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‘A certain president Magufuli’ – Part III

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The focus of my articles has been to highlight African leaders who in diverse ways are making a visible positive difference in their countries, by being efficient and firm, cutting down wasteful spending and bringing about desirable transformation. Power, it is said, lies in the hands of the electorates……being the masses, the average citizen with the power to vote! Thus during electoral campaigns, the relatively ‘fewer politicians’ go round campaigning and do all manner of ‘wonders’ to convince electorates to vote them into power.

Usually, the understanding is that the politician is very much abreast with the needs of the electorates, and so by voting them into power; the electorates are assured that their interests will be served. However by some means, once some of these politicians are voted into power, the power now falls into the hands of the elected politicians! And they take decisions ‘on our behalf ’, some of which are very much mind boggling! At a point, selfishness, greed, complacency, arrogance, pride and the corrupt tendencies that come with having power, come to take over.

By some interesting means, some politicians now become so powerful at a point that they fail to identify with the ‘grassroots’, the very electorates who voted them into power! They become inaccessible, untouchable, almost like demigods!

As human as the average politician is, I believe they tend to think of their own welfare and their immediate families first (very much) before considering the interest of the electorates (that is, if we are even lucky to feature on their list in the first place). I guess that is why the average politician will be more interested in projects that will guarantee some ‘kick-backs’, even if it may be of little value to the nation as a whole.

Some waste the taxpayer’s money in unimaginable ways. If only our leaders will manage the economy and public purse like it is their personal business and personal purse respectively, maybe….just maybe, our fate will be different.

…But I believe it is not the case that all politicians or leaders fall into this ‘power abuse trap’. There genuinely are some out there who are leading their countries with a different heart, mind and attitude. It is evident that we do not lack good leaders, but rather the issue is with the ability of such good leaders to live up to expectations. I have praised Presidents John Magufuli of Tanzania and Paul Kagame of Rwanda in my previous articles. It challenges me to look further across the continent to identify other leaders who are challenging the status quo and doing things differently.

But, even before I set off, thoughts of the likes of Yahya Jammeh of Gambia, Robert Mugabe of Zimbabwe and Joseph Kabila of the Democratic Republic of Congo comes rushing to mind to kill the enthusiasm and hope. All three of them are by some means trying to hold on to power without true merrit.

• Gambia’s Yahya Jammeh has refused to step down despite losing the December 1 election to Adama Barrow. There was wild jubilation in Gambia because at long last, their 22 years of strife and persecution had come to an end. Interestingly, Yahya Jammeh initially conceded defeat; only to denounce it a week later and demand a new vote!

• Just in case you didn’t know, Zimbabwe’s Robert Mugabe at a ripe age of 92 years will stand to be elected as president again in the country’s 2018 election after his ruling ZANU-PF party endorsed him at their annual conference.

• In Congo, Joseph Kabila was to step down in 2016 as required by the constitution. However, he has extended the election to April 2018, to allow him to remain in power and eventually change the constitution to allow him to legally compete for another term in office! Just to recap briefly…

President John Magufuli of Tanzania, since taking office in November 2015, has intensively cracked down on government wastage, inefficiency and corruption; and is ultimately driving an exciting transformation in Tanzania. Just this New Year of 2017, President Magufuli has fired the Head of Tanzania’s electricity company for raising tariffs by 8.53 percent! The company did this in an attempt to stem losses but the president believes the tariff hike would hinder his plans to industrialize the country. In any case, why glorify inefficiency with the ability to raise tariffs?

President Paul Kagame of Rwanda is also celebrated internationally for his efficiency and effectiveness in steering Rwanda’s impressive economic growth, since taking office in 2000. Many regard him as one of the 20th century’s most effective military leaders.

Here in Ghana, Nana Akuffo Addo of the National Patriotic Party (NPP) won the December 7, 2016 elections with a 53.85 percent majority vote. The NPP during its campaign consistently spoke out against the incessant acts of corruption and incompetence on the part of the ruling National Democratic Congress (NDC) government. Many Ghanaians are keenly observing to see if the NPP’s campaign promises (for which the average Ghanaian voted them into power) can be brought to fruition.

I am also keenly observing to see if the NPP government will take bold strides to match their words with actions and strive to weed out corruption, incompetence and wasteful spending from the system. The new president needs to be firm and able to exert his influence to get these done. People must be held accountable irrespective of their political affiliations, but especially among his NPP party members! Ghana badly needs a visionary and transformational, disciplined and firm leader at the helm of affairs.

If for nothing, we now know that it can be done, thanks to President Magufuli of Tanzania! Can a Ghanaian president strive to do anything similar to what he has done so far, even if it displeases his party members? A few unsolicited suggestions to the New President …

• Can we scrap our 6th March independence Day celebrations? I am in pains to identify what impact or benefits have been gained from these celebrations over the years.

• Can the ruling government cut down on the frightening levels of importation and use of the fuel-guzzling vehicles (especially the Toyota Land Cruiser V8’s) as the official government vehicle all at the taxpayer’s expense, while the average taxpayer can barely make ends meet?

• Can we as a nation embark on some serious cost-cutting measures, especially those on extravagant and frivolous activities; and rather use the monies saved for more beneficial purposes such as equipping our healthcare facilities with the best equipments and medications, equipping our schools with the needed equipments, text books and other study materials, etc?

• Can we, as a country, begin some serious work against our habitual Ghana-ManTime lateness? Can we see this discipline start at the very top to effectively trickle down to the masses at the bottom?

• Many more suggestions lingering on my mind…..thanks to the exploits of President Magufuli which makes very good sense.

President John Magufuli’s leadership is an indication that all is not lost. Are our African leaders paying attention and learning anything from him? In 2017 and beyond, we hope to celebrate more transformational and exemplary leaders who are a beacon of hope for the African continent as a whole.

 

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Tanzania

Shilling Fluctuation, a seasonal phenomenon?  

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The debates about the depreciation of shilling against the US dollar are unprofessional, as the fluctuating dollar exchange rates are global and seasonal.

Contrary to what analysts and a section of the media argue or wish the public to believe, experts in economics and financial matters hint that there are well balanced reasons to that.

Having analyzed such baseless debates, I argue that this situation needs to be explained scientifically and economically rather than being blown up unnecessarily.

It should be noted that not only the Tanzanian shilling has slightly depreciated against the US dollar but also other currencies in the world.

Why? Did they fail to export cashew nut as some would argue here? Why the US dollar outperforms other currencies?

According to the ET Markets (2018), in this year (2019), the US dollar was forecasted to outperform many other currencies because of the interest hike.

The ET Markets report which is also supported by the Bank of Tanzania (BOT), states that last year, the US economy continued to strengthen.

This strength caused the US Federal Reserve to increase interest rate in December 2018. The US Fed increased 25 basis point hikes in December, so interest rate differential widened further to 2.65-2.90 per cent.

Euro and US inflation stabilized nearly 2 per cent, but there was a difference in GDP growth and unemployment rate.

GDP growth is higher in the US and unemployment rate is lower compared with the euro, which naturally makes the dollar stronger against the euro and other currencies in the world, including Tanzania.

Economically and financially, this development has contributed to rise in demand for the US dollar from investment side, consequently causing the US dollar to appreciate against most currencies, including the Tanzanian shilling.

The US Dollar is the benchmark pricing mechanism for most commodities which are global assets.

Base Metals that trade on the LME and precious metals such as gold, silver and energy including oil and natural gas use the dollar to price.

The rising dollar has significant consequences on commodities, as higher dollar tends to weigh on commodity prices.

Production cost of raw material in other countries, including Tanzania rise because of a strong dollar and weighs negative on demand.

In the stock market, a higher US dollar weighs on US multinational companies, as they have to compete globally with strong currency.

According to the latest forecasts from Barclays (2019), the dollar will remain the dominant force in the currency market this year and the pound sterling will succumb to another dose of ‘Brexit uncertainty’ while the euro will reach new lows.

Barclays says in its 2019 outlook that as the Fed drives the dollar to new levels of overvaluation and political factors keep Sterling and the Euro on the proverbial back foot, the Fed will go on raising its interest rate in a sustained manner this year, contrary to what other forecasters have begun to anticipate.

The strength of the US dollar against others as said above, the interest hike by FED has depreciated other currencies in the world, including the Tanzanian shilling.

The Bank of Tanzania (BoT) report indicates that from 22nd February 2018 to 21st February 2019 (one year period), the value of the shilling against the US dollar declined by 3.8 percent.

The BOT reports that the value of the US dollar on Developed Market currencies was also put in pressure in the same period.

The British Pound against the US dollar declined by 6.7 percent, the euro by 8.1 percent, the Australian dollar by 9.6 percent and the Chinese Yuan by 6.4 percent.

Moreover, the emerging markets (EM) have been badly affected by the strength of the US dollar. the Brazilian Real is down 18.4 percent, the Russian Ruble is down 14.75 percent, the Pakistan Rupee is 9.7 percent and the Indian Rupee by 8.9 percent year-to-date (YTD) against the dollar.

The Turkish Lira and Argentinian Peso have been the biggest losers, both down close to 40 percent since the beginning of the year.

Comparative analysis in the African region also provides a gloomy picture. Are measures taken by BOT commendable?

Despite the FED factor, I agree with BoT report (2019) indicating that the current movement in the exchange rate in Tanzania is a seasonal phenomenon related to low foreign exchange earnings from tourism and export crops.

This is true because currency hike may be mitigated by a number of facts. “Customarily, from January to May each year, it is a low tourist season and export crops where the country receives low exchange earnings. This is a common trend that usually normalizes in the second half of the year when earnings from tourism and exports pick-up,” states the report.

I commend BOT, for among other things, implementing monetary policy aimed at maintaining price stability and ensures that inflation remains within the target of single digit intended at stabilizing the value of the shilling.

This can be achieved through maintaining the appropriate level of liquidity in the economy. I understand that BOT is also participating in the interbank foreign exchange market (IFEM), in order to smoothen excessive volatility of the exchange rate.

In doing that, the Bank of Tanzania sold USD 528.6 million in 2018, which is more than double the amount sold in 2017.

In 2019, the Bank of Tanzania continued to sell the foreign exchange in order to reduce its shortage in the economy.

Moreover, the BOT must monitor foreign exchange business in order to ensure that rules and regulations are adhered to, including maintaining foreign currency Net Open Position of commercial banks equivalent to 7.5 percent of core capital.

Factors that could lead the dollar to collapse/depreciate more so to what BoT is mitigating, two conditions must be in place before the dollar could collapse.

First, there must be an underlying weakness. Between 2002 and 2018, the dollar has declined 6 percent according to the U.S. Dollar Index.

This is because the U.S. debt almost more than tripled during that period, from $6 trillion to $22 trillion.

The debt-to-GDP ratio is now more than 100 percent. That increases the chance the United States will let the dollar’s value slide as it would be easier to repay its debt with cheaper money.

Second, there must be a currency alternative for everyone to buy. The dollar’s strength is based on its use as the world’s reserve currency.

The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard.

As a global currency, the dollar is used for half of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions.

As a result, 61 percent of these foreign currency reserves are in dollars. The two situations above make a collapse possible.

But, it won’t occur without a third condition. That’s a huge economic triggering event that destroys confidence in the dollar.

Altogether, foreign countries own more than $6 trillion in U.S. debt. If China, Japan or other major holders started dumping these holdings of Treasury notes on the secondary market, this could cause a panic leading to collapse.

China owns $1 trillion in U.S. Treasury’s. That’s because China pegs the Yuan to the dollar.

This keeps the prices of its exports to the United States relatively cheap. Japan also owns more than $1 trillion in Treasury’s.

It also wants to keep the yen low to stimulate exports to the United States. These facts considered, I reiterate the possibility of a conspiracy theory on the dollar-shilling debate in Tanzania.

The hikes are normal and seasonal, but you still find some people raising unnecessary alarm into markets.

 

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