t t mboweni : monetary policy and inflation - the next decade address by mr t t mboweni, governor of the south african reserve bank, at the conference of the bureau for economic research, stellenbosch, 18 november 2004. * 1. * * introduction chairperson, ladies and gentleman, i have been asked to share my views with you today on what will happen with monetary policy in the next ten years. looking into the future is always a hazardous undertaking. it requires a careful analysis of what has changed already and what likely changes will occur in the coming years. such an analysis cannot only concentrate on what has happened in south africa, but must also take into account the structural changes in the rest of the world and how these developments could perhaps affect south africa. this is indeed a formidable task. in the next thirty minutes i will do my best to give you my view on these matters. 2. structural changes in the world ’ s financial sector world war i and the great depression of the 1930 ’ s left the world with highly regulated capital markets and a disintegrated international financial system. the highest priority was therefore attached to restoring multilateral payments and current account convertibility towards the end of world war ii, which led to the bretton woods agreement and the general agreement on tariffs and trade. in the period after the war, the emphasis shifted to the liberalisation of trade and payments. progress with these reforms was relatively slow and at first concentrated on the currency convertibility of current account transactions. in the 1980 ’ s the authorities of the industrialised countries began liberalising financial systems, which were later followed by a number of emerging - market economies. the convertibility of the capital account of the balance of payments gained further momentum with the negotiations in the world trade organisation to liberalise transactions in financial services. this financial liberalisation was accompanied by a process of globalisation, i. e. a growing economic interdependence of countries became discernible through the increasing volume and variety of cross - border transactions and through the rapid and widespread diffusion off technology. new technological advances reduced transportation, telecommunication and computation costs, thus greatly increasing the ease with which national markets may be integrated at the global level. the liberalisation and globalisation resulted in a growing interdependence of national financial markets. although these markets still do not form a single global market, the degree of interdependence is already strong enough to have altered the environment in which monetary policy

remember that africa ’ s average growth rates have exceeded 5 per cent since 2000, double the pace of the 1980s and 1990s. with the outbreak of the financial crisis in 2008, africa remained resilient as borne out by strong growth numbers. while it is true that the boom in commodity prices during the 2000s provided a significant boost to export revenues, this was only part of africa ’ s broader growth performance. there has been a steady rise in the contribution of domestic demand to gross domestic product ( gdp ), owing to a fast - growing middle class in many african countries. on the supply side, the rise of the services sector has been one of the defining characteristics of the structural change in african economies. telecommunications, banking, and the retail sector have been flourishing in many countries. this has contributed to the improvement in africa ’ s growth prospects, which in turn, has attracted the attention of foreign investors. the concerted efforts of policymakers to address some of the major binding growth constraints, which were previously neglected, have also played a significant role in africa ’ s enhanced growth performance. in the 2015 world bank doing business report ssa was reported to have accounted for the largest number of regulatory reforms, making it easier to do business in the past year. over the past decade africa has increasingly been earmarked as a profitable investment destination by international investors. foreign direct investment ( fdi ) to africa increased from approximately us $ 10 billion per year in 2000 to more than us $ 50 billion in 2012. the institutional and political changes, coupled with the continent ’ s enhanced growth potential have been the main factors underpinning investor confidence in africa. africa is also seen as an attractive fdi destination by those multinational investor groups that are keen to benefit from the intra - africa trade opportunities that currently exist. in addition, other investors that already have operations in africa are looking to expand their footprint on the continent, to ensure that they are well positioned to benefit from the favourable growth prospects that prevail in many countries. it is also worth noting that intra - continent fdi has been growing at a healthy pace. in fact, the share of african countries in total fdi in the continent more than doubled between 2003 and 2012 ; whereas in 2003 some 8 per cent of fdi into african countries came from other african countries, by 2012 this share had risen to 18 per cent. thus, given the aforementioned successes and progress made in africa, particularly on the investment front, there should not be an overly negative impact