LIQUIDITY CHALLENGES LIQUIDITY CHALLENGES
AND WAY FORWARDAND WAY FORWARDj. Mverecha
OVERVIEWOVERVIEWIntroductionIntroductionEconomic RecoveryEconomic RecoveryCurrent Liquidity Challenges Current Liquidity Challenges FDI and the EconomyFDI and the Economy
Impact of FDI on the economyImpact of FDI on the economyWay ForwardWay Forward
Economy Prior to STERPEconomy Prior to STERP Multilayered policy induced distortionsMultilayered policy induced distortions HyperinflationHyperinflation Hyper Asset Price BubblesHyper Asset Price Bubbles Economic meltdown……2008Economic meltdown……2008
Inclusive Government & STERP Inclusive Government & STERP MeasuresMeasures Liberalization of the economyLiberalization of the economy MulticurrencyMulticurrency Slow Capacity recoverySlow Capacity recovery End of hyperinflationEnd of hyperinflation DeflationDeflation Steady but uneven recovery…….Steady but uneven recovery…….
IntroductionIntroduction
Economy steadily recovering…..Economy steadily recovering….. Price stabilityPrice stability Capacity utilizationCapacity utilization Revenue growthRevenue growth Deposits growth……..Deposits growth……..
But Major Issues……….But Major Issues………. Liquidity challengesLiquidity challenges Slow capacity recoverySlow capacity recovery Low output/wage equilibriumLow output/wage equilibrium Low savings and investmentLow savings and investment Unemployment & PovertyUnemployment & Poverty
IntroductionIntroduction
5
Inflation fundamentals improving.............Inflation fundamentals improving.............
Figure 1: Annual Inflation Rate (%)
-6
-4
-2
0
2
4
6
8(%
)
IntroductionIntroduction
0.000
0.010
0.020
0.030
0.040
0.050
0.060
0.0702011 Headline Inflation Forecasts
dsm (yoy) tsm (yoy) tsm+adf (yoy)
Introduction Introduction
Inflation fundamentals…….UncertaintyInflation fundamentals…….Uncertainty
Economic Recovery……Economic Recovery……GDP By Industry (US$m) 2010 2011 2012
Agriculture 1266 1462 1703
Mining 919 1198 1593
Manufacturing 981 1025 1077
Electricity & Water 269 275 284
Construction 92 94 96
Finance & Insurance 241 248 257
Real Estate 122 125 128
Distribution & Tourism 1290 1328 1381
Transport & Communication 717 731 749
Public Administration 88 89 91
Education 167 170 174
Health 87 89 90
Domestic Services 64 65 66
Other Services 348 355 363
Less Imputed Bank charges -59 -57 -56
GDP at factor cost 6592 7197 7996
Net taxes on production 0 0 0
GDP at basic prices 6592 7197 7996
Net taxes on products 214 227 243
Real GDP at market prices 6806 7425 8239
Real GDP (yoy%) 8.0% 9.1% 11.0%
Nominal GDP at market prices 6999 8016 9337
Nominal GDP (yoy%) 12.0% 14.5% 16.5%
Economic Recovery…………Economic Recovery…………Gross Domestic Product by Industry at Constant Prices (US$ M)
2010 2011 2012
Agriculture 34.0 15.5 16.5
Mining 44.0 30.3 33.0
Manufacturing 3.5 4.5 5.0
Electricity & Water 2.0 2.4 3.0
Construction 1.2 1.8 2.4
Finance & Insurance 2.2 3.0 3.3
Real Estate 1.3 2.0 2.2
Distribution & Tourism 2.5 3.0 4.0
Transport & Communication 1.2 2.0 2.5
Public Administration 1.5 1.5 1.5
Education 1.3 1.7 2.3
Health 2.2 1.8 2.2
Domestic Services 2.1 1.6 2.3
Other Services 1.8 2.0 2.2
Less Imputed Bank charges -3.3 -3.3 -2.5
GDP at factor cost 11.9 9.2 11.1
Net taxes on production -2.0 -2.0 -2.0
GDP at basic prices 8.0 9.2 11.1
Net taxes on products 5.0 6.0 6.7
GDP at market prices (yoy%) 8.0 9.1 11.0
Economic Recovery………..Economic Recovery………..
Assumptions: Optimistic ScenarioAssumptions: Optimistic Scenario
Accelerated mining sector and agriculture growthIndigenization and empowerment framework on the basis of stakeholder consensusProgress on Debt and Arrears Clearance strategySustained GPA Progress : Political and Macroeconomic stabilityNew investment in infrastructure: energy, power and ICTStructural reforms including privatizationInvestment in Education, Health; New ICT; R&D
Banking Sector Banking Sector DepositsDeposits
Growth in deposits from US$1,4 bn in Dec-09 Growth in deposits from US$1,4 bn in Dec-09 to US$2,6 bn by April 2011to US$2,6 bn by April 2011
Liquidity Challenges……Liquidity Challenges……Deposits Growth……Deposits Growth……
Money Supply Forecasts….Money Supply Forecasts….
May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
2,692,466
2,786,702
2,884,237
2,985,185
3,089,667
3,197,805
3,309,728
3,425,569
2,666,452
2,733,113
2,801,441
2,871,477
2,943,264
3,016,846
3,092,267
3,169,573
Liquidity Challenges…..Liquidity Challenges….. Economy faces liquidity ChallengesEconomy faces liquidity Challenges
Slow deposit Growth @Us$2.6 billion (April)Slow deposit Growth @Us$2.6 billion (April) Mainly short term deposits (90%)Mainly short term deposits (90%)
Financial intermediation growing slowlyFinancial intermediation growing slowly
Two Sources of Liquidity (Multicurrency)Two Sources of Liquidity (Multicurrency) ExportsExports Credit LinesCredit Lines
Economy Requires significant capital flows Economy Requires significant capital flows Capitalization of firmsCapitalization of firms Working capital financingWorking capital financing New Equipment financingNew Equipment financing New Projects (e.g Energy/infrastructure) New Projects (e.g Energy/infrastructure)
National ImperativesNational Imperatives National Imperatives:National Imperatives:
Economic Growth Economic Growth
Job creation and poverty alleviationJob creation and poverty alleviation Investment in Education, Health, Research & Investment in Education, Health, Research &
DevelopmentDevelopment New (wealth) value creationNew (wealth) value creation Broad based economic transformationBroad based economic transformation Equity, Fairness & Opportunity For AllEquity, Fairness & Opportunity For All SMEs growth & transformationSMEs growth & transformation Youth & Gender mainstreaming……Youth & Gender mainstreaming……
Financial intermediation is at the heart of Financial intermediation is at the heart of economic growth……economic growth……
Economies grow due to investment/FDI...Economies grow due to investment/FDI... China, India, Peru, South Korea, Taiwan……China, India, Peru, South Korea, Taiwan……
National Imperatives National Imperatives To Achieve National Imperatives:To Achieve National Imperatives:
Promote export growthPromote export growth Secure Credit LinesSecure Credit Lines Engagement of International CommunityEngagement of International Community
External Debt & Arrears ResolutionExternal Debt & Arrears Resolution Address Banking sector VulnerabilitiesAddress Banking sector Vulnerabilities
Capacitating Central Bank Capacitating Central Bank Lender of Last Resort FunctionLender of Last Resort Function
Domestic stakeholder engagementDomestic stakeholder engagement An All stakeholder approach An All stakeholder approach Govt, Business & Labour (Policy Consensus)Govt, Business & Labour (Policy Consensus)
Deal with Uncertainty Deal with Uncertainty Political & Policy IssuesPolitical & Policy Issues
Why Investment is CriticalWhy Investment is Critical Economic Growth & Poverty ReductionEconomic Growth & Poverty Reduction Economic Growth & Improving living Economic Growth & Improving living
standards standards Economic growth & national developmentEconomic growth & national development Economic development & long term Economic development & long term
stabilitystability Economic Growth & Social cohesionEconomic Growth & Social cohesion
Greece, Tunisia, Egypt, Jordan, Yemen…..Greece, Tunisia, Egypt, Jordan, Yemen…..
GhanGhanaa and Malaysia and Malaysia
Both Were British ColoniesBoth Were British Colonies Both got independence same yearBoth got independence same year Both had similar per capita levels Both had similar per capita levels
in 1957in 1957 In 2010, Malaysia’s per capita is In 2010, Malaysia’s per capita is
10 times higher10 times higher What accounts for the difference? What accounts for the difference?
Ghana and Malaysia: 1957Ghana and Malaysia: 1957
0
20
40
60
80
100
120
140
160
180
US$
1957
GDP PER Capita Terms
Ghana Malaysia
Ghana and Malaysia: 2009Ghana and Malaysia: 2009
0
2000
4000
6000
8000
10000
12000
14000
16000
US$
2009
2009 GDP PER Capita Terms
Ghana Malaysia
Ghana and MalaysiaGhana and Malaysia Malaysia Ghana
Population (millions) 2000 23 19
Percent of population below the national poverty line 16 33
Infant Mortality Rates (per 1000) 8 65
Adult Illiteracy 13 30
Agric share of GDP (%) 14 36
Paved road as % of total (1998) 75 24
Per 1,000 people: Telephone Main Lines (1998) 198 8
Personal computers (1998) 59 2
No. of listed domestic companies (1999) 757 22
Foreign Direct Investment in US$ million (1999) 1,553 17
Exports of Goods & Services as % of GDP (1999) 124 32
CPI Inflation Rate (2001) 1.4 33
Sources: World Bank, World Development Report 2000/2001 & 2002 issues; Statistics Dept., Malaysia
Per Capita Comparative Per Capita Comparative Analysis: Analysis: 19601960
KenyaIndia
China
Zambia
Zimbabwe
0
50
100
150
200
250
300
US$
1960
Kenya India China Zambia Zimbabwe
Per Capita Comparative Analysis: Per Capita Comparative Analysis: 20092009
Kenya
India
China
Zambia
ZImbabwe
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
US$
2009
Kenya India China Zambia ZImbabwe
Seven Lessons From China Seven Lessons From China
Specific Well Defined Economic Specific Well Defined Economic objectivesobjectives
Learning from own Mistakes Learning from own Mistakes Understanding the Global dynamicsUnderstanding the Global dynamics Far sightedness/ Focus on Long termFar sightedness/ Focus on Long term Mastery of International EngagementMastery of International Engagement Investment in Education, Health, R& DInvestment in Education, Health, R& D Nationalism balanced with Global Nationalism balanced with Global
Imperatives Imperatives
Gold Prices…..Gold Prices…..A window of opportunityA window of opportunity
WAY FORWARD WAY FORWARD
Improving the Investment Improving the Investment EnvironmentEnvironment
Improving the overall investment Improving the overall investment environment is critical for FDI.environment is critical for FDI.
Zimbabwe is presently viewed as a Zimbabwe is presently viewed as a high risk investment destination.high risk investment destination.
Agreed Framework for IEEAgreed Framework for IEE Stakeholder ConsensusStakeholder Consensus
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