terça-feira, 22 de março de 2016
Will negative interest rates encourage banks to lend more plentifully and cheaply and help support economic recovery? I am not convinced. I fear they are a dangerous experiment with diminishing positive impact.
Conventional thinking is that negative rates are just a natural continuation of quantitative easing, like dialling down the air conditioning. This, though, underestimates how financial intermediaries may actually respond. They erode banks’ margins. They give lenders an incentive to shrink, not grow. They encourage banks to seek out opportunities overseas rather than in their home markets. They also risk disruptions to bank funding. All go against the grain of the central banks’ desire to ease credit conditions and support financial stability.
That is not to say QE has not helped the global economy and enabled banks to repair their balance sheets. Low rates have improved the affordability of their loans, reduced bad debts and lifted the value of assets, thereby increasing collateral values. But market expectations largely incorporate this already, and persistent low rates will act as an increasingly chill wind on banks’ profitability.
One counter argument is that negative rates have so far proved fairly benign in Sweden, Denmark and Switzerland. The details are more troubling. Banks have tried hard to offset negative rates by charging more for lending — particularly for mortgages — and charging higher fees. As a result, borrowing costs have gone up not down.
The crux of the matter is this: the market is no longer sure how low rates might go in a range of countries. Peter Praet, chief economist of the European Central Bank , said last week: “As other central banks have demonstrated, we have not reached the physical lower boundary.” As long as this uncertainty remains, it is hard for banks to know whether the loans they are making are economically sensible or for investors to price banks’ securities with confidence. Beyond a further 10-20 basis point cut in the deposit rate of the ECB, the effect on banks’ earnings could start to be exponentially negative.
Denmark and Switzerland have sought to lighten the impact with tiered schemes, which seek only to tax excess deposits and dissuade foreign investors from leaving their cash in that market. The ECB is trying an alternative: a new targeted longer-term refinancing operation, which offers to pay banks to lend. But this does not fully offset the drag of negative rates. I estimate that only 5 to 15 per cent of the €1.6tn incremental in TLTRO above its predecessor will in fact be drawn, based on a poll of the eurozone’s largest banks at Morgan Stanley’s Financials conference last week. Almost no northern European banks said they would take any of these funds. Put another way, about half of TLTRO may end up simply being old funding operations rolled into this subsidised rate without new lending.
For banks, the indirect consequences of negative rates may matter more than the direct effect. There is a risk that market liquidity will be reduced, as negative rates mean financial intermediaries hoard high-yielding assets. There is also a question over how money market funds, which help many corporates to manage their finances, will navigate negative rates. In Japan all 11 companies running money-market funds have stopped accepting new investments.
Negative rates, if passed on by banks, could also start to erode consumer trust in banks as the right place for their cash. Sales of safes have risen in Germany and Japan since they were implemented.
Commercial banks and other market financial institutions are more sensitive to negative rates than central banks. If central banks fail to appreciate this, they may do more damage than good.
Huw van Steenis is a managing director at Morgan Stanley and a member of the World Economic Forum’s Global Agenda Council
quarta-feira, 16 de março de 2016
Finance ministers the world over are given a hard time when they try to make cuts. But there cannot be too many countries where balancing the books is considered a prisonable offence. That is the case, though, in Liberia, where Amara Konneh, the finance minister, is being threatened with incarceration by outraged lawmakers who say he has overridden their constitutional authority to decide tax and spending. One does not need to be a cynic to wonder if the true cause of their anger lies closer to home: Mr Konneh wants to cut their pay.
It all began with a letter in which Mr Konneh’s office pointed out to senators that spending could not go on as before. The reasons were obvious. Liberia’s economy had been hit by twin shocks. First, in 2014, there had been a calamitous outbreak of Ebola, now thankfully over, which had killed nearly 5,000 people and brought foreign investment to a halt. Then the price of iron ore and rubber, the country’s main exports, collapsed. As a result, there was expected to be a revenue shortfall of about $70m in the $622m budget. And so Mr Konneh was asking the legislature to trim its own budget by about 10 per cent, part of across-the-board cuts he was imposing on all but non-essential items. That is when senators ordered his arrest on charges of contempt. His case is pending following a stay by the Supreme Court.
Behind the almost comical posturing lies a serious issue, one that resonates across Africa and beyond. Liberia, one of the world’s poorest states with average income per capita of $469, pays its lawmakers $13,000 a month, not counting generous allowances for housing, petrol and so on. The running costs of Liberia’s legislature soak up more than 10 per cent of government revenue.
Liberia’s lawmakers are mostly unrepentant. Senator Alphonso Gaye says compensation is modest compared with places such as Nigeria and Kenya. When he visits his rural constituency, he says, he is inundated with requests for money. One will say the village hand-pump is broken, another that he needs help with school fees or medical costs or money for his roof, he says. “These are the things they demand of lawmakers. You need some cash. Your respect in this country depends on your capacity to respond to people’s demands.”
Mr Gaye’s defence has the ring of truth. In much of Africa, elected politicians and public “servants” more generally are not expected to govern for the greater good. Rather, their duty is to help family, friends and supporters. Richard Dowden, executive director of the Royal African Society, says the pull of the extended family is gravitational. Once one member of the clan lands a good job, of which a well-paid government position is about the best, it is almost impossible to resist the clamour of those demanding assistance. That is one reason tax revenue is so low in most of Africa. Why would people pay tax if much of the money is simply stolen or distributed to others, and provision of public goods is so inadequate?
A study of public sector wage bills by the World Bank found that countries in sub-Saharan Africa spend almost 30 per cent of government revenue on public sector wages, nearly double the average in higher-income states. Yet public services, including schools and hospitals, are mostly dire. The findings support the view that poor countries suffer from what economists Daron Acemoglu and James Robinson call “extractive” institutions, which are poor at providing public goods but adept at enabling governing elites to extract income.
It can be unhelpful to blame everything on the legacy of colonialism, but it is true that African leaders inherited states whose main purpose was to extract wealth and resources. In too many cases, white colonialists have simply been replaced by black elites. (Liberia, founded by freed American slaves, is a slightly different case.)
Jared Diamond, an academic and author, says that before the rise of the first states in about 3,400BC, human societies were tribes or chiefdoms without complex institutions of government. “A long history of government doesn’t guarantee good institutions, but at least it permits them; a short history makes them very unlikely,” he writes.
Back in Liberia, Prince Johnson, once one of the country’s most notorious warlords, is in his second nine-year senatorial term. He too said legislators were not overpaid. Some, he observed, went practically bankrupt dishing out money to hangers-on. “The first law of nature is self-preservation. I have to survive before I can help someone else. I cannot be a senator in this country and live in a zinc shack,” he said, gesturing around his large compound. “I’m a big man. I’ve got to live big.”
quarta-feira, 9 de março de 2016
Thanks to its crippling disunity, the EU has landed itself with the task of implementing an unsavoury, possibly unenforceable deal with Turkey to stem the tide of refugees and migrants washing up on Europe’s south-eastern shores. Largely obscured amid this wretched bargaining over human souls is the sight of the EU grappling with another set of challenges on a different frontier: north Africa.
The challenges in Algeria, Libya and Morocco are more diverse and harder to overcome than the crisis in the east Mediterranean. In some respects, they promise to be more violent. Unlike with Turkey, which is a Nato ally and a candidate for EU membership, European governments will not enjoy the luxury in north Africa of papering over internal quarrels by outsourcing their problems.
The immediate priority in north Africa is not uncontrolled migration into Europe. According to Frontex, the EU’s border control agency, 157,000 migrants used the central Mediterranean route last year to cross into Italy. This may seem a high number, but it was 10 per cent down on 2014 levels. It was also far below the 885,000 people who arrived in the EU last year via the east Mediterranean.
However, it would be complacent to assume that irregular migration from north Africa is petering out. Criminal networks that enrich themselves by smuggling people into Europe are alive and well in Libya. What is more, it was not primarily Afghans, Iraqis and Syrians who made this sea journey last year. The majority were Eritreans, Nigerians and Somalis.
In other words, ending the conflicts in Afghanistan, Iraq and above all Syria — even if this were possible — would do nothing to ease migratory pressures on Europe from sub-Saharan Africa. To the extent that the EU’s deal with Turkey closes the east Mediterranean route, the smugglers and their clients may refocus their attention on Libya.
The fundamental problem in Libya, though, is the disintegration of state authority after the western-backed uprising of 2011 that ended in the murder of Muammer Gaddafi, the despotic ruler since 1969. Isis, the jihadi group, has amassed more than 5,000 fighters in Libya, mainly in the central coastal region of Sirte. The anarchy is spilling into Tunisia. Clashes between armed militants and Tunisian security forces erupted this week on the Libya-Tunisia border, killing 60 people.
Western governments, with Italy at the front, are toying with a limited military intervention to counter the Isis threat. But the Italians are loath to act unless invited to do so by a national unity government in Libya. How stable such a government might be, if ever it were formed, is anyone’s guess. From the EU’s perspective, the outlook in Libya boils down either to a long-term foothold for Islamist extremism on Europe’s borders, or a decision to use military force with unpredictable consequences. Either way, a new surge in irregular migration cannot be ruled out.
Europe’s main security partner in north Africa is Algeria, a strategy to which there is no obvious alternative, but which is fraught with risks nonetheless. Algeria is the Maghreb’s leading military power, an opponent of militant Islam and the EU’s third-largest gas supplier after Russia and Norway. But Algeria’s leaders profoundly disagreed with Nato’s intervention in Libya, predicting correctly that violent disorder would ensue. Algiers has no intention of serving tamely as the EU’s agent for fighting terrorists and illegal migrants.
The EU has grounds for concern insofar as the rule of Abdelaziz Bouteflika, Algeria’s ailing, authoritarian president, is nearing its end. The outlines of a power struggle among civilian politicians, the military and security services in the post-Bouteflika era are visible. Public discontent is simmering as low energy prices compel the government to cut the social subsidies that averted an Algerian “Arab Spring” in 2011.
Elsewhere, Morocco suspended ties with the EU last month after a lower court of the European Court of Justice invalidated an EU-Moroccan agricultural trade deal. The court did so on the grounds that the accord covered Western Sahara, a territory most of which Morocco occupied in 1975. The European Council, which groups EU governments, has lodged an appeal in the ECJ against the ruling — which, however, won applause from Algeria, at odds with Morocco over Western Sahara.
As this episode indicates, EU foreign policy often runs into obstacles in north Africa that have nothing to do with irregular migration. The region’s multiplying troubles demand a more comprehensive approach, for as each year passes they loom larger for the EU.
quinta-feira, 3 de março de 2016
Three questions arise from the warning of Emmanuel Macron, France’s economy minister, about the potential consequences of Brexit for UK immigration policy. Mr Macron suggested that, if Britain left the EU, France would regard a UK-French arrangement on keeping the thousands of migrants in Calais as no longer in force. His implied message was: “Watch out, you Brits! We’ll let all those undesirables head your way.”
The first question is whether any French government would think it advisable to end the bilateral agreement that allows Britain to carry out border checks on the French side. For if the controls were abolished, many more migrants might make their way to France’s Channel coast in the hope of crossing to the UK. By spreading disorder in the Calais region, the abolition of controls would be against France’s interests just as much as against Britain’s.
The second question is for whom Mr Macron speaks. He is a likeable but rather marginal figure in France’s government. He is not even a member of the ruling Socialist party. He represents a spirit of liberalising economic reform for which most French Socialists have no appetite. Only three days ago, Socialist stalwarts and their trade union allies sabotaged Mr Macron’s latest effort to shake up the rigid French labour market by permitting more overtime work.
In short, Mr Macron looks like a man drifting away from the centre of power rather than towards it. Even if President François Hollande were to be re-elected next year — and that is an extremely big if — it is unclear that he would want Mr Macron at his side in a second term. Nor would Mr Macron necessarily want to continue in government, fighting the good fight for economic reform. He might prefer the more congenial world of investment banking from which he emerged.
This leads on to the third, most important question. With France’s 2017 presidential and legislative elections looming, how would politicians in Paris react to Brexit? There is surely considerable truth to Mr Macron’s hint that France would adopt a tougher, more unsympathetic attitude towards Britain than pro-Brexit campaigners profess to believe.
At present the political atmosphere in France is poisonous. This is down to last year’s terrorist attacks, the rise of the far-right National Front, a long period of economic stagnation and disillusion with mainstream centre-left and centre-right parties. More broadly, it reflects profound doubts about the effectiveness of France’s quasi-monarchical presidential system of government to change anything for the better.
Brexit would contribute to France’s febrile condition by boosting precisely those political forces that are feeding off the present national malaise. The French political establishment knows this and, for the sake of saving its own skin, would be in no mood to be nice to the Brits if the UK voted to leave the EU in June.
It would not be Agincourt all over again. But it would be an end to the entente of the past 40 years.
quarta-feira, 2 de março de 2016
You might think the job of a statistician is one of the dullest in the world, up there with accounting and chicken sexing. But not in Africa. Yemi Kale is statistician general of the National Bureau of Statistics of Nigeria. His task is exhilarating. It is also exhausting.
Mr Kale is not infrequently subjected to threats, particularly when he finds that poverty levels in a certain state are higher than thought. Once, he says, he sent five of his 3,000 workers to collect data from a remote part of Ekiti, in the west of the country. Villagers surrounded the intruders and marched them to the chief, who threatened to kill them. Only intervention from Mr Kale’s headquarters calmed things down.
Mr Kale must be creative. When people are asked how much they earn, suspicion of authority makes them underestimate. Ask them how much they spend, however, and, chest puffed up, they will give a much higher number. In surveys, getting the question right matters.
Mr Kale cannot take much at face value. He even checks his workers’ movements through GPS. Otherwise, staff may be tempted to sit at home and make up the numbers.
It was under Mr Kale that Nigerians woke up one day in 2014 to discover that their economy was 89 per cent bigger than previously imagined, making it Africa’s largest. The overnight “economic miracle” happened after a rebasing of data to better reflect the changing nature of the economy. Booming sectors, such as banking, telecoms and film, which had barely figured in previous calculations, were suddenly revealed to be contributing lavishly to gross domestic product.
Nigeria has one of the most sophisticated statistical operations on the continent. Spare a thought for less fortunate countries where calculating GDP is not much better than guesswork. In his book Poor Numbers , Morten Jerven compares estimates of African GDP for the year 2000 by the World Bank, the University of Pennsylvania and the University of Groningen — three important sources of national income data. They are wildly inconsistent; one ranked Liberia as the second-poorest nation in Africa. Another had it 20 places higher.
Part of the problem is underfunding. When Mr Kale took up the job, he had a budget of $1m, now increased to $5m. Mr Jerven recalls visiting the Central Statistical Office in Lusaka only to find a crop survey delayed because vehicles were not roadworthy. In 2010, he writes, Zambia’s national accounts were being prepared by a single soul.
Even if there were sufficient people to measure it, much economic activity is almost invisible. Neither subsistence farmers, hawkers, itinerant labourers, pickpockets nor prostitutes are likely to be taxed. None will appear, in any meaningful way, in national statistics.
In Zimbabwe, only 6 per cent of the working population is employed in the formal sector, according to the national statistics office. “When you try to read the economy from a conventional view, you totally misread it,” says Patrick Zhuwao, a cabinet member. “There’s so much that’s unrecorded. It’s like trying to use a tape measure to figure out how much Coke is in this glass.”
In 2001, MTN, a South African telecoms company, bid $285m for a mobile licence in Nigeria, based on its estimate that a maximum of 15m people would ever be able to afford handsets. A decade later, there were 80m Nigerian mobile phone subscribers of which MTN, by then making a stonking profit, had 40m. “Where did Nigerians find all this hidden money to buy phones?” asks Miles Morland, a veteran investor in Africa, who argues that official statistics wildly underestimate the continent’s true wealth.
It can go both ways. Last year, Nestlé cut its workforce by 15 per cent across 21 African countries after overestimating the size of the potential market. In Kenya, for example, the company cited numbers estimating a middle class of only about 800,000 in a population of 44m. Most of the would-be middle class in the cities were too poor to afford its products, it found.
Numbers matter to donors, too. They back countries that are doing well and cajole the laggards. But what happens if they cannot tell the difference? In the 1970s, Derek Blades, an economist with the OECD, found that reported growth rates had margins of error of at least 3 percentage points. In other words, a country reporting a 3 per cent growth rate might actually be growing at 6 per cent — or not growing at all. Four decades later, Mr Jerven considers Mr Blades to have understated the problem. The only thing we know about African economies is that we do not know much at all.