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

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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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