our internal debt has been growing. Of course, we need to carry on to fund and to finance the government's activities, so we have to pay for the purchase of goods. Given the level of income which has remained flat because production has not increased, we now have to face major difficulties in our countries. We thought that the major point was to reach the completion point, but today our investments in infrastructures are still lacking. This is precisely what we need, especially in agriculture, in order to increase our production base and in order to increase government's income. 

Ondongo: Let me tell you first of all that the financial crisis had not reached my country, the Congo, because my country does not have a financial system which is sufficiently developed to be able to share financial income and risks with industrialized countries. 

But on the other hand, the crisis in its other form, not the financial form but the economic form, did hit my country through its two major export products, namely oil and wood. Our activities in the wood and timber sector have been considerably hit, more so than oil activities. The overall production of tropical timber in my country has dropped by over 1,300,000 cubic meters since 2008. Exports also dropped from 1 billion cubic meters in 2008 to hardly 420,000 cubic meters in 2009, which means an almost 60 percent drop. 

In terms of employment the timber sector has seen its headcount, if I may say, halved. So the problem is that Congo used to export tropical timber to European countries, and in particular Portugal and Spain, which used to purchase this type of timber for construction. 

In terms of oil, the drop in prices led to considerable damage on the Congolese economy. The price of the barrel dropped from $150 a barrel in 2008 to less than $40 a barrel at the end of 2008. So this, of course, had a major impact on our economy, which as you know is dependent on oil. 80 percent of our income comes from oil. 70 to 75 percent of our GDP is based on oil. Over 90 percent of our exports are oil exports. Consequently, our fiscal income, because of the drop in oil income, has been halved, from $4 billion of income to less than $2 billion in 2009 because of the crisis. 

Excluding those two sectors, the Congolese economy as a whole has been less hit by the crisis. In 2008 we had a growth rate of a little bit more than 5 percent. And in 2009 our growth was still positive, more than 6 percent, 6.2 percent. This is due to the fact that there is a very strong economic momentum in our country. Thanks to our relationships with the IMF and the World Bank, we were able to reorganize our economy. We have set up a true, genuine internal momentum with the mobile phone sector and other sectors as well. This in a way protected us from the crisis and helped us prepare for a better future. According to the IMF projections and the central bank of our region, in 2010 we are expected to reach a growth rate of 13 percent, which would be the best and the highest in Africa. 

Ngafuan: I come from Liberia, a country that had been dogged by more than 14 years of civil crisis that decimated our population and left more than 200,000 of our people dead; infrastructure terribly damaged; power output in critical need of repair. 

In 2006 our President, Madam Ellen Johnson Sirleaf, started to craft with her economic team policies to put Liberia on a trajectory of fiscal discipline and to emerge from the debris of war. To be buffeted first by the food crisis and then the fuel crisis, and after that the financial crisis couldn't have come at a worse time for my country. We were about to do what I call a major takeoff when these crises hit us, and then they have led to some serious setbacks on our reform track and on our growth trajectory. 

In our public debt reduction strategy, which is a 3-year strategy, we had anticipated growth of around 12 percent between 2008 to 2009. But the crisis made our growth to reduce to something around 5 percent, thereby constraining us to slice our expenditures, some of which were public debt reduction expenditure. 

We inherited a huge debt burden. Our debt to GDP ratio was more than 700 percent. So Liberia has been on the march to the HIPC completion point. We've reached decision point. We run a cash-based balanced budget, which means unlike other countries that used countercyclical policies we never had that option. We are probably the only country in the world that had to live within our revenue. When we faced revenue shocks, all we could do was to seek expenditure efficiencies or cut expenditure. So it's been a double problem for us, Liberia. But we've maintained the discipline because we know that one of the things that put Liberia in this unsustainable debt situation is lack of fiscal discipline. The IMF was in Liberia doing its last review to inform our march to the HIPC completion point. Hopefully, if everything is kept on track, we'll reach the HIPC completion point in June because almost all the triggers have been met. 

The crisis affected our export sector. One of our main exports is rubber. In 2008, the total estimated export of Liberia was 242 million. As a result of the crisis it dropped to 152 million. We lost jobs in the rubber sector significantly. We also lost jobs in the mining sector. One of the biggest companies is Arcelor Mittal, that should have started exporting iron ore from Liberia in this year. But because of the crisis, Mittal has deferred its shipment plan to late 2011, and it had also cut down jobs. 

At a time when we are dealing with youth unemployment, we have what I call an army of young people that came out of the war that are looking for alternatives. So it worries us doubly to have these issues. We hope and we think every partner has been working so that we all can come out of the crisis. Because we need to start to give jobs to our people because it affects not only our democracy, but it affects our peace. We are a fragile country coming out of war, and so joblessness creates an environment of fear. 

We also have to engage in critical infrastructure developments such as roads, ports, and other infrastructure. We also have to build the governance framework through reform of our governance structure, which we've been doing since 2006. We've strengthened our General Auditing Commission, we've strengthened the judiciary, and we've strengthened Anti-Corruption Commission. We have a transparent budget process. 

The financial crisis couldn't have come at a worse time for Liberia. At a time when we were about to do a major takeoff, it came as a strong headwind. But thanks to good leadership, good economic plans, both from the monetary and the fiscal team and other actors in government, we have managed to steer through the critical part of the crisis and we are seeing recovery. 

Bbumba: From what has been presented by my colleagues, you can see that Africa is diverse and when the policies are being designed for Africa, I think they need to be country-specific. In Uganda, the financial crisis had minimum impact and this was mainly because of the prudent financial management of the financial sector and also because our financial sector was disintegrated. It was not part of the integrated system and therefore it was not a carrier of the toxic assets. We suffered from secondary effects of the crisis and this involved reduction in direct foreign inflows into the country. When the countries abroad got problems, and most of our investors are from abroad, the inflow is reduced. There was also a capital flight by the multinational companies which invested in our country to go and rescue their principles. That also had impact on our currency. 

We have got quite a number of Ugandans working abroad and the remittances went down because of the effects in places where they're working. These remittances are a major contributor to the fast-growing residential construction sector. Most of the houses for residential which are being constructed are people working abroad so this affected--this slowed down the construction. We also had effects of imported inflation from our trading partners because we need importers and rely so much on imported, manufactured goods. So wherever we're importing from, we took of that inflation and also--and it affected us. 

Some of our imports--exports were affected, but this was not much, it was mainly the flowers sector. Although our revenue collection went down by 10 percent below the target, however, it was still higher than what we had collected in the previous year. 

I can say that the effects were quite minimal, but the main mitigating factor was regional trade. Thanks to those who have denied us markets abroad, we have focused on our regional markets, especially in food products, and that helped us to carry on with our trade mainly. And really, that was also an eye opener. We have now concentrated on commercializing agriculture mainly for regional trade. Before, quite a number of our people were growing whatever they were growing for leisure, just for their families, and a little for the market, but now we have come up with a strong policy of making sure that every household produces more than what they can consume to be able to put something on the market and to be able to tap into the regional markets. 

And I think this also emphasizes the importance of regional markets where you trade without barriers, because much of our trade was within the East African community where we are in the final process of finalizing the integration of our market. I think this is very, very important for Africa. Before we look out to trade with the far countries, we should exploit the opportunities within our region. We had some effect on the--arising out of the fuel crisis, but of course this was short-lived and it has given us lessons, since Uganda is on the verge of becoming an oil producing--oil producing countries. 

So, all in all, we are able to weather through the financial crisis because of the reasons given, but most importantly, because of the advice and assistance we are getting from partners like the IMF, the finance and the concessional lending we are getting from our multilateral donors like the World Bank and others. 

Mr Dieng : Thank you. Now we'll open to questions.  

To be continued 

Courtesy: IMF


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