GLOBAL ECONOMIC OUTLOOK ADVICE TO TANZANIANS, PART II

New York Stock Exchange, NASDAQ, Nikkei, Hang Seng, London Stock Exchange, Deutsche Börse have recorded their historic losses. Volumes of trade have decreased to unprecedented numbers, and this supposedly would have been an American problem. The point here is that, the world economy is intertwined, and what affect one, affect all directly.

The cloud of fear and uncertainty has precipitated the massive sell-off in these markets, which may spin out of control as the wealthy continue to dispose of their investments while at the same time rushing for gold deposits. NYSE the largest exchange in the world, by $25 Trillion worth of listed companies, is crumbling.

The most vulnerable Exchanges in emerging markets, such as Russia, China and India could be hit harder as in the case of Moscow Stock Exchange that plunged 14% in one day leading to its indefinite suspension. The chaos continued through Friday, battering the Asia pacific markets, and this will expose how vulnerable or resilient are these economies against the west.

California, supposedly the tenth largest economy in the world, has a budget deficit of 8 billion dollars, and this deficit may hit her economy harder if the federal government does not intervene. Meaning, police officers, teachers, state employees may not get their salaries.

Emergency service responders such as fire fighters, paramedics and so forth may be forced to curtail their services. Roads construction, school renovation may come to a halt.

The Problem is not only in California, it is affecting so many municipalities, states, and countries. The American Consumer Price Index (CPI) for the fourth quarter of 2008 is expected to sink deeper, a signal of economic activity decline in the world largest economy. General Motors, an American Pride and world largest automobile manufacturer has been posting losses quarter after quarter, and has now signaled closing some of her plants, leaving us to question, if GM can take these measures what of small companies?

Who knew the global giants such as Bear Sterns, Merrill Lynch, would be the first casualties neither do we know whether the story ended with Washington Mutual Lehman Brothers or AIG. They had educated, well trained professionals and high end earners who are now jobless, and must scramble for every little bit to make ends meet and stay afloat in these times of turbulence.

Less than two years ago, food prices, and other essential commodities were very manageable. Today, they have doubled not only in the United States, but globally. Same time last year, I purchased three pounds of Salmon, for eight dollars, a year later, I paid twenty three dollars. While visiting Tanzania in 2007, I purchased one hundred kilogram of rice for a mere sixty thousand shillings. A year later, 2008, I paid one hundred and ten thousand Tanzania shillings for the same quantity

A Quick survey in the streets of Tokyo couple of days ago indicated that, many of the Japan’s working class believes that the world is headed into a deeper recession. By comparison, Japan is less credit oriented compare to the United States, meaning many people prefer paying cash for their purchases than exploiting credit options. And their fear would not be different from Tanzania’s common men.

Multinational companies operating within Africa, employs significant number of locals; Tanzania has many foreign companies, should they suffer revenue shortfall, especially the NGO’s, the impact will be felt in the entire economy with massive unemployment. These companies carry their budgets and their transactions in foreign currencies such as Euro, Pounds Dollars etc and Yen. They also use credit options in their countries of domicile.

What we have to understand is that, Tanzania conducts her exports and imports in foreign currencies; all imported commodities and goods being traded by those who don’t have bank accounts must be paid for in foreign currencies, and the transactions passes through different banks, which must have sufficient liquidity to remain viable for operation. Above all, most that deals with FOREX in one way or the other are linked into the global financial system. Therefore, when export and import stops, even those who carry cash transactions will be having nothing to sell or trade unless we return to barter trade.

For those in the Investment Banking, or other understand complexity of the Bond Market (Structured Finance), Synthetic and Hybrid bonds introduced in recent years, included some of these bad complicated debts whose issued amounts, were extremely high for most of the third world countries to afford; Tanzanian or Kenyan banks for instance, could not afford two hundred million dollar debt. Developed nations such as United Kingdom, Japan, Germany and many others had the financial might to do so, answering the question why the credit problem never affected third world economies.

Our tourism industry will suffer in the wake of this crisis, as the number of visitors will cut unnecessary spending to meet economic challenges in their home countries. Markets for our exports will shrink as a result of decreased demand in foreign markets. Thus, those who believe that our economy is independent of global financial crisis are distancing themselves from the real facts.
While a common man may not have the powers to implement policies needed to remain economically sound, with due respect, if you will, we may need to know what our government has in place to stem the problem.

Even through we do believe, and optimistic that the government is on the helm of this crisis, by that I mean monetary experts, policymakers and economists have contingency plans to counter any consequences in our financial system and he economy respectively. In the meantime we do hope their robust plans in place, includes or will include the following;

*Aggressive monitoring and compelling banks to be transparent and disclose their liquidity on daily basis, to the customers
*Ensuring all Banks, brokerage houses and other financial institutions, deposits and insure reasonable amounts with the central bank or designated organ (s)
*The Government must step out and assure the public, on the safety of their deposits
*There must be plans in place to bail out any fallen institution, and this bailout must be in the form of a repayable loan within a specified period of time
*The government must be ready to issue short term loans, and other incentives to banks and institutions that are vital to the economy of the country, including small businesses that may crumble, to ensure liquidity and economic activity continuity
*The government must be ready to take a stake or ownership of some banks that shows weakness, for a period of time, until economic climate returns to normality
*There must be coordinated interest rates, cuts for that matter, and also presidential or parliamentary emergency bill to reduce taxes
*Have in place plans to counter unprecedented inflation.
*The government must prepare the nation for budget shortfall. Many ministries may not get sufficient funding due to the fact that, our nation depends on foreign aid to some degree to fully subsidize her annual budgeting.

At this times when precious metals are of high demand, gold a rare commodity produced in our country should be bought locally by the government to safe guard national assets against any eventuality. It should be the medium used to treasure and protect national wealth in times of “extreme hardship” instead of foreign currencies which fluctuates.

The question remains, how prepared are we, and how prepared is our government?

John Mashaka,

is a US Based, Social Activist & Investment Banker, of Tanzanian Origin