I ended that piece with the statement that in this current article I will delve into the impacts of the global economic turbulence and vulnerabilities on Tanzania.
I realise though that there is still much more that requires to be critically examined with respect to the nature and character of global economic dynamics if we are to better contextualize the impacts of such dynamics on Tanzania.
Writing in his weekly column in the UK Financial Times, the respected economics editor, Martin Wolf, observed as a conclusion to his article entitled, ‘Helicopter drops might not be far away’ that ‘Policymakers must prepare for a new “new normal” in which policy becomes more uncomfortable, more unconventional, or both.
Can the world escape from the chronic demand weakness? Absolutely, yes. Will it? That demands greater boldness.
When one has exhausted the just about possible, what remains, however improbable, must be the answer’.
In this vein, thinking about the changing dynamics of whatever kind- social, political, technological or economic, it is debatable that their impacts should follow a similar pattern and even impose generic consequences.
Indeed, different countries may behave differently in the face of such dynamics and invoke varying measures to avoid or mitigate adversity.
Embracing Predictable Surprises
In their book, ‘Predictable Surprises-the disasters you should have seen coming, and how to prevent them’, professors Max Bazerman and Michael Watkins present an interesting analysis about how adversity can be avoided or its gravity reduced.
They argue that we suffer from ‘a natural tendency to discount the future’ in the course of which ‘our willingness to invest now in order to prevent a disaster that may be quite distant and vague’ is reduced.
They note that one of the prime responsibilities of leadership is ‘to identify and avoid predictable surprises’ which they define as ‘an event or set of events that take an individual or group by surprise, despite prior awareness of the information necessary to anticipate their events and their consequences.’
Professors Bazerman and Watkins offer an interesting perspective about how we may view and respond to changing global events.
It proposes the possibility of a developing country like Tanzania being actually able, through good leadership, to anticipate and shore up its economy from adverse headwinds of an economic crisis in the developed rich world.
Is Tanzania Positioned for Predictable Surprises?
The large question though is whether, on the one hand, the capacity to embrace such perspective exists and, on the other, whether it is indeed possible to anticipate all global events and their consequences in a complex world.
Is Tanzania in a better position than the US or China in this leadership equation?
And here lies the rub. Many of us thought that the global economy had returned to a period of economic buoyancy and stability after the financial crisis of 2007/2008.
Most countries in the Emerging Economies-Brazil, Russia, India, China, South Africa- and in Sub-Saharan Africa, experienced rapid and consistent high GDP growth. The narrative of ‘Africa Rising’ picked momentum.
The Return to Global Economic Travail
And then beginning August 2015 ‘bang’! The global economy swung into turmoil. Global stock markets and commodities faced plunging prices.
The price of crude oil fell to below US$30 per barrel. Gold, which has experienced a serious battering for two years, suddenly picked up in value in February this year as investors panicked and resorted to a traditional safe-haven asset.
Good news for Tanzania which relies on gold for almost 30 per cent of export receipts and we should hope and pray that market dynamics remain supportive.
Unsurprisingly, the International Monetary Fund rushed to caution that the global economy recovery from the 2007/2008 financial crisis could in fact be derailed by the emerging economic challenges.
The question to ask is: what happened to ‘predictable surprises’ about the new global economic slowdown?
Is it sufficiently tenable to argue that China’s policy shift from overreliance on building a huge manufacturing sector and the export-led strategy to a focus on building a stronger domestic consumption economy along with the weakening of the renminbi in January, 2016, contributed significantly to the global economic turmoil?
Are there no other contributory factors which could have been predicted? Consider, for example the recent declines in the values of the British sterling pound and the euro, which are being dragged down by fears about UK exiting from the European Union, the so called ‘Brexit’.
The answer is surely ‘no’. In a speech to the London School of Economics and Political Science on February 6 this year, Jaime Caruana, General Manager of the Bank for International Settlements observed that financial markets had been ‘so unsettled at the beginning of this year.
Because we began the year with an already large overhang of the stock of vulnerabilities in the global economy’ and went on to suggest that ‘policy interventions that address the symptoms without addressing the underlying vulnerabilities may succeed only in serving as a palliative that puts off the turbulence for another day, by which time the stock of vulnerabilities will have grown even larger.’
New Global Responses-Can They Work?
Importantly, how could these economic travails be mitigated when there is, what the IMF Chief, Christine Lagarde, has termed as ‘asynchronicity’ of monetary policy actions by the US Federal Reserve, Bank of Japan, and the European Central Bank?
Lagarde probably had in mind, specifically, the Federal Reserve’s decision in December 2015 to raise interest rates after almost a decade.
It is worthy to note that the G20 Ministers of Finance and Central Bank Governors met in Shanghai last week partly to co-ordinate action on a collective policy response to the global economic crisis and partly to strike a more effective line of communication between China’s policy makers and global financial institutions such as the IMF.
On the eve of the G20 meeting last week, the IMF issued a statement to the effect that the on-going economic distress points ‘to higher risks of a derailed recovery, at a moment when the global economy is highly vulnerable to adverse shocks’.
It will be of interest to review what kind of ‘shock absorbers’ they have proposed to support the smooth workings of the global financial and economic system after all the efforts of fiscal stimulus, fiscal austerity and quantitative easing (printing of money operations) have failed to boost growth.
But all such policy exchanges at the highest levels by the global financial and economic players could in effect smack of conventional wisdom that has ruled for years.
It reflects a continuing repeat performance without, regrettably, resulting in a system and process that delivers sustainable financial and economic stability. In sum, the global economy seems to face frequent ‘predictable surprises’ with serious consequences.
The Rise of Discourse on End of Growth
As we continue to face these global volatilities in currency, stocks and commodity markets, what some of us may not be aware of is the emergence in recent years of an academic discourse, of contextual relevance to these crises, around the theme of ‘the end of growth’.
As a non-economist, I must admit that my attention was drawn to the topic only in early February this year when I picked up a copy of the February edition of the UK Magazine, ‘Prospect’ whose headline reads: ‘The End of Growth?’
What tickled my mind reading the magazine think pieces on the subject was whether there could be a relationship between the cyclical economic crises which the rich industrialised world faces (with the usual adverse impacts on developing countries) and the whole idea of the end of growth as we know of it. Does the idea make economic sense to developing countries like Tanzania?
What leading US and UK economists are postulating is that the era of booming economic growth has come to pass and that the global economy, notably that of the rich countries, is entering an age of permanent slow growth or even no growth.
The economic stagnation is described as ‘secular’ rather than ‘cyclical’ or ‘temporary’.
One such ‘doomsayer’ is North-western University Prof Robert Gordon who in his book, ‘The Rise and Fall of American Growth’ identifies six challenges confronting US growth: aging population, faltering education system, income inequality, foreign competition, impact of global warming and settling the huge debt. Gordon is not positing the disappearance of growth.
His point is that in as much as technology and innovations in medicine, energy efficiency, transportation and artificial intelligence (use and applications of robotics) will be important in driving growth, their impact will be minimal because of the time factor in executing emerging ‘multiplicity of new ideas’ to obtain incremental growth rate.
This is why he postulates that ‘economic growth is not a steady process that occurs at a regular pace. Instead, progress is much more rapid at certain times.’
Tipping Point of GDP Growth
Prof Gordon is not alone in making such profound assertions about the state of economic growth. Harvard professor and former President Clinton’s Treasury Secretary, Lawrence Summers in his review of Gordon’s book in the February 2016 Prospect Magazine, hails the book as ‘landmark work’.
In addition, Prof James Galbraith in a recent book, ‘The End of Normal- The Great Crisis and the Future of Growth, equally pursues the line that fiscal stimulus and stabilization measures executed after the global financial crisis of 2007/2008 have not succeeded to bring back the global economy to high growth and full employment.
It would appear that the world has reached a tipping point in its economic history as proposed by Richard Heinberg in his book, ‘The End of Growth-Adapting to Our New Economic Reality’. Heinberg’s central thesis is that the expansionary trajectory of industrial civilization is on a collision course with ecological stability.
So the idea of growth should seriously occupy our minds. We should not fall victim to the conventional wisdom about its primacy. Indeed, University of Surrey Prof Tim Jackson has observed in his book, ‘Prosperity Without Growth-Economics for a Finite Planet’ that ‘questioning growth is deemed to be an act of lunatics, idealists and revolutionaries.
But question it we must. ‘A sustainable development economist, Jackson views global natural resources as finite that are easily depletable. He fails to agree with the view that technology advances can ‘decouple’ the drivers of GDP growth from what he deems as humanity’s ‘life-support’ systems.
Managing Ideas of Disruption
I fear that what we are experiencing are disruptive ideas for all who are not positioned to comprehend and muster them.
It is thus important as Tanzanians that we are able to consider such ideas intensively and intensely in order to explore how best to navigate them.
If we recall well, Mwalimu Julius Nyerere had systematically admonished the idea of GDP growth on the ground that it was not necessarily related to prosperity and was probably a source of confusion in planning a people-centred development programme.
On the other hand, could prosperity realistically be possible without GDP growth? Pertinent questions that require objective balance.
If I may return to Prof Gordon’s six challenges confronting US growth, it is most interesting that apart from the aspect of ‘aging population’ the rest of the challenges apply to Tanzania as well.
And with respect to population as an issue, Tanzania certainly has a more onerous challenge in terms of the implications of its relatively high population growth and of the youth bulge.
Both have human security implications in terms of food sufficiency, adequately reasonable welfare, jobs and physical insecurity. Moreover, Tanzania is particularly vulnerable to natural resource depletion. These are issues we shall return to in greater detail in forthcoming articles.
Conclusion
To conclude, last week the Tanzania Central Bureau of Statistics released what were deemed as excellent figures of GDP growth for 2015.
The forecast for 2016 is equally rosy at 7.4 per cent. This is all wonderful at a time when leading countries in the world are facing declining GDP growths.
What makes Tanzania different and how positioned we are to navigate the headwinds flowing from a global economy in a slowdown mode stand out as seriously priority questions demanding a broad national conversation.
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