Transcript

African Finance Ministers Press Briefing

October 8, 2016

Participants:

• Ms. Malado Kaba, Minister of finance for Guinea,

• Mr. Felix Mutati, Minister of finance for Zambia,

• Mr. Romuald Wadagni, Minister of Finance and Economy for Benin,

• Mr. Stephen Dhieu Dau Ayik, Minister of Finance and Planning for South Sudan.

• Ms. Lucie Mboto Fouda, Communication Department, IMF

MS. MBOTO FOUDA: Good morning, everyone. I’m Lucie Mboto Fouda from the IMF’s Communication Department. I would like to welcome all of you to this press conference of the Governors and Ministers of Finance from sub-Saharan Africa.

Joining me today are Ms. Malado Kaba who is Minister of Finance for Guinea. To her right is Minister Felix Mutati, Minister of Finance for Zambia. To his immediate right we have Minister Roumuald Wadagni, Minister of Finance and Economy from Benin. And last and certainly not least, we have Mr. Stephen Dhieu Dau who is Minister of Finance and Planning for South Sudan.

As in the past, each minister will have a few opening remarks and then they will be happy to take your questions. As in the past, also, I would be grateful if you would state your name and affiliation before asking your question.
Thank you so much. Minister Kaba, you have the floor.

MS. KABA: Thank you very much, Ms. Fouda and good morning to you all.

We’ve all been through – we all experience shocks and crises in our lives and I think there are two ways to respond to that. The first way is to just let it go, not really try to draw lessons, and have it as a kind of nemesis. And the second way is to draw lessons, to use chaos and crisis to inform your next actions in order to do things differently, in order to do things in a better way. This is what I call the catharsis, for those who have learned a little bit of ancient Greek. And I think that Guinea has put itself in a cathartic posture.

As you know, we’ve been hit by two shocks. First the Ebola epidemic which had a horrifying impact for us. A lot of death, unfortunately. More than 2,000 people. Some orphans were also left and the stigma attached to the survivors. And the second shock that we experienced was obviously the decrease in commodity prices. So this left our economy in 2015 in quite a difficult situation. Growth stalled, inflation was double digit, our fiscal balance turned into a deficit, and often our reserves were depleted; we had less than 3 months of import available.

In 2016 with a new team for which I’m honored to be part of and also as the first woman to hold this position in Guinea, I think we’ve been able to turn around the economic situation and we are on the verge now to favorably conclude for the first time in the history of this country a macroeconomic program supported by the IMF. So now our growth estimate is of 5.2 percent. We’ve been able to substantially reduce inflation to about 8.4 percent. And we have reconstituted our foreign reserve to almost 2-3 months of imports.

We’ve also been able to actually make important strides in the energy sector. We’ve been able to double the production of energy, allowing about 25 percent of our population to now access affordable and reliable energy.

How did we do to achieve all these results? It was thanks to a prudent monetary and budgetary policy. We’ve been for instance, when it comes to the budget side and our domestic resources, we’ve been able to put closer taxpayers and I would say the collectors by opening treasury accounts in some commercial banks, cutting off the intermediaries.

We’ve also been able to have a better control of our spending while at the same time trying to direct some of it to investment because you don’t grow if you don’t invest. This was quite a catch 22 exercise but I think we’ve been able to do that.

So this is the turnaround that we’ve been able to do, and I believe that this is really something strong that we’ve been able to achieve in about only six months. So this demonstrates in my opinion vision, this demonstrates commitment, this demonstrates strong capabilities as well.

This being said, I would also like to add this second message. Climate change has become a very compelling element for our strategy and we obviously need to address this issue not only for the good of the Guinean population but also for the good of the region. As you know Guinea is a source for many rivers, River Senegal for instance, as well as River Niger. So we therefore have to really have a strategy and also we need to take into account these aspects in our development planning that we are currently working on.

My last point would probably be regarding the financing. Guinea is really busy trying to stabilize its macroeconomic framework so that we build resilience. This is one of the lessons drawn from the Ebola epidemic. We also obviously need to diversify our economy, also integrate it into the region. And for that we need to access longer resources because we have very important investment needs.

So I think that I will end my statement here. Thank you very much for your attention.

MS. MBOTO FOUDA: Thank you Mrs. Minister. Minister Mutati, please.

MR. MUTATI: Thank you, Lucie.

Like a typical African country, we are also victims of two great shocks. A commodity shock where many copper-producing, and in the last one year the average price of copper has gone down by over 40 percent. We are also victims of climate change. We’re also affected by the global risk uncertainty including Britain voting to go out of the EU and adjustments that China is making, and China being the main buyer of our product, copper. But we’ve also witnessed a lukewarm appetite by investors investing in the Zambian region.

The combination of these factors was that we had to endure fiscal and current account deficit. Inflation was up, the cost of money was up, our reserves were down. And the growth for the economy was subdued. Having had the robust growth for several years of 7 percent average we’ll be hitting 3.2 this year.

And therefore coming out of an election in August this year, we decided to put together an economic recovery plan to get back the economy to begin to work for the people. And that economic recovery plan is around five principles. The first principle in the recovery plan is fiscal sustainability. Putting together the necessary forms that you want on your side including tax administrative compliance, patching up systems, and also dealing with expenditure. Managing waste and abuse and also ensuring that you do not do beyond the capacity that you’ve got.

The second principle of debt sustainability was crucial. The borrowings that had accumulated historically are now 35 percent of our total revenue generation. And you can’t lead a country like that.

The third principle that as we administer paying going forward, we needed to build equity because the majority of our people are not so fortunate. The difficult decision that we’re going to take on the expenditure side we have to cushion the poor people as the third principle.

The fourth principle for us is economic governance looking at what we must do in terms of the legal framework regulation particularly around public expenditure management. What we need to do around bureaucracy and regulation that is slowing down business transaction and expansion. And what we need to do to reorient the minds and attitudes of civil servants. They need to begin to be shifted from a mentality perspective, from a consumptive attitude to a productive attitude. It’s critically important. We have seen that the biggest clog is the attitude of our civil service. So for us governance is key in terms of the recovery program.

The final pillar is what we call the credibility of the budget. Don’t spend what is not in the budget. There was a tendency that you have a budget system that in our place is called ifness. Clever people are spending around the ifness, building up arrears. And in fact when there were issues around workshops we saw not in the budget, because of the power issues that we had in the country, they’d always give the excuse that due to lack of power we had to process a transaction around the system because we needed to go to a workshop. So we need to begin to curb those kinds of things.

But the key issue for us is that we’re leading the process, we are defining the perimeters of recovery. If we engage with the IMF and incorporating partners, we are saying this is Zambia plus. The plus factor is when we dance with IMF, dance with the incorporating partner and the private sector.

Having done all that, the economy doesn’t turn, it just stabilizes and restores credibility. We need to deal with the two critical hurdles that are preventing us to go forward. And hurdle number one is power. Power no matter what you want to you, whether you want to industrialize, you want to diversify the economy, you need to address your challenges of power which we are doing, extending and putting in hydropower. We are also focusing on transport logistics, particularly rail and road. To begin to smoothen processes, we are addressing the implementation capacity so that the things that we say we are going to do we will remain accountable to.

Like Guinea, we have been victims of climate change. We have been victims in the sense that we have accumulated a lot of carbon and yet we have not benefited. The droughts that have hit us, we’ve had to divert the limited resources to deal in particular with the vulnerable population. But we’re not in the habit of mourning. We believe that the challenges that we face, the principle responsibility to address those challenges remain ours. We just go elected, we have five years to go. And we believe that in the first one or the two years, we are going to take the hard decision because we have got accumulated political capital. We need to harvest from that. In years three and four as politicians we tend to be careful. And if we don’t do it now, we’re not going to change the economy.

So for Zambia we believe we can do it, we are political capital, we have determination and commitment and we are resolved to deliver for the people.

Thank you.

MS. MBOTO FOUDA: Thank you Mr. Minister.

Can I just add that this is a press conference and we don’t need to applaud please because we have reporters in the room recording, thank you.

Minister Wadagni, please.

MR. WADAGNI: Thanks Lucie. I will speak French.

The Benin which I represent here has also suffered from shocks. And without going into the details, in the specific case of Benin we have an economy where half of fiscal revenues are linked to trade with Nigeria and therefore pressures on the Nigerian reserves -- we just had a devaluation – have led to having weighed on half of our fiscal revenues. But this provides the opportunity for us to really raise the real questions and to wonder what do we need to do so that our economies have the capacity to resist these shocks better in the future. Because beyond the economic shocks, there are also the climate shocks and be it one or the other we have a system today which allows us to anticipate some of the crises, however, our economies do not always have the capacity to be resilient to the shocks.

The current situations everyone knows them. They are budgetary: we have cut back on public spending but our original approach has to do with an innate period of crisis, usually one tightens all areas and we reduce expenses and we try to collect the maximum fiscal receipts. We limit expenditures including capital expenditures but our approach is that in order for the economy to be more resilient and for structural reform to become a reality, as of the moment of crisis we have to invest significantly. And we are investing significantly in two areas. First, how to see that there is true coherence between the structure of our GDP and the structure of our fiscal revenue. One example is that agriculture is 20 percent of our GDP but contributes zero to our fiscal revenues. What do we do in this case? We have defiscalized all of the activities related to agriculture and we are attracting that subsector to declare their level of activity but with support through training. These are measures that cost money.

Also the real estate sector is important, you need to have mortgage guarantees and this is a sector which is not very well developed in Africa. We have eliminated all property taxes. We have eliminated the inheritance rights or estate taxes. So it may seem intuitive but we are actually taking measures which cost us today. However, in our programing beginning in 2018, 2019, we’re going to expand the base of our activities. Also property, real estate and agriculture, but through a better taxation, progressive taxation, of these activities we will reestablish, we will rebalance the GDP in our two sectors and our fiscal revenues. But these resources are not readily available. It requires courage.

The second type of measure that we are undertaking and preparing for the future is that we must make our country important in economic terms. Benin is known for its cotton production but that doesn’t give us much revenue so we’re trying to use our real assets and the fact is that while preserving what contributes to our receipts today we have to develop the tourist industry. Benin is unique in this sense and has unique assets. We have the only animal park in west Africa, we have the big five, we have the sea, we have slave heritage site, we have so many things that we have decided to promote. And so as of now, in a period of crisis, we are devoting a lot of money to the development of this sector because it will allow us to have a much more diversified economy and improve the structure of our economy. But to do this requires a lot of money. And of course what we have done so far is to start discussions with the IMF to start a program and we will undertake the reforms that are necessary. The balance between GDP and fiscal revenues is part of the reforms that we need. We need reforms to also clear and have healthier public expenditures, and we also want a customized approach, a targeted approach to what we need to do. We need to assess all of the parameters.We’re asking the Fund to support us in ad hoc analysis because when we have a budget with a deficit of 10 percent but that same budget if you take into account capital expenditures and you see a balanced budget then you can’t look at the 10 percent deficit, you have to see what is happening with that deficit and what is needed.

In 2017 we will have for the first time a balanced budget. But for the first time we will have a budget where capital expenditures are higher than operational expenditures. This is our approach and we are in talks with the IMF so that on our side we would initiate reforms, we would be completely transparent and benefit from the Fund’s assistance.

MS. MBOTO FOUDA: Thank you, Mr. Minister. Minister Dau Ayik, please.

MR. DAU AYIK: Thank you very much, Madame Moderator, my fellow governors, ladies and gentlemen, representatives of the press, good morning.

South Sudan, the newest nation in the world is currently experiencing an extremely large income shock resulting from political and economic developments in the country. As the new Finance Minister, together with my colleagues in the government of national unity, I am committed to address this crisis as best as I can, but we need the support. I call upon our generous international partners to double their efforts to help us stabilize our economy and help us to provide the services and wellbeing that our people deserve, as well as to improve our governance and institutional capacity.

At the same time, trying to address this economic crisis we are also focused on implementing the 2015 peace agreement in order to restore peace and build the hopes of our nations and focus on social and economic development. It is in this context that this year’s budget will focus on maintaining salary payment, financing the peace agreement, and implementing economic stabilization reform.

This includes measures to increase the revenue, reduce all but essential expenditures, improve cash management, and in the long term we have to diversify our economy. We in South Sudan hope and count on the international community including the IMF. We hope the institution will increase the technical assistance and capacity building they are providing to us so that our institutions have a capacity to implement the necessary reform. We look forward to concluding our Article IV assessment with the IMF before the end of this year and hope this could become a pathway to discussions on a self-monitored program and external financing. We are committed to the reform agenda as we are working to restore the peace and give the services needed to all people.

Thank you.

MS. MBOTO FOUDA: Thank you Messrs. Ministers. Thank you Madame Minister.

We will have about 20 minutes, we started a little late so we’ll have to catch up on that for your questions. So we can go back to the room now. Let me start with CNBC Africa.

QUESTIONER: Thank you very much. Let me start with Minister Ayik. A UN report does show that South Sudan is actually procured to fighter jets, L39 fighter jets, and on top of that $10 million US has been getting paid to the IMF from 2014, 2015, and in the first half of 2016 we’re looking at $5 million US. Does South Sudan have the fiscal space?

My second question is your foreign reserves. We’re looking at – according to the latest Article IV from the IMF, we’re looking at your cover in terms of months, 1.5 months of foreign reserves. What is the Republic of South Sudan doing to rebuff the reserves? Thank you.

MS. MBOTO FOUDA: If there is another question for Minister Dau I would want to take that as well and then we will give him the opportunity to respond.

No? Okay. Mr. Minister, please go ahead.

MR. DAU AYIK: Thank you very much for the questions. As I mentioned, South Sudan is an oil producer like other countries that have been affected by the global oil prices. It was coupled with our internal conflicts that also have affected the production activities in the country. Yes, we have been given support from the international community and last year South Sudan agreed with the IMF to devaluate and to liberalize the national currency. And we have been given our right as SDR through 140 million to stabilize the exchange rate. That amount has been auctioned in a transparent way, but because managing the floating exchange rate needed a bigger amount, we withdrew from our SDR quota.

Today there is a real challenge. As we speak our currency has lost 80 percent in this last year. The inflation was 730 percent last August. We accepted the recommendation from the IMF for reform, but this reform needed support for us to succeed.

As we are implementing peace agreement, we will bring back the country to normalcy, but at the same time, the international community’s participation to help our government and our reform agenda I think is paramount.

MS. MBOTO FOUDA: Thank you, sir.

Let’s take another set of questions. Yes, please, here.

QUESTIONER: Thank you. To the ministers, just recently we all got excited about Africa rising, but it seems to me now that trend was thwarted thanks to the local commodity prices. Now, my question is what is the region doing in terms of trade, in terms of infrastructure, in terms of fiscal monetary policies to be able to turn the bad times around and return to better growth?

Then secondly, I’d like to know how concerned are you about the current economic situation in Nigeria. We all know that whatever happens in Nigeria has a very large impact in the rest of the region. So are there talks, discussions on the table on this matter? Thank you.

MS. MBOTO FOUDA: Thank you so much. Do we have another question under that line by any chance? Let me take a second question then. Yes, please. I’ll come back to you. Third row. Can you come to the microphone please?

QUESTIONER: My question is to Ms. Kaba. I would like you to elaborate a bit about the problems you mentioned about access to resources and maybe to longer maturity resources and how it’s a problem for your investment program please.

MS. MBOTO FOUDA: Thank you so much. May I ask the four ministers to start by taking the question on the Africa rising rhetoric that is fading and how your individual countries deal with that. And the second one is how concerned are you about economic developments in Nigeria, how do they affect your respective countries.

Let me start with Minister Kaba, please.

MS. KABA: Thank you Madame Fouda. I will speak in French. I think that the outlook for Africa is still a positive one though there are numerous efforts made for furthering our regional integration. Take for example, the West Africa Region, where you find the implementation for a common foreign tariff which would allow for easier exchange between our countries. Guinea is an active participant in these efforts.

As for infrastructure, for example, energy infrastructure, I believe that the trend is looking up. When we look at the initiatives seeking to put together a network for distributing energy towards Senegal, other networks that include Sierra Leone, and even Cote D’Ivoire, and Guinea is an important player. We can look at roads as well. Efforts are still under way in that regard.

As I see it, there are reasons to be optimistic for Africa. As long as we step up the integration of our region that is perhaps the only solution for our region. We have smaller markets for which I would say that there is an interest for us in doing away with borders and having more integrated markets benefiting from an economy of scale and making it more profitable.

MR. MUTATI: Thank you. I think it doesn’t matter how you fall but it’s the quality of how you rise. Yes, Africa has had a little stumble after a robust growth for a number of years we had the shocks. But also using the regional integration pillar as part of the quality of how we rise again. In southern Africa, for example, for Zambia, we have infrastructure development, one called Kazungula which is interconnecting Botswana, Zambia, and Zimbabwe in order to move the goods as quickly as possible to the port. And going up north because of the power deficit, to try and create stability for power, we are connecting Zambia, Tanzania, and Kenya so that we can be able to tap eventually into the power from Ethiopia. That is the way Africa should come.

We are also working with Zimbabwe to develop hydropower generation at Batoka between the two countries. Those are the kinds of initiatives that the future of Africa will be anchored upon.

We are also dealing with trade facilitation across the borders simplifying documentation ensuring that we minimize the transaction costs across the borders. Those are the things that Africa must do. And as part of COMESA we have said that we’re going to have the (Tripartite) collapsing the East African community, COMESA and SADC to create the biggest market that Africa is going to have of more than 400. Increasing the levels of trade among us ourselves from a mere 5-6 percent to somewhere around 20 percent. It’s easier to trade with each other than go across. For example, in the case of Zambia, our biggest trading partner now is Congo DR. We used to worry about sending meat to Europe and the quality and all these things and yet we sell it to the Congolese. It doesn’t matter how you pack them, they’re just buying and paying in dollars. So why go to complicated markets and deal with phytosanitary and sanitary and all these things?

I think it’s a mentality attitude that we must also address. African countries can help each other. We understand the difficulties. I was at the border with Congo two weeks ago. Our people were taking live goats into Congo. You can’t do that in Europe. So Africa must be able to say we can only rise if we interact with each other. Let’s not look out of Africa and hope that there are better markets elsewhere. A dollar is a dollar. Thank you.

MS. MBOTO FOUDA: Minister Wadagni, please.

MR. WADAGNI: Thank you very much. I will answer the last question because I share that point of view on Africa rising. On the point on Nigeria, I believe that all of us must act collectively and do so with greater vigor. The northern portion of the country experiences terrorist threats and there is in fact a risk of explosion as a result of the economic crisis that should not be neglected. What happens to Nigeria has a direct impact on Benin. I said a moment ago that half of our fiscal revenue comes from Nigeria, we would be affected. But if you look at what happens in Nigeria and the causes for those problems, you see that the drop of oil prices is linked to the fact that hydrocarbon is 15 percent of the Nigerian GDP but 5 percent of their fiscal revenue.

That’s the dichotomy that I explained a moment ago in Benin. This is something that we must tackle head on. Though it only accounts for 15 percent of the GDP and that does have an impact, you can see that it can lead your economy to be topsy-turvy. Working in Nigeria the head of state -- and the head of State of Benin travels there almost every month, in fact he was there last week, and we try to assess regional integration to see how we can help Nigeria with that currency issue and to see how we can assist them to channel some of their transactions through us. So, for example, in Benin we have further developed the agro-food industry and that’s why we have eliminated all taxes in that sector so that, say, somebody that would like to have a sheep in Nigeria can come and cross our border with them without a problem.

So, in a few words, I believe that the problem in Nigeria is more severe than what one might believe from our debate today. There is an economic issue, let’s not forget the link with the security issue in Nigeria. And if this is not resolved swiftly then the consequences might be direr. ECOWAS, the economic forum for the region, takes the problem seriously and we are doing our best. The IMF as well takes this matter to heart and they have worked with Nigeria in trying to find a solution. The solution will hinge on massive investment for structural reforms. There needs to be investment.

And we also have the point of debt that takes us back to the beginning.

MS. MBOTO FOUDA: Minister Dau?

MR. DAU AYIK: I wanted to concur with my colleagues who are before me. As you know, the African leaders agreed that the continent has to change. We have the future, we have the agenda, 2063 which is actually side by side consistent with 2030 (SDGs). Africa has its own marginal resources that need to be unlocked, that through the partnership with the international community where we need to have a technical and financial support to unlock our resources. And it is our wish that Africa has a future.

Today, we are observing the development of regional debt blocks, integrations. For example, in east Africa regions where I belong we are operating within EAC, East Africa Community. We have what we call a northern corridor, and we agreed in this forum to pool our resources, to work together, to build infrastructure, energy, road networks, telecommunications, all of which will create employment for youth and give hope to our people.

So we are saying that we are on the right track. Several conferences took place in Africa in partnership with Africa, including the TICAD in Nairobi, the Africa Summit with India in New Delhi last year. The Africa with China in Johannesburg, all these are in line with the vision to develop Africa. Thank you.

MS. MBOTO FOUDA: Thank you. We are limited by time constraints, but I would like to give Minster Kaba the opportunity to answer the question from Emerging Markets and then I’ll take one last set of questions from the room.

Minister Kaba, very briefly please.

MS. KABA: I think it was a question related to longer resources which I think that the journalists are asking, because it will give me an opportunity to elaborate a little bit on that.

I believe this is really the problem that we have in Guinea and maybe in other countries. We have very important investment needs and in Guinea, for instance, and given the constraints that we faced with our IMF supported program with actually no access to non-concessional resources. The only resources that we have are very short term resources, all these in a normal way should only be mobilized when you have an emergency or for closing gaps operations. You can easily understand that there is a mismatch. We have needs that require longer term maturities loan and we only have short term resources and that is exactly the problem that we will face while negotiating a future program with the IMF because we obviously intend to continue collaboration with the IMF and other partners. But I think that the crucial point for us will be to lift those financing constraints while obviously considering the fact that we will need to have sustainable debt pattern. But this is really for us the crucial point.

There are two complimentary ways to look at it. The first one from our Guinean side is to enhance domestic resource mobilization with the increase in tax and non-tax revenues. There is also the question of how can we better mobilize remittances, how can we better mobilize domestic savings. The second way to look at it and from probably our partners’ perspective is maybe having less automatic approach while designing a program. And that’s why we are fully committed for our next program to have a bespoke program, a program tailored to Guinea’s specific needs, especially when it comes to financing. Thank you, this is what I could say.

MS. MBOTO FOUDA: Thank you so much Minister Kaba. I’m afraid we will have to wrap this briefing at this point. I’m told that the room is going to be used shortly by another team. I would like to thank all the ministers who have agreed to participate to this exercise, and indeed to thank all of you for coming. Thank you.