September 2018 Vol.9 Ed.8

 Hippolyte Fofack on Africa’s Continental Free Trade Area  Pauline Anaman on Ghana’s oil funds  John Mourmouras on Greece’s bail-out exit  Diwa Guinigundo on Asian integration  In conversation with Maria Ramos  Marcelo Giugale on green bonds

AFRICA connected Reforms and integration across the continent

BTN_09.18_001_cover.indd 1 24/08/2018 14:40 State of the union A worldwide series of OMFIF meetings focusing on the US economy

28 September 2018, New York A decade of quantitative easing: assessing the effectiveness of an unconventional monetary policy tool After a prolonged but relatively slow global recovery, 10 years since the collapse of Lehman Brothers, this meeting analyses the effectiveness of the widespread use of a traditionally unconventional monetary policy tool: quantitative easing.

Confi rmed speakers: Stanley Fischer, Vice-Chair, Board of Governors of the Federal Reserve (2014-17), Natacha Valla, Deputy Director General, European Central Bank, Mark Sobel, US Chairman, OMFIF, Nathan Sheets, Head of Global Economic Research, PGIM, Seth Carpenter, Chief US Economist, UBS, Christopher Smart, Head, Macroeconomic and Geopolitical Research, Barings, Barry Eichengreen, Professor of Economics, Berkeley School of Economics, Rasmus Rueffer, Permanent Representative in Washington, European Central Bank, Fabio Natalucci, Deputy Director, Monetary and Capital Markets Department, International Monetary Fund, Ben Broadbent, Deputy Governor, Bank of England

08:30 -13:00. Venue: Lotos Club, 5 E 66th St, New York, NY 10065, US

3 October 2018, London 8 October 2018, Singapore Analysing the US US economy and economic outlook monetary policy A City Lecture with Charles Evans, president and An OMFIF Foundation City Lecture with James Bullard, chief executive offi cer of the Federal Reserve Bank president and chief executive offi cer of the Federal of Chicago and member of the Federal Open Market Reserve Bank of St Louis and member of the Federal Committee. The lecture will cover developments Open Market Committee. The lecture will cover in the US economy, monetary policy changes and developments in the US monetary policy, interest rate macroeconomic trends. outlook and wider economic implications.

Speaker: Charles Evans, President and CEO, Speaker: James Bullard, President and CEO, Federal Reserve Bank of Chicago Federal Reserve Bank of St Louis

11:00-12:45. 17:00-18:30. Venue: Lee Kuan Yew School of Public Venue: Pewterers’ Hall, Oat Lane, London EC2V 7DE Policy, Lobby, Oei Tiong Ham Building 469C Bukit Timah Rd, Singapore 259772

For more information or to register visit: omfi f.org/meetings/us

USA.indd 1 24/08/2018 16:17 Contents

September 2018. Vol.9 Ed.8

4 ABOUT OMFIF 5 LEADER 6 REVIEW / AGENDA 6 8

Worldview 20 US AT ODDS WITH FINTECH PHILOSOPHY Oliver Thew 21 THE RISE OF ‘CURRENCY BULLYING’ Cover: Africa connected Otaviano Canuto 9 AFRICA CONNECTED 22 FIVE PROPOSALS FOR POST-PROGRAMME GREECE Hippolyte Fofack John Mourmouras 11 FREE MOVEMENT PROTOCOL 23 MITIGATING THE IMPACT OF GLOBAL RISKS ON ASIA RAISES QUESTIONS FOR AFRICA Diwa Guinigundo Max Roch 24 REINTERPRETING THE LAWS OF ECONOMICS 12 AFRICA’S SMART ISLAND Łukasz Hardt Danae Kyriakopoulou 25 THE PROS AND CONS OF ‘GREEN’ BONDS 13 PUTTING GHANA’S PETRODOLLARS Marcelo Giugale 16 TO GOOD USE Pauline Anaman Inquiry 26 CHART OF THE MONTH: TURKEY’S CENTRAL 14 RISKS OF BELT AND ROAD IN AFRICA BANK SIGNIFICANTLY INCREASES INFLATION Kat Usita FORECAST 15 PROMISE AND PERIL FOR ETHIOPIA’S 26 THE NUMBERS: AFRICAN CENTRAL BANKS NEW LEADERS Ben Robinson 27 AFRICA NARRATIVE FALLS SHORT OF AMBITIONS In conversation Julian Frazer 26 16 MARIA RAMOS 30 OMFIF ADVISERS NETWORK POLL with Danae Kyriakopoulou Protecting current auditing structure

OMFIF.ORG SEPTEMBER 2018 BULLETIN 3

BTN_09.18_003_Contents.indd 3 24/08/2018 15:29 Black Wednesday, About OMFIF Brexit and the making of Europe... Dialogue on world finance and economic policy SIX DAYS IN THE Offi cial Monetary and Financial Institutions Forum is an independent think tank for central banking, economic policy and public investment – a non-lobbying network for best practice in worldwide public-private sector exchanges. At its heart are Global Public Investors – central banks, SEPTEMBER sovereign funds and public pension funds – with investable assets of $36tn, equivalent to 45% of world GDP. With offi ces in London and Singapore, OMFIF focuses on global policy and investment themes – particularly in asset management, capital markets and fi nancial supervision/regulation – relating to central banks, sovereign funds, pension funds, regulators and treasuries. OMFIF promotes higher standards, performance-enhancing public-private sector exchanges and a better understanding of the world economy, in an atmosphere of mutual trust. ‘GRIPPING PORTRAYAL’ Kenneth Clarke Membership ‘Required reading’ Membership offers insight through two complementary channels – Analysis and Meetings – where members play a prominent role in shaping the Norman Lamont agenda. For more information about OMFIF membership, advertising or ‘Dramatic account’ subscriptions contact membership@omfi f.org Alistair Darling

Analysis OMFIF Analysis includes commentaries, charts, reports, summaries of meetings and The Bulletin. Contributors include in-house experts, advisers network members and representatives of member institutions and academic and offi cial bodies. To submit an article for consideration contact the editorial team at analysis@omfi f.org

Meetings OMFIF Meetings take place within central banks and other offi cial institutions and are held under OMFIF Rules. A full list of past and forthcoming meetings is available on www.omfi f.org/meetings. For more The Amazon bestseller by information contact meetings@omfi f.org William Keegan, David Marsh and OMFIF Advisers Network Richard Roberts The 173-strong OMFIF advisers network, chaired by Meghnad Desai, is With a foreword by made up of experts from around the world representing a range of sectors: Helmut Schlesinger monetary policy; political economy; capital markets; and industry and investment. They support the work of OMFIF in a variety of ways, including contributions to the monthly Bulletin, regular Commentaries, seminars and other OMFIF activities. Membership changes annually owing to rotation. Available to buy at: omfi f.org/shop OMFIF.ORG

BTN_09.18_004-005_About_Leader (copy tc).indd 4 24/08/2018 16:41 Leader

Offi cial Monetary and Financial Institutions Forum Africa connected 30 Crown Place, London, EC2A 4EB United Kingdom T: +44 (0)20 3008 5262 F: +44 (0)20 7965 4489 t a time when advanced economies across the globe are struggling with www.omfi f.org @OMFIF Aweak demographics, declining long-term growth rates and a rising debt burden, Africa stands out as a continent of opportunity. The region is rich in BOARD natural resources, with a young and growing population and sense of hopeful David Marsh, Chairman Phil Middleton, Deputy Chairman dynamism. But it also remains exposed to outside risks and domestic Jai Arya structural barriers, complicating the popular ‘Africa rising’ narrative. Pooma Kimis This edition of The Bulletin explores the nuances behind Africa’s divergent Edward Longhurst-Pierce Mthuli Ncube economic prospects. Contributors look at initiatives such as the Continental John Plender Free Trade Area and the establishment of an African common market, as Lauren Roberts well as individual countries’ efforts to leverage technology and innovative Peter Wilkin fi nancing to promote integration. Connecting the region’s fragmented

ADVISORY COUNCIL economic communities is a priority. Meghnad Desai, Chairman Central banks, sovereign funds and public pension funds at the heart of Mark Sobel, US Chairman OMFIF’s network have an important role to play in promoting deep, liquid Johannes Witteveen, Honorary Chairman Louis de Montpellier, Deputy Chairman and effi cient capital markets. These are necessary to facilitate the maturing Frank Scheidig, Deputy Chairman of African economies as they diversify away from a dependence on natural Xiang Songzuo, Deputy Chairman resources. This has been a major area of focus for OMFIF. Next month we Hani Kablawi, Deputy Chairman launch the second edition of the Gary Smith, Deputy Chairman Otaviano Canuto, Aslihan Gedik, Absa Africa Financial Markets Index. Robert Johnson,William Keegan, The index, to be presented at the ‘Connecting the region’s John Kornblum, Norman Lamont, International Monetary Fund-World fragmented economic Kingsley Moghalu, Fabrizio Saccomanni, Niels Thygesen, Ted Truman, Bank Group meetings in Bali in communities is a priority.’ Marsha Vande Berg, Ben Shenglin, Chair, October, provides a quantitative and OMFIF Economists Network qualitative assessment of Africa’s EDITORIAL TEAM fi nancial markets. Danae Kyriakopoulou, Head of Research The AFMI launch is one of Simon Hadley, Production Manager Julian Frazer, Senior Editor several meetings that OMFIF is Ben Robinson, Deputy Head of Research organising on the fringes of the Bhavin Patel, Economist IMF-WBG meetings. We are proud Kat Usita, Economist William Coningsby-Brown, Editorial Assistant to continue a strong partnership Darrell Delamaide, US Editor with the Fund, and this month it

MARKETING is our pleasure to welcome Mark Chris Ostrowski, Head, Business Development Sobel, the US Treasury veteran and Stefan Berci, Communications Manager former US representative at the James Fitzgerald, Senior Marketing Executive IMF, to OMFIF as US chairman.

Strictly no photocopying is permitted. It is illegal to reproduce, store in a central retrieval system or transmit, electronically or otherwise, any of the content of this publication without the prior consent of the publisher. While every care is taken to provide accurate information, the publisher cannot accept liability for any errors or omissions. No responsibility will be accepted for any loss occurred by any individual acting or not acting as a result of any content in this publication. On any specifi c matter reference should be made to an appropriate adviser. Danae Kyriakopoulou Company Number: 7032533. ISSN: 2398-4236 Chief Economist and Head of Research

OMFIF.ORG SEPTEMBER 2018 BULLETIN 5

BTN_09.18_004-005_About_Leader (copy tc).indd 5 24/08/2018 16:41 Review

»17 July, Singapore Expanding sustainable fi nance market

‘WATER sustainability is key to long-term planning in Singapore, in line with increasing momentum in the area of sustainable fi nance in Asia,’ according to Jacqueline Loh, deputy managing director of the Monetary Authority of Singapore, at OMFIF’s second Global Public Investor Symposium with the Bank for International Settlements. The meeting focused on combating climate change and promoting sustainable fi nance. Luiz Awazu Pereira da Silva, deputy general manager of the Bank for International Settlements, spoke about the importance of maintaining networks between central banks, along with the history of sustainable fi nance in central banking. Speakers also included John Hewson, chairman of the Asset Owner Disclosure Project, and Yeo Lian Sim, vice-chairman of the Task Force on Climate-related Financial Disclosures.

Mark Sobel becomes Yosuke Kawakami »11 July, London OMFIF US chairman joins advisory board Diversity improves outcomes

‘IMPLEMENTING measures that ensure greater diversity increases the pool of talent and reduces the impact of unconscious bias,’ according to a panel on the participation of women in OMFIF is strengthening its US operations by YOSUKE Kawakami, former Japanese the digital economy. Speakers included appointing Mark Sobel, a veteran US Treasury director at the European Bank for OMFIF’s Danae Kyriakopoulou and Chris offi cial at the forefront of fi nancial diplomacy Reconstruction and Development, joins Ostrowski. The meeting was organised by for two decades, as US chairman. He will the OMFIF advisory board after a 35-year the Bank Indonesia and the Indonesian work with OMFIF in dealings with private career in public fi nance, fi nancial markets, embassy in London as part of the agenda and public sector organisations and provide regulation and supervision, as well as for the forthcoming IMF-World Bank OMFIF members with insight and analysis. international fi nance and trade. Group meetings in October.

6 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_006-007_Review.indd 6 24/08/2018 17:05:21 Agenda

»10 July, London »14 August, Singapore Future UK- Shared objectives EU trade on global growth relations »Tuesday 11 September, London The need for expansionary OMFIF convened a monetary policy discussion with Martin Donnelly, former A roundtable discussion with Stefan Ingves, governor of Sveriges Riksbank. The discussion will focus permanent secretary in on monetary policy, shrinking balances sheets, the the UK department for outlook for the krona, central bank independence and international trade, and euro area integration. Alan Winters, director of the UK Trade Policy AMID tension around trade and migration Observatory at the and a resurgence in nationalism, governments »Tuesday 11 September, London University of Sussex. The around the world, including the US and China, meeting focused on UK- still profess shared objectives of creating jobs Enhancing the innovator- Europe trade relations and and growth, according to Jonathan Fried, how to ensure business personal representative of Canadian Prime regulator conversation continuity after Brexit. Minister Justin Trudeau to the G20. A roundtable discussion with Martin Moloney, special adviser on policy and risk at the Central Bank of Ireland. The meeting will focus on how regulators and innovators applying advanced technologies in »17 July, Singapore fi nancial services can collaborate better. Green bonds and low-carbon finance »Wednesday 19 September, London OMFIF held the Asia launch UK’s macroeconomic outlook of Global Public Investor 2018, the annual report focusing on A breakfast discussion with Silvana Tenreyro, member public sector asset ownership of the Monetary Policy Committee at the Bank of England. Topics will focus on unconventional monetary and management across 750 policy, productivity in the UK and implications of offi cial institutions around the central bank policy divergence amongst leading world world. Along with presenting economies. the key fi ndings of the research, the discussion focused on investment trends in the public »Friday 28 September, New York sector and how Asian global public investors are performing. A decade of quantitative easing Moderated by David Marsh, Ten years since the collapse of Lehman Brothers, this chairman of OMFIF, speakers meeting analyses the widespread use of quantitative included Frank Scheidig, easing and its effectiveness. Speakers include Stanley global head of senior executive Fischer, former vice-chair of the board of governors banking at DZ BANK, and of the Federal Reserve, and Seth Carpenter, chief US Michael Barrow, director economist at UBS. general of the private sector operations department at the Asian Development Bank. For details visit omfif.org/meetings

OMFIF.ORG SEPTEMBER 2018 BULLETIN 7

BTN_09.18_006-007_Review.indd 7 24/08/2018 17:05:32 Cover story: Africa connected

8 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 8 24/08/2018 14:53 Continental Free Trade Area will catalyse transformation of the continent

of manufactured goods, as well as globalisation of Hippolyte Fofack economic opportunities and trade. The CFTA is also African Export-Import Bank coming together at a time of creeping protectionism, when leading economies are adopting mercantilist systems that treat the size of trade surpluses as a n a world in which competitiveness is a key measure of economic performance. This has been Ideterminant of sustainable growth and trade illustrated recently by the escalation of punitive performance, consolidating existing but fragmented tariffs and retaliations, trade wars between large economic communities has become essential. One economies and the marginalisation of the World major example is the Continental Free Trade Area, Trade Organisation as more countries move away which will establish a common market in Africa and from the rules-based system that has enabled robust, catalyse economic transformation and effective sustainable and free-fl owing global trade. integration of the region into the global economy. In this beggar-thy-neighbour global economic Earlier this year, 44 of the 55 African Union states landscape, competitiveness has perhaps become even signed up to the CFTA agreement. Five additional more important for countries striving to integrate countries, including South Africa, joined during into the global economy. Only the most competitive the 31st Ordinary Session of the Assembly of the are expanding their share of the global market. These African Union held in Mauritania in July 2018. The 49 economies have emerged as ‘active globalisers’, signatories account for more than 86% of total African those most able to take advantage of the benefi ts trade and around 77% of the continent’s GDP. of globalisation to sustain their growth and trade Beyond enhancing the competitiveness of African performance. In contrast, the least competitive economies, the CFTA has the potential to buttress the economies have become ‘passive globalisers’, victims of forces for convergence in the world economy. globalisation that supply the raw materials and natural The CFTA has emerged at a time when the impact resources required to expand the manufacturing of competitiveness on trade and development has output of active globalisers. increased signifi cantly, reaching stratospheric levels Passive globalisers are disproportionately more in the era of globalisation. Several factors contributed vulnerable to the adverse effects of globalisation. to this emphasis on competitiveness, not least the These include such risks as the increased speed of increasing role of innovation and technological content global transmission of negative shocks, swings >>

OMFIF.ORG SEPTEMBER 2018 BULLETIN 9

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 9 24/08/2018 14:55 Africa connected

in commodity prices and long- than in any other region of the $2.5tn and combined consumer expected benefi ts of the CFTA for term deterioration in the terms world. While the average cost of and business spending of more trade performance and regional of trade for commodities. Over importing a container within the than $4tn. This will help raise integration are positive and time, these risks have stifl ed the region is around $2,500, the same the competitiveness of African signifi cant. Intra-African trade, aspirations of lagging nations, costs $900 in the East Asia and economies and enhance their largely dominated by industrial most of which are locked in Pacifi c region and $1,500 in Latin integration into the global products and manufactured vicious cycles of excess growth America and the Caribbean. economy as active globalisers. goods, could increase by more volatility and structural balance Measures such as cross-listing than 52% above the baseline a of payment crises. Removing barriers fi rms on different stock markets decade into the implementation In Africa these risks have Although the structure of and the establishment of credit of the CFTA. It could even been exacerbated by a host of production and the direction of reference bureaus could raise double over the same period if constraints to competitiveness trade inherited from the colonial access to fi nance in a region the reforms envisaged under and trade. These include model of resource extraction have where fragmentation has the CFTA are complemented non-tariff and regulatory played major roles, the prevalence impeded private sector growth. by robust trade facilitation barriers such as border delays, and scale of non-tariff barriers Besides the implications for measures. Economies of scale burdensome customs and and market fragmentation help fi nancial markets, consolidating created by the establishment inspection procedures, as well as to explain why African countries regional economic communities of a larger continental market multiple licensing regimes and trade more with the rest of the to establish one of the world’s could lower production costs and the rise of national transit bonds world than with each other. largest free trade areas could encourage inward foreign direct along key routes. In addition Intraregional trade accounts boost the competitiveness of investment and cross-border to a large fi nancing gap and for around 15% of total African African economies through investment. The benefi ts of this infrastructure defi cit, African trade, against 68% in Europe and other channels. These include would include greater technology businesses have had to contend 58% in Asia. technology transfers, cross- transfers and strengthened with these constraints that raise Uniting Africa through the border investment and industrial regional value chains in a context transaction costs and limit the CFTA will establish one of the development in a context of of expanding intraregional trade movement of goods, services, world’s largest free trade areas increasing economies of scale, in intermediate and capital labour and capital across borders. in terms of number of countries, diversifi cation of sources of goods. As a result, trading among people and market size. The growth and the expansion of African countries has been more agreement will cover a market intra-African trade. ‘Factory Africa’ costly and time-consuming of 1.2bn people with a GDP of Preliminary estimates of the The development of regional value chains would raise African economies’ competitiveness African trade signifi cantly below that of other regions and enhance their integration World merchandise trade of WTO members, $tn, by region into the global economy. Data 20 show that, despite the increased outsourcing of activities involved 15 in the production of a good to 10 several countries, much of the value-added distribution in 5 global value chains remains in regional blocs. ‘Factory Europe’, 0 ‘Factory North America’ and 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ‘Factory Asia’ are the regions South and Central America and Caribbean Commonwealth of Independent States, where these value chains are including associate and former member states North America primarily concentrated. In time, Asia Middle East the emergence of ‘Factory Africa’ Europe Africa and the improved integration of Source: WTO secretariat Africa-based businesses into the Note: World trade is calculated as an average of exports and imports of merchandise trade global economy will help set the

10 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 10 24/08/2018 14:55 world on a path towards truly global value chains. Realising Africa’s potential has been markedly diffi cult, partly Free movement as a result of artifi cial trade protocol raises barriers and the fragmentation of markets inherited from the questions for colonial development model. The CFTA will help overcome integrationist Africa these limitations and boost the competitiveness and integration of African economies. $4.5bn border facility to increase trade fl ows.The Making this transition will Max Roch Bank of Central African States, which serves as depend on the speed and ability OMFIF the central bank of six countries, now oversees of countries and emerging the unifi ed Douala Stock Exchange after corporate leaders to overcome Cameroon and Gabon came to an agreement hurdles on a path towards IN the West, the election of US President Donald over their competing securities bodies. The structural transformation. Trump, Britain’s planned departure from the removal from power of Jacob Zuma in South Regardless of geography, European Union and the electoral success of Africa, Robert Mugabe in Zimbabwe and José technological advances as well populist parties in Italy, Germany and much Eduardo Dos Santos in Angola signifi es a shift as improved infrastructure of eastern Europe signal the resurgence of in southern Africa away from the revolutionary have been fundamental for cost nationalist politics. Protectionism and an affi nity comrades of yesteryear. reduction and effi ciency gains for hard borders are back. Other parts of the However, one overlooked aspect that requires in the development of regional world, however, are adopting market-orientated further debate is that only 30 countries adopted and global value chains. African initiatives appealing to the centre ground of the Free Movement Protocol, the third tenet countries must more vigorously politics, most notably Africa. intended to complement the Kigali Declaration adopt these innovations. In March 2018, 44 African nations signed the and CFTA. The protocol, it is hoped, would lead The benefi ts of regional Kigali Declaration in Rwanda that brings the eventually to the creation of a ‘borderless’ Africa. integration will be greatly region one step closer to deep and meaningful Questions must be asked about the necessity enhanced if the CFTA principles integration. This complements advances made of freedom of movement in the early stages of are supplemented by non-border in the establishment of the Continental Free the CFTA and whether the ostensible benefi ts reforms. These should include Trade Area. This has been made possible by outweigh the obstacles that such a debate measures to liberalise services Africa’s shift to technocracy. Abiy Ahmed and is likely to bring up. In the light of continuing trade, investment provisions, Nana Addo, the leaders, respectively, of Ethiopia confl icts in the region, mass migration, climate intellectual property rights and Ghana, among others, are setting a radically change, political uncertainty and rising refugee protection and the harmonisation new and propitious tone for the future. Unlike numbers, many countries are opposed to of standards and regulations. their predecessors, they are keen to stave off opening borders. These are all essential for dependence on state-owned enterprises and Around 26% of the world’s refugees (around reducing trade costs between foreign aid, and are demonstrating a sincere 18m people) are in sub-Saharan Africa, and countries within the region. commitment to regional integration and co- this excludes the myriad economic migrants Beyond raising regional trade operation. who would emerge as a result of a borderless intensity, the CFTA could unleash Cross-border regulatory alignment in the continent. It is possible that uninhibited adoption forces for African dynamism Economic Community of West African States of the CFTA and the opening of borders may give and position the continent as has increased. Nigeria, for instance, as a rise to the same nationalist groundswell that is a globally competitive export- member of the West African Monetary Zone will threatening the US and Europe.  processing platform.  co-operate with Benin in the French-speaking Max Roch is Research and Policy Analyst at Hippolyte Fofack is Chief West African Economic and Monetary Union on a OMFIF. Economist of the African Export-Import Bank.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 11

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Africa’s smart island Mauritius government’s strategy to create continent’s new fi ntech hub

Danae recognition followed, with rating as M-Pesa in Kenya attracting The improved infrastructure Kyriakopoulou agencies deeming its outlook as praise globally. Mauritius can is expected to increase the use OMFIF ‘stable’. Mauritius has been placed compete on this level by focusing of bandwidth by reducing the as one of the top performers in on alternative aspects of fi ntech. price of internet access. This will Africa for metrics such as the One example is microlending. enhance the ability of African auritius’s economic World Economic Forum’s Global Using fi ntech to create space for and Indian business communities Mtransformation is one of Competitiveness Index, the World the provision of microcapital to to connect quickly and cheaply Africa’s biggest success stories. Bank’s Ease of Doing Business individuals and small business across a reliable network, ranging From a relatively unsophisticated rankings and the Africa Financial owners, who are often overlooked from the undersea cable to data agriculture-based economy Markets Index, produced by by traditional lenders, can allow centres and cloud platforms. dependent on commodities OMFIF in association with Absa. these customers to grow their such as sugar, it grew into a However, Mauritius’s economic businesses. Smart cities manufacturing hub excelling in success should not be an excuse Mauritius’s government is The third cable initiative forms the production of textiles. Now, for it to relax its efforts. Now responding by boosting the part of the government’s broader the island operates a fl ourishing is the time to explore new island’s status as an African strategy for ‘smart’ cities. The services-based economy driven by areas of growth and set up the fi ntech hub. In 2016 the Society Smart City Scheme is a wide- tourism and fi nance. infrastructure to service them. for Worldwide Interbank ranging project aiming to create This has helped Mauritius enjoy Financial Telecommunication better infrastructure for those one of the highest levels of GDP Embracing fi ntech chose Mauritius as one of the working and living in Mauritius per capita in the region, as well as One area for development is two locations for its annual in order to attract investment and maintain steady macroeconomic fi ntech, as economies in Africa Startup Challenge, attracting strengthen its status as a business conditions. Unemployment is increasingly use technology to more than 500 delegates from 40 and fi nancial hub. low, business and consumer support the fi nancial services countries and 89 entries for the The scheme, set up under the confi dence are buoyant, and industry. competition. Another occasion Investment Promotion Act 2000, economic growth has averaged So far, fi ntech in Africa has was the UK-Mauritius fi ntech involves the creation of 16 smart just below 4% per annum largely focused on mobile conference in January 2017, cities, fi ve technology parks, between 2001-18. International payments, with services such organised with the British High and a new cyber-city at a cost of Commission. Earlier this year it several hundreds of millions of was announced that the island’s dollars. This is expected to create Mauritius business system rivals advanced economies fi nancial services commission around 50,000 new jobs. Ease of doing business index, % score, and rank is considering establishing a The scheme embodies 100 sovereign fi ntech fund. the principles underpinning 90 1 2 3 To excel in fi ntech, fi rst-class Mauritius’s ambitions to become 80 25 33 34 46 54 59 70 63 79 85 infrastructure is essential. The not only a fi nance hub, but also 60 50 government is investing in the a leader in the development and 40 Indian Ocean Exchange Cable integration of technology with 30 20 system, a project that is expected fi nancial services, ranging from 10 to be completed in 2019. It will fi nancial literacy education 0 l s u d d be Mauritius’s third independent and retail banking to new areas re rg u an o u t i a n ra e Italy i l o Pe r undersea cable but the fi rst open- of investment and crypto- r r mark ala n I s Malta China a p Ja p n g

m b access one, enabling it to be used currencies.  t z e n Z e i i e D e Ma u x S w w

u by all licensed operators and to Danae Kyriakopoulou is e S L N connect to any future undersea Chief Economist and Head of Source: World Bank, OMFIF analysis cables on the east coast of Africa. Research at OMFIF.

12 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 12 24/08/2018 14:55 Putting Ghana’s petrodollars to good use Policy-makers must bolster rules on country’s oil funds

Pauline expense, and that the quantum representing just 38.2% of Anaman of returns is minimal. Reports by total oil receipts. While it is Africa Centre for the Ghanaian ministry of fi nance nearly impossible to track the Energy Policy show that between 2011-17 the socio-economic returns of GHF invested around $323.7m, these expenditures, audits by olicy-makers agree that representing 8% of total oil the Africa Centre for Energy PGhana’s oil resource wealth receipts, in fi nancial instruments Policy reveal that spending on should be shared equitably for paltry returns of only $21.1m. many selected capital projects is between the country’s current Meanwhile, the country accrued neither necessary nor executable and future generations through debts on the international within the proposed budget the Ghana Heritage Fund. The market at high cost. Investing or timeframe. Many projects GHF provides an endowment domestically in human capital have been stopped because of to support development when and physical assets is essential to unsatisfactory consultations the oil has been depleted. In boost the economy and generate with supposed benefi ciaries, poor line with legislation on how to greater benefi ts for current and planning (including fi nancing), disseminate this wealth, not future generations. weak monitoring, and politics. less than 30% of oil receipts The few completed projects have will be paid to the GHF after Project problems not provided clear evidence on disbursement to the national oil The International Monetary fi nancial and social returns. company and the budget. The Fund has reported that, Entrusting future generations’ same share is applied to excess compared to fi nancial assets, meagre share of oil wealth oil receipts. the benefi ts of investing savings to the current generation for There are clear rules on in economic infrastructure, domestic investment is likely investment and withdrawals. The education and healthcare could to make the former worse off. GHF only invests in qualifying be substantial for African It is unsurprising that citizens instruments and, within one year countries that suffer from a opposed the government’s plan of the oil reserves being depleted, scarcity of human capital and to use the GHF, and not other will be consolidated along with physical assets. Evidently, sources of capital, to fund free the Ghana Stabilisation Fund increasing public investment secondary school education. into a single fund to support can bolster GDP growth in Though fraught with future budgets, called the Ghana developing countries. However, complexities, using the GHF Petroleum Wealth Fund. At 15- this can only be achieved under to make offshore investments year intervals beginning 2026, the correct conditions, and may be the best course of action parliament may review this require a country to implement in the short to medium term, restriction and transfer portions detailed development strategies at least until the government of the accrued interest to any and strong public fi nancial strengthens the necessary of the funds established management systems. This may legislation and optimises the use under the Petroleum Revenue prove problematic for Ghana. of oil revenue in Ghana. After all, Management Act. Up to 70% of oil receipts after to borrow a lesson from the Bible, Some have raised concerns disbursement to the NOC are ‘To whom much is given, much is that investments by the GHF intended to support annual expected.’  in offshore instruments only budgetary expenses on public Pauline Anaman is Head of serve to build up the economies investments. These amounted Policy at the Africa Centre for of other countries at Ghana’s to $1.6bn between 2011-17, Energy Policy.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 13

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 13 24/08/2018 14:55 Africa connected

Risks of Belt and Road in Africa Options limited for recipient countries looking to close infrastructure gap

Kat Usita include policies around anti- growing external debt, although OMFIF corruption, transparency and the levels remain manageable at competitive tenders. They also this time. Djibouti’s foreign debt 87% devote a great deal of time has ballooned to nearly the same to investigating a project’s size as its economy, reaching Percentage of GDP to s China’s cross-border Belt feasibility and fi nancial viability 87% of GDP in 2017. Much of which Djibouti’s foreign Aand Road initiative gains to ensure that it will not be this was used to fi nance Belt and debt ballooned in 2017 momentum, apprehension overly reliant on subsidies once Road projects. over its impact continues to operational. These constraints Strategically located on build. Early on, some observers often delay project delivery, the Horn of Africa, Djibouti is their infrastructure gaps. accused China of unduly exerting which makes Chinese assistance home to China’s fi rst overseas In July, Chinese President Xi infl uence on other countries an appealing alternative for naval base, as well as the only Jinping visited Senegal, Rwanda, in the guise of infrastructure African governments committed permanent US naval base on South Africa and Mauritius, assistance. It is increasingly to delivering new infrastructure. the continent. That China his fourth visit to Africa since apparent that the risks to has established a military taking offi ce in 2013. The recipient African economies in Risky business presence in a country that owes trip demonstrates China’s particular are substantial, but Five years since the Belt and it a great debt is unsurprising. commitment to broadening its their governments are left with Road was launched, advocates The more important question presence across the continent; little choice. can point to examples of is whether Djibouti will reap until now Beijing has focused Chinese contractors credit moderate success in Africa, with enough benefi ts from improved most of its efforts on East their speed in building transport more on the way. Kenya, Ethiopia trade and transport links to Africa. and energy infrastructure to and Nigeria have new rail lines. make its impending debt crisis As there seems to be no their extensive construction Djibouti has an ambitiously worthwhile, and if China will curbing the programme, experience, having been part expanded megaport and a new provide assistance should it not. outsiders are instead fi nding of China’s industrial boom. international airport, as well ways to align their own However, the more telling aspect as a railway that connects it to No stopping China objectives with the Belt and is Beijing’s willingness to offer Ethiopia’s capital, Addis Ababa. Even if African economies Road. The World Bank has African countries fi nancing with Another megaport will be built in connected to the Belt and Road undertaken a series of studies no conditions, apart from that Bagamoyo, a small fi shing town can manage their debt well and examining the policies needed Chinese fi rms undertake the in Tanzania, to ease container maximise growth opportunities to minimise recipient countries’ projects. traffi c in Dar es Salaam. It will spurred by new infrastructure, economic risks. It can also In contrast, projects sponsored take several years of use before concerns remain over China’s assist governments in looking by western governments and one can properly measure the ability to deliver. A study by the after vulnerable sectors and development agencies tend to full economic benefi ts of Financial Times shows that top communities affected by this new infrastructure. Chinese overseas contractors Belt and Road projects, such Meanwhile, the risks are are nearly four times more as fi shing communities who self-evident. leveraged than their non- will be displaced by massive Tanzania, Ethiopia Chinese counterparts. While port projects, to give just one and Kenya have this may not give a full picture example. Other governments of contractors’ fi nancial health, and institutions intent on aiding it confi rms suspicions that the Africa may want to start doing Belt and Road is at least as much the same.  about Chinese fi rms’ gain as it Kat Usita is Economist at is about helping countries close OMFIF.

14 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 14 24/08/2018 14:56 Promise and peril for Ethiopia’s new leaders Capital markets key to sustaining country’s essential reforms

Ben Robinson of the security services are Adding to these diffi culties, Ethiopia’s growth rate, OMFIF intended to improve governance Chinese investment, at around underpinned over the last across all areas of public life. $15bn over the last decade, has decade by considerable public Zimbabwe, by contrast, has fallen drastically. An agreement spending, is unsustainable made a shakier start under the with the United Arab Emirates and has fallen recently. Private n October 2017 the central new regime. Elections in July to provide $3bn in loans and sector investment is necessary Ibank of Ethiopia increased were marred by violence and interest rates by 200 basis points accusations of fraud, while senior to stem capital outfl ows. At the members of the previous regime ‘Ethiopia’s population is large and young, the same time, the government have stayed in key posts. economy grew by more than 10% per year on devalued the birr by 15% in average between 2005-16, and it has a nascent an attempt to boost exports, Volatility on all fronts but signifi cant manufacturing sector.’ narrow the large current account The diffi culties facing reformers defi cit and gain some much- in Addis Ababa remain needed foreign currency. In the substantial. A violent fl are-up in investment helps a little. But to maintain growth and attract end it was not enough to quell the ethnically Somali east of the with government debt at 60% of foreign capital. public resentment; in April, country in August underscores GDP and imports outweighing To aid this process, the Hailemariam Desalegn resigned tensions in Ethiopia’s diverse exports by a factor of four- country needs to develop a as prime minister of Africa’s population. The Tigrayan to-one (both legacies of the local capital market. Ethiopia second most populous country. and Amhara minorities feel previous government’s debt- is the largest emerging His successor, Abiy Ahmed, threatened by some reforms fuelled investment programme, economy without a domestic has embarked on a widespread undertaken by Abiy, the fi rst not all of it well-spent), this is securities exchange (beyond programme of economic and prime minister from the majority insuffi cient to ease the foreign one for commodities). As the political reform. This places Oromo group. In June, Abiy was currency shortage. government seeks to reduce Ethiopia among a handful of targeted by a grenade attack, the state’s role in the economy, African countries, including reputedly made by some members Finding new capital a domestic bourse will prove South Africa, Zimbabwe and of the intelligence services. With a reformist leader and essential. However, capital Angola, that have recently rid Ethiopia also faces a diffi cult a peace agreement with its market development has not themselves of incumbent leaders external environment. The peace neighbour, Ethiopia is well been a focus of Abiy’s reforms, in pursuit of better governance agreement with Eritrea is far placed to make the necessary which may create obstacles and accountability. from assured, with the country’s changes to strengthen its for the government’s wider So far, Ethiopia has gone dictator, Isaias Afwerki, an economy. The population is proposals. further and faster than the rest unreliable partner. Landlocked large and young, the economy Easing the country’s foreign in revising its fortunes. Abiy Ethiopia relies on ports in grew by more than 10% per year exchange shortage and tackling has signed a peace accord with Somalia, Djibouti and (after on average between 2005-16, its large debt burden will be vital neighbouring Eritrea, marking an the peace deal) Eritrea. This income per capita rose fourfold to ensuring reform efforts are end to decades of hostility. The makes trade expensive – sending in the same period, and it kept on track and not disrupted government has announced a goods by road from Addis Ababa has a nascent but signifi cant by social unrest or economic large-scale privatisation scheme to Djibouti costs more than manufacturing sector. volatility. The promise – and to attract foreign investment shipping them from Djibouti to Given its persistent current the peril – facing this large and to the country’s aviation, east Asia – and vulnerable to account defi cit and the drying important country make it a key energy and telecommunications political developments. A rising up of external fi nancial fl ows, one to watch.  industries, among others. dollar and risks of an escalating the government must fi nd Ben Robinson is Deputy Head Reforms to the dominant power global trade war don’t help. capital from new sources. of Research at OMFIF.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 15

BTN_09.18_008-015_coverOpener.Fofack.Robinson.Danae.Kat.indd 15 24/08/2018 14:56 In conversation

Building an inclusive Africa Maria Ramos, chief executive officer of Absa Group, and OMFIF’s chief economistDanae Kyriakopoulou discuss the development of capital markets across Africa, growth in major West and East African economies and the impact of digital innovation on financial inclusion.

Danae Kyriakopoulou: How could further tighten external important changes over the past South Africa, but huge challenges do you see Africa’s prospects financing conditions, which would year such as the introduction of remain from a policy standpoint, in the context of a changing probably result in higher financing South Africa’s ‘twin peaks’ and not just in financial regulation but geopolitical environment? costs for African countries. Kenya’s Nairobi International across other important sectors of From US President Donald Moreover, a reorientation of Financial Centre Act. What do the economy, such as mining and Trump’s unilateral, ‘America trade agreements and alliances you see as the most important healthcare. first’ policies, to China’s move will present new risks and areas of progress for African DK: What about financial towards multilateralism and opportunities for the continent. capital markets and what are inclusion? Some countries greater integration in the The outlook is also clouded by the the key areas for improvement? in Africa are seeing huge global economy, how is Africa incidence of drought, pests and MR: Financial markets have a improvements in that respect positioned? security issues. critical role to play in Africa’s thanks to the role of technology Maria Ramos: At a subregional In general, I think Africa has economic growth. The IMF and the digitalisation of level, positive developments a unique opportunity to push recently identified domestic financial services. But most in Zimbabwe and Mozambique through necessary structural revenue mobilisation as one of the of the population remains hold the potential of creating an reforms. These include initiatives most pressing policy challenges unbanked. What role can banks economic upswing. In the markets to reduce market distortions and facing sub-Saharan Africa. like Absa play in improving where Absa operates outside create an environment conducive The Fund’s report states that, financial inclusion? South Africa, we expect real GDP to foreign direct investment. Fiscal despite substantial progress over MR: Financial inclusion is growth to achieve 5.0% in 2018. and monetary policy instruments the last two decades, sub-Saharan obviously tremendously important But growth momentum across sub- have run out of runway. Africa still has a markedly low for Africa’s development. There Saharan Africa will remain fragile DK: Which countries in Africa government revenue to GDP is a huge role to play not just for and uneven. do you expect to deliver ratio. As the main mechanism financial services providers but The International Monetary surprises, both positive and through which governments also governments and public Fund is predicting GDP growth negative, from an economic and private sector players access sector players. of 3.4% in sub-Saharan Africa and financial point of view in capital markets, the financial Financial inclusion – particularly this year. But this figure hides 2018-19? markets have a critical role to driven by digital innovation – considerable differences among MR: On the positive side, we will play in addressing this. In the enables a series of other social countries in the region. Some continue to see growth in major light of pressures in the external and economic interventions of the largest countries – Côte western and eastern African global environment and highly that improve livelihoods and d’Ivoire (7.3%), Ghana (6.3%), economies. One the negative constrained fiscal frameworks, boost incomes. However, digital Kenya (5.4%), Ethiopia (8.4%) – side, growth in South Africa will increasing private investment is services in themselves are not a are expected to grow at a pace of continue to disappoint. critical for the region to achieve cure-all – they require favourable between 5%-8.5%. I also think we will continue sustainable growth and improve complementary conditions to At the same time, the external to see digital and mobile-based social outcomes. generate substantial impact. environment is expected to offer financial solutions come to the The most important area of For instance, research only limited support. Recent fore, given the demographic shifts progress in this respect has been undertaken by the Pathways improvements in commodity and rising mobile penetration in policy certainty. This, along for Prosperity Commission prices will not be enough to across the continent. with political stability, is critical on Technology and Inclusive address existing imbalances in DK: How do you see the role to unlocking private investment. Development at Oxford university resource-intensive countries. US of financial markets in this For instance, there has been a indicates that digital services monetary policy normalisation narrative? We have witnessed return to political stability in bridge distances and reduce the

16 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_016-017_InConversation_Ramos_COPY T/C.indd 16 24/08/2018 15:01 ‘Financial inclusion – particularly driven by digital innovation – enables a series of other social and economic interventions that improve livelihoods and boost incomes.’

threshold for profi table delivery of fi nancial services, for example through mobile payments, where traditional brick and mortar services could not do so viably. They also allow people to link directly in new ways with businesses, with much lower transactions costs, providing access to cheaper goods or services. At Absa, we have made fi nancial inclusion a key component of our citizenship agenda and are investing heavily in initiatives to increase fi nancial education across our markets. In Kenya, we have launched Timiza, an app-based personal loan platform which has disbursed loans to around 2m customers in just four months. Timiza is yet another example that delivery and payback of credit is easier and cheaper through mobile Profile phones. Education: Earned a bachelor of Perhaps to conclude, I think commerce from the University of that governments, multilateral the Witwatersrand in 1986 and a development fi nance agencies, master of science in economics private sector and civil society from the University of London. players all have a role in unlocking Career: Ramos is the chief Africa’s potential. The work that executive offi cer of Absa Group. we are doing with OMFIF on the Before coming to Absa in 2009 Absa Africa Financial Markets she was the group chief executive Index to highlight and educate of Transnet Limited, the South market participants about the African state-owned rail, pipeline opportunities presented by the and ports agency. From 1996- 2003, Ramos served as South continent is a critical initiative in Africa’s director general of the this respect. I am very optimistic National Treasury for its fi rst post- about Africa’s economic future apartheid government. and, working together, we can realise her promise. 

OMFIF.ORG SEPTEMBER 2018 BULLETIN 17

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Untitled-1.indd 1 20/08/2018 12:44 Worldview This month’s expert analysis

Oliver Thew on the US at odds with fi ntech 20 philosophy 24 Łukasz Hardt on reinterpreting the Diwa Guinigundo on laws of economics mitigating the impact of 23 global risks on Asia

Marcelo Giugale on the pros and cons of 25 ‘green’ bonds

Otaviano Canuto on The rise of ‘currency 21 bullying’ John Mourmouras on proposals for post- 22 programme Greece

OMFIF.ORG SEPTEMBER 2018 BULLETIN 19

BTN_09.18_019_Worldview.indd 19 24/08/2018 14:39:11 Digital economy

US at odds with fi ntech philosophy Steps being taken to overcome fragmented regulatory framework

Oliver Thew are forced to partner with fi nancial stability. The problem single-point, uniform sandbox. OMFIF larger incumbents, who have is not limited to Washington; A week after the report, Arizona the resources and experience state and federal regulators often opened the fi rst fi ntech sandbox to operate across state lines. clash over fi ntech. Put simply, in the US. The state also included However, this model limits as the rest of the world takes a provision that would allow he US has many advantages competition and innovation in measures to facilitate innovation Arizona sandbox participants Tthat makes it an attractive the market. More importantly, of products and services, the to operate in other jurisdictions market for fi nancial technology it deters fi ntech companies US risks losing out by failing to that establish similar companies. This includes large from establishing in the US remove unnecessary barriers and programmes. amounts of capital and tech- and pushes them towards provide clarity. In addition to the Treasury familiar investors, as well as other markets with more report, OCC announcement a highly skilled workforce and accommodating regulation. For Positive steps and Arizona sandbox, the US millions of consumers. Well- instance, the European Union After years of lagging behind Consumer Financial Protection organised regulation, however, established its e-money licence, other countries, the US is taking Bureau joined the UK Financial is not one of the benefi ts. The US the UK has granted dozens of steps to address its fragmented Conduct Authority and 10 has a complex and fragmented banking licences to challenger regulatory framework. In July, other regulatory agencies as regulatory framework for banks, and numerous Middle the US Treasury released a report part of the Global Financial fi nancial services, with rule- Eastern countries have adopted identifying improvements that Innovation Network. This builds making, supervisory and specifi c initiatives to regulate will better support fi ntech and on proposals from earlier in 2018 enforcement power dispersed digital payment services. foster innovation. It includes to create a cross-jurisdictional across numerous federal Unwieldy complexity not over 80 recommendations for fi ntech sandbox. agencies, and competencies only makes the US regulatory federal and state agencies, as The signs are promising, distributed between states and environment more diffi cult for well as potential Congressional though there is still a long the federal government. fi ntech companies to navigate, action. way to go. The OCC will face It can take several months it is also a major barrier to the One recommendation endorses numerous challenges to its new and cost thousands of dollars in development of a coherent the fi ntech charter developed charter from state regulators legal expenses for a company to fi ntech policy. The diffusion of by the Offi ce of the Comptroller and lobbying groups. The SEC set up in just one state, let alone regulators means that multiple of the Currency. Hours after the and New York state regulator operate in multiple jurisdictions. agencies may have a stake in report was published, the OCC have already rebuffed Arizona’s If a company wants to work considering certain fi ntech announced that it will start sandbox proposal. The Treasury across state boundaries, it will matters, and interagency taking applications for a special report has opened a discussion need separate licences for each competition can hinder policy purpose charter for fi ntech that will hopefully lead to major state and be subject to differing coordination. companies focused on banking. revisions of existing rules and rules. For example, the Securities However, the charter only applies regulatory approaches. Yet This cumbersome and and Exchange Commission and to fi ntech companies engaged in turning the recommendations expensive process is entirely Commodities and Futures Trading payments and loans, avoiding into actions will demand a at odds with fi ntech, which Exchange are competing to deposit-taking companies. concerted and collaborative is constantly developing at oversee the regulation of crypto- Regarding sandboxes – testing effort from federal regulators a rapid pace. It also hinders assets, with the former ruling grounds for new business and state authorities with input the scalability of start-ups over exchanges and the latter models that are not protected by from incumbents and fi ntech that cannot afford the costs over instruments. This regulatory existing regulation or supervised companies.  associated with multiple arbitrage contradicts the by agencies – the Treasury is Oliver Thew is Business regulatory requirements. As a coordinated response required to recommending Congress to act Development Manager result, many fi ntech companies protect consumers, markets and if regulators cannot create a at OMFIF.

20 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_020_Thew.indd 20 24/08/2018 14:39:46 International monetary policy

Threat of ‘currency bullying’ US current account defi cit rises as global imbalances worsen

Otaviano emerging market economies have Thailand were said to be China, Japan, Korea, Germany, Canuto displayed divergent trajectories: ‘substantially stronger’, showing India and Switzerland are on a Advisory Council Brazil, India, Indonesia, Mexico current account gaps above ‘monitoring list’ because they and South Africa have repaired four percentage points of GDP. are classifi ed as fulfi lling one or their fragility at the time of Malaysia was ‘stronger’, with a two of the three criteria. There n 24 July the International the 2013 ‘taper tantrum’, while gap of 2-4 percentage points. are suggestions that this list OMonetary Fund released Argentina and Turkey have China, Korea and Sweden were will be increased, although no its 2018 External Sector Report, weakened. ‘moderately stronger’, at 1-2 country is expected to meet all its latest assessment of the Asymmetric macroeconomic percentage points. three criteria and be named a current account balances of the policy among advanced Conversely, Argentina, currency manipulator in the next world’s 30 largest economies. economies since 2013 has Belgium, Saudi Arabia, Turkey report. There was no major change impacted the balances. and the UK were ‘weaker’, with The renminbi depreciated relative to previous years, and While some economies, negative current account gaps in sharply in July and August, the confi guration of global such as Germany, Japan, the the 2-4 percentage points range. partially reversing the course surpluses and defi cits that has Netherlands, have combined Canada, France, Russia, South of appreciation that started in prevailed since 2013 endures. large surpluses with weak Africa, Spain and the US were mid-2017. However, there are reasons to domestic demand, the UK and US ‘moderately weaker’, with gaps The Institute of International expect more abrupt alterations have seen stronger recoveries in of between 1-2 percentage points Finance has suggested that ahead, particularly in the light of domestic demand. of GDP. Within the euro area, Chinese authorities might be US fi scal easing at a time of high In the US, the expansionary large positive gaps (Germany, adopting a ‘neglect’ stance as employment in the country. In effects of last year’s tax cuts the Netherlands) have cohabited a signal amid the trade battles the context of US-led trade wars, boosted second quarter GDP asymmetrically with negative with the Trump government. as well as recent bouts of Chinese growth to 4.1%, the fastest in gaps (Belgium, France, Spain). It also highlights risks of exchange rate depreciation, it almost four years. Although In October, the US Treasury substantial capital outfl ows, is possible that currencies will exports are rising fast, the US will report to Congress on with corresponding shocks to be subjected to their own war or current account defi cit is poised ‘macroeconomic and foreign China’s and other economies’ ‘currency bullying’. to rise. exchange policies of major fi nancial markets. After the substantial trading partners’. A country The possibility of mutually escalation prior to – and the Forthcoming shocks may be named a ‘currency damaging fi nancial volatility unwinding in the aftermath of For six years now the authors manipulator’ if it meets three in the US and China may – the 2008 fi nancial crisis, the of the External Sector Report criteria: certain levels of limit the extent of ‘currency absolute sum of surpluses and have compared actual current bilateral trade surplus with the bullying’ being used as a proxy defi cits has remained close to account balances and real US, the country’s overall current in the countries’ trade war. 3.3% of global GDP over the last effective exchange rates account surplus, and one-sided Nonetheless, rhetoric from few years. The generally stable with those that would refl ect foreign exchange interventions Washington is likely to remain landscape has featured some medium-term fundamentals aimed at maintaining clamorous as the US trade and changes in composition. China’s and desired policies. A country depreciation. Japan, Taiwan current account defi cits rise and current account surpluses have is classifi ed as being ‘stronger’ and China were all labelled global imbalances worsen.  gradually diminished, while when its current account balance as currency manipulators at Otaviano Canuto is an Japan, euro area debtor countries is larger than that ‘consistent different times in the late 1980s Executive Director of the and oil exporting countries have with fundamentals and desirable and the early 1990s. World Bank and a Member of moved in the opposite direction. policies’. No countries are currently the OMFIF Advisory Council. For defi cit countries, while the Last year, Germany, the labelled as currency The opinions expressed in this US remains the major case, Netherlands, Singapore and manipulators by the US, though article are his own.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 21

BTN_09.18_021_Canuto.indd 21 24/08/2018 14:40:06 Europe

Five proposals for post-programme Greece Investment shock needed for sustainable growth after eight years of hardship

John euro area central banks starting Second, regaining the permanent or credible while such Mourmouras in 2018. The post-programme investment grade held in 2008 controls are still in effect. This Bank of Greece surveillance framework aims is as important as ensuring debt would help win back the trust to ensure the completion of key sustainability. My proposal is to of depositors and facilitate the structural reforms initiated set up a new advisory task force return of around €20bn hoarded fter eight years of hardship, under the European Stability to help obtain the investment domestically, in informal depots AGreece is fi nally emerging Mechanism programme against grade as soon as possible by and safety deposits, while also with renewed optimism from agreed deadlines and provides presenting roadshows abroad boosting investor confi dence. this diffi cult time. The factors for close monitoring of Greece’s to investors and analysts. This Fifth, a key requirement for behind this positive trend are economic, fi scal and fi nancial should be at the top of Greece’s a permanent return to capital the sacrifi ces of the Greek people situation. policy agenda over the next markets is the sustainable and the solidarity of Athens’ Either the cash buffer option, two years. Its signifi cance is recovery of the Greek economy European partners. This has been whereby the country holds comparable to meeting the with growth greater than 2%. manifested in the unprecedented enough cash to be able to volume of loans (€240bn) given support itself for around two to Greece on truly concessional years without needing to raise ‘The government should publish a plan detailing terms, including markedly low funds on capital markets, or the measures and dates for the full lifting of capital rates and long maturities. precautionary credit line option Although the international are short term. The real question controls. No return to markets can be permanent or economic environment is is what comes after the fi rst post- credible while such controls are still in effect.’ relatively volatile at the moment, memorandum year. I have long believed that the Policy-makers must focus on Greek case is manageable for an conditions for Greece to achieve Maastricht nominal criteria that Given the prolonged fi scal exit from the memorandums of a sustainable return to capital allowed the country to enter the consolidation and private understanding in late August markets. I would like to make fi ve euro area. disinvestment that has taken without a precautionary credit proposals that could make such a Third, during the reinvestment place, the country needs an line. Such an exit would be similar return feasible in the near future. period the European Central investment shock. I would to the cases of Portugal, Ireland Bank may examine the eligibility reaffi rm a proposal I made in and Cyprus, countries with Returning to markets of Greek government bonds the summer of 2014, which links similar adjustment programmes. First, in the light of adverse under its public sector purchase reduced primary surplus targets This option was confi rmed capital market conditions, programme. The ECB commented with a drastic gradual reduction by the Eurogroup of fi nance political developments in Italy in June that it is ready to of corporate tax rates in line ministers in its decision of 21 and uncertainty in global trade keep up reinvestments for ‘an with the fi ercely competitive June, which secures the full relations, the government will extended period of time’ after the corporate tax rates applied by sustainability of Greece’s public need to increase the buffer as programme ends in December. Greece’s neighbours. debt until 2032 and leaves open much as possible to shield the This has clear benefi ts for the cost If such steps are taken, Greece the possibility of additional Greek economy for the next two of borrowing of both sovereign, will soon be able to draw a line longer-term debt relief measures. years. Thankfully, policy-makers bank and corporate debt. under the last eight years of The decision provides for a have already taken such measures Fourth, the government, in economic hardship and move further deferral of European on board. In July the government co-operation with the Bank of into a much more confi dent Financial Stability Facility increased the buffer to €24.1bn, Greece, should publish a plan future.  interest and amortisation by 10 suffi cient to guarantee Greece’s detailing measures and dates for John Mourmouras is Senior years, as well as the return of gross fi nancing needs until the full lifting of capital controls. Deputy Governor of the Bank profi ts on Greek bonds held by August 2020. No return to markets can be of Greece.

22 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_022_Mourmouras.indd 22 24/08/2018 14:40:27 Asia

Mitigating the impact of global risks on Asia Regional integration provides natural hedge against international perturbations

Diwa to geopolitical risks, protectionist This will make the practical task strengthened to guard against Guinigundo policies and consequences of of economic integration more contagion and spillover effects. Bangko Sentral sustained low global infl ation. d i f fi c u l t . Today, Asia stands strong – ng Pilipinas At the same time, greater with higher foreign reserves, regional and global fi nancial Deeper capital markets healthier fi nancial systems and t the time of the Asian interconnectedness could To optimise the benefi ts of stronger regulations, as well as Afi nancial crisis 20 years precipitate the rapid transmission integration, there is a need to healthy fi scal space. But future ago, currencies depreciated of fi nancial risks across borders. further deepen capital markets crises cannot be ruled out. The sharply. Asian countries defended in Asia. It has long been events of 1998 and 2008 will themselves by drawing down Regional integration recognised that a key feature of continue to haunt Asian markets, currency reserves. Analysts today are witnessing any developed capital market especially when combined The 1997-98 crisis revealed a kind of contagion, not across is depth; it engenders stability, with increased procyclicality major fault lines in the region’s national jurisdictions but in the and stability attracts committed of fi nancial cycles and growing fi nancial system. Signifi cant form of greater interlinkages investors. global interconnectedness. While reforms were implemented to between real economies and Deep capital markets support diffi cult, policy-makers can address these weaknesses. Then, fi nancial markets. The 2008 crisis effi cient resource allocation by minimise vulnerability through 10 years later, the 2008 fi nancial is an example of how adverse complementing bank lending, capital market reform. crisis generated spillover effects shocks in the fi nancial system and serve as an alternative source Policy-makers must engage from advanced economies. This could amplify output fl uctuations of industry fi nancing. They also in comprehensive policy exposed unresolved weaknesses in the real economy. help manage risks and strengthen discussions and exchange in Asian economies, and Enhancing co-operation responses to future crises. Policy- information to ensure they highlighted regulatory policy between authorities in the region makers should bolster national cover all possible perspectives gaps that contributed to fi nancial will enable Asia to withstand and regional regulatory and and eventualities. Drawing on vulnerability. the risks associated with the supervisory frameworks as well as the expertise of market players, In response, policy-makers increasingly interconnected world institutional capacities, including academics and international expended considerable effort economy. It is a vexed question resolution mechanisms for institutions would provide to strengthen and deepen whether now is the right time to interconnected regional banks. unalloyed benefi ts for Asia.  capital markets and make Asian pursue deeper integration, when Local currency bond markets Diwa Guinigundo is Deputy economies more resilient to the rapid pace of globalisation is must be reinforced, and existing Governor of Bangko Sentral ng shocks. These reforms laid the exposing countries to external fi nancial safety nets should be Pilipinas. foundation for sustained high shocks amid a rise in populist growth in the region. However, politics around the world. the International Monetary Fund In my view, the pursuit of has drawn attention to the threat stronger regional integration of recession after major central provides a natural hedge against banks have started tightening the perturbations in the global monetary policy. Hence the economy. It offers numerous policy agenda for fortifying Asia’s benefi ts and opportunities in fi nancial and capital markets has terms of market size and market become more relevant than ever. access. However, one must be Asia is susceptible to risks mindful of the diversity of Asian emanating from the pace of economies in terms of their advanced economies’ monetary economic conditions as well as policy normalisation, in addition legal and structural limitations.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 23

BTN_09.18_023_Guinigundo.indd 23 24/08/2018 14:40:52 International monetary policy

Reinterpreting the laws of economics We should focus on context of central bank actions, not ‘universal theories’

Łukasz Hardt made it easier for companies to other things being equal’) potentialities and not actualities, Narodowy Bank relocate parts of their business to interpretation is not right, then such a reading seems Polski countries with lower production since such readings are either attractive. costs. Fourth, the scale of empirically false or trivially true. Therefore, rather than underutilisation of the factors Second, probabilistic readings teaching students ceteris here is a continuing debate of production may be higher (such as the proposition that paribus clauses, it would be Tamong economists about than usually estimated. Some lower rates raise the probability better to use ceteris normalibus the so-called missing infl ation researchers suggest that the new of a rise in investments) are (‘all other things being phenomenon. In developed Keynesian Phillips curve is less problematic, because A may normal’) statements, such countries, unemployment has fl at when using the difference cause B while at the same time as ‘expansionary monetary decreased on average by 2.6 between hours worked and hours lowering the probability of B normally leads to a rise in percentage points since 2013, people would like to work as a occurring. infl ation’. while core infl ation has risen by measure of labour slack. One solution is to consider A reinterpretation of economic only 0.1 percentage points. In Fifth, labour unions are in the difference between type- laws moves us towards more central and eastern European decline, lowering workers’ level and token-level events. In humble economics. As Harvard countries, the situation is even market power. Sixth, access to the context of monetary policy, professor Dani Rodrik puts it more striking: unemployment the internet lowers search costs one can say that lower interest in his Economics Rules book, is down by 5.5 percentage and makes it easier to compare points and core infl ation down prices than before, so it is more by 0.3 percentage points. diffi cult for sellers to raise prices. ‘“Economics is a social science, which means Historically, there has been an Further insights can be added to that the search for universal theories inverse relationship between this mix, such as those stressing and results is futile.”’ unemployment and infl ation, as the persistence of low infl ation illustrated by the Phillips curve. expectations. Several factors can help rates typically make higher ‘Economics is a social science, explain the mix of low infl ation Humble economics investments more probable. which means that the search for and low unemployment or why These theoretical insights However, at the token level universal theories and results the new Keynesian Phillips have an important bearing on one can at the same time say is futile.’ Policy-makers should curve is nearly fl at. First, some economic practicies. This is that, for instance, in Poland in not be afraid to say that the researchers claim that in recent especially the case when infl ation 2018, lowering rates will not nature of lower interest rates is to years prices and wages have is low in the presence of both lead to a rise in investments. stimulate investment. Sometimes become less sensitive to changes expansionary monetary policies Analysts must look beyond the they produce that result, and in GDP dynamics. Second, many and relatively positive economic probabilities. sometimes not. What economists companies’ market power – the conditions. For example, can one It may be more accurate to should focus on is the context extent to which a company still teach students, for instance, claim that ‘the ability to raise of central banks’ actions rathen can infl uence the price of an that ‘when the real interest rate is investments is a prototypical than the search for an ideal set item by exercising control over low, there are greater incentives property of lowering interest of rules that is always true in all its demand or supply – has to borrow [and invest]’, as is set rates, and this remains true circumstances.  decreased, so it is less easy for out in the seminal textbook The even if as a result of some major Łukasz Hardt is a Member them to transfer higher costs to Economics of Money, Banking and changes in economies one can of the Monetary Policy prices. Financial Markets? hardly notice instances of lower Committee of Narodowy Third, globalisation and Such a statement may still be costs of borrowing making Bank Polski and is Associate integrated markets have valid when properly interpreted. investments higher.’ If the Professor of Economics at the stimulated price competition and First, a ceteris paribus (‘all economic world is the world of University of Warsaw.

24 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_024_Hardt.indd 24 24/08/2018 14:41:14 Sustainable investment

The pros and cons of ‘green’ bonds On balance, a smart instrument

Marcelo solar panels but, if the borrowing technically possible. and public accountability. When Giugale government or corporation already Fifth, over time, linking they issue bonds, the proceeds can World Bank has the money to pay for those bond proceeds to specifi c public easily be associated with thematic panels, you would be freeing expenditures can lead to more results. This gives investors a its resources to do something expensive funding, or even ready-made supplier of impact. growing number of investors else. Green bonds may in fact underfunding. If thematic bonds Which brings us to Awish to make profi ts and fi nance national monuments or proliferate, investors will be able diversifi cation. As more bond do good at the same time. They company cars. Hopefully, they to choose what part of the fi scal buyers vie to be – or to be seen want their portfolios, or part won’t. But you cannot rule it out budget they fi nance. Schools, as – ESG-friendly, they become of their portfolios, to support if you do not see a borrower’s hospitals and road maintenance an alternative funding source environmental, social and entire expenditure plan. This may be popular. But, who will for borrowers. It is not a small governance causes. Why not comprehensive reporting can be want to fund tax collection, alternative: since the creation promise them that, if they buy time-consuming and costly. regulation and prisons? Shouldn’t of the Principles for Responsible your bonds, the money will be Third, the combination of fi scal those less desirable bonds pay a Investment in 2006, the number used to install solar panels? Why austerity and promises to bond higher return? Not clear. of global fi nancial institutions not show that their investment buyers may have unintended that are signatories has grown will have a positive ‘impact’ on consequences. A government may Alternative funding sources twentyfold, to more than 2,000. the climate? This should expand commit to greater spending on So, if price, fungibility, austerity, They have around $80tn in assets the pool of potential buyers, make a worthy item, like cleaning up identifi cation and earmarking under management. borrowing cheaper, and burnish polluted beaches. But, if it also are such a problem, why bother With those pros and cons in the reputation of all involved. That has a ceiling on its budget defi cit, with thematic bonds? The answer mind, are these bonds something is the insight behind ‘green bonds’. forcing more expenditure on can be summarised in two words: you would recommend for the Or ‘social bonds’, to help the poor. beaches could come at the cost signalling and diversifi cation. average government, company, Or ‘blue bonds’, to protect coral of cutting on, say, sanitation. When a public offi cial or a private or institution? Yes, with three reefs. By some estimates, $200bn Whether that trade-off is right CEO commits to an additional provisos: keep them to a small of these ‘thematic bonds’ were or wrong is better decided by expenditure, they are telling proportion of your total fi nancing, issued last year. But, does it all pan parliamentarians, not fi nanciers. the world how ready they are to use them only for things that out in practice? Fourth, it is not easy to measure make it a priority. They are also are really important to you, ‘impact’. Even when the proceeds speaking of budget stability: this and be alert to the evolution of Measuring impact of a bond can be shown to one item will not be cut during this market. The cost-benefi t Start with the downsides. First, increase a particular expenditure, rainy days. And they are implicitly analysis of tapping this type of green bonds are actually not proving that the extra spending accepting scrutiny in everything fi nance will progressively tilt cheaper – you do not save by has a desired impact is complex. else they do – transparency spills in its favour. From design to promising to use the proceeds Proper evaluations take time over. It is an effective way of using disclosure, common standards will in a certain way. Why? Because and money, and the results may fi nance to drive policy. arise and investors will feel more investors look at your credit rating be disappointing or may not be Signals of commitment also comfortable with them. Some to tell you what interest rate they available before the bonds come help mobilise others to the cause. functions will be taken over by will charge. Whether you spend on due. Will investors then feel let Multilateral organisations like specialists – one day, credit rating solar panels or oil drills does not down and close their checkbooks the World Bank fi nd this useful. agencies may issue ‘green ratings’. change your creditworthiness, at next time around or, worse, Their very existence is based on a Valuable track-records and brands least not in the short term. sue? I have not found record of ‘theme’ – ending poverty through will be built. Better to stay tuned.  Second, money is fungible. As bond-holders taking a country sustainable development, in the Marcelo Giugale is the Director an investor, you may think that or a fi rm to court for defaulting case of the Bank. Their internal of Financial Advisory and you are fi nancing the purchase of on spending pledges. But it is systems are set up for evaluation Banking at the World Bank.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 25

BTN_09.18_025_Giugale (15 August).indd 25 24/08/2018 14:41:33 Inquiry

The chart The numbers

African central banks Each month we take a look at a chart from the world’s central banks. This month, the Central by founding year Bank of Turkey. At the end of July the Turkish central bank raised its 2018 Central Bank 5 infl ation forecast to 13.4%, fi ve percentage points higher than of Tunisia (1958) Celebrates its 3 its outlook in April. A weakening currency and fears of a 60th anniversary loss of central bank independence have contributed to this month. this sharp increase. The lira has lost one-fi fth of its value Central Bank of Libya (1956) against the dollar since January and fell a further 4.2% Despite being one of Africa’s most established fi nancial in the week the central bank decided to hold interest institutions, it is not the only central bank currently based in Libya, with another existing in Tobruk. However, this new rates at their low level, adding to infl ationary pressures bank is not recognised by any international markets. experienced throughout the year. The decision not to raise rates, despite a jump in consumer price infl ation to Central Bank of Ghana (1957) Ghana is in a minority of emerging a 14-year high of 15.4% (more than three times higher than 4 countries in West Africa with its own the offi cial 5% target) in June, has led investors to worry about central bank, and not part of the Central Bank of West African States. the independence of the central bank. President Recep Erdogan, a self-proclaimed ‘enemy’ of high rates, has granted himself the executive power to appoint rate-setters at the central bank. National Bank of Angola (1926) One of the earlist banks to 2 be set up in Africa, tracing its ancestry back to 1865.

South African Reserve Bank (1921) The fourth independent central bank to be established outside Europe, the others being in the 1 US, Japan and Java.

6 Central Bank of Nigeria 1959 = Bank of Uganda 1966 Turkey’s central bank signifi cantly increases infl ation forecast = Central Bank of 1959 24 Central Bank of The Gambia 1971 Consumer price index, annual change, % West African States 25 Bank of Central African States 1972 16 = Bank Al-Maghrib (Morocco) 1959 26 Central Bank of Madagascar 1973 9 Central Bank of Somalia 1960 27 Central Bank of Swaziland 1974 14 = Central Bank of the 1960 = Bank of Eritrea 1974 New forecast Republic of Guinea 29 Bank of Botswana 1975 12 = Central Bank of Sudan 1960 = Bank of Cape Verde 1975 12 Central Bank of Egypt 1961 = Central Bank of Mauritania 1975 10 13 Bank of Algeria 1962 = Bank of Mozambique 1975 14 Bank of Sierra Leone 1963 = Central Bank of São Tomé 1975 8 Previous forecast = Bank of Zambia 1963 and Príncipe 16 National Bank of Ethiopia 1964 34 Central Bank of Lesotho 1978 6 = National Bank of Rwanda 1964 = Central Bank of Seychelles 1978 18 Reserve Bank of Malawi 1965 36 Central Bank of Djibouti 1979 4 19 Bank of the Republic 1966 37 Central Bank of the Comoros 1981 of Burundi 38 Bank of Namibia 1990 2013 2014 2015 2016 2017 2018 = Central Bank of Kenya 1966 39 Central Bank of the Congo 1997 Inflation rate = Bank of Mauritius 1966 40 Central Bank of Liberia 1999 Source: Central Bank of Turkey = Bank of Tanzania 1966 41 Bank of South Sudan 2011

26 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_026-027_Inquiry(copy tc).indd 26 24/08/2018 14:42:01

Book reviews

Africa narrative Nigeria. We are told that he was the fl ow of the narrative. exploitation of gold, diamonds, falls short of commonly referred to as ‘Zik’. Kenyon is able to redeem oil and cocoa. While these Yet, only fi ve lines later, his himself partly with passages may be the most historically ambitions moniker is misspelled as ‘Zic’, of effervescent writing. On the intriguing natural resources, Julian Frazer only to be corrected on the next execution of Patrice Lumumba, Kenyon makes almost no page, on which ‘Zik’ is referenced the fi rst democratically elected mention of cobalt, an essential PAUL seven times. This simply should president of the independent component in the production Kenyon’s not be allowed to happen. Republic of the Congo, Kenyon of the rechargeable batteries in Dictatorland Perhaps more shameful still is writes: ‘And there he lay, beneath our ubiquitous smartphones and is, at fi rst the sporadic use of US English the loose orange earth, Congo’s laptops. Little, too, is written glance, an – Kenyon, an award-winning great hope, dead at the age of about modern slavery in Africa, encouragingly journalist who burnished his 35.’ In the chapter on Equatorial let alone the Atlantic slave trade. substantial reputation working for the British Guinea, readers are told about In fact, for Kenyon, the history contribution Broadcasting Corporation, should the ‘moon-glare on broken tin of the continent only seems to the literature on Africa. do better. roofs; gouged strips of mud to begin in the 1870s, when Indeed, for readers unacquainted linking one scatter of shacks to Europeans began in earnest to with the continent’s history, it is another; silent Spanish churches ensnare ‘the most glittering of occasionally revelatory. ‘A dejected thick with mould; the embers of Africa’s jewels’. While I never The book’s subtitle, The narrative in which, a fi re where soldiers sleep beside expected Dictatorland to offer Men Who Stole Africa, refers almost without the high defensive walls of the a comprehensive account of equally to ignoble colonists, exception, heroes Presidential Palace.’ the civilisations that ruled apathetic multinationals, western fall while villains Fragments like this elevate the continent in the centuries intelligence services and the parts of Dictatorland to heights preceding the ‘scramble for despots who were either installed triumph.’ rarely reached by works of Africa’ by Britain, Belgium, or propped up by these groups. It historical nonfi ction. Kenyon’s France and others, the absence is a dejected narrative in which, Such criticisms may seem use of fi rst-hand accounts, of any substantive copy on its almost without exception, heroes trivial or superfi cial, but they making the best use of his precolonial history is maddening. fall while villains triumph or leave the impression of, at best, journalistic talents, likewise lends One wishes that Kenyon had escape judgement. poor proofreading and, at worst, the book a compassion that might instead fi xated on just one story, Dictatorland tells an important slapdash writing. Readers are left otherwise be eroded in a narrative such as the prevalence of child and sadly underrepresented story. hoping that essential facts and so full of atrocities that readers labour in west Africa’s cocoa It is a shame, then, that Kenyon’s fi gures were treated with greater risk being ‘blunted by numbers farms, which he writes about with book is so easy to fault. care and attention. too large to comprehend’. It is great care and insight. I became concerned on just the Then there is the matter unfortunate that production It seems, by the end, that even second page, home to the fi rst of clichés. In an excerpt on errors often spoil these passages. Kenyon was almost ready to admit of several spelling errors and the Soviet Union’s interest in defeat. In his endnotes, he writes editorial discrepancies. Smaller improving relations with the Colonial scramble that ‘Africa cannot be tamed blunders are easier to forgive, Congo, Kenyon writes that When promoting Dictatorland, into word’, and that writers face though it is not long before their this prospect was ‘scaring the Kenyon said he wanted the book a choice. They either ‘survey the frequency begins to grate. The living daylights’ out of offi cials to ‘tell the story of the continent entire continent from the highest appearance of more substantive in Washington. Throughout with all the colour, all the point’, or they ‘plunge beneath mistakes, however, make clear the book, numerous people are intrigue, all the human stories the jungle canopy and focus on a that Dictatorland required much described as being a ‘bear of a that make it what it is today’. It is single rare and colourful bloom’. more thorough proofi ng before man’, while anybody with facial a grand ambition, and one which In trying to do both, Kenyon fails it went to print. In one section fair on his chin is said to have he fails to live up to. to achieve either.  we are introduced to Nnamdi ‘a bramble of beard’. Worn out Dictatorland focuses on just Julian Frazer is Senior Editor Azikiwe, the fi rst president of metaphors do nothing but spoil seven countries, tracing the at OMFIF.

OMFIF.ORG SEPTEMBER 2018 BULLETIN 27

BTN_09.18_026-027_Inquiry(copy tc).indd 27 24/08/2018 14:42:03 OMFIF Advisers Network

Louis de COUNCIL Montpellier CAPITAL MARKETS MONETARY POLICY State Street Global Advisors George John Adams Iain Begg China Financial Hoguet Meghnad Desai CFA Research London School of Fabrizio Services House of Lords; Foundation Economics chairman, OMFIF Saccomanni LUISS University Advisers

Yaseen Anwar Marek Belka Industrial & Soh Kian Frank Tiong former prime Otaviano Commercial Bank minister of Poland Canuto Scheidig of China DBS Bank World Bank Group DZ BANK

Irena Aslihan Ben Shenglin Asmundson Stuart Harald Gedik Zhejiang University California Mackintosh Benink OYAK Anker Academy of Internet Department Group of Thirty Tilburg University Bank Finance of Finance

Robert Georgina Johnson Gary Smith Baker Paul Newton International London & Oxford Mario Blejer Institute for New Barings Banco Hipotecario Economic Thinking Finance Capital Markets Corporation

Hani Kablawi Xiang Saker Stewart Chairman EMEA and Songzuo Stefan Fleming CEO Global Asset International Nusseibeh Bielmeier Hermes Fund St Antony’s Servicing BNY Mellon Monetary Institute DZ BANK Managers College, University of Oxford

William Keegan Niels Thygesen José Manuel The Observer University of Copenhagen Hans Jukka González- Blommestein Pihlman Vivid Economics Standard Páramo BBVA Chartered Bank Ted Truman John Kornblum Peterson Institute for Noerr Brigitte International Economics Mark Burgess Colin Granville Jamieson Coote Robertson Queen Mary, Bonds SW1 Consulting University of London Norman Marsha Lamont Vande Berg House of Lords Stanford University Michael Cole-Fontayn Fabio Graham Association for Scacciavillani Oman Investment Hacche Financial Markets NIESR Johannes in Europe Fund Kingsley Witteveen Moghalu honorary chairman, Tufts University OMFIF Advisers Lutfey Siddiqi Akinari Horii Thomas Finke National The Canon Barings University of Institute for Global Singapore Studies NETWORK Volker Gao Haihong Bahar Alsharif Frederick Hopson Janusz Reiter Wieland Harold James Institute of World German Council David Badham Matthew Hurn Anthony Robinson Princeton Economics and of Economic University Franco Bassanini Korkmaz Ilkorur Philippe Sachs Politics Experts Eduardo Borensztein Karl Kaiser Nasser Saidi Consuelo Brooke David Kihangire Pedro Schwartz Katarzyna Colin Budd Christian Zajdel- Hemraz Ben Knapen Vilem Semerak Jankee Michael Burda Gärtner Kurowska Ludger Kühnhardt Song Shanshan DZ BANK World Bank formerly Central Shiyin Cai Celeste Cecilia Lo Turco Marina Shargorodska Group Bank of Mauritius David Cameron Bo Lundgren Paola Subacchi Forrest Capie Mariela Mendez David Suratgar Trevor Stefano Carcascio Murade Miguigy Murargy José Alberto Tavares Greetham Pawel Desmond Cecil Moreira Royal London Kowalewski George Milling-Stanley Narodowy Bank Efraim Chalamish Jens Thomsen Asset Winston Moore Management Polski Moorad Choudhry Wilhelm Nölling David Tonge John Chown José Roberto Novaes Jorge Vasconcelos Vladimir Dlouhy de Almeida Gottfried von Bismarck Daniel Hanna Philippe Obindah Gershon Michael Oliver Jack Wigglesworth Standard Lagayette formerly Banque Jonathan Grant Paul Wilson Chartered Bank Francesco Papadia de France Peter Gray Robin Poynder François Heisbourg Poul Nyrup Rasmussen

28 BULLETIN SEPTEMBER 2018 OMFIF.ORG

BTN_09.18_028-029_AdvisoryBoard.indd 28 24/08/2018 16:52 OMFIF Advisers Network

MONETARY POLICY INDUSTRY & INVESTMENT POLITICAL ECONOMY

Andrew Antonio Andrew Denis Large Joel Kibazo Armellini Hedge Fund Adonis JK Associates former MacShane Standards Board House of Lords ambassador, Avisa Partners OSCE

Jean-Claude Kishore Jürgen Frits Gerard Lyons Bastos de Mahbubani Bank of China Bolkestein National Krönig formerly European (UK) Morais Die Zeit University of Commission Quantum Global Singapore

Robert Laurens Jan Rakesh Oscar Bischof Brinkhorst David Owen Mohan German-British Lewisohn University of House of Lords Yale University Soditic Forum Leiden

Albert Boyd Vicky Pryce Athanasios Peter Bruce Centre for Orphanides Bressand McCleary Business Day Economics MIT Sloan School European 39 Essex & Business of Management Commission Chambers Research

Luiz Eduardo Nagpurnanand Caroline Melin Jenny Corbett Brian Reading Prabhala International Australia National independent University of Butler Walcot Partners Economic University economist Maryland Synergies

Willem Edoardo Nick Butler Robert Reviglio King’s College Middelkoop Reginald Dale Cassa Depositi e Commodity Atlantic Council Skidelsky London House of Lords Prestiti Discovery Fund

Célestin Maria Olivier John Monga Antonieta Del Michael Rousseau African Fonds de réserve Campbell Tedesco Lins Stürmer Campbell Lutyens Development pour les retraites University of São WELT-Gruppe Bank Paulo

Miroslav Danny Quah Hans Eichel Mark Crosby Lee Kuan Yew former German Christopher Singer Monash School of Public minister of Tugendhat Generali CEE University Holding Policy fi nance House of Lords

Natalie Shumpei Takuji Tanaka Jonathan John West Dempster Japan Finance Asian Century Takemori World Gold Fenby Keio University Ministry TS Lombard Institute Council

Jeffry Makoto Hans Genberg Daniel Utsumi The Seacen Frieden William White formerly Japan Titelman Harvard University OECD Centre ECLAC Finance Ministry

Tarisa Steve Hanke Linda Yueh The Johns Pasquale Elliot Hentov Watanagase State Street St Edmund Hall, formerly Bank of Hopkins Urselli University of Mazars Global Advisors Thailand University Oxford

Hans-Olaf Yosuke Ernst Welteke Paul van formerly Roel Janssen Kawakami Henkel formerly Deutsche University of Seters NRC Handelsblad Tilburg University Japanese Ministry Bundesbank Mannheim of Finance

Mumtaz Khan Thomas Middle East & Asia Capital Kielinger Partners Die Welt

OMFIF.ORG SEPTEMBER 2018 BULLETIN 29

BTN_09.18_028-029_AdvisoryBoard.indd 29 24/08/2018 16:52 Inquiry

Advisers network poll Protecting current auditing structure Recent ‘big four’ controversy minor compared to their long-term value

Keeping the ‘big four’ accountancy fi rms together ( ), or This month’s poll focuses on the UK’s top accountancy fi rms. reviewing them ( ), % of responses Participants were asked: ‘With many people attributing at least some of the blame for the collapse of services fi rm Carillion to the ‘big four’ UK accounting fi rms, should their oligopoly on the audit market be reviewed?’ Of those who responded to the advisers network poll, 70% believe Advisers the four fi rms should be allowed to maintain their control over the board 70 30 market. They suggest their multinational presence provides a broad and effective network of services, while the competition between Social the four is enough to provide reasonable fees for customers. media 75 25 Others stated that capable regulation and greater accountability is essential to maintaining these standards. This is expanded on by the 30% of advisers who suggest the big four fi rms should be reformed, expressing concerns over recent controversies. However, the practicality of such reform was cited as a major obstacle. The social media poll echoed these conclusions, with 75% of respondents feeling that the big four should stay together.

Auditing failures are simply due to Auditors should lose their license if The issue is improving the quality management weaknesses that can be the quality of their auditing is below and integrity of the audit process. corrected. The growth of these firms is a acceptable standards. And large fi nes More competition would be challenge to deliver increasingly effective should be considered. more likely to cut audit fees than services to the financial system generally. Jens Thomsen, formerly achieve these aims. Peter Gray, Berkeley Capital Danmarks Nationalbank Colin Robertson, SW1 Consulting

No, but audit fi rms and their partners No. Four fi rms should be enough should be made more accountable in to provide competition if properly in case of gross negligence. regulated and supervised. Olivier Rousseau, Fonds de Irena Asmundson, California réserve pour les retraites Department of Finance

October’s question:

When Christine Lagarde’s term ends as managing director of the International Monetary Fund, should her successor be someone from an emerging market?

30 BULLETIN SEPTEMBER OMFIF.ORG

BTN_09.18_030_POLL.indd 30 24/08/2018 14:43:42 The OMFIF Podcast Subscribe to the OMFIF podcast for the latest news and insight on fi nancial markets, monetary policy and global investment themes. Published weekly, the podcast features input from a range of academic experts, policy- makers and investment professionals.

Podcasts available include:

Sustainable US monetary policy Economic prospects management outlook in Greece

Rodney Irwin, managing Marsha Vande Berg, Mark Sobel, former deputy director at the World career fellow at Stanford assistant secretary for Business Council for University, speaks to Danae internati onal monetary Sustainable Development, and Lauren Kyriakopoulou and Rein De Loor. They and fi nancial policy at the US Treasury, and Rogge, senior manager for climate change focus on the risks emanati ng from US trade Vicky Pryce, board member of the Centre and sustainability services at EY, speak tensions, the macroeconomic context behind for Economics and Business, speak to Danae to Danae Kyriakopoulou. They discuss the Fed’s latest policy decisions, and the Kyriakopoulou. They discuss the debt relief the incenti ves for businesses to ensure potenti al for rising infl ati on. They also speak measures agreed for Greece, the country’s sustainably-minded policies, and the on the prospecti ve results of the US midterm long-term economic challenges, and the importance of regulators in enforcing this. electi ons and how this may aff ect Fed policy. reforms needed to secure sustainable growth.

Download now from iTunes or omfi f.podbean.com

BTN_09.18_031_podcast.indd 31 24/08/2018 14:44:35 Untitled-3DZ.indd 1 1 15/12/201709/01/2018 11:3914:35