daniel mminele : challenges today – opportunities tomorrow keynote address by mr daniel mminele, deputy governor of the south african reserve bank, at the african central bank reserves management 2020 conference, arusha, 1 december 2015. * * * good morning, ladies and gentlemen. it is indeed a privilege to have been invited to deliver the keynote address at this prestigious african central bank reserves management conference. i would like to thank the bank of tanzania, allianz global investors, and the deutsche gesellschaft fur internationale zusammenarbeit ( giz ) for affording me the opportunity to share some thoughts regarding the challenges and opportunities we face in managing official reserves. thank you also for creating this valuable opportunity to discuss and swap notes on best reserve management practices. the ever - changing landscape in the financial markets poses significant and exciting challenges for reserves managers, but change can also bring new opportunities, which could require a rethink in the way that central bankers manage official reserves. as is always the case with change, new risks also emerge. this is even the case when considering only the primary objective of capital preservation, for which historically there were seemingly simple solutions. in the not so distant past, there was a clear formula for achieving capital preservation by placing deposits with aaa – rated counterparties or buying highly rated government bonds. however, holding government bonds in the current environment may not necessarily guarantee capital preservation. for instance, in countries such as germany, negative yields prevailing in the short to medium maturity notes actually guarantee not being able to achieve capital preservation. how to deal with negative interest rates is just one of the challenges we face as reserves managers. judging by the structure of the agenda and the speakers for this conference, i have no doubt that many other issues will be unpacked, to help enhance our understanding as we grapple with these extraordinary economic circumstances that have created today ’ s trying conditions under which reserves managers have to operate. in my remarks this morning, i will touch briefly on the global economic and financial markets context ; then talk about recent developments in reserves management, and the challenges currently facing central bank reserve managers. before exploring, towards the end of my remarks, possible opportunities stemming from this changing global landscape, as we cast our eyes out to 2020, i will briefly share with you how we at the south african reserve bank ( sarb ) have been thinking about and approaching these challenges. recent economic and market trends due to the global financial crisis in 2007 and 2008, there was coordinated global

at the same time, however, african monetary integration initiatives are still going ahead in various forums, for example initiatives by sadc and the au, with different and overlapping timetables, and with inordinate haste in some instances. unfortunately the thinking behind these initiatives continues to ignore the criteria for optimal currency areas. an important lesson of the european crisis is that macroeconomic convergence is not enough. fiscal conditions need to be supporting of macroeconomic convergence and of monetary arrangements, and institutions built to ensure that fiscal policy sustains those conditions over time. while the need for harmonised fiscal policies was recognised by the architects of the eurozone, the issue was dealt with through the stability and growth pact, which has turned out to be a loose, often ignored and unenforceable agreement that countries would abide by certain fiscal guidelines. we have seen the implications of the lack of a centralised fiscal authority, or fiscal counterpart to the ecb. reaching agreement on, and implementing monetary policy is difficult enough. fiscal policy is far more complex and political, as it involves policy levers that have more pervasive distributional impacts. at the end of the day, the hard work of developing markets, laying out infrastructure, and enabling the flow of factors of production will develop our regional economy more effectively than any monetary arrangement or international institution to enforce sound fiscal policy. such economic integration initiatives can be supported by a sustainable and far - sighted resource revenue policy. efforts to develop the regional economy need greater impetus. it is not hard to see why. south africa ’ s long - standing economic ties to europe and north america, important as they are, made it vulnerable to the collapse of these economies. african economies have displayed remarkable resilience during the crisis. although most countries experienced lower growth, mainly a result of lower global commodity prices, in general they managed to avoid recession. unlike south africa, the trade channel was less important because of the predominance of intraregional trade, and the stronger trade links with asia. since then, most sub - saharan african countries have returned pre - crisis growth rates, in line with those in developing asia. africa is the second - fastest growing region in the world, and this looks likely to continue for some time. foreign direct investment into africa remains quite high, at usd $ 42. 7 billion last year. this is lower than at its peak of usd $ 57. 8 billion in 2008 but still robust, and reflects a fall - off in investment to parts