Address by Daniel Mminele,
Deputy Governor of the South African Reserve Bank,
at the Bundesbank regional office in Hamburg, Germany
26 January 2017
German G-20 presidency in 2017:
opportunities and challenges for South Africa
1. Introduction
Good evening, ladies and gentlemen.
Thank you to Dr Andreas Dombret, member of the Executive Board of the
Deutsche Bundesbank, and to Dr Arno Bäcker, President of the Deutsche
Bundesbank regional office for Hamburg, Mecklenburg Western Pomerania
and Schleswig-Holstein for the kind invitation to speak to you today in this
great Hanseatic city.
This is certainly an intriguing city, often referred to as 'the gateway to the
world' and 'the Venice of the North', names derived from the fact that Hamburg
is home to one of the largest harbours in Europe, and therefore the centre of
German trade. Interestingly, it has more bridges than Venice. We also know
that Hamburg has a vibrant cultural life when it comes to art and music,
including its unique association with the Beatles.
South Africa takes a keen interest in Germany and Europe at large, given the
substantial trade linkages and therefore significant implications for our
economic prospects. Not only is Germany the second-largest trading partner
for South Africa, but also one of the biggest investors in the domestic
economy, with close to 600 German companies located in South Africa and
providing over 90 000 jobs.1 Such a presence contributes significantly to
employment and skills development, but also to technological advancement in
South Africa.
I thought that since I am in the G-202 host country, it may be useful to share
some thoughts with you on the G-20 in general and more specifically insofar
as South Africa and the South African Reserve Bank have experienced it thus
far, and highlight some of the opportunities and challenges as we perceive
them.
Indeed, Germany has assumed the G-20 presidency at an important juncture,
a time when countries are increasingly turning inward, with anti-globalisation
sentiment and populist rhetoric growing stronger. As Chancellor Angela Merkel
noted a few months back, the current environment is marked by a strong
emphasis on the nation state. She cautioned that withdrawing and
concentrating on one's own country has never been of benefit to anyone in the
instead, this has always caused harm. As such, Germany's
end, motto of
'shaping an interconnected world' is certainly appropriate as it talks to the
benefits of globalisation and, along with it, the need to ensure that the fruits
thereof are shared in a manner that is more inclusive.
2. G-20 track record
Germany played a leading role in the formation of the G-20. It was in the wake
of the 1997 Asian financial crisis and during the 1999 German presidency of
the G-73 that the G-20 was launched as a new forum on 'key economic and
financial policy issues among systemically significant economies'4. Ten years
later, and coincidentally after yet another financial crisis, the status of the G-20
Leaders'
was elevated to that of a Summit; it has become the premier forum
for international economic and financial cooperation. Prior to this, the G-20
initiative had been at the level of finance ministers and central bank governors.
Almost a decade on from the 2007 global financial crisis, perhaps it is prudent
to ask: does the G-20 remain the premier forum for international engagement
and cooperation on global economic and financial affairs, as it purports to be?
How much has it achieved? Is it still relevant and effective?
I think it can be argued that the G-20 has achieved a number of successes,
certainly remains relevant, and many would agree that it is indeed the most
appropriate forum given its representation, and as such is well placed to
address issues of global economic and financial importance. However, we can
never become complacent since there is little doubt that there is much more
that can and should be done, especially given some criticism voiced that the
G20 was a good crisis manager, but may be less successful as a forum for
coordinating crisis prevention.
The purpose of the G-20 forum is to enhance cooperation. Cooperation is
about collaboration, partnerships, unity and compromise, which ultimately
means working and acting together for a common purpose. The German
Federal Finance Minister, Wolfgang Schäuble, could not have put it in a
simpler and more concise way when he said the following at the first G-20
meeting under the German presidency in Berlin in December 2016: "We will
only be able to solve the problems of the world if we work together." He went on to
mention that "global solutions are needed for global challenges".
the first Leaders' Summit in 2008,
During the G-20 focused primarily on
strengthening economic growth, dealing with the economic and financial crisis,
and laying the foundation for much-needed reform of the financial sector.
There was a drive to reform the International Monetary Fund (IMF), the World
Bank and other multilateral development banks, coupled with initiatives to
resist trade protectionism and work towards the conclusion of the Doha
Development Round, the objective of which was to lower trade barriers and
facilitate increased global trade. The London Summit of April 2009 focused on
coordinated fiscal and monetary stimulus measures to avert the threat of a
global depression. Leaders agreed on additional resources of up to
US$1 trillion for the IMF to assist countries in weathering the financial crisis.
The Financial Stability Forum at the Bank for International Settlements, which
at the time was only represented by advanced economies, was transformed
into the Financial Stability Board (FSB), with key emerging market economies
represented on the FSB. In September 2009, the G-20 leaders also agreed on
the implementation of a framework for strong, sustainable and balanced
growth.
By the time of the Toronto Summit in June 2010, fears were escalating over
the deteriorating fiscal health of various advanced economies as they tried to
support growth. Advanced economies with large deficits agreed to at least
halve their fiscal deficits by 2013 and to stabilise or reduce sovereign debt
ratios by 2016. These commitments included ongoing structural reforms
across all G-20 members to rebalance and strengthen global growth. An
agreement to conclude work in the Basel Committee on Banking Supervision
on a new global regime for bank capital and liquidity was also reached.
By 2012, the European banking and sovereign debt crisis received much
attention, with the spillover effects to other member countries in a globally
interconnected world and the need for policymakers in Europe to take decisive
and credible action featuring strongly. With this in mind, and with the potential
for increased instability, the G-20 leaders pledged over US$450 billion in
financial resources to boost the IMF firewall at the June 2012 Los Cabos
Summit. In 2014, the G-20 adopted the 2-in-5 objective, committing to
collectively raise G-20 output by an additional 2 per cent over a five-year
period, by 2018.
The contribution of central banks, within their mandates, has largely been
through supportive monetary policies, reforms to the international financial
architecture, strengthening the resilience of the financial sector, leading the
dialogue on global regulatory reform, playing a key role on the FSB, and
assisting in developing strategies for sustainable economic growth. Without
too much chest-beating for my own guild, I do think that the contribution of
monetary policy in addressing the economic challenges is beyond question. In
fact, it has been widely recognised that there has, at times, been an over-
reliance on monetary policy to address the binding growth constraints in many
economies.
It is thus clear that the G-20 has taken much action over the years, but the
global economic recovery has nevertheless been less than inspiring. Hence,
we are now witnessing a rise in anti-globalisation rhetoric, a rise in populism,
and countries developing greater nationalist tendencies. The G-20 has an
important leadership role to play in unpacking and addressing the reasons for this
change in sentiment and highlighting the negative ramifications of an inward bias.
We need to emphasise the positive spillovers of globalisation, but also accept that
we may have underestimated the number of people were left behind and who did
that Germany's
not share in the spoils of globalisation. It is with this in mind then,
focus on 'shaping an interconnected world' and enhancing resilience is very
pertinent.
Germany's three -
main pillars for the G-20 presidency of ensuring stability,
-
improving viability for the future, and accepting responsibility reflect
continuity of the G-20 agenda over the years and also aim to tackle the issues
I have just spoken of. The issue of accepting responsibility is borne out by the
new agenda item, 'Compact with Africa', which speaks directly to achieving
sustainable economic progress in Africa as part of addressing some of the root
causes for the various migration crises we have been observing. I will return to
this later.
I must add that we certainly welcome the more streamlined agenda that the
German presidency has put together, particularly in light of the fact that the
agenda of the G-20 had become more bloated over the years, with the
increasing risk of detracting from the effectiveness, efficiency and credibility of
are looking forward to Germany's
this forum. We G-20 leadership during 2017,
and I am convinced that the forum will greatly benefit from some of the virtues
that Germany is famous for, such as thoroughness, efficiency and punctuality.
Some of our colleagues have already had a taste of this at our meetings in
Berlin during December.
South Africa's participation in the
3. G-20: opportunities and challenges
How does a small, open economy such as South Africa fit into the G-20? South
Africa has a high level of interconnectedness to Africa and within the global
economy, not only through trade links but also because of our deep and
sophisticated financial markets. Our membership of the G-20 forum provides
South Africa with the space to participate in shaping key international policies that
could have an impact on our own economy, the region and the continent as a
whole.
Our network of contacts from our interactions in various G-20 forums provides
great opportunities to enhance South Africa's international profile and reputation.
It
also allows us to keep pace with global best practice and learn from others,
helping us to make more informed and therefore better policy decisions. South
Africa's participation in the
G-20 helps to leverage its voice and effectiveness in
other international standard-setting bodies, including the FSB, the Basel
Committee on Bank Supervision, and the Financial Action Task Force, to name a
few. South Africa has already adopted international best practice in areas such as
financial regulatory reform, including being an early adopter of Basle III.
Disclaimer: There may be minor differences between this version of the speech and the delivered German version
It is important to focus on the underdevelopment of various regions in the global
economy, including sub-Saharan Africa, and to ensure that the issues of relevance
to these regions are on the table of the global policy agenda. At the Toronto
Summit in June 2010, the G-20 leaders confirmed the inclusion of 'development'
as a key agenda topic, and at the Seoul Summit later that year they agreed to
establish a Working Group on this issue.
Building on the development theme, we welcome the initiative that Germany has
placed on the table, namely 'Compact with Africa', through which it hopes to
encourage private-sector investment, including in infrastructure, to increase
employment and foster sustainable growth on the continent. Under this initiative,
African countries are being encouraged to discuss and agree on individual
compacts, committing to concrete actions to enhance investment opportunities. As
we know, the investment financing gap in Africa is huge, and closing its
infrastructure gap is a top priority in order to put the continent on a path of higher
and more sustainable growth and development. The 'Compact', which should tune
into other African initiatives already underway on the continent, should help to
make private investment in Africa more attractive by making it more secure,
thereby reducing the barriers to investment. South Africa has the potential to
contribute significantly to the growth and development agenda of the G-20 and to
the 'Compact', and we look forward to this initiative gaining momentum in the
coming months and beyond.
participation in the
South Africa's G-20 and other international forums is not
without its challenges. These include constraints related to human and other
resources to fully and effectively participate. The breadth of the G-20 agenda
requires careful prioritization, which invariably involves compromises and trade-
offs, sometimes affecting important agenda items. Another challenge relates to the
'small country problem', which in effect means that much energy needs to be
devoted to ensure that issues of relevance to both emerging market and
developing countries receive appropriate attention. Then there is the issue of
countries being at different stages of development, which requires country-specific
circumstances to be taken into account, and which needs to find expression in
Disclaimer: There may be minor differences between this version of the speech and the delivered German version
such a manner so as not to compromise international standards.
As the only African country at the G-20 table, South Africa also endeavours to
highlight regional and continental issues whenever the opportunity arises, albeit
without any formal mandate. In this regard we are supported by the African Union
Commission and the NEPAD Secretariat as invitees to G20 meetings.
4.
Opportunities and challenges for the G-20 as a forum
It seems that while the G-20 has moved beyond its teething problems and idealism
as a forum for cooperation and coordination and has actually produced tangible
outcomes, we have now reached the stage where we run the risk of being viewed
as a forum where process issues have become more prominent and actions more
difficult to agree on or implement. Indeed, at the start of the global financial crisis,
the level of cooperation and coordination within the G-20 was impressive, as an
array of appropriate measures was implemented to deal with the crisis and to
improve resilience. Besides the achievements already referred to earlier, other very
important actions were taken in the midst of the crisis, such as swap-line facilities
among major advanced economies and a few select emerging markets, revisions to
the IMF lending toolkit to make it more flexible and relevant, and adapting views on
capital flow management measures in reaction to the changed operating
environment. However, this desire to cooperate seems to have faded somewhat
and some G-20 countries have since become or are becoming inwardly focused.
Last year we witnessed various unexpected political developments which could
have a bearing on the work of the G-20. In 2017, there could be more surprises in
store as far as voter choices are concerned, and thus major political shifts with
potentially significant economic consequences. Much uncertainty currently exists
with regard to the future policy direction in some of the major economies, which
brings with it the possibility of increased financial market volatility.
Disclaimer: There may be minor differences between this version of the speech and the delivered German version
The pushback against globalisation has become a popular theme, as an increasing
number of voters believe that there is not much to gain from the current system.
Instead, many believe that globalisation has benefited a small privileged elite. There
are indications that policies most likely to be enacted in reaction to this
phenomenon include increased restrictions to immigration and trade.
Simultaneously, greater political tensions globally are, making it harder for
governments to pursue the structural reforms needed to encourage investment and
so boost productivity and growth.
The G-20 needs to intensify its communication and highlight that with globalisation
comes more trade, more wealth, more investment, and ultimately more jobs. It
means lower-cost goods from abroad, which increases spending power and
results in a higher standard of living. Competition from abroad forces local firms to
become more efficient and to use resources more efficiently. Clearly, globalisation
is good, but we need to acknowledge the challenge that everyone should share in
its fruits. We need to ensure that globalisation is accompanied by greater
inclusiveness and reduced inequality.
Regarding the G-20 structural reform agenda and the 2-in-5 objective, we have
made progress and implemented reforms, but, once again, we could do more. The
structural reforms implemented thus far have contributed to supporting economic
growth and have therefore contributed to the collective growth ambition set by the
Brisbane Summit. However, we know that potential growth remains low, so we
need to step up our implementation efforts, reassess on a continuous basis
whether we are still on the right path with our structural reform initiatives, and
review and change course where necessary
A final issue that I would like to point out relates to outreach. It is important to bear
in mind that, while as a group the G-20 makes up about 80 per cent of global trade
and approximately 90 per cent global GDP5, it consists of only 19 countries, which
effectively excludes more than 160 countries. Only one African country is
5
Gross Domestic Product
Disclaimer: There may be minor differences between this version of the speech and the delivered German version
represented in the forum. Hence, the G-20 needs to do significantly more outreach
to ensure that the views and interests of these countries are not unduly
compromised by a member-focused G-20 Agenda.
It is important to recognise that amidst the challenges, there are always
opportunities. Digitalization is one such opportunity, and we know that Germany
intends to focus more on digital transformation in a bid to make economies 'fit for
the future'. Digitalization has immense benefits, ranging from improved access to
financial services to cost savings from efficiency gains. A more financially inclusive
global economy could help to support real economic activity and the growing
importance of financial technology is a key contributor towards the common goal
of financial inclusion. In a 2014 report, the World Bank mentioned that mobile-
money accounts can drive financial inclusion in sub-Saharan Africa and that there
-
are big opportunities to expand financial inclusion particularly among women and
-
the poor through financial innovation. Once more, the G-20 is the ideal platform
to jointly discuss digitalization and devise means of using it responsibly to our
advantage. However, it is important that in doing so we do not lose sight of the
financial stability considerations associated with the evolving digital world. Thus,
South Africa welcomes the proposal that the G-20 take action to improve
cybersecurity in the financial sector to address financial stability risks. Continued
investment in the ability to detect and respond to cybersecurity threats is needed
to ensure that we remain in a proactive rather than a reactive mode to counter the
potential threats posed by cybercrime.
Another opportunity advocated by Germany is the development of a holistic policy
framework to measure the effects of financial reforms. We must remain sensitive
to the potential unintended consequences of the implementation of these reforms,
especially given the differing levels of financial sophistication in different
jurisdictions. A lack of international consistency among and within regulators and
central banks regarding roles, policies, directives and guidance could pose risks of
instability, especially where cross-border flows are affected.
Disclaimer: There may be minor differences between this version of the speech and the delivered German version
How do we make the best of the opportunities presented? How do we react to and
deal with these challenges? Only through cooperation and collaboration for a
common purpose, since by so doing, we contribute to the creation of a more
equitable world, both in terms of geographical distribution as well as within national
boundaries.
5. Conclusion
Let me then conclude by saying that we are very excited about the year ahead and
the promises it holds. We believe that much can be gained if we work together, if
we tackle the difficult issues of exclusion and inequality, if we make the most of the
Germany's desire to use its
opportunities presented to us. We appreciate
presidency to intensify international cooperation and ensure that globalisation
benefits everyone. This is not an easy task, but it is necessary to ensure strong,
sustainable, balanced and inclusive growth. South Africa is fully supportive of this
objective and will contribute wherever appropriate.
Thank you.
Disclaimer: There may be minor differences between this version of the speech and the delivered German version