francois groepe : african central banks and monetary policy challenges address by mr francois groepe, deputy governor of the south african reserve bank, at the credit suisse africa conference, cape town, 6 november 2015. * * * introduction good morning, ladies and gentlemen. allow me to express my pleasure at being invited to deliver the opening address at this year ’ s credit suisse africa conference. the theme chosen for this address – “ african central banks and monetary policy challenges ” – is particularly relevant today, seeing as financial market participants grapple with volatile markets informed by a fluid economic and monetary policy environment. the context is a highly interconnected world where spillover and spill - back risks are evident, and which brings about new challenges. in my speech, i will look at some of these global challenges and how they have shifted over the past few years, then focusing on their particular relevance for african nations and, in turn, looking at the ways in which african central banks can deal with their policy implications. i will briefly highlight the experience of the south african reserve bank in that respect, and discuss how increased cooperation between regional central banks can help to strengthen the way in which we navigate these challenging times. a more challenging world environment despite the elapse of nearly seven years since the height of the global financial crisis, a fullyfledged global economic recovery remains elusive, and new challenges continue to appear. the recovery process that began in some segments of the world economy has started to tentatively bear fruit. banks in the united states and, increasingly, in the eurozone have seen sufficient improvements in their balance sheets to allow for the resumption of positive credit growth. at the same time, financial conditions have improved sufficiently for corporate entities in these regions to resume hiring, a necessary condition for a consumer recovery. furthermore, in europe, a mix of central bank initiatives and political will to hold the european construct together has handed most peripheral countries markedly lower borrowing costs and has created room for them to escape from their double - dip recession. the global growth outlook, however, continues to vacillate and has once again deteriorated somewhat recently. in its october 2015 world economic outlook, the international monetary fund downgraded its global gdp growth forecasts by 0, 2 per cent to 3, 1 per cent and 3, 6 per cent in 2015 and 2016 respectively. the 3, 1 per cent global growth forecasted for 2015 is materially lower than the 3, 8 per cent forecasted a year ago

on trade and development ( unctad ), china is now the largest developing foreign investor in africa, and official chinese data indicate a doubling in the stock of foreign direct investment to africa between 2009 and 2012, to us $ 21 billion. the sharply lower commodity prices equally hold significant implications for africa. despite some diversification of their economies over the past decade or so – in particular into the services sectors such as retail, finance and mobile telephony – the export base of countries in sub - saharan africa remains highly dependent on commodities. the imf has identified 15 countries in the region, beyond its eight oil - exporting countries, where non - renewable resources represent more than 25 per cent of exports. in nine of those, the share exceeds 50 per cent – and these calculations exclude agricultural commodities, on which many poorer african nations remain heavily dependent. 3 the negative impact of the lower commodity prices is not limited to lower domestic income, tax revenues and employment in the mining sector, but is equally likely to result in the curtailment of drilling and extraction investment projects. the region, however, is likely to continue growing above trend in the near future. the imf forecasts sub - saharan gdp growth of 4, 3 per cent in 2016, up from the estimated 3, 8 per cent in the current year but still below the 5, 25 per cent average growth rate of the past five years. the most recent projections of the world bank similarly show a moderate recovery in 2016 and 2017. there are, however, some downside risks to these forecasts, such as the impact of adverse weather conditions on the agricultural sector and the possibility that ongoing public spending on infrastructure may be curtailed due to deteriorating public finance metrics in several countries. see ‘ capital flight darkens economic prospects for emerging markets ’, financial times, 1 october 2015. see ‘ linkages between china and sub - saharan africa ’, global economic prospects, world bank, june 2015. see ‘ dealing with the gathering clouds ’, regional economic outlook for sub - saharan africa, international monetary fund, october 2015. bis central bankers ’ speeches indeed, the more challenging external environment for african countries occurs at a time when these countries ’ external and budget balances have been deteriorating. the imf forecasts that, in 2016, 30 of the 45 sub - saharan countries will have a current - account deficit in excess of 5, 0 per cent of gdp. the region ’ s external shortfall is expected to be as high as 5