Yandraduth Googoolye: Renewed protectionist tendencies - some
implications for macroeconomic policy in Africa
Speech by Mr Yandraduth Googoolye, Governor of the Bank of Mauritius, at the Continental
Seminar of the AACB for the year 2019, Balaclava, 6 May 2019.
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Deputy Governors
Mr Papa Lamine Diop, Executive Secretary of the AACB
Delegates from member central banks
Ladies and Gentlemen
Members of the media
Good Morning and a warm welcome to you all in Mauritius for this 2019 AACB Continental
Seminar. This is the first time that the Bank is hosting this event. We are pleased to have
participation from 24 member central banks and 12 institutions. I am given to understand that we
have about 70 participants. The large turn-out demonstrates the importance of the chosen
theme.
The Bank of Mauritius has participated actively in AACB meetings and activities over the past
years. Mr Diop, who is with us today, can bear testimony to this. We hosted the Governors'
meetings of the AACB Eastern Africa sub-region in July 2007 and July 2008 and we also hosted
the AACB Annual Meetings in August 2013 in our capacity as Vice - Chair of the Association.
Last year, as Chair of the sub-region, the Bank hosted for the third time the Governors' meeting
for the Eastern Africa sub-region.
The theme for this 2019 Continental Seminar: 'Renewed Protectionist Tendencies: Some
Implications for Macroeconomic Policy in Africa' is highly pertinent and topical. In its latest
Regional Economic Outlook for sub-Saharan Africa, the IMF has estimated growth to pick up
from 3 percent in 2018 to 3.5 percent in 2019.
The economic recovery under way is a positive development. However, one can reasonably
argue that current and expected growth levels are somewhat inadequate to lift millions of people
out of poverty and provide decent jobs to an estimated 20 million new entrants to labour markets
each year.
The IMF has also cautioned against downside risks stemming from heightened trade tensions,
slower growth in China, lower commodity prices, and tighter global financial conditions, which
could lower growth in sub-Saharan Africa by 2 percentage points this year. As expected, the
impact would be more pronounced for commodity exporters and countries with stronger links to
China and global markets.
A review of the performance of African countries with respect to the African Monetary
Cooperation Program criteria in recent years indicates clearly that African countries are not
building adequate fiscal and external buffers to cope with a range of shocks - both internal and
external. Our economies rely too much on mineral resources and agriculture. They also face
significant infrastructural gaps and have fragmented markets. Regional integration is also
relatively low.
Africa is far more dependent on overseas trade than any other economic region or global player.
The fact is that Africa is integrated asymmetrically in global trade. Originating mainly from
resource-rich countries, African exports are concentrated in raw materials and agricultural
products. These range from crude oil, gold and diamond to cocoa and timber, fruits and nuts,
copper, natural gas, cotton, iron ore, uranium, just to name a few of these. Imports are mainly
dominated by capital goods.
Openness to trade brings many benefits to the supply side of the economy. That is why we
cannot but welcome the African Continental Free Trade Area agreement which, once completed,
will establish a market of 1.2 billion people with a combined GDP of 2.5 trillion dollars. The
agreement could significantly boost intra-African trade whilst promoting foreign direct investment
and technology transfers. This can potentially raise the competitiveness of African economies
and enhance their integration into the global economy.
Before the global financial crisis, trade growth has been a major engine of global growth and an
enhancer of living standards worldwide. The integration of economies into global trade, notably
through participation in global value chains, has improved incomes. It has also moved millions of
people out of poverty. Since the crisis, trade has generally lagged behind output growth.
Some economies have borne the brunt of open trade. A number of them have been running a
persistent trade deficit and have been facing intense competition. We have also witnessed
scenarios of protectionism resulting in an increase in non-tariff barriers. The anti-globalisation
sentiment which emerged since the crisis has been gradually cemented through what has been
termed a "trade war", leading to a broader reversal of globalisation. Some economies have even
announced retaliatory measures.
Recourse to trade protectionism has been posited to foster recovery from economic downturns.
This, by creating barriers aiming at protecting the economy from the negative impacts of open
trade and improving their trade balances.
Ladies and gentlemen, protectionist measures impact on the free movement of goods and
services and they obviously affect economic performances across the world. Higher tariffs have
an effect on growth and inflation whilst influencing financial conditions, expectations and
confidence in the near to medium term.
For us central bankers, such elements can influence the conduct of monetary policy. Higher
tariffs could translate into higher import prices and these could increase firms' production costs.
This could ultimately reduce households' purchasing power. Ultimately, depending on the
severity of these impacts, they would weigh on consumption, investment and employment, which
could negatively affect the GDP performance.
The uncertainty about growth prospects is bound to postpone investment decisions. This is
something that we would never wish to see. Barriers to trade would also cause both productivity
and potential output to decline. What this means is that protectionism does matter for central
bank policy. And that is why this Seminar will enable our participants to ponder on the
implications of protectionism.
Before I end, allow me to quote former US President Barrack Obama... I quote: "There are
legitimate concerns and anxieties that the forces of globalisation are leaving too many people
behind - and we have to take those concerns seriously and address them. But the answer isn't
to turn inward and embrace protectionism. We can't just walk away from trade". Unquote.
Ladies and gentlemen, there cannot be winners in trade wars. Protectionism is not the right
answer to the economic challenges that some economies are witnessing.
On this thought, I wish you all fruitful deliberations.
I look forward to your report for consideration of Governors at the 2019 AACB Annual Meeting
scheduled on 01 August 2019 in Kigali, Rwanda.
Thank you.