The dearth of options available to global investors in government debt may end up working in South Africa’s favour as Moody’s continues to delay action on the country’s last remaining investment-grade rating.
Interview: Nkosana Moyo
Online Exclusive: A full interview with the Vice President of the African Development Bank
Interviewed April 2009
What role do you think African governments can play in sustaining a beleaguered private sector through this downturn ?
I think we have to put on the table the fact that African governments, by and large do not have the resources that can be deployed in a similar manner to what the developed world has been doing. Putting liquidity into the system, rescuing banks: it requires resources that African governments by and large don’t have. So the mood and intervention has to be much more regulatory and fiscal.
It’s allowing space for the private sector to be nimble of foot, so to speak, and, I think, getting less heavy-handed about the regulatory framework that often governments can do. It does not require resources, it just requires a change in mindset and understanding that that space needs to be released [that will] allow the private sector to operate with much better flexibility.
I think this is the time when developing countries can be much more imaginative and creative about understanding that, rather than financial resources, they’ve got the lever of regulation. By loosening those regulations they allow more flexibility for the private sector which literally will create a different model of survival.
Do you think it’s the role of an African government to ‘pick winners’? Or should that be the job of banks and private investors ?
It should be possible at a sector level for government to recognise which areas the country will be strong at. But I think to drill down to actual specific companies within sectors is not something I personally subscribe to. I think that should be left to the private sector’s competitive dynamics, both in terms of the funding of those companies and the strategic choices and resource management of the individual players, to let that work itself out in terms of efficient allocation of resources through competitive forces.
At a sector level, a country can do that [pick winners], and the translation of that or the evidence of what it’s articulating should come through the regulatory framework and any facilitative or incentive schemes it may put at a sector level. I would dissuade governments going down to ‘pick winners’, because I don’t necessarily think that the public sector is best at doing that.
Is there a way Africa can emerge from the crisis without waiting for the West and the West’s financial institutions to be fixed first?
If I [were] responsible for an emerging economy, I would not sit and be complacent about the fact that the laxity of the regulatory framework in the financial services sector in the developed economies is where this particular phase of our challenges arose from. I would take a much more strategic position and say to myself: ‘This has created an opportunity for me to understand how better to reappraise issues like the real cost of emerging market risk.’ I think we’re coming out of a phase where the pricing of emerging market risk has been overstated and it’s been made more costly because of a perception which was not correct.
Here there is an opportunity of repositioning that and saying: ‘You know what? The evidence at the moment points to the fact that the risk in developed economies is not as low as we thought it was; conversely, the risk in emerging economies is not as high as we thought it was.’ If I’m coming from an emerging economy perspective, I will take advantage of that, I will create transparency to articulate and make that clear, but I would also take advantage of this time of re-calibration, if you like, to do things which place me in a better light compared to developed economies, by addressing the regulatory framework that was more constrictive than it should be. I would not take a sequential approach to this. I would take a much more strategic position which says: ‘What is the opportunity space created by what’s going on?’ And I’d try to take advantage and move quite quickly and aggressively.
What are your top priorities for pulling Africa out of the crisis ?
I would say firstly, Africa needs to understand that protectionism would be the wrong response to what’s going on. Globally it’s accepted as a huge temptation, to go into a protective world again and start raising tariffs all over the place. I think Africa needs to really resist that temptation.
Africa also needs to take advantage of what is happening to create better clarity in terms of what the cost of African risk really is and therefore what are the opportunities for attracting investment resources or private resources into Africa.
I would say avoid protectionism, create visibility and clarity on the deployment of private sector resources.
The availability of public sector or donor-type resources is going to be have to be revised, and therefore the opportunity for creating an environment which is conducive for the deployment of private sector resources is now.