Monetary policy is causing low growth
MONETARY policy in the developed world, which has seen interest rates plummet to zero and even lower, has left investors with no alternative but to invest in emerging markets, ETM Analytics managing director George Glynos says.
Investors were being forced to take on extra risk in order to extract higher yields, he noted in comments at the Thomson Reuters Africa Summit.
However, there were some major fragilities and ills in emerging markets which had been papered over by the global monetary policy environment and which would be exposed were interest rates to rise, Glynos said. The potential fallout in the future of current monetary policies could be significant, he believed. While at first glance the low or negative interest rates might be seen as good for Africa, in fact, it did not assist the continent at all. This was because the situation was mired in uncertainty and perpetuated low growth around the world, particularly in developed markets.
Countries in Africa such as Ghana, Zambia and Egypt were struggling more now than a few years ago. Glynos noted that central bank policies in the US, UK, Europe and Japan had had little payoff in terms of growth.
The dividend from the extent of monetary stimulus applied had been relatively small. These dysfunctional monetary policies had injected a level of distortion in financial markets. Valuations were warped and people found it difficult to make business decisions. Glynos noted that the IMF had forecast higher growth for Africa next year but feared that the end of the year could see a reversal.
Barclays Africa head of research, Jeff Gable, added that the low economic growth current in sub-Saharan Africa meant that it was going backwards as a region. Macro imbalances such as current account and fiscal deficits and skyrocketing indebtedness would have repercussions in the future.
Meanwhile, South Africa’s political elite came in for a lot of criticism on Thursday for an alleged half-hearted fight against corruption. The political elite was so narrowly focused on self-interest that they spoke about corruption but did little to combat it, the president of the Da Vinci Institute of Technology, Edward Kieswetter, said.
In fact, political leaders in the country took the lead on the road to corruption, Kieswetter said in an address at the same function, which is discussing the potential and challenges facing Africa.
Political leadership was central to create the right environment and the right policies and to be accountable, he said.
It was hard to believe that the fraud charge brought against Finance Minister Pravin Gordhan was not politically motivated when the National Prosecuting Authority was legally challenging the more than 700 charges of corruption brought against President Jacob Zuma. Kieswetter emphasised the importance of clear industrial policies as a key building block for harnessing Africa’s potential.
He pointed to the success of South Africa’s automotive sector incentive programme as an example of this, and cited the example of South Korea, which lacks mineral resources but has been able to grow key economic sectors as a result of implementing very clear industrial policies.
There was a huge opportunity for infrastructure development which would also facilitate regional integration. — BDLive