Transcript of a Press Conference by African Finance Ministers During the 2011 Annual Meetings of the World Bank Group and International Monetary FundSeptember 24, 2011
Ms. Cristiana Duarte, Minister of Finance and Public Administration (Cape Verde)
Mr. Ponyo Mapon Matata, Minister of Finance (Democratic Republic of Congo)
Hon. Mustafa Mkulo—Minister of Finance and Economic Affairs (Tanzania)
Hon. Mambury Njie—Minister of Finance and Economic Affairs (The Gambia)
Ismaila Dieng, External Relations Department, IMF
|Webcast of the Press Conference|
Mr. Dieng: Good day. I am Ismaila Dieng, from the External Relations Department of the IMF. Welcome to the traditional African Finance Ministers press conference for the Annual Meetings. Joining us today, we have Minister Cristiana Duarte from Cape Verde; Minister Ponyo Mapon Matata from DRC; Mustafa Mkulo from Tanzania; and Mambury Njie from The Gambia. Each Minister will make short opening remarks, and then we will open it to questions. So, without further ado, I will hand over to Minister Matata.
Minister Matata [Interpreted from French]: I would like to thank the External Relations Department of the IMF for including us in this conference. Ladies and gentlemen, I would like to point out a few things in my presentation, three points.
First of all, I am going to give you a brief presentation of the economic situation and the financial situation in my country. Then I would like to broach the question of the global challenges and regional challenges, and third, I would like to tell you what are the various solutions that are possible and solutions that we are trying to implement so that we may take up these challenges.
As to the economic and financial situation of my country, I would like to point out that, globally, the development is positive. DRC has a growth rate which is quite robust, and according to the estimates by the IMF staff, the growth rate of the Congolese economy should be around 6.8 percent in 2011, and the growth rate has actually been 7.2 percent in 2010.
As to inflation, we have had up to the end of August a little bit of inflation which was more or less 14 percent, and I should hasten to tell you that this is essentially due to the price development in oil products as well as food products globally. Inflation was supposed to be less than 5 percent. The exchange rate of the Congolese franc, which is our national currency, in relation to other currencies is rather stable--it has been since the beginning of the year--and we have had a currency depreciation rate which is about one percent, while it was about 15 to 20 percent in the previous years.
So, simply to tell you that as to the macroeconomic framework, we are in a stable position, and this is due mainly to the good behavior of public finances as well as the good behavior of the monetary policy. We are striving to contain, naturally, with the support of the IMF, with whom we have concluded an economic program over three years, contain our fiscal balance within the limits that are acceptable and consistent with the macroeconomic stability.
Generally, in spite of the economic situation which is rather difficult, we are trying with prudent policies, fiscally prudent policies and also with prudent monetary policy, with an investment policy in relation to the robust program of the government, whose purpose is to improve the basic infrastructure. So we have an investment program in the road sector, in the education sector and the health sector which makes it possible for us to significantly improve the infrastructure taking into account the huge size of our country. This is what I wanted to say as to the economic and fiscal situation of my country. Now I would like to briefly tell you about the global and regional challenges which the country has to face.
First of all, there is the infrastructure deficit as well as the low productivity which is a result. As you know, DRC is actually almost in the center of the continent, and we have an infrastructure problem. This means that regional integration is difficult. There is also the increasing of inequalities because economic growth is not always inclusive, as much as we would want it to be, and the instability risks are there, and they compromise equality.
There is also the question of volatility of basic product prices but also, as I mentioned before, the increase of food product prices as well as energy products, which does have a direct impact on African economies. I think this is an issue which was mentioned yesterday during the official opening of the national assembly of the IMF and the World Bank, and on the basis of the interrelationship between developed economies and developing economies, there are potential risks that the crisis which we see at the horizon will have an impact on developing countries.
Taking these challenges into account which are related to the infrastructure deficit which is linked to the increase in inequality and instability and also linked to the volatility of the basic product prices, what are the actions that can be implemented by the leaders so that we may be able to contain these challenges?
First of all, there is the problem of the regional problems, and I would like to underline that during the meeting of the African Caucus, which actually included a good number of African Governors with the World Bank and the IMF on August 3 and 4, this infrastructure deficit, particularly when it comes to energy and agriculture, was definitely emphasized during the conference. One possible solution would be the possibility that regional integration would be the solution to these problems. We then suggested that we have a regional approach so that we may be able to mobilize our development partners for projects which do have an impact not only on the country itself but also in the sub-region. For example, in the energy sector, we suggested that the Inga Project, which is in DRC, be considered as a project for regional integration, particularly when it comes to Central Africa. We did the same thing for Southern Africa, also Eastern Africa, but also in Western Africa, with projects, for example, in Guinea, in Cameroon, as well as in Kenya.
We also appreciated the proposal made by the G20 so that we may find solutions in order to mobilize financing to solve the agricultural problem. As you know, the impact of price increases of food products globally has direct impact on African economies. One of the solutions would be to improve the supply of agricultural products in our countries and, more specifically, in DRC, as well as the increase of financing for the purpose of improving at the same time the supply of agricultural products in Africa but also the roads to carry these agricultural products so that they may lead to industries. This could be a means in the long term to solve efficiently these various regional challenges.
Then there is the question of the mobilization of domestic resources, because in fact African problems and regional problems are not problems which should be solved with external financing. There are a number of issues which are of interest for African leaders, and they should implement tax policies or fiscal policies so that they may improve the mobilization of domestic resources.
So these are the three items that I wanted to underline. I also talked about the economic and financial situation of DRC. In general, I said that it was a solid situation; I also mentioned regional and global challenges, for example, in relation to the infrastructure deficit in my country but also in the sub-region. I talked about the increase of inequalities as well as the impact on stability. I talked about the volatility of basic product prices, and I also mentioned a number of solutions on a regional level. To conclude, I would like to plead for better representation of our country within the Board of Directors of the IMF. As you know, we are trying to obtain a third seat at the Board of Directors so that we may be better represented.
Thank you very much.
Mr. Dieng: Thank you, Mr. Minister. Mr. Minister Mkulo?
Minister Mkulo: Thank you very much, Mr. Ismaila Dieng.Let me thank the IMF for hosting this press conference. I will be very brief because my colleague here has said a lot of things, in which I think he also referred to part of our region. I will concentrate on what has been happening at the IMF within the last five days.
The stability of the global economy has been the main focus of the 2011 Annual Meetings this week, and the assessment of the global economic outlook has been well-captured by the statements of the heads of the IMF and the World Bank as having entered the danger zone.
There is a growing consensus that the majority of our trading and development partners, the advanced economies, will most likely experience a second round of severe economic downturn. Our economies are interconnected as never before in many aspects from trade to financial flows. In that regard, the risks to the African economies, especially the East African economies, are considerable.
The East African Region, consisting of the core five countries--that is, Tanzania, Kenya, Uganda, Rwanda, and Burundi--and the immediate neighbors--Democratic Republic of Congo, my neighbor here, South and Northern Sudan, Zambia, Mozambique and Ethiopia, and to a greater extent, our partners in the [unclear] development community, constitute a dynamic economic zone both in terms of growth and trade prospects.
Over the years, we have strengthened our regional interconnectedness in parallel to our greater integration into the global economy. Three years ago, we were all hit hard by especially the global economic downturn, as the demand for exports shrank and financial flows declined.
We did manage to coordinate among our regional partners, our individual countries, and a collective response to the economic downturn. As a result, we succeeded in shielding our banking system from the global financial crisis but also helped our non-exposure policy to the then toxic assets. Our collective and bilateral response also helped to shield our economies from the deeper downturns. Our strong policy frameworks were supported by sizeable fiscal and foreign reserve buffers. As a result, our countercyclical policy responses helped to swiftly reverse the trend.
Members of the press, let me mention that despite the strength of our policy frameworks and economic buffers, as we entered into the last global economic crisis and the swift recovery from that crisis, our economies are yet to attain the pre-crisis growth levels as we now enter the second round and possibly the worst and most challenging global economic crisis ever.
As I mentioned earlier, the risks that we face are more elevated than those we faced during the previous global economic crisis, and these risks will become more elevated if the global economy falters significantly.
A problem that I can mention is that the global food and fuel price surge has protracted and at much higher levels than before the crisis. The economic shocks that will emanate from the euro area crisis and other advanced economies are expected to be stronger and possibly more severe than the last crisis. The effects of climate change, especially the severe drought in Eastern Africa, are compounding the regional food supply deficit and price developments. Our economies are still in the recovery path and in the process of restoring the critical economic buffers. There is a real danger that the modest progress we have attained in meeting some of the MDGs will be eroded by ensuing global economic crises.
In line with the main theme of this year's Annual Meetings, we in Tanzania and the regional partners remain determined to respond with appropriate countercyclical measures inasmuch as our macroeconomic frameworks allow. We also remain determined to strengthen our policy and regulatory frameworks further to help shield our financial institution and the key economic sectors from deeper downturns. In the spirit of the call by the IMF Managing Director and the President of the World Bank, we remain committed to work with the global leaders to address the challenges we face.
Regarding the Tanzania economic situation, I must say that our economic situation is quite good. It was better before the economic crisis. The growth rate before the economic crisis was 7 percent on average for successive years. Currently, it stands at 6.7 percent. But most of the indicators show that within the next 12 months, we might reach 7 percent, and after that we should start recovering and probably might reach the pre-economic crisis level of 7.4 percent.
Macroeconomic stability is quite good, with a few areas here and there. The problem that I may say Tanzania needs the world to know--we have a big crisis, and as my colleague from DRC has said, we have an energy crisis. This is a real, real big crisis. We have a power shortage in Tanzania. We believe that if the international community can come across and invest in Tanzania in the power sector, we might reverse the situation, because energy is the mother of economic growth. Without energy, nothing can be done.
We invite the international community and through here, the press--we wish that you would educate the world to come and invest in Tanzania. We are opening up the energy sector. We are going to liberalize the energy sector so that instead of the government alone investing in the energy sector, the private sector will be allowed to invest in the energy sector, so anybody with interest in the energy sector is allowed. Tanzania is surrounded by six countries including DRC, so improving the energy sector in Tanzania means improving the energy sector in the whole Region. Mr. Chairman, I don't think I have more. I will probably answer more questions.
Mr. Dieng: Thank you, Minister Mkulo. I will now call on Minister Njie.
Minister Njie: Thank you very much, Mr. Chairman, distinguished ladies and gentlemen, members of the press. I join my colleagues to express and register our appreciation to the IMF for hosting this press conference.
The global economy is at a crossroads. This year's Annual Meetings of the IMF and the World Bank are taking place against the backdrop of a significant risk for the global economy. Global economic activities have slowed down and have become more even with downsize risk growing. Strong performance in the emerging economies and developing economies is offset by higher-than-expected weaknesses in the advanced countries and debt concerns in the United States and Europe. Fears of debt default in Greece and contagion to the rest of Europe and lack of political agreement in the United States on a medium-term fiscal consolidation framework have added to negative market sentiment.
Now more than ever, political institutions in the advanced economies need to rise to the current economic challenges and take the urgent action necessary to address weaknesses in public, bank, and household balance sheets in order to restore confidence and prevent a global recession.
For the African continent, economic performance during the pre-crisis decade was strong. This was due to actions taken by Africans to adopt good economic policies, build macroeconomic policy buffers, implement far-reaching structural reforms, improve economic governance, and end political conflicts. These pre-crisis buffers enabled the continent to withstand the effects of the 2008-2009 crisis.
However, we are not yet out of the woods. Recent developments in the global economy pose downside risks to Sub-Saharan Africa, particularly heightened pressures on the balance of payments, reduce export demands, and decline in government revenue, with serious implications for ongoing investments in agriculture, investments in employment, and achievement of the Millennium Development Goals. This is exacerbated by high food and energy prices.
The risks are even greater this time around, as we have already used a large part of our macroeconomic policy buffers, i.e., fiscal space, external reserves, to mitigate the impact of the crisis. Given this limited policy space, the international community must [unclear] to provide additional concessional refinancing and policy advice to the innocent bystanders impacted by the crisis.
In Sub-Saharan Africa, policy is focused on rebuilding policy buffers, strengthening financial institutions, fostering inclusive growth, and strengthening social safety nets. All of this has been done with a view to maintaining medium-term fiscal sustainability. So you can see the enormity of the task at hand.
It is in this context that the Government of The Gambia continues to do all it can to protect its people from the impact of the crisis. Economic growth is strong, 5.5 percent. Inflation is relatively low, 4 percent. External reserves stand at 5.1 months of imports, and we have made strong progress toward achieving the Millennium Development Goals.
We plan to further progress by implementing our program on accelerated growth and employment, which aims at scaling up resources for infrastructure investment to increase economic growth, job creation, and meeting of the Millennium Development Goals.
We are putting agriculture and food security first. These are priorities given the recent increases in food prices. Accordingly, The Gambia National Agriculture Investment Program was launched with the objective of achieving increased contributions to agriculture and GDP whilst ensuring food security through the targeting of investments in land preparation, irrigation, and provision of agricultural imports. In ensuring attainment of these targets, budgetary allocation to these sectors has been doubled and will continue to be increased toward the attainment of the 2003 Maputo Declaration target.
I will echo the call from my colleagues that we need investment from the advanced countries in our energy. So far in The Gambia, we have moved far ahead. We have liberalized the energy sector, and we also already have an independent power producer agreement going on, and this has positively impacted on our energy sector.
Economic management in our countries has been made more difficult by the crisis emanating from the advanced economies. Our economies are irrevocably bound together. Therefore, to some extent, continued strong performance of Sub-Saharan African economies depend on political commitment and strong policy actions from advanced countries to revive their economies. With this, there are dark days ahead.
MR. Dieng: Thank you, Minister Njie. Now Minister Duarte.
Minister Duarte: Good morning to everybody. I am representing Cape Verde Islands. I will try to make this introduction in five minutes, and I have three issues. The first one, I will give you a picture of Cape Verde in the last decade. The second will be how Cape Verde has been coping with the international crisis; and third, Cape Verde is a middle-income country and the new risks within the new international environment. It seems that in the past four weeks, something very bad is going on outside.
Cape Verde, for someone who does not know, we are 10 volcanic islands out of West Africa, right in front of Senegal. We are a small island country, 500,000 in evidence--I used to say no bigger than a neighborhood in New York. And in 2008, we graduated from an LDC country, a least-developed country, to a middle-income country. The last decade, we got our independence in 1975. We were a Portuguese colony; we speak Portuguese. So English is not my mother language.
What we did from 2000 to 2010--our average annual GDP growth has been 6.2 percent from 2000 to 2010. Our average inflation was around 2 percent. Our GDP per capita has increased by 80 percent from 2000 to 2010. We managed to reduce poverty from 37 percent to 24 percent, and in 2007, we managed to reach four out of the eight MDG goals.
But Cape Verde has no natural resources. We did all of that, but we have no natural resources. We are only 4,000 square kilometers. We are more sea than land. We are 800 square kilometers of sea. Since we have no natural resources, of course, we are becoming more an economy based on services. Indeed, the services sector has reached 75 percent of our GDP. In the last 10 years, we managed to--so, Cape Verde's economic growth has been mainly based on capital accumulation. We managed to reach an average of 40 percent of GDP in terms of physical capital formation--40 percent of GDP. In terms of accumulation of human capital, we managed to reach an average of 25 percent, but we still have a big challenge which is productivity. The contribution has been only around 5 percent.
So Cape Verde, despite the fact that it is a small country and has no natural resources, managed to put these macroeconomic indicators on the table thanks, essentially, to--in my perspective, in my opinion--a strong, good governance. At the end of the day, institutions do matter. At the end of the day, institutions do matter.
So in the last 10 days, we have bet on hard issues but also on soft issues. Of course, we work on our roads, our schools, our maritime ports, and our airports, but at the same time, we have worked on our soft issues--human capital, our institutions, our democratic framework, et cetera, et cetera.
So, how has Cape Verde been coping with the international crisis, such a small country? We are an open economy, so the international crisis is hard on Cape Verde.
Basically, after our graduation in 2008, we made an agreement with the international community. We said: Please, we have been graduated, but we still have a high level of vulnerability, so give us eight to ten years in terms of transition period so you can keep enjoying concessional financing, so we can infrastructure our country at a very low cost, and then we promise that we will put economic growth on the table, and we will put this graduation under a sustainable path. This agreement has also helped Cape Verde to cope with the international crisis, because when the international crisis hit Cape Verde, it hit from the external demand side. FDI flows decreased, remittances decreased, exports decreased, and of course, fiscal revenues decreased.
What did we try to do? We tried to increase our domestic demand by increasing our public investment program. By doing that, of course, the deficit went up, and the level of our public debt went up. Despite the deficit and the debt both going up, the debt is within sustainable limits. Why? Because we adopted a very strict rule. Cape Verde only contracts concessional financing. Don't put on the table commercial loan proposals because, unfortunately, we have not reached the level to accept this type of funding, this type of financing. In fact, under our Policy Support Instrument with the IMF, we have a limit for non-concessional financing of $35 million. In 2011, we have not used this limit. In 2009, as I mentioned, the international crisis hit Cape Verde. Our growth rate went down around 4 percent. But in 2010, we started to recover. Everybody was happy--not only Cape Verde, I believe, but everybody was happy.
But in 2011, we have been facing this euro zone risk. And in the case of Cape Verde in particular, it is an important question, because 90 percent of our exports are to Europe--are to Portugal, Italy, and Spain--so three of the PIGS. We support 90 percent to the PIGS, which is not something that I would suggest is comfortable nowadays.
What are our medium term risks--and this is the last item of my intervention, my speech.
Now Cape Verde is a middle-income, and it seems that in this adverse international context, we might be running a risk of being grabbed by what they call the "middle-income trap." The countries that have been graduated did very well. They managed to be graduated, but they didn't manage to stay on a sustainable path at the middle-income level. And Cape Verde now is facing this challenge.
My question is in this international context, what is the role of the World Bank and the IMF institutions for Cape Verde and for African countries. The Cape Verdean position is very clear--very clear. We think that the World Bank or the Bretton Woods Institutions should continue supporting Africa, and they should see this support as part of the solution to the problem and not part of the problem. They need to see this support as part of the solution of this international crisis.
My question is if Cape Verde, without natural resources, managed to grow at a 6 percent average for ten years and to put all of these results on the table, can you imagine an Ivory Coast? Can you imagine Nigeria or other countries? So there is a great potential in Africa, a huge potential in Africa, and I think we should be seen as part of the solution for this international crisis. Thank you very much for your attention.
Mr. Dieng: Thank you, Minister Duarte. Now I will open it up for questions. Please identify yourself and your organization. Here, in the first row.
QUESTION [Interpreted from French]: Thank you. I have two short questions. First, to the four Ministers, of course, there is an average growth of 5.5 percent in Africa, but the reverse is that this does not create jobs. There is an erosion of the purchasing power of African people. My question to you, Your Excellencies, is at your level, considering the economic growth rates that you have seen--up to 7 percent in Tanzania--how can you create jobs, and how can you face and counter and stop this erosion of the purchasing power? That is my question to the four Ministers. But I would have a question for the chair of the Caucus who organized recently a meeting with something innovative, that of integration projects for infrastructure and for energy. What would be the impact of this novel approach in the fight against poverty and considering this crisis which seems to deepen?
Mr. Dieng: Thank you. I’ll give a chance to each of our Ministers to respond to those questions. There was a question about the relationship between jobs and high growth rates in Africa, and the second question was for the President of the African Caucus, about infrastructure. Minister Matata?
Minister Matata [Interpreted from French]: Thank you. I thank our colleagues in the press for these questions. Now, concerning the regional integration project, I said at the meeting of the Caucus that we had put forward some novel ideas for these meetings. Originally, we were dealing simply with a review of the memorandum that would be submitted to the leadership of the IMF and the World Bank. We thought it would be much more effective if matters of continental interest were to be reviewed at our level, and that is where we discussed this question of infrastructure for energy.
You know that in Africa, we have a considerable deficit in terms of energy supply. But you must also note that no sustainable development in terms of industrial development can be done without a source of energy that is reliable, sustainable, and quantifiably sufficient.
That is why all the Ministers who were in Kinshasa last August said that we should turn toward regional integration projects. Why? Because it is a question of economies of scale. Instead of having each state looking for a specific solution for its population and for its economy, we have projects that are very costly, like Inga, Inga-III. This would require several billion U.S. dollars. And the economic impact would not be limited only to DRC. Once we have electricity produced in Kinshasa and DRC, it can be supplied to the whole sub region and even beyond. This is also true for the Kenyan project, the project in Cameroon and also in Guinea.
So these projects are important because it would ensure that the interests of African states be mobilized so that we may find resources. We require considerable sums, and that is why we need a public and private partnership, but also, we must get our traditional partners to become aware of the situation. The African Development Bank, who also are credible on the financial markets, helped us to find funds. That is why these regional projects are of such interest.
Now, to try to answer briefly your question concerning jobs, I believe my colleague could possible better answer, but these subjects were raised at the meetings. There is growth, but the growth must be inclusive. The jobs must help all of the population at all levels. If this is not the case, this creates instability, and that is a problem.
The erosion of purchasing power--if you look at the statistics for Africa, economically speaking, present day, we have greater stability. The average inflation rate is below 6 percent per year, which indicates that there is, generally speaking, some stability in the purchasing power because it is indirectly proportional to the increase of prices in the national and regional economies.
Mr. Dieng: Thank you. I'll ask Minister Mkulo to take the question about high growth rates and job creation.
Minister Mkulo: Job creation is a topical subject in Tanzania, and I think it is also a topical subject for the whole of Africa. Even the meeting that we held in Kinshasa at the host of Mr. Mapon here, youth unemployment was one of the topics that was discussed. Now, specifically for Tanzania, 56 to 60 percent of the population of Tanzania of about 45 million is at the age of between 12 years and 36 years. So that is a bombshell. These people are either at primary school or at university level, or they are out of university and seeking employment. So the government has to concentrate--if 60 percent of the population is at that age, we have to find employment for them.
So there are so many ways we are doing it. One of them is to change the curricula. Instead of the normal, Western style of education, we have to include elements of vocational training in some of our education curricula in the sense that we don't train youth to get a job in government; we train youth to be able to employ himself or herself. So vocational training is one of the areas that Tanzania is advocating to be able to help the youth.
But generally, for the whole population--I talked about energy--currently, energy is a problem. Almost half of the day, there is no electricity. So, if we improve energy, we will improve production. If we improve production, we will improve employment. And if we improve employment, we will create more economic growth.
So there are so many combinations of measures that our government is taking. For Tanzania, this is a topic that the head-of-state, everywhere he goes to make a statement--internationally, locally--it is an issue that we must speak about Tanzania. So it is an issue that is one of the policy measures that the government is taking.
Mr. Dieng: Thank you. I’ll take one more. Yes?
QUESTION: The Chief Economist at the World Bank said the crisis was an opportunity to reform some unproductive policies, particularly petroleum subsidies. Do you have any comment on that?
Mr. Dieng: First, Minister Njie, then Minister Duarte.
Minister Njie: Let me first talk about the issue of growth and employment. I think I have mentioned that in The Gambia, we have developed a Program on Accelerated Growth and Employment, and this is in response to the fact that, yes, over the past decade or so, we have had a positive growth rate. As we move toward the Millennium Development Goals, we have realized that all of the other indicators are positive, but there is unemployment. Then, we realized that we have to go back and revisit the policies and adjust them.
So, as I am talking now, we have developed this program, and we are going to start from 2012 to 2015. And what this program intends to do is transformative. We have to focus on what we are good at--that is, agriculture and tourism. Of course, there are sectors of energy, fisheries, and other sectors that are contributing to growth. But then we said that if at all we have to graduate from subsistence agriculture to commercialization. Instead of just maintaining that subsistence, we said we need to invest more in agriculture, that is, to create jobs and also earning income, that is, exports and other tax revenue--because with subsistence, you cannot graduate.
Tourism, which is 12 percent of our GDP--we have realized that most of it--if you look at the net income, actually, you can say it is negative because everything is transacted outside, and everything is imported. So, what the program intends to do is to look internally at what we can do--import substitution--of course, with high international standards.
These are the issues. It is focused on transformation, transformation, transformation, because without that, even if you claim and celebrate that you have reached some of the Millennium Goals, whilst the youth and women are not employed or their productivity is not being maximized for us. I think that is something that our President said--we have to deliver growth and employment. Do I have to stop there, or do you want me to go on to the fuel subsidy?
Mr. Dieng: Yes, please.
Minister Njie: On the issue of fuel subsidy, we have been grappling with it. We are price-takers. We have little control. And the initial impact--it is a liberalized one--but the initial impact of course is on production. So what we are doing is to make some limited adjustments that will respond to the world market prices. As it does, the pump price is controlled, but that doesn't make us eliminate--our subsidy is there, but not to that high level. We are responding. It is not like it is fixed all throughout. We do a little bit of adjustment along the lines of meeting certain prices.
Mr. Dieng: Thank you. Minister Duarte, on the subsidies.
Minister Duarte: I'm sorry. I have a couple of comments also regarding--and I will be very, very quick--regarding employment and economic growth. Employment versus economic growth--I would say maybe labor market versus economic growth. What you have in Africa--from the economic side, you have high standards of demand in terms of work force. From the supply side, we have a low-skilled work force and a low-productivity work force. They don't match. They don't match.
So what the private sector or what the production sector demands, the other side does not supply. There is this mismatch in the labor market. So we need to look maybe at what is going on in the labor market. The labor market, we have a formal and an informal component. The formal component usually, in most of the countries, and it is the case in Cape Verde, we have a labor market that is not flexible. So there is deficit of flexibility in the labor market.
The result of this is that the informal part of the labor market in Africa is huge. So, can we conclude that most of the African work force is out of the picture? Once you are in the informal sector, you are out of the picture; you have no conditions to access capital, to have an expansion plan for your micro enterprise, et cetera, et cetera, et cetera. So we strongly believe that to match employment versus economic growth, we need to tackle the rules of the labor market. Regarding the--I think the purchasing power is a result of this reasoning. If you do not have access to formal employment, you do not have access to revenue, so you have a purchasing power, problem.
Crisis in the oil sector--it might be weird for Cape Verde to answer this question; we have no natural resources, we only have the sea. But we are a fuel-dependent economy. What did we do when the international crisis hit Cape Verde? We have been very pragmatic and very realistic. We align domestic prices with international prices in order to protect the budget and decrease the level of subsidies. If we had not done so in 2008, our budget would be heavily hit by the international crisis. In order to protect our budget and maintain the macroeconomic stability in the country, you have to eliminate subsidies to the fuel sector. And now, in 2011, we have to do the same for water and electricity in order to protect the budget.
Mr. Dieng: Thank you, Minister Duarte. I will take another one.
QUESTION: I would like to go back to what Minister Duarte was saying about the risk of the middle-income trap. What is your concern--that this crisis, this new bout of crisis, will hamper your progress and force lots of people in your country to go down the poverty line?
Also, about this meeting of the IMF and World Bank, there doesn't' seem to be a big decision to be announced at the end of this meeting. I would like to know if this is a concern, if you are worried about the lack of decisive action against the risk of this big crisis happening again.
Mr. Dieng: Thank you. We have 10 minutes to go, so I will give each Minister a chance to respond to those two questions, and then we'll wrap it up.
Minister Duarte: Middle-income trap. We have graduated. In order to keep this status, in order to keep this promotion, we need to restructure our economy. Otherwise, we will not cope with the new challenge. The Cape Verdean economy in the past four or five years--let's say, the growth engine--the growth engine has been the tourist sector. We need to diversify. We need to start betting on other sectors.
This is the reason that in our vision, in our transformation agenda, which is clear--I would like to take this opportunity to tell everybody that the Cape Verdean Government has a very clear transformation agenda for the country. We have identified four clusters--the sea cluster, the sky cluster, the ITC cluster, and the finance cluster. Why have we identified these four clusters? We have done so exactly to cause the diversification of our economy and to avoid the middle-income trap. We have a narrow export base. We have a very narrow export base which reflects, of course, a very narrow productive base. So we need to diversify. It is the only way to avoid this middle-income trap.
To do that, we need to keep investing in infrastructure for the country--again, soft and hard issues at the same time. But we need to keep investing in a very strong way. But now, everybody is telling me: Please, don't do so as you have been doing in the past five years, because there is an international crisis going on, that we need to slow down--to slow down.
But when they ask me to slow down, at the same time, they are pushing Cape Verde toward the middle-income trap. So this is quite a dangerous game. Regarding the big decisions coming out of this meeting--and I will respond; I am a very open person--in 2009, nobody had a clue for 2010. In 2010, nobody had a clue for 2011. I believe that in 2011, nobody has a clue for 2012.
Mr. Dieng: Thank you, Minister Duarte. Minister Njie?
Minister Njie: In The Gambia--we don't have to respond to the middle-income trap. Maybe after implementing our Program on Accelerated Growth and Employment, we will join Cape Verde in the middle-income countries, and we will learn from the experience and the risk of working very hard to be middle-income. We will be able to learn the lessons that you have learned.
But for the advanced countries, I think our opinion here, what we are saying, is that the advanced countries need to reduce their debt and budget deficit. They should implement credible medium-term fiscal consolidation while at the same time encouraging growth in the near term. They must also strengthen their financial sectors. This is especially the case in Europe, where more needs to be done to make banks stronger and able to withstand stress by increasing bank capital in some cases.
In the United States, efforts should be intensified to help households manage mortgage debt and to create jobs. Political authorities must do whatever it takes to restore confidence and private demand, which is crucial for sustained recovery. That is our comment and opinion on that.
Mr. Dieng: Thank you. I will give the last word to minister Mkulo on the outcomes of the meeting.
Minister Mkulo: Well, thank you very much, Mr. Chairman. I think, as The Gambia has said, on the middle-income trap, the policy that Tanzania has is to become a middle-income country between 2020 and 2025, so we have a long way to go before we can even get into a "trap." But we are working toward that. What I am hearing, I think, and what is going to happen is that we are going to be careful, that when we get to the middle-income sort of level, we don't fall into a trap.
I think another question that was asked was something to do with the fuel subsidy. Tanzania liberalized the whole petroleum sector more than 10 years ago, so the whole petroleum sector in Tanzania is liberalized. The government does not involve itself in trading, and therefore, the government does not set subsidies for this. The private sector sets--whatever importation, they set their own prices, and they sell at that price. Even the government itself buys the fuel at market prices.
Mr. Dieng: Thank you very much. Thanks for coming to the press conference, and thanks to our panelists.