Mbeki: Address by the former President of South Africa at the Sapoa International Convention (04/06/2009)

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Published: 04 Jun 2009

Mbeki: Address by the former President of South Africa at the Sapoa International Convention (04/06/2009)

Date: 04/06/2009

Source: Office of Thabo Mbeki

Title: Mbeki: Address by the former President of South Africa at the Sapoa International Convention

Director of Ceremonies,
President and leaders of SAPOA,
Members of SAPOA and distinguished delegates,
The international guests and observers,
Representatives of the South African government,
Members of the media,
Ladies and gentlemen:

This important Convention is taking place during a very challenging period when all countries in the world are in the grip of a serious economic crisis marked in many instances by recession and therefore, inter alia, the impoverishment of millions of people.

Commenting on this crisis last month, on May 19th, our Reserve Bank Governor, Mr Tito Mboweni said:

"The world is in the midst of the most severe slowdown since the Great Depression of the late 1920s. We have seen negative growth rates in many countries, developing and industrialised, and world trade has declined dramatically

"Developing and emerging market economies were also part of the synchronised downturn, contracting by 4 per cent

"The outlook for the global economy in 2009 remains gloomy, with the IMF, the World Bank and the OECD all forecasting negative growth for the year as a whole. The discussions at the recent IMF meetings confirmed a negative outlook"

If anyone among us had any illusions about how the global crisis might affect us, these would surely have been shattered by the GDP figures for the first quarter of 2009 issued by Statistics South Africa last week on the 26th of May.

Confirming that our country has entered into a recession, StatsSA said:

"According to the latest preliminary indicators, the seasonally adjusted estimate of the real GDP at market prices for the first quarter of 2009 decreased by an annualised rate of 6,4 percent compared with the fourth quarter of 2008."

StatsSA also reported that the growth rate had decreased by 1,8 percent during the fourth quarter of 2008.

When the former Minister of Finance, Trevor Manuel, delivered his Budget Speech on February 11, he said:

"The storm that we spoke of last year has broken, and it is more severe than anyone anticipatedOur response to the present crisis is to face the challenges before us boldly, and as a nation united. Our duty is to construct a South African approach, founded on our own vision for a shared future. This approach can only be built on an engagement between social partners, not just at the level of a national dialogue, but on factory floors and in community halls. Our resolve will be tested to its limits. We have to put self-interest aside. We have to face each other honestly and openly. Our task is to see through the challenges of economic vulnerability today to the construction of the new South Africa that is our passion and our pride. We can do this all the better as a united people."

I am glad that the Convention will have time to discuss the global economic crisis and its impact on our country. I believe that Minister Manuel was correct when he said that we should respond to this crisis together, as a united nation, putting self-interest aside, engaging one another as social partners and as citizens.

I am certain that SAPOA should be part of this engagement, to make its own contribution to the national effort to mediate the impact of the economic crisis and to create the best possible conditions for us to achieve new successes in terms of our growth and development once the world economy has recovered.

I would also like to congratulate SAPOA for putting the challenging issue of African development on its agenda. This makes the important statement that we recognise the reality that our future as a country is tied to the destiny of the rest of our Continent. And I dare say that the property sector in our country has the possibility to engage in successful business activities in other countries of Africa, in its own interest.

Having been asked the address the subject of what sub-Saharan Africa might do in the light of the current global economic crisis, I trust that what I will say will serve to confirm the correctness of the view held by SAPOA that as a country, we must indeed continue to make our own contribution to the further development of the rest of Africa.

As the distinguished delegates know and would expect, the global economic crisis has indeed deeply affected Africa, including its sub-Saharan Africa region. In this regard, the IMF has said:

"Over the past decade sub-Saharan Africa has made remarkable gains in promoting growth and achieving economic stability. Growth - which is essential for much-needed poverty reduction - averaged more than 6 percent over the past five years; inflation had fallen to single-digit levels before the fuel and food price shocks of 2008; and reserves were built up. These positive developments relied on strong economic policies; a favorable external environment, especially rising commodity prices; and debt relief and aid from the international community.

"These hard-won economic gains are now at risk. Like the rest of the world, Africa is feeling the impact of the global financial crisis. Demand for African exports has fallen; commodity prices have declined; and remittance flows may be weakening. Tighter global credit and investor risk aversion have led portfolio flows to reverse, deterred foreign direct investment (FDI), and made trade finance more costly. The economic slowdown is also likely to increase credit risk and nonperforming assets, weakening the balance sheets of financial institutions and corporations."

Speaking in London on March 31st, the President of the World Bank, Mr Robert Zoellick, further elaborated on this and said:

"These events, (relating to the economic crisis), could next become a social and human crisis, with political implications. Most attention has been focused on developed countries, where people face the loss of homes, assets, and jobs. These are real hardships. But people in developing countries have much less cushion: no savings, no insurance, no unemployment benefits, and often no food.

"We estimate that 53 million more people will be trapped in poverty this year, subsisting on less than $1.25 a day, because of the crisis. This comes after soaring food and fuel prices of recent years, which pushed 130 to 155 million people into extreme poverty, many of whom have still not recovered.

"The world was already struggling to reach the eight Millennium Development Goals by 2015. These targets now look even more distant. Take infant mortality, one of the most compelling causes: we now estimate that an additional 200,000 to 400,000 babies will die this year because of the drop in growth."

The specific areas of impact of the global economic crisis on the countries of sub-Saharan Africa are not difficult to identify. They include:

· reduced demand for, and prices of African exports, especially commodities, among other things leading to large balance of payments deficits;
· a reduction in numbers of tourists and therefore tourism receipts;
· a reduction in remittances as migrant workers lose their jobs;
· a drop in foreign direct investment as the level of risk aversion among investors increases;
· reduction of trade finance as the sources of credit dry up;
· a drop in Overseas Development Assistance (ODA) as the developed countries use available public resources to address domestic challenges;
· reduction of tax revenues as the economy, including exports and imports, contract, leading to the phenomenon of unsustainable budget deficits;
· an increased threat to the banking system as government, business and individuals seek more credit to sustain their activities; and,
· a similarly increased threat to the sustenance of the healthy macro-economic balances which has formed part of the African economic recovery of the last decade.

As we have already indicated, the President of the World Bank, Robert Zoellick, has correctly drawn attention to the social and political consequences of these developments. These include:

· growing unemployment;
· higher levels of poverty, including hunger, child mortality, as well as general morbidity and mortality across society, and generally further regression away from the deadline set for the achievement of the Millennium Development Goals;
· the further entrenchment of underdevelopment;
· increased emigration of large numbers of people who would leave their countries to seek job opportunities outside their countries and Continent, even as the economies of the intended countries of destination are shedding jobs; and,
· the threat of social instability, which might result in the adoption by governments of repressive measures that would undermine the democratic gains that have been made during the last two decades.

Of course, the critical challenge is not only to understand the manner in which the global economic crisis manifests itself in sub-Saharan Africa, important as this is. The question that has to be answered is - what should Africa do, in her own interest, to respond to the crisis in the short-term, as well as position herself to take advantage of the global economic recovery that will eventually take place!

Africa enjoys some positives in this regard, which should help her as she responds to the global economic crisis. Among others, four of the most important of these positives are that:

· as they have sought to achieve better economic results during the last two decades, the Africans have accumulated significant experience about the management of economies;
· at the onset of the global economic crisis, many African economies were growing at significant rates and were better placed to achieve higher levels of growth and development;
· accordingly, the negative developments currently affecting the African countries are exogenous rather than endogenous, reflecting negative developments in the economies of the developed countries; and,
· both objective and subjective factors have improved the possibility that the developed countries will use some of their resources to address the concerns of the African countries.

From this it follows that the rescue of the African economy must and will involve action by ourselves as Africans, and action by the developed countries.

With regard to the latter, and of significant importance, in its 2 April 2009 "Global Plan for Recovery and Reform", the G20 London Summit Meeting took some important practical decisions which are worth citing at some length. The G20 said:

"We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential. To this end:

■ we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;

■ We haveagreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support.

■ the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets;

■ we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank's Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund;

■ we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;

■ we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings; and

■ we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable."

In this context, between them, the IMF and the World Bank have announced a wide variety of interventions intended to assist the developing countries, among them sub-Saharan Africa. The space does not exist to discuss each one of these interventions, which will be strengthened by the funds committed at the G20 Summit Meetings.

Suffice it to say that these interventions are intended to assist the sub-Saharan countries, among others, to address:

· balance of payments problems;
· financial liquidity and the availability of credit, especially to support general economic activity;
· strengthening the financial infrastructure to ensure that the banks have the capacity to finance economic recovery and job creation, as well as carry out their normal activities;
· long-term country development programmes, including infrastructure investment, job creation and government capacity to plan for infrastructure development, informed by the need to enable countries to engage in counter-cyclical investment activities;
· financing of trade;
· providing capital for the private sector, including SMME funding and micro-finance;
· grant finance for low income countries and poor and vulnerable groups, among other things to provide a social net to support the poor and well as respond in the short-term to ameliorate the impact of the global economic crisis on the poor;
· investment in agriculture, among other things to ensure household and national food security;
· sustaining and increasing the volumes of ODA; and,
· ensuring improved coordination with all donors to guarantee the effectiveness of donor assistance, consistency with national development priorities, and cooperation with such African initiatives as NEPAD.

With regard to the foregoing, we must draw attention to two important factors. These are that:

· the process of globalisation has created the objective reality that the developed countries have understood that to guarantee their own sustained development, it is imperative that the developing countries should also achieve similar sustained development; and,
· the African initiative to place African development at the centre of the global agenda, which led to universal support for NEPAD, made it inevitable that the developed countries and the Bretton Woods institutions, among others, would have to integrate African concerns in the elaboration of their response to the global economic crisis.

At the same time, the latter process, focused on the universal acceptance of NEPAD, also included commitments that Africa made to take the necessary steps to honour her own obligation to take responsibility for her own destiny.

Accordingly, we must make some comments about what Africa should herself do to respond to the global economic crisis, both to address the short-term challenges, and to position herself to benefit from the global economic recovery, whenever this comes about.

As we have already indicated, the current global crisis hit the world when Africa, fortunately, had taken steps to take responsibility for her economic destiny.

I would argue that what the global crisis has done is to confirm the correctness of the decisions that Africa has taken in this regard, and therefore the need for our Continent to use the current global economic slowdown to take all necessary steps to position itself to accelerate the achievement of the objectives it had set itself.

I would argue that Africa's strategic response should centre on the following areas of focus:

(i) vigorously pursuing the political, economic and security goals it set itself in NEPAD, the New Partnership for Africa's Development;
(ii) working especially with the developed countries to maintain the preferential market access arrangements which have benefited the African countries over the last few years;
(iii) engaging the G20 countries and the multi-lateral institutions, including the IMF, the World Bank and the African Development Bank to honour the financial commitments they made both before and after the commencement of the global economic crisis; and,
(iv) actively pursuing the goal of equitable representation by the developing countries, including Africa, in the decision making structures of the Bretton Woods institutions.

With regard to the first of these strategic interventions relating to the NEPAD and related goals, it is important that Africa should, among other things:

(i) continue to work to ensure the prevalence of democracy, peace and stability throughout the Continent: immediately this should include doing everything possible to resolve the political and security problems currently facing such countries as Mauritania, Guinea-Bissau, Guinea Conakry, Madagascar, Somalia, Sudan and Chad;
(ii) focus on the achievement of the goal of good governance, including good corporate governance, as elaborated in the African Peer Review Mechanism;
(iii) work to accelerate regional integration, including promoting regional trade, developing regional infrastructure and strengthening the capacity of the Regional Economic Communities to discharge their responsibility to lead the process of regional integration;
(iv) continue to work to expand the domestic markets among other things by supporting the SMME sector, focusing on agricultural and rural development and the development of agro-industry, taking all necessary steps to reduce the cost of doing business, including improving the economic infrastructure in all its forms;
(v) take new steps to mobilise domestic resources for investment, as exemplified for instance by the launch in 2007 of the Pan Africa Infrastructure Development Fund, which was established based exclusively on African savings, including pension funds: among others these resources should be used to diversify the African economies, to add value to Africa's raw materials, and reduce dependence on the export of commodities;
(vi) continue to pursue policies directed at maintaining healthy and sustainable macro-economic balances; and,
(vii) address the challenge of human resource development among others further to strengthen the managerial and professional echelon without which Africa cannot achieve its developmental goals: in this context, given the global economic slowdown, Africa could also succeed to attract back to the Continent some of the professionals and skilled people who emigrated to the developed countries.

Quite correctly, many across the world, including the G20 have warned against the dangers that would be posed by any resort to protectionism by the developed countries as part of their response to the global economic crisis.

It is in this context that we have said that Africa should, as one of its strategic tasks, work to ensure the maintenance of the preferential market access regimes such as the US AGOA, the EU Everything But Arms programme, as well as the TICAD and Africa-China agreements entered into with Japan and China respectively.

In this regard it is particularly important that everything is done to ensure that the current negotiations between the African countries and the EU to conclude Economic Partnership Agreements help to support Africa's development efforts. Clearly, it would also have helped if the WTO Doha Development Round had been finalised, and finalised within the original framework of supporting the development objectives of the countries of the South.

As we have already said, relating to the third strategic goal which Africa must pursue, fortunately the G20 and the multi-lateral financial institutions have committed significant resources to help Africa and the developing countries in general to cope with the current global economic crisis.

Past experience confirms that in many instances it is much easier to make commitments to support the African development process than to honour such undertakings. However, so grave is the current crisis, that Africa, and indeed the developed countries themselves, cannot afford such betrayal of trust.

As has happened in the developed countries, the current global economic crisis has demonstrated the critical importance of government and public sector involvement in economic growth and development, acting side-by-side and in partnership with the private sector.

It is not difficult to understand the critical importance of this factor for Africa and other developing countries if we take into account what the US government and public sector have had to do to rescue the US economy, despite the fact of the huge resources in the hands of the private sector. As the US economy requires massive public sector intervention, so do the African economies on an even larger scale. That is exactly why the commitments made by the G20 and the multilateral institutions are so important, and have to be honoured.

I would like to believe that the developed countries now have a deeper appreciation of the fact that Africa is not in any way decoupled from themselves, and therefore that it is also in their interest that Africa should extricate herself from poverty and underdevelopment.

If I am correct, this should help Africa to succeed in its effort to persuade the developed world to honour its commitments to transfer resources to the Continent to help us both to respond to the global crisis in the short term, and to position ourselves to perform better once the world economy recovers.

The current crisis has also confirmed the continuing importance for the developing countries, including Africa, of the Bretton Woods institutions. In particular they serve as important agents for the transfer of resources to the poor of the world, including ourselves, without which it will not be possible for us to accomplish our development goals.

However it is important that the roles and agendas of these institutions should be addressed to ensure that they respond to the needs of the poor. For this reason it is important that the poor should be adequately represented in the decision making structures of the institutions that are of such significant importance to their future.

In this regard, the London G20 Summit Meeting said: "We will reform the mandates (of the multilateral financial institutions), (their) scope and governance to reflect changes in the world economy and the new challenges of globalisation, and that emerging and developing countries, including the poorest, must have greater voice and representation."

Africa must treat this as one of its strategic tasks that these objectives are achieved.

In this regard it will be inevitable that Africa elaborates her own positions about such important questions as:

· how should the globalisation process be regulated to benefit the poor of the world?;
· how correct is the assertion that the universal liberalisation of trade and the capital markets benefits the developing countries?; and,
· how correct is the assertion that minimal state intervention in the economy is a sine qua non for successful economic development?

Having elaborated its answers to these questions, Africa would have to ensure that, among others, she inserts these into what the G20 described as a review of "the mandates, scope and governance (of the multilateral financial institutions) to reflect changes in the world economy and the new challenges of globalisation".

I believe that what we have proposed would assist sub-Saharan Africa both to respond to the global economic crisis in the short term and to position herself the better to promote her development objectives once the world economy recovers, as it will.

Speaking in Dakar, Senegal last month on May 13, the President of the African Development Bank, Donald Kaberuka, said:

"Despite the current turbulence, I remain resolutely optimistic about Africa and its future economic prospects. I am convinced the fundamentals on which Africa's performance in the last decade was anchored, remains solid. It was not all about the commodity super cycle. If we do the right things, Africa will emerge from this crisis ready to take off once more."

I share the optimism conveyed by the President of the African Development Bank - if we do the right things!

Ours is the largest economy in Africa and therefore has a multi-faceted resource base denied to many sister African countries, represented, for instance, by the $4 billion commitment that the Development Bank of Southern Africa, the DBSA, has made to finance priority infrastructure projects on the Continent.

As a country we have accumulated considerable experience in terms of the challenge of reconstruction and development. Our corporate sector, including the distinguished delegates present in this hall, has shared this experience, including looking beyond the bottom line, to take on board the challenge of social development and transformation.

I am certain that as a country and the corporate sector we can interact with the rest of our Continent in a constructive manner, as reliable and equal partners who are determined to work with our fellow-Africans genuinely driven by a commitment to achieve mutual benefit, for the reconstruction and development of Africa focused on achieving the goal of a better life for the peoples of our Continent.

The President of the African Development Bank said - "If we do the right things, Africa will emerge from this crisis ready to take off once more."

I believe that you, members of SAPOA, and our country as a whole, must rise to the challenge to contribute everything we can to ensure that Africa does the right things!

I wish this important Convention success and thank you for your attention.