Wednesday 29 August 2007

Timeline: Sub-prime problems

Global Stock markets
The volatile world markets have given many traders headaches
Global markets have been shaken up by fears of a credit crunch.

Billions of dollars have been wiped off share prices, while the credit markets have been going through a period of repricing that prompted fears of a meltdown.

But what triggered all the problems, and what were the main events?

30 June 2004
The US Federal Reserve starts a cycle of interest rate rises that will lift borrowing costs from 1%, their lowest level since the 1950s, to the current level of 5.25%.

The central bank will go on to increase interest rates 17 times in a row as it tries to slow inflation. It pauses in June 2006, and has not lifted borrowing costs from 5.25% since then.

August 2005 through 2006

Higher borrowing costs start to impact on the US housing market and the property boom starts to unwind.

Building rates drop sharply to decade lows and prices also start to come down.

Defaults on sub-prime mortgages - where lenders give cash to people with poor or no credit history at higher than normal repayment levels - start to increase.

12 March 2007

Shares in New Century Financial, one of the biggest sub-prime lenders in the US, are suspended amid fears it may be heading for bankruptcy.

16 March
US-based sub-prime firm Accredited Home Lenders Holding says it will pass on $2.7bn of money loaned - at a heavy discount - in order to generate some cash for its business.

2 April
New Century Financial files for Chapter 11 bankruptcy protection after it was forced by its backers to repurchase billions of dollars worth of bad loans.

The company says it will have to cut 3,200 jobs, more than half of its workforce, as a result of the move.

24 May
Shares in Bear Stearns come under pressure as questions are raised about the investment bank's exposure to the sub-prime market in the US.

14 June

Reports emerge that Bear Stearns is liquidating its assets in a hedge fund that made large bets on the US sub-prime market.

20 June
Merrill Lynch seizes and sells $800m (£400m) of bonds that are being used as collateral for loans made to Bear Stearns' hedge funds.

22 June
Bear Stearns says it will provide $3.2bn in loans to bail out one of its hedge funds, the High-Grade Structured Credit Strategies Fund.

The bailout of the fund would be the largest by a bank in almost a decade.

Analysts have also been questioning the position of another fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund.

25 June
Reports emerge that Bear Stearns will have to rescue a second hedge fund as rival banks refuse to help in bailing it out.

29 June
Bear Stearns hires a new head of asset management to find out what went wrong at its hedge funds.

4 July
The UK's Financial Services Authority (FSA) says it will take action against five brokers that sell sub-prime mortgages, claiming they offer loans to people who should not be given them.

10 July
Independent market analyst Datamonitor says UK sub-prime mortgages are set to grow faster than mainstream mortgages, with the market worth some £31.5bn by 2011.

13 July
US industrial firm General Electric decides to sell the WMC Mortgage sub-prime lending business that it bought in 2004.

"The mortgage industry has greatly changed since the purchase of WMC," says its chief Laurent Bossard.

18 July
Bear Stearns tells investors that they will get little, if any, money back from the two hedge funds that the lender has had to rescue.

20 July
Federal Reserve chairman Ben Bernanke warns that the crisis in the US sub-prime lending market could cost up to $100bn.

26 July
Bear Stearns seizes assets from one of its problem-hit hedge funds as it tries to stem losses.

27 July

Worries about the sub-prime crisis hammer global stock markets and the main US Dow Jones stock index loses 4.2% in five sessions, its worst weekly decline in almost five years.

31 July
Bear Stearns stops clients from withdrawing cash from a third fund, saying it has been overwhelmed by redemption requests.

The lender also files for bankruptcy protection for the two funds it had to bail out earlier.

3 August
US stock markets fall heavily, with the main Dow Jones Index ending the session 2.1% lower, amid fears about how many financial firms are exposed to problems in the sub-prime market.

A top Bear Stearns executive says credit markets are in the worst turmoil he has seen in 22 years.

London's main FTSE 100 stock index closes down 1.2% at 6,224.3, with French and German markets also declining.

5 August
Bear Stearns co-president Warren Spector steps down, as the lender looks to restore investor confidence following the problems with its sub-prime exposure.

6 August
American Home Mortgage, one of the largest US independent home loan providers, files for bankruptcy after laying off the majority of its staff.

The company says it is a victim of the slump in the US housing market that has caught out many sub-prime borrowers and lenders.

9 August
French bank BNP Paribas suspends three investment funds worth 2bn euros (£1.4bn), citing problems in the US sub-prime mortgage sector.

BNP says that it cannot value the assets in the fund, because the market has disappeared.

Dutch bank NIBC announces losses of 137m euros from asset-backed securities in the first half of this year.

The European Central Bank (ECB) pumps 95bn euros into the eurozone banking market to allay fears about a sub-prime credit crunch.

The US Federal Reserve and the Bank of Japan take similar steps.

10 August
Global stock markets stay under intense pressure.

London's FTSE 100 index has its worst day in more than four years, closing 3.7% lower.

The ECB provides an extra 61bn euros of funds for banks.

The US Fed says it will provide as much money as is needed to combat the credit crunch.

13 August
Wall Street giant Goldman Sachs says it will pump $2bn into one of its funds to help shore up its value.

The ECB pumps 47.7bn euros into the money markets, its third cash injection in as many working days.

Central banks in the US and Japan also top up earlier injections.

14 August
Stock markets remain jittery as news continues to come out about the exposure of banks to the fallout from the sub-prime market.

Swiss bank UBS warns that the market turmoil is likely to hit its earnings in the July to September period.

Australian mortgage lender Rams Home says the "unprecedented disruptions" in credit markets may reduce its profit.

16 August
London's FTSE 100 index suffers its biggest one-day percentage fall in more than four years, dropping 4.1% or 250 points to close at 5,859.

Global stocks in volatile trading

Frankfurt trader
European traders are anxious about events in the US
European shares have seen mixed trading on Wednesday as US housing and credit woes continue to cast a shadow over global stock markets.

After initially falling 43 points, the UK's FTSE 100 index was up 24 points to 6,126 by early afternoon. Germany's Dax had lost 11 points to 7,419.

The latest share turbulence was caused by Merrill Lynch warning that the credit squeeze will hurt bank profits.

Investor confidence was also hit by weak US consumer sentiment figures.

The Dax was also hit by a fall in German consumer confidence in July, blamed on the turmoil in the markets.

Earlier, Japan's main Nikkei index had closed down 275 points, or 1.7%, at 16,013.

On Tuesday, the US Dow Jones index lost 280 points, or 2.1%, to close at 13,042.

Stock downgrades

The latest warning about the impact of the problems in the credit market - centred on the crisis in the US sub-prime mortgage sector - was given by brokers at investment bank Merrill Lynch.


undefined It's like walking in the dark because we have yet to get the full picture of the sub-prime loan problems
Analyst Shoji Yoshikoshi

Market jitters and your wallet

They downgraded their opinion of stocks in three firms exposed to the sub-prime sector - Bear Stearns, Lehman Brothers and Citigroup.

The mood of global investors has been further hit by released minutes of the most recent meeting of the Federal Reserve, which suggested a US interest rate cut might not be imminent.

The minutes showed that while the committee's members realised that the problems in the financial markets might need a policy response, they did not act at the start of this month because they were keeping their focus on inflation.

"Everyone is scared," said Shoji Yoshikoshi, senior investment strategist at Mitsubishi Capital UFJ Securities.

"It's like walking in the dark because we have yet to get the full picture of the sub-prime loan problems."

The sub-prime mortgage sector gives higher risk loans to people with poor credit histories.

Sub-prime default levels have risen to record highs in the US over the past year in the face of higher mortgage rates.

This has raised fears that this could hamper credit availability in the broader market, not just in America, but around the world.

Market turmoil knocks UK business

Shoppers
Fewer people went shopping over the bank holiday weekend
Confidence among business in the state of the UK economy has been hit by fears that the US house price slump will have global ramifications, a report says.

BDO Stoy Hayward's latest monthly index, which measures expectations for the next six months, fell to 101.2 in August from 101.9 in July.

This marked the lowest point since November 2005.

The figures came as research firm SPSL said fewer people went shopping over the bank holiday weekend than in 2006.

Volatility debate

The fall in confidence in the UK's economic prospects was registered across the board by small and large businesses, the manufacturing and service sectors, said BDO.


Economic conditions in Europe and America are relatively benign
Peter Hemington, partner, BDO Stoy Hayward

Confidence is expected to fall further next month, with the fall-out from the US sub-prime lending crisis set to lead to tighter conditions for bank lending.

"Our view is that the volatility in financial markets will not persist into the medium term," said BDO partner Peter Hemington.

"Economic development in China and India remains a strong driver of world growth and the economic conditions in Europe and America are relatively benign."

However, the survey suggested that businesses expect inflationary pressures to stay high.

BDO expects that the Bank of England's policy committee could raise interest rates at its November meeting, adding to the five rate rises since August last year.

In a separate report, SPSL registered a drop of 10% in the number of people out shopping on Saturday and Sunday over the weekend compared with the same point last year, as the sunny weather drove holidaymakers to enjoy outdoor pursuits. Footfall was 9.7% lower on the bank holiday Monday.

"Sales have been extended to sell off old stock, which has stimulated consumers to carry on shopping, but we foresee tough times ahead," the firm concluded.

Friday 24 August 2007

Global overview: Signs of abating risk aversion

By Dave Shellock

Published: August 23 2007 17:44 | Last updated: August 23 2007 22:12

There were clear signs of risk appetite returning to financial markets on Thursday as investors piled back into emerging market assets and took on fresh carry trade positions.

However, Wall Street’s attempts to build on Wednesday’s strong rally juddered to a halt after pessimistic comments from the chief executive of Countrywide, the ailing US mortgage lender.

Angelo Mozilo, speaking on US television, warned there were no signs of improvement in the housing market and said there had been no improvement in the commercial paper market. The comments came hard on the heels of Bank of America’s decision to invest $2bn in Countrywide – a move that had given a massive injection of confidence to the markets earlier in the day.

At the close, the Dow Jones Industrial Average was flat, the S&P 500 was 0.1 per cent lower and the Nasdaq Composite index was down 0.4 per cent. This took the shine off Europe’s early gains, and the FTSE Eurofirst 300 index ended just 0.3 per cent higher at 1,509.39.

Asian stocks had another day of strong gains. In Tokyo, the Nikkei 225 Average climbed 2.6 per cent and most other leading markets in the region gained between 2 and 3 per cent.

Chinese stocks had another record-breaking session, with the Shanghai Composite index climbing above the 5,000 level for the first time to end 1.1 per cent higher.

In emerging markets, debt spreads over US Treasuries tightened 11 basis points, taking the narrowing since last Thursday – when spreads hit the highest since November 2005 – to 27bp.

The MSCI emerging market equities index gained about 2 per cent, while the Turkish lira and the South African rand both touched one-week highs against the dollar.

The stuttering performance by US and European equities was accompanied by a rally in government bonds. The yield on the two-year US Treasury was at 4.22 per cent and in Europe, the two-year Schatz yield was also down 2bp at 4.01 per cent.

Meanwhile, the yield on the benchmark 10-year Japanese government bond tumbled 4.5bp to an 18-month low of 1.54 per cent.

The Bank of Japan left interest rates unchanged on Thursday after a two-day policy meeting but most analysts felt a tightening had merely been delayed due to the recent market turmoil.

“As we expect financial markets to remain volatile during the next month but gradually recover within the next three, we believe the BoJ is most likely to hike rates by 25bp to 0.75 per cent at its October 11 monetary meeting, but a rate hike on September 19 cannot be ruled out completely if financial markets recover quickly,” said Flemming Nielsen, analyst at Danske Bank.

Meanwhile, the outlook for US interest rates remained uppermost in many investor minds.

Rob Carnell, economist at ING, said he believed that much of the latest recovery in equities was due to a greater expectation that the Federal Reserve would step in and lower the Fed funds rate.

“We see the moves in the Treasury bill market and interest rate futures as echoing that [expectation], rather than driving it. At some stage, which might be a matter of days, or a matter of weeks, the Fed is going to have to address this expectation or suffer a major fall in confidence and a further market sell-off again.”

In the currency markets, the yen retreated virtually across the board, most notably against high-yielders such as the Australian and New Zealand dollars. But it also retreated against the dollar and suffered its worst two-day fall against the euro for three years.

The European Central Bank’s attempt to alleviate money market pressures by injecting €40bn ($54.2bn) into three-month funds triggered massive demand, but failed to bring down corresponding interest rates. At least one bank offered 5 per cent for ECB money.

But indicative prices for three-month lending were barely changed at 4.65-4.70 per cent.

Julian Callow, economist at Barclays Capital, said the outcome showed the market was “very thirsty”.

In commodities, US oil futures managed a modest advance back towards the $70 a barrel mark, while wheat prices hit a record high.

Europe holds out against reform of IMF

By Eoin Callan in Washington

Published: August 6 2007 22:03 | Last updated: August 6 2007 22:03

The board of the International Monetary Fund is bitterly divided over proposed reforms to give more votes and influence to fast-growing economies such as China at the expense of European countries, according to people close to the board.

European members, led by France, Germany and the UK, are refusing to surrender power they have held since the fund was created after the second world war, senior IMF officials said.

The rift makes it more likely that Dominique Strauss-Kahn, the French candidate for managing director, will inherit an unreformed boardroom if he is appointed.

The split pits Europe against the US and middle-income nations over a host of competing internal proposals due to be agreed next month to give more say to advanced developing countries, such as India and Brazil, based on the size of their economies.

“What we hear from European colleagues [is] that they have the right of birth to run this institution indefinitely. This is very disappointing,” an executive director told a crunch board meeting last week.

London and Paris have rejected formulas for awarding votes that would pave the way for Beijing to overtake them in influence at the IMF and would strip Amsterdam and Brussels of their leading positions on the board, officials said.

“The UK, France and, to a lesser extent, Germany, have dug in their heels. Japan also fears being eclipsed by its Asian rivals,” a senior IMF official said.

The impasse could worsen the crisis of legitimacy for the IMF, as its structure and policies increasingly come under fire and emerging markets look elsewhere for credit. Outstanding credit fell to $20bn (€14.5bn, £9.8bn) last year from about $100bn in 2003, a drop critics say reflects distrust of the fund.

Rodrigo Rato has pledged to advance voting reforms demanded at a pivotal summit last year before he steps down as managing director in October, but needs 85 per cent support. The fund plans at least one more board meeting before its annual meeting in the autumn.

“Rato doesn’t have the votes,” said a person close to the board.

Allies of Mr Strauss-Kahn say the veteran French politician has the diplomatic skills to broker a rapprochement. But there is some hostility to his candidacy.

Europe is proposing that the amount of available votes be increased by 6 per cent and the extra votes shared among under-represented countries, meaning its current total of votes would not be reduced.

The US is “annoyed with the Europeans’ intransigence”, a person familiar with the negotiations said, and is urging a quick compromise along the lines proposed by Canada that would see more votes go to the four most under-represented nations: China, Mexico, South Korea and Turkey.

Washington has strong alliances with Seoul, Ankara and Mexico City and a vested interest in Beijing becoming more engaged. It wants the IMF to pressure China into changing its currency policy.

Russia nominates own candidate for IMF

By Catherine Belton in Moscow, Katka Krosnar in Prague and Stefan Wagstyl in London

Published: August 22 2007 11:43 | Last updated: August 22 2007 18:33

Russia challenged western dominance of world international financial institutions on Wednesday by nominating a surprise candidate, Josef Tosovsky, the former Czech premier and ex-central bank chief, to run the International Monetary Fund.

The nomination pitted Mr Tosovsky against Dominique Strauss-Kahn, the former French finance minister, who has the backing of the European Union.

Russia’s move ran into immediate trouble when the Czech Republic, which joined the EU in 2004, declared that it was standing by the EU’s decision to support the French candidate.

However, Moscow’s move shows Russia’s increasing international assertiveness and willingness to clash with the west over issues ranging from energy supplies to US plans to site missile defence bases in Europe.

The Kremlin has also raised concerns over US-EU domination of international institutions – an issue that plays well with large developing countries, including China, India and Brazil. The IMF chief is traditionally selected by European nations.

Alexei Kudrin, Russia’s finance minister, said the move was aimed at boosting the prestige of the IMF, which had failed to handle financial crises. “Given the IMF’s failures in resolving crises in a number of countries, the IMF needs to raise its prestige.”

Mr Kudrin praised Mr Tosovsky as a proven crisis manager. He said developing states, including Brazil, India and China, had all expressed support for an open selection process in talks.

Mr Putin has slammed world financial institutions as “archaic, undemocratic and unwieldy” and called for their overhaul to reflect the growth of developing nations.

The French finance ministry said of Russia’s move: “We believe that it will not put into question the momentum behind Dominique Strauss-Kahn’s candidacy.”

Mirek Topolanek, the Czech prime minister, said: “Mr Tosovsky was not, and is not, the Czech Republic’s candidate for this post.”

Few countries yesterday backed Moscow’s choice of Mr Tosovsky. Mr Strauss-Kahn, in Beijing on Wednesday, was reported as saying he felt he had China’s backing. A senior Indian finance ministry official told the FT that as far as he was aware there had been “no conversation” about the nomination and he declined to say whether New Delhi would back Mr Tosovsky. A Brazilian presidential official said Brazil sought reform but was not backing any particular candidate.

Turmoil will hit global growth, says IMF

By Krishna Guhain Washington

Published: August 23 2007 03:00 | Last updated: August 23 2007 03:00

Turmoil in the financial markets will affect growth worldwide, according to John Lipsky, the number two official at the International Monetary Fund.

In the first interview by a senior IMF official since the market turmoil intensified, Mr Lipsky, a former senior banker at JPMorgan, told the Financial Times: "This undoubtedly will dampen economic growth."

He said emerging markets had so far withstood the challenge well, but: "It is far too optimistic to assume there will be no impact."

Mr Lipsky, first deputy managing director, said that in addition to the possible spillover effects on trade of weaker growth in the US, other economies would be directly affected. "I would expect it to have some impact . . . in a globalised world," he said. "A number of the financial institutions that have been affected most strikingly have not been US-based."

But Mr Lipsky said it remained unclear how large the impact would be.

The world economy had entered this turbulence in good shape, with strong growth momentum, a large part of which came from emerging market economies. Mr Lipsky said that problems in emerging markets as a whole - as opposed to individual economies - had tended to follow instability in developed markets.

However, emerging markets were "almost universally" better equipped to deal with these strains.

The market crisis had three main components: first, a repricing of credit risk; second, a testing of the newer parts of the asset-backed securities market - in particular collateralised debt obligations and collateralised loan obligations (derivatives backed by pools of credits) that had not yet been tested under strain; third, increased fear of counterparty risk, caused by inadequate transparency by banks on the extent of their true contingent liabilities.

"Lack of transparency can create doubts that translate into market volatility," he said. "We are finding that in some cases regulated financial institutions are carrying off-balance-sheet risks that have indirect implications for those institutions."

This had caused uncertainty about risks a counterparty institution might be bearing and contributed to the drying up of liquidity.

He said "lessons would be learned and actions taken" by global regulators.

However, while many market participants appeared to have lost confidence in their counterparties, Mr Lipsky said the risk transfer mechanism through bilateral derivative contracts seemed to be working so far. "There have been no counterparty failures," he said. "There have been traditional failures by people who made a bad investment."

European bourses weaken in choppy trade

By Stacy-Marie Ishmael

Published: August 24 2007 11:05 | Last updated: August 24 2007 11:05

European shares snapped a five-day winning streak on Friday, easing into negative territory amid fears problems in the subprime market and the ongoing credit squeeze could hamper global growth.

The FTSE Eurofirst 300 index slipped 0.5 per cent to 1,502.3. Germany’s Xetra Dax fell 0.6 per cent to 7,470, while in Paris the CAC 40 shed 0.3 per cent to 5,506.6.

Market sentiment was hurt by downbeat comment from the chief executive of Countrywide, the ailing US mortgage lender. Angelo Mozilo warned the downturn in the US housing market could tip the nation’s economy into a recession.

Weakness in heavilly-weighted financial names dragged the indices lower. BNP Paribas fell 1.2 per cent to €77.5, Société Générale slipped 1.2 per cent to €118.2 and Germany’s Allianz edged 1.2 per cent lower to €157.3.

But shares of Germany’s Nordex rose as much as 10.6 per cent to €33.3 after a newspaper reported the wind turbine maker’s two main shareholders, Goldman Sachs and CMP Capital Management Partners, who are considerin

Free trade is a prison

Title: From the Slave Trade to ‘Free’ Trade: How Trade Undermines Democracy and Justice in Africa
Editors: Patrick Burnett and Firoze Manji
Publisher: Fahamu
Year: 2007
Pages: 170

Reviewer: PHILIP NGUJIRI

AS THE WORLD PREPARES to celebrate the International Day for the Remembrance of the Slave Trade and its Abolition on August 23, a new book on the lessons learnt from that trade and how its “successor,” free trade is undermining democracy and justice in Africa has just been published.

Can trade in the era of globalisation be just? This is the principle question the book, From the Slave Trade to ‘Free’ Trade; How Trade Undermines Democracy and Justice in Africa, tries to answer in insightful, sharp and thoughtful articles by writers from across the African continent.

The book published by Fahamu and edited by Patrick Burnett from South Africa and Firoze Manji, originally from Kenya, is a collection of essays first published in the electronic newsletter Pambazuka News, leading up to the world commemoration of the 200th anniversary of the abolition of the slave trade and the 50th anniversary of independence in Ghana.

The articles were designed to raise awareness on issues of trade and justice. Topics range from the absence of women’s voices at global level negotiations to the decimation of a country’s health system as a result of World Bank policies or the sacrificing of community rights in the interests of multinational corporations.

The contributors are Charles Abugre, Tope Akinwande, Soren Ambrose, Nnimmo Bassey, Patrick Bond, Jennifer Chiriga, Cheikh Tidiane Dièye, M.P. Giyose, Manu Herbstein, Mouhamadou Tidiane Kasse, Salma Maoulidi, Stephen Marks, Mariam Mayet, Henning Melber, Winnie Mitullah, Patrick Ochieng’, Oduor Ong’wen, Robtel Neajai Pailey, Liepollo Lebohang Pheko and Jagjit Plahe.

The book begins by looking back at 2005 — the Year of Action for Africa on Debt, Aid and Trade — and what it achieved. This first section considers the role of foreign investment in Africa and the impact of the global financial and trading regime on communities. Why is China so keen to invest in Africa? Why do global trade policies determine the health care available to millions of Kenyans? Why is South African industry getting cheaper electricity than poor consumers?

THE NEXT SECTION EXAMines diverse issues related to slavery, colonialism and reparations and is followed by an exploration of trade and women’s rights. The articles profile the damaging effect of trade policies on the rights of informal traders, who in Africa are often women, how global trade policies have resulted in the feminisation of poverty and how it is the women who have to step in when the state cuts back on health and social services.

The final section deals with agriculture and the environment. Why does the oil trade wreak havoc in the Niger Delta? Why are local communities excluded from development projects driven by multinational companies? Why is it that cotton farmers in West Africa suffer because of a grossly unfair subsidy racket? Why are international trade rules more important than a population’s right to food security?

The editors say they have chosen a deliberately provocative subtitle for this book: ‘How trade undermines democracy and justice in Africa.” In the global trading system, justice and the interests of ordinary working people often take a back seat to trade policies dictated by global powers; countries and even entire continents like Africa frequently appear to be on the losing end of the equation.

It is in this context that 2005 saw calls for “trade justice,” defined as a commitment to lobbying for the introduction and implementation of trade rules that work for all people, instead of benefiting those who already have the most.

CAMPAIGNERS FOR TRADE justice argued that existing trade rules were damaging to many people, especially the poor and vulnerable, the environment and social policies. They maintained that the global trading system should be re-balanced, taking into account the needs of the poor, human rights, and the environment. The mobilisation for fair or just trade during the period received few, if any, concessions, although it was noted that the issues were at least given a higher profile in the minds of many.

The rationale behind the “more and better aid, debt cancellation and more just trade policies” is that this will create the conditions to ensure adequate resources to finance Africa’s development. Undoubtedly, if fully addressed, argues Charles Abugre in his article, “Plugging The Leaks: The Role of Debt, Aid and Trade,” this will put more money in the hands of governments and the people and ease resource constraints.

“On their own, never mind the quality of aid, the speed of debt cancellation, the degree of market opening in the North and the end of export subsidies, these demands will not provide the resources adequate for Africa’s development.”

He says the demands, though relevant, are slightly misplaced in their singular focus on sources of “inflows,” to the total denial of the mechanisms of “outflows.” It is the balance of inflows and outflows that creates the net resources for development, he points out. The singular focus on inflows entrenches the sense of Africa’s dependence and perpetuates the myth of the continent’s resource poverty and powerlessness.

There is much romance about the nature of trade. Trade may not be quite as “old as the hills,” but it has certainly been around since the early emergence of human societies. In its early form, trade involved exchange of goods on the basis that there was some equivalence in the amount of time and human labour embodied in the goods. If it took you three days to make a basket, you’d hardly exchange it for something that took less time to make. But once trade exchanges became more complex and a class of traders emerged, trade became something different. For the trader’s task was to buy below value, and sell above, and the larger the difference between the two, the greater his profits. The mercantile cities of Zimbabwe, Timbuktu, Cairo and Venice owed their wealth to this form of accumulation. But things have come a long way since then.

The trade in African slaves was just the beginning of a major transformation of the nature of trade, leading to an accumulation of capital that fuelled not only the industrial revolution in Europe, but also provided the impetus to the imperial scramble for territory worldwide.

The world market as we know it today has long been conquered, controlled and dominated by metropolitan capital. This was not achieved by economic means alone, but also — and primarily — by the use of brute force. The metropolitan countries imposed unequal treaties, demolished existing manufacturing industries, enslaved, robbed, seized by tricks, exploited and carried out wholesale colonisation.

ONCE THE CONQUEST OF the world market had been achieved and the North had ensured its domination, the dogma of “free trade” was imposed on a worldwide scale. The industrial revolution led to massive over production and the voracious appetite to conquer the world and seize its markets. The more recent revolutions in micro- and biotechnology have also led, in their own way, to an era of conquest of world markets through a massive restructuring of economies — which was what the period of structural adjustment programmes and poverty reduction strategy papers was all about.

And it is no surprise that “free trade” is once again the banner of the neo-liberals and neo-conservatives. This new voracious surge is what is currently referred to as “globalisation.” It is what has led to the rich getting richer and the poor poorer. It is what has condemned us to be consumers, not citizens, and commercially degraded every aspect of our lives.

And since only a minority have the capacity to consume, the vast majority of Africa’s people are effectively disenfranchised.

And it was precisely the imposition of the neo-liberal economic policies that led to the enforced opening of Africa’s economies to the free movement of capital — the so-called liberalisation of the market. And once the markets were opened up, one should hardly be surprised that capital in all its forms should seek opportunities in Africa.

The penetration of Asian capital — including China, India, Malaysia — as well as from Latin America that we have witnessed recently was only possible once the international financial institutions had been victorious in opening African economies to “free trade.” As Arundhati Roy writes, there is a notion gaining credence that the free market breaks down national barriers, and that corporate globalisation’s ultimate destination is a hippie paradise. But “what the free market undermines is not national sovereignty, but democracy.”

Multinational corporations on the prowl for sweetheart deals that yield enormous profits cannot push through those deals and administer those projects in developing countries without the active connivance of state machinery — the police, the courts, sometimes even the army. Trade in the era of globalisation is neither “free” nor “just.” Behind the arrangements of the world trade system lies the ever present threat of force. As Thomas Friedman put it: “The hidden hand of the market will never work without a hidden fist.

McDonald’s cannot flourish without McDonnell Douglas ... And the hidden fist that keeps the world safe for Silicon Valley’s technologies to flourish is called the US Army, Air Force, Navy, and Marine Corps.”

Taken together, these articles provide an insight into how ill-considered trade policies have a profoundly negative impact on the rights of communities.

Whether it is the absence of women’s voices at global trade negotiations, the decimation of countries’ health systems as a result of international trade policies or the sacrificing of community rights in the interests of multinational corporations, it is clear that trade policies impose a “profit first and people last” regime in Africa.

Let’s all march East, and trade

By OSCAR KIMANUKA

China and India are emerging economic giants whose economies are among the fastest growing in the world. Both countries’ appetite for Africa’s commodities, especially raw materials, is unprecedented.

On the other hand, a rise in economic growth in a number of African countries is increasing the demand for Asian manufactured goods.

These trends may be disturbing to Africa’s commerce with the European Union and the United States in which trade flows have been stimulated largely by preferential arrangements.

Anyway, a lot of good has happened to Africa. For instance between 1996-2005, about 34 per cent of the continent’s population resided in countries where growth was 4.5 per cent or higher. Indeed, there is an emerging class of African economic “success stories.”

However, trade in most of Africa remains poor owing to the continent’s small, landlocked countries and high geographic segmentation. South Africa and Nigeria account for 55 per cent of the continent’s economic activity, while 18 countries have 36 per cent of Africa’s population.

AFRICA’S PHYSICAL and human geography is something to reckon with. For instance, it has more countries per square kilometre than any developing region, with each country sharing borders with, on average, four to five neighbours.

THE RESULT is that except in South Africa and Nigeria, other African countries offer small and shallow markets, hence making it costly to trade with the rest of the world. Moreover, we have little opportunity to penetrate the Chinese market because of our low capacity to produce high quality goods.

The good news is that over the past 15 years, trade flows between Africa and Asia have increased rapidly making Asia Africa’s third most important destination after the EU and the US. To sustain this, we need to develop strategies to leverage the current export explosion to create opportunities for long term-term economic benefits.

Indeed, if our countries are to enhance their global economic performance in Asia and beyond, we need to do more than just liberalise our trade policies.

Oscar Kimanuka is a commentator on social and economic issues based in Kigali

Proponents of pan-African unity must tackle imperialism

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Written by Issa Shivji
African leaders during the 9th AU Summit in Ghana
Image


23-August-2007: The current pan-Africa debate presents an opportune moment for the continent to confront some of the key challenges facing it, among which is imperialism. African nationalism was born in the struggle against imperialism.

It could only be sustained as long as it remained anti-imperialist.

Today, few of our countries can claim to be truly independent. We have no power to make the most basic of our own decisions. Our sovereignty is sold to the highest bidder. Our foreign policy is aligned with the super-powers.

Our laws - ‘made in the IMF’ - are thrust on our parliamentarians.

The multinationals wring out of us outrageous concessions in agreements, which are ‘top secret’, even from the elected representatives of the people.

The current quest for pan-African unity must acknowledge the threat, and not shy away from the challenge posed by imperialism. As globalisation, an even more vicious form of imperialism, engulfs us, we need to return to the roots of our independence: the great post-war nationalist movement, which resulted in the independence of more than 50 African countries.

Today, as we sink deep into the uncharted seas of globalisation, and let the shylocks and sharks of the global market devour our resources and dictate our policies, our societies are being torn asunder along various parochial fault lines of ethnicity, race, region and clan.

If ever there were a time to rekindle the dream and vision of pan-Africanism, then that time is now.

Even as Africa trails its focus on pan-African unity, one sees reason for hope and promise in continuing efforts towards regional integration.
There are deep historical underpinnings behind the quest towards regional unity.

Pan-Africanist visionaries such as Nkrumah and Nyerere foresaw the dangers of becoming independent alone. Mwalimu was for instance prepared to delay the independence of Tanganyika if the four East African countries (Kenya, Uganda, Tanganyika and Zanzibar) could do it as a federal unit.

The ongoing efforts towards regional integration must therefore be weighed in the context of pan-Africanism.

In East Africa, the heads of state have already decided to revive the East African Co-operation and a treaty has already been agreed.

The East African Community, the predecessor of the East African Co-operation, collapsed in the 1970s under the strain of state differences and bitter rivalry among vested interests.

This time round, one hopes that the lessons have been learnt and that the mistakes of the past will not be repeated. The objective must be to place cooperation on a firmer foundation by adopting better and durable approaches to the issue of unity.

As Africa moves towards consolidating pan-African unity, there are lessons that can be drawn both from past experience and present initiative towards consolidating regional cooperation in East Africa.

The old co-operation was characterised by two major thrusts. On the economic plane, it was trade centred. While on the political plane, it was state driven. Its overall approach was economic rather than political.

A useful lesson to the pan-African vision is that economic unity needs to be based on a complementarity of structures. Countries can only co-operate when the issue of economic unity is approached politically.

For instance, a common approach to fixing the prices of agricultural exports or repayment of debts can be a genuine basis for co-operation. This requires political decisions.

In the case of East Africa, the structures of production in the three countries were competitive rather than complimentary. Being export oriented economies, the three entities exported almost similar agricultural crops.

They competed in wooing the same investors to invest in import-substitution industrialisation. The three countries were thus rivals in the international market rather than cooperators, which rendered their unity fragile.

The pan-Africa enterprise can draw three vital lessons from the East African experience. First, the approach should be explicitly political. Second, on the economic plane, the foundation of unity should be at the level of production – capital and labour; rather than trade. Thirdly, on the political level, it should be people-centred rather than state-oriented.

Another region where forging genuine cooperation can greatly support the pan-Africa vision is in the Great Lakes region.

Within a larger political grouping, it is perhaps easier and more feasible to control civil wars which have spilled over into border wars between countries in this region. A project resulting in peace in this region would dramatically boost genuine pan-Africanism and bring the dream of African unity closer.

Pan-Africa unity can provide space for increased interaction especially in areas such as human resource development to benefit countries in need.

Countries in re-orientation such as Rwanda for instance could benefit from the talent pool available in other countries in much the same way as happened in the 1960s when Nigeria sent many of its magistrates to support Tanzania’s judiciary.

The same could be applied in higher education. Rwanda is in the process of rebuilding its university. UK universities are fast bidding for donor funds to send their teams of experts, advisors, professors and so on.

Such opportunities should be consciously used to create practical ways of cooperation rather than being left to be manipulated by big powers. Such co-operation and assistance among ourselves would be mutually beneficial and in the interest of the ideal of African unity.

Co-operation at every level — regional or continental — must provide an enabling framework for the involvement of civil society and other stakeholders. The rationale is simple. Co-operation at all these levels is too important to be left to heads of state alone. The immediate area heads of state identify for cooperation is defence and security, mostly their own of course.

Left to their devices, states can break unity either owing to pressure from international powers or narrow visions of local vested interests. Africa’s people must therefore not leave the pursuit of pan-African unity to their states and politicians.

Only when Africa’s people are united can pan-African unity be sustained. They must widen their horizons to take into account new conditions and possibilities. While, indeed, we must have sufficient will and sentiment to promote African unity, we must at the same time be prudent to protect and enhance our national interests.

However, both these — pan-Africanism and nationalism — should be placed in the larger interests of the majority, and not succumb to narrow factional motives, or the greed of groups and classes. The interest of the large majority — the popular classes — should be the litmus test.

African unity as an expression of pan-Africanism is not only a desirable vision for Africa at this stage of our development, but a necessity.

It is a necessity because left on our own, we are likely to become pawns on the geopolitical and military chessboard of the imperial powers, under the hegemony of the most militarised and ruthless superpower in the history of mankind.

Shivji was, until his recent retirement, Professor of Law at the University of Dar-es- Salaam where he has been teaching since 1970. He has authored over a dozen books and numerous articles. His books include Class Struggles in Tanzania (1976), The Concept of Human Rights in Africa (1989) and Not Yet Democracy: Reforming Land Tenure in Tanzania (1998).

Thursday 23 August 2007

East Africa to form peacekeeping force

Paul Harera Sebikali & Jacquiline Shimanyula
Kampala, Nairobi

DEFENCE ministers from East African countries who are meeting in the Kenyan capital Nairobi have passed a resolution to form an African peacekeeping force. The ministers set a timeframe of the next three years to put the force in place.

At the official opening of the meeting on Friday, Kenyan’s President Mwai Kibaki (above) told the ministers that Africa must increasingly rely on its own resources and capacities to resolve its conflicts.

Under the arrangement, Regional Standby Brigades would be formed to feed the African Standby Force. Mr Kibaki said this is in line with the African Union’s efforts to create the required institutions and structures to deal with security problems.

Mr Kibaki said although several African countries that were approached by the Intergovernmental Authority on Development (Igad) agreed to contribute troops for deployment in Somalia, only about a quarter of the targeted troops, had been deployed by March this year.

He urged Igad member States to support troop deployment in Somalia. Ms Ruth Nankabirwa, the chairperson of the council of ministers of defence and security in East Africa, said her prediction is that by the year 2010, the region would have the capacity to undertake peace support operations. Nankabirwa is Uganda’s State Minister for Defence.

She said the region would develop the capability necessary to respond, at short notice, to grave circumstances, such as genocide, and be able to assist in other regions, under the stewardship of the African Union Commission.

In an interview on the sidelines of the meeting, Nankabirwa said the Eastern African Standby Brigade, would be called upon to deploy rapidly and save the situation in conflict areas.

Uganda, was the first African nation to deply troops in Somalia after the overthrow of the Islamic Courts Union government by the Ethiopian army. Last week, Uganda’s Chief of Defence Forces Gen Aronda Nyakairima said more troops would be sent to Somalia.

Wednesday 22 August 2007

Global food miles row enters tourism sector

Written by Solomon Mburu
Maasai dancers welcome tourists at the Jomo Kenyatta International Airport in Nairobi.

22-August-2007: The food miles row that has been rocking Kenyan exports to the European Union has now entered the tourism industry.

Food miles labels have been used to show the distance that food travels from the time of its production until it reaches the consumer and its accompanying contribution to environmental pollution.

The labels, which are seen as punitive and unnecessary, have been giving Kenyan exporters sleepless nights and various efforts have been put in place to counter them. The concept has now been introduced in tourism and seeks to highlight the increasing contribution that air travel used by tourists has on the global environment.

If applied globally, analysts say it is bound to negatively affect economies of tourism dependent countries like Kenya.

Despite the perceived serious implications, the tourism industry in Kenya has been silent on the issue.

Ms Judy Gona, the executive director of Ecotourism Kenya, an organization that promotes sustainable tourism and responsible practices, said that it is time that the industry considers the implications of this development.

“We need to take the initiative and start thinking about how the industry will react to this,” said Ms Gona.

Developing countries have held back on contributing to the carbon footprints debate since they are not part of the targeted list of countries that contribute most to global warming in the Kyoto protocol.

According to Ms Gona, all stakeholders in the industry including the government at policy level, and the private sector should start raising the issue for consideration.

She said that implications of the concept “require individual action from all stakeholders” and they should therefore involve themselves in the developments.

The Kenya Tourist Board managing director Dr Ong’ong’a Achieng said that the West was using the pollution concept to stifle development of industries in developing countries.

“The biggest contributors to pollution are the US, Russia, China and the EU whereas the level of pollution by the least industrialized countries is far lower,” said Mr Ong’ong’a.

He said that the industry in Kenya has done a lot to maintain high levels of environmental protection. “Kenya is rated as one of the leading ecotourism destinations in the world because of sound practice,” he said.

Developed countries should tackle the pollution problem in their own backyards and should not bring it to us, said the doctor.

The “tourism miles” concept has of late been snowballing and has gained prominence as a global issue. The Second International Conference on Climate Change and Tourism that will be held in Davos, Switzerland on October 1-3 is meant to discuss this issue.

Ms Gona, who is going to represent her organization at the conference, said that one of the issues she will raise is the lack of awareness about the concept and its implications in developing countries.

The World Tourism Organization, which is organizing the conference, has in the past sought to allay fears that the new concept will lead to a downfall of the tourism industry in developing countries.

EAC states avert major dispute over trade agreements with EU

A STAFF WRITER
The EastAfrican
A major dispute between partner states of the East African Community has been averted after the parties agreed that all the five members will now collectively sign one Economic Partnership Agreement (EPA) with the European Union when the current Cotonou pact governing trade between the EU and the ACP (Africa, Caribbean and Pacific) countries expires at the end of this year.

The decision to negotiate under one roof was reached at a meeting of permanent secretaries and technocrats for trade and regional co-operation held in Arusha last week, ahead of a crucial meeting of the presidents of the region to be held on Monday this week.

Last week’s meeting was held against the background of subterranean tensions — between Tanzania and Uganda on the one hand, and Kenya on the other — over the configuration of the bloc under which they will enter into an EPA with the EU.

Over the past six months — with the deadline for negotiating EPAs fast approaching — a perception had grown among government officials in Uganda and Tanzania that Kenya was leaning towards the so-called Eastern and Southern Africa (ESA) group, the configuration of Comesa member states that has been negotiating an EPA with the EU as a single bloc — and to which Tanzania does not belong.

The simmering disagreements came to the surface two weeks ago, when opposition Members of Parliament in Tanzania claimed that Kenya had decided to deal with the EU through the ESA Comesa grouping — with the Opposition MP Zitto Kabwe alleging that Kenya’s Trade Ministry had secretly written to Comesa informing them that Kenya would negotiate the new trade agreement with Europe under ESA.

A trade expert in his own right, Kabwe has been intimately involved in EPA negotiations on behalf of Tanzania.

Against this backdrop, pundits predicted explosive differences when the regional presidents gather at the summit meeting on Monday.

However, as it turned out, the potentially explosive situation was avoided by the pact hammered out by the permanent secretaries ahead of the meeting of the regional presidents.

As we went to press, the pact among the permanent secretaries was to be tabled before a meeting of ministers in charge of trade and regional co-operation for adoption on Thursday before being presented to the five presidents for final approval.

Insiders told The EastAfrican that tensions were high on Monday last week when the permanent secretaries gathered to discuss the matter in Arusha.

The mood only changed after the Kenyan delegation did a climb-down, assuring the meeting that it had never been Nairobi’s intention — even in the first place — to take a different approach from other member states of the East African Community on EPA negotiations.

Kenya reaffirmed that, like the other partner states of the community, it was bound to sign an EPA under the East African Customs Union as stipulated in the East African Customs Management Act.

“The question is what vehicle the EAC should use to conclude the EAC EPA,” the leader of the Kenyan delegation and the country’s Permanent Secretary for Trade, David Nalo, stressed.

Apparently, Kenya is of the view that the process of steering the EPA negotiations with the East African Customs Union should be left to the EAC secretariat.

Nairobi’s plea, however, is that member states of the community must understand that the country is too intimately involved with what is going on at the ESA level and should, therefore, be allowed to continue engaging at that level, as long as it does not compromise its commitment to the East African Customs Union.

President Mwai Kibaki is the current chair of the Comesa Authority, while Trade Minister Dr Mukhisa Kituyi is chair of the ESA Council of Ministers.

On their part, the Tanzanian delegation said that the country was in full support of an EAC EPA configuration, given that the community already has an operational Customs Union with a complete trade regime.

The Ugandan delegation also supported the ECA EPA configuration, as did Rwanda.

It was stressed at the meeting that at no time had it been suggested that Burundi, Kenya, Rwanda and Uganda leave Comesa, or that Tanzania leave the SADC EPA configuration.

At the end of it all, the following decisions were made: First, that the EAC EPA configuration be made open to other countries that are willing and able to comply with the provisions of the East Africa Customs Union.

Second, that the EAC EPA take into account the milestones reached under either ESA and/or SADC EPA in coming up with the new EPA for the East African Customs Unions.

Third, the EAC secretariat immediately open negotiations with the ESA EPA and SADC EPA configurations to agree on areas of joint negotiations.

Fourth, that the European Commission be requested to provide a formal commitment by October this year that there will be no disruptions to trade after December 31.

In a sense, this is first time countries of the region are waking up to the problem of overlapping memberships of regional economic groups.

Tanzania pulled out of Comesa in 2000 and joined SADC.

Thus, while the rest of the members of the East African Customs Union are members of Comesa, Tanzania is the only country with a Free Trade Area access to SADC.

Compounding the problem is the fact that SADC and Comesa have been negotiating with Europe separately.

The so-called ESA negotiating group comprises 16 of Comesa’s 19 member countries — the exceptions being Angola, Egypt and Swaziland.

On the other hand, the SADC negotiating group includes 7 of that bloc’s 13 member countries, namely Angola, Mozambique, Tanzania, Swaziland, Lesotho, Botswana and Namibia.

Tuesday 14 August 2007

Stock Market Brushfire

Stock Market Brushfire -
Will There Be A Run
On The Banks?
By Mike Whitney
8-12-7

On Friday, the Dow Jone's clawed its way back from a 200 point deficit to a mere 31 point loss after the Federal Reserve injected $38 billion into the banking system. The Fed had already pumped $24 billion into the system a day earlier after the Dow plummeted 387 points. That brings the Fed's total commitment to a whopping $62 billion.

By some estimates, $326.3 billion has now been added to the G-7 Nations' intra-banking system to prevent a breakdown. That amount will rise considerably in the weeks ahead as the situation continues to deteriorate. Some readers may remember that on Tuesday, August 7, the Fed announced that it was NOT planning to bail out the market.

My, how quickly things change.

So far, economic pundits and CEOs have applauded the Fed's intervention as a "constructive" way of staving off an impending credit crisis.

Are these same "experts" who always sing the praises of unregulated "free markets" while condemning any government intervention?

Yes.

The investment banks and fund mangers love "free markets" when it means eliminating the rules that prevent them to "gaming the system". But they don't like it so much when their shabby Ponzi-rackets start to unravel. Then they're the first in line to beg for a bailout.

That's what's happening right now. The Fed is keeping the stock market afloat by increasing liquidity at the banks. If it wasn't for Bernanke's billions of dollars of low interest credit---the banking system and stock market would collapse in a heap. The Fed's "not-so-invisible hand" is the only thing holding the whole dilapidated system in place.

Is that the way it's supposed to work in a free market system---with the Fed acting as the nation's Economic Central Planner intervening whenever it suits the interests of its wealthiest constituents?

Sounds more like a Financial Politburo, doesn't it?

In truth, the "free market" means nothing to the men who run the system. It's just a public relations scam designed to dupe investors into plunking their money into a system that's rigged for the carnivores at the top of the economic food-chain.

Does anyone really believe that the market-commissars would allow the system to operate according to the arbitrary swings in investor confidence and random speculation?

This is THEIR SYSTEM and they run it THEIR WAY. The only time that changes is when their twisted schemes go haywire and they need a handout from the taxpayer. In the present case, they are asking Big Brother Bernanke to bail them out on trillions of dollars of non-performing subprime garbage-loans which masquerade as securities in the secondary market. The Fed has already indicated that it is only-too-willing to help.

But what good will it do?

The banks are currently holding (roughly) $300 billion in collateralized debt obligations (CDOs) and another $225 billion in collateralized loan obligations (CLOs) More than one-half trillion dollars in debt which is essentially "illiquid" and has no clear market value. They could be worthless for all we know.

That hasn't stopped the Fed riding to the rescue, buying up many of these toxic CDOs and increasing banking reserves so the great fractional banking con-game can continue unabated. This is what one astute observer called "alchemy finance".

Central banks around the world have opened up the liquidity spigots to avoid a global credit meltdown. But their efforts are bound to fail. The banks are sitting on huge losses from assets that they can't move through the pipeline and which have gobbled up their reserves. Bloomberg News summed it up like this: "The $2 trillion market for mortgages not backed by government-sponsored agencies is at a standstill".

The same is true of the corporate bond market. As the Wall Street Journal reported last week:

"The investment grade corporate bond market HAS GROUND TO A HALT, making it difficult for companies to access capital and hard for investors to find a place to put their money to work. .The problems in the primary market could, if they persist, throw a wrench in the workings of corporate America, making it tougher for companies to finance, among other things, investments, buyouts and equity buybacks.For July, corporate bond issuance was down 77% from June." ("Corporate Bond Market has come to a Standstill", Wall Street Journal)

The mighty wheels of commerce have rusted in place. Nothing is moving. Only the sense of panic continues to grow. Trillions of dollars poisonous CDOs need to unwind, but the banks cannot put them up for bid for fear that they'll only get pennies on the dollar. This is what a slow-motion train-wreck looks like. The Fed's cheap credit won't help either. At best, it'll just buy a little time before the true value of these bonds is established and trillions of dollars in market capitalization vanish into cyber-space. Banks, equities, hedge funds, insurance companies and pension funds are all in line to suffer major losses.

The irony, of course, is that the Federal Reserve created this mess by lowering interest rates to 1% and flushing trillions of dollars into the economy. That cheap money created a series of lethal equity-bubbles in housing, credit, stocks and bonds which are quickly falling to earth. Expanding the money-supply might be a short-term fix, but it's really just throwing more gas on the fire. Why add hyper-inflation to the long-list of existing problems?

The volatility in the stock market is a red herring. We should be paying attention to the underlying problems which are just now beginning to surface. The banks have been originating loans and bundling them off to Wall Street to avoid the normal reserve requirements. Now they've been "caught short" and don't have adequate funding to cover their bets. If the Fed doesn't help out, we'll see at least one or two major bank closures.

This is a story that won't appear in the media. Bank-runs are the beginning of the end---financial Armageddon.

And there's more bad news, too. If the stock market corrects more than 10 or 15%, the massive overleveraged $1.7 trillion hedge fund industry will crash-and-burn. This may explain why the stock market has behaved so erratically recently. There have numerous late-day rallies with no good news to support the soaring equities prices. Is the market being micro-managed behind the scenes to keep it above a certain level?

Many people think so. There's been a flood of articles about the activities of the Plunge Protection Team's in the last two weeks. The Fed's desperate infusions of credit into the banking system will only reinforce growing suspicions of market manipulation.

DERIVATIVES DOWNDRAFT

Banks routinely hedge against adverse moves in the market by purchasing various types of insurance in the form of derivatives contracts. Derivatives trading has skyrocketed in the last few years and the "British Bankers Association estimated last fall that by the end of 2006, the market for all credit derivatives was $20 trillion and expected to be $33 trillion by the end of 2008."These relatively new instruments are about to be put to the test by worsening market conditions. "Hedge funds may account for as much as 30% of such credit protection" but that is little solace for the banks "because hedge funds that are losing money but also selling credit insurance may not be able to honor their commitments, rendering the protection worthless." ("Insuring against Credit Risk can carry risks of its own" Henny Sender, Wall Street Journal)

Credit insurance in the form of credit default swaps have created a false sense of security that may prove to be unfounded. In fact, the Credit insurance business has probably encouraged lenders to make shakier and shakier loans believing that they were protected from risk. But that doesn't appear to be the case. For example, Bear Stearns tried to soothe investor's fears during the collapse of its two hedge funds by pointing to its derivatives coverage.

"Bear executives repeatedly referred to their dependence on hedges, including credit derivatives, to offset their losses on subprime mortgages and loans to poorly rated companies, stating that such hedges would offset losses." (Ibid, H. Sender, Wall Street Journal)

We all know how that story ended up.

Derivatives have been celebrated as a critical part of the "new architecture of the financial markets". Now we can see that they are poor-performers under real-life conditions and liable to trigger an even greater disaster. If the stock market stumbles, we can expect a major breakdown in credit insurance-trading with trillions of dollars in derivatives disappearing overnight.

The abstruse world of derivatives trading will suddenly explode onto the headlines of newspapers across the country.

HOUSING BRUSHFIRE SWEEPS THROUGH THE ECONOMY

The contamination from the massive real estate bubble has now infected nearly every area of the broader market. The swindle which began at the Federal Reserve--with cheap, low interest credit---has spread through the entire system and is threatening to wreak financial havoc across the planet. The Fed's multi-billion dollar bailout will do nothing to contain the brushfire they started or avert the catastrophe that lies just ahead. Greenspan opened Pandora's Box and we'll all have to live with the consequences.

Mbeki Will Argue Zimbabwe Is Making 'Progress'

By Chris McGreal - Africa Correspondent
The Guardian - UK
8-13-7

South Africa has blamed Britain for the deepening crisis in Zimbabwe by accusing the UK of leading a campaign to "strangle" the beleaguered African state's economy and saying it has a "death wish" against a negotiated settlement that might leave Robert Mugabe's Zanu-PF in power. According to a South African government document circulating among diplomats ahead of a regional summit this week, President Thabo Mbeki will paint an optimistic picture of his efforts to broker an agreement between Mr Mugabe and the Zimbabwean opposition.

But the document, a draft of the report the South African president is expected to present at the meeting, says Britain remains a significant obstacle by spearheading sanctions that Mr Mugabe blames for his country's econ omic collapse.

"The most worrisome thing is that the UK continues to deny its role as the principal protagonist in the Zimbabwean issue and is persisting with its activities to isolate Zimbabwe," the report says.

"None of the western countries that have imposed the sanctions that are strangling Zimbabwe's economy have shown any willingness to lift them."

Britain pressed the European Union to impose "targeted sanctions" against Zimbabwe's leadership by refusing visas, freezing bank accounts and other measures that the UK said were aimed at individuals without harming Zimbabweans.

But Mr Mugabe has blamed what he describes as the "illegal sanctions" for the economic collapse and said his government is a victim of British imperialism because it seized white-owned farms for redistribution to poor blacks.

His opponents say the crisis is the result of a brutal strategy to hold on to power by violently suppressing the opposition, rigging el ections and trying to buy support by seizing the farms. This! last mo ve devastated the tobacco export industry that provided Zimbabwe with much of its foreign earnings.

The wholesale printing of money helped fuel inflation now estimated to be running at about 20,000%. Shops are virtually empty of basic foodstuffs.

Some African leaders have been willing to criticise Mr Mugabe, although a Zambian opposition leader, Michael Sata, urged the region's leaders to "join hands and launch strong protests against attempts by the west to recolonise Zimbabwe".

The South African report describes the crisis as "Zimbabwe's bilateral dispute with Britain". However, the focus of Mr Mbeki's efforts is to reach an agreement between Mr Mugabe and the opposition Movement for Democratic Change ahead of elections next year.

Mr Mbeki has not had a smooth ride. Mr Mugabe's two negotiators, both cabinet ministers, failed to arrive for talks in South Africa last month. The ministers, Nicholas Goche and Patrick Chinamasa, final ly arrived in Pretoria a week ago.

The document says some issues, including constitutional reforms, have been "worked out". "There are strong indications that the two sides are sliding towards an agreement," it says.

But MDC sources say that agreement is not near and they suspect that Mr Mugabe is playing for time until the end of the year when the focus will shift to the presidential election campaign. Meanwhile, the economic crisis is expected to deepen. More than 3 million Zimbabweans have left the country in search of work.

Daily Mail & Guardian
http://www.guardian.co.uk/southafrica/story/0,,2147604,00.html
http://www.africancrisis.co.za/Article.php?ID=16383&

US allays fears over new military body

KEVIN J KELLEY
Special Correspondent
Bush administration officials are working to refute claims by both Africans and Americans that the Pentagon’s new Africa Command (Africom) signals a shift in US policy away from development and diplomacy and towards war capabilities.

“Africans are nervous that Africom will sanction the militarisation of diplomacy and severely undermine multilateralism on the continent,” warned Wafula Okumu, head of the African Security Analysis Programme at the South Africa-based Institute for Security Studies.

Concerns about the Pentagon’s importance in shaping US relations with Africa were echoed by Republican Senator Richard Lugar.

Speaking at a recent Capitol Hill inquiry on Africom at which Mr Okumu testified, Senator Lugar pointed out that the Pentagon has greater financial and personnel resources than the State Department, which has long been considered the main instrument of Washington’s Africa policy. “This imbalance within our own structure will be reflected in Africom initially – hopefully not perpetually,” Senator Lugar suggested.

Africom represents a potential threat to the very countries the US claims it is intended to benefit, Mr Okumu added. “Africom will not only militarise US-African relations, but also those African countries in which it will be located,” Mr Okumu predicted.

“This could have far-reaching consequences since the presence of American bases in these countries will create radical militants opposed to the US and make Americans targets of violence.”

Most African nations will not want to associate themselves with Africom because they “will be criticised for violating Africa’s common positions on African defence and security, which discourages the hosting of foreign troops on African soil,” Mr Okumu added.

He specifically cited Kenya, which, he said, would be especially wary of Africom after having “previously been targeted by transnational terrorism because of its closeness to the West and hosting Western interests, both military bases and businesses.”

The US military record in Africa provides grounds for suspicion concerning Africom’s purposes, Mr Okumu noted.

“Many Africans are asking why American troops were not deployed to prevent or restrain the Rwandan genocidaires (in 1994),” he said. “Why the US forces remained anchored safely off the coast of Liberia when that country, the nearest thing America ever had to an African colony, faced brutal disintegration in 2003. Why the US has not supported the African Union Mission in Somalia and instead supported the Ethiopian intervention through airpower” from the US base in Djibouti”

Such criticisms are based on a misreading of American actions and plans in regard to Africa, senior US officials asserted at the inquiry convened by the Senate Foreign Relations Committee.

“We are not at war in Africa, nor do we expect to be at war in Africa,” declared Jendayi Frazer, the State Department’s point person for Africa. “Our embassies and Africom will work in concert to keep it that way.”

Recently, however, the US has carried out at least two direct military strikes in Africa. US forces on the ground and in the air have attacked targets inside Somalia as part of what Washington describes as its global war on terrorism.

The US is also lending considerable material support to Ethiopia’s invasion and occupation of Somalia.

Africom might play a key role in responding to warlord-type violence in the Democratic Republic of Congo, US officials suggested. They said the Command could provide military training and material assistance to DRC government forces.

Ms Frazer, whose official title is Assistant Secretary of State for African Affairs, further sought to reassure senators that her own office’s authority is not being eroded with the advent of Africom.

“The Department of State will continue to exercise full foreign policy primacy and authority in Africa, and I am confident that no one in the Department of Defence disagrees with this,” Ms Frazer said. “The Assistant Secretary for African Affairs will continue to be the lead policy-maker in the US government on African issues, including regional security policy.”

The Pentagon’s top Africa official reinforced the position enunciated by her counterpart at the State Department.

“Africom’s focus is on war-prevention rather than on fighting,” said Theresa Whelan, deputy assistant defence secretary for African affairs. “Africom will support, not shape, US foreign policy on the continent,” she added.

The new Command will not entail deployment of US combat troops in Africa, Ms Whelan said.

In addition, officers representing the State Department and the US Agency for International Development will be included in Africom’s staff, she said.

Ms Whelan further noted that the State Department already funds the main US training programme for African soldiers who are being prepared to carry out peace-support operations in troubled African states.

Misgivings about the purposes of Africom are the product of “misconceptions” regarding American aims in Africa, Ms Whelan said.

In an attempt to rebut criticisms of the sort voiced by Mr Okumu, the Pentagon’s Africa policy specialist argued that Africom is not being established to fight terrorism, secure oil resources in Africa or discourage China from competing with the US for raw materials and political influence on the continent, Ms Whelan told the Senate committee.

Rather than taking control of security issues in Africa, the Pentagon “recognises and applauds the leadership role that individual African nations and multilateral

African organisations are taking in the promotion of peace, security and stability on the continent,” Ms Whelan added.

Africom will, however, involve an increase in the number of joint military exercises conducted by American and African forces, she explained.

Meanwhile, American reassurances appear not to have allayed the fears that African leaders have privately expressed to visiting US officials in the course of consultations on Africom.

Recent conversations with African policy-makers indicate that their overall response to Africom has been “negative,” said Senator Russ Feingold, the Democrat who chairs the Foreign Relations Committee.

But Ms Frazer said the response to Africom on the part of African nations has been “largely positive.”

And Ms Whelan noted specifically that Liberia, Botswana, Senegal and Djibouti have expressed support for Africom.

Liberia has, in fact, offered to host the headquarters of the Command, which is scheduled to become fully operational by October 2008.

No decision has been made as to where in Africa the Command’s headquarters will be based, Ms Frazer said.

A Defence Department official had previously indicated that Africom’s commander would probably move among operational “nodes” to be situated in a few African countries.

In the meantime, Africom will be headquartered in Germany, near the site of the US European Command.

Monday 6 August 2007

Kenya gains footing in global tourism market

Written by Wangui Maina
Tourists arrive at Maasai Mara20-July-2007: Kenya’s tourism sector is on its way to achieving its ambition as one of the top 10 long haul destinations, according to a new report.

The report which was published earlier in the week by an international destination website, www.lastminute.com, shows bookings to Kenya have increased significantly in the past few months as holiday makers plan for their summer holidays.

This has put Kenya on an equal footing with top long haul destinations such as the Maldives and Thailand.
Lastminute.com is an online travel agent that helps main European travellers book their holidays.

Statistics show that travellers are looking for far-flung destinations to spend their summer with Kenya as one of the best sellers.

The rise in the country’s popularity is attributed to the availability of top of the range holiday packages that the country has recently released in the market as it climbs the leisure business management ladder.

Kuoni’s 2006 long haul report released earlier in the year showed Kenya had moved to the fourth position, ahead of Dubai. Maldives and Thailand maintained the top two positions with Egypt ranked third.

Kenya is expected to maintain its position in 2007 with Egypt dropping to position nine as the US jumps to position three from six.

The report shows that Tanzania is slowly building momentum having been listed among the top 20 long distance destinations.

The country is ranked 18th while China is expected to leap two steps up from position eight in 2006.

Industry insiders say Kenya must boost its marketing campaign to maintain the position and stay ahead of the competition.

Seychelles which has invested heavily in hotels and raised the quality of its services to record a 20 per cent growth in tourist arrivals is among the countries to watch.
The Kuoni report says small destinations have been growing faster as travellers seek to holiday in remote destinations.

Kenya’s tourism sector has been growing steadily over the past four years rising to a revenue peak of Sh56.2 billion last year.
Tourism has been identified as one of the key drivers of the road map to Kenya’s economic take off.

Vision 2030 is also expected to push up the country to the top 10 long distance destinations.

Other key trends emerging in the tourism sector include an increased average stay from 13 days to 14.5 days.
Over half of the clients who book with Kuoni are choosing to take holidays of 15 days and more.

This will mean more business for the hotels in Kenya and increased spend in the destination.

Kenya is also attracting couples who wish to wed. According to the Kuoni report, Kenya emerged as the fifth popular wedding destination and is expected to raise to fourth this year.

Along with weddings the country is also attracting a number of honeymooners.

Aggressive marketing by players in the industry has been attributed to the country’s prominence in the tourism sector.

NSE’s stellar growth attracts Wall Street

Written by James Makau
31-July-2007: Etched firmly in a number of people’s minds, is the humour surrounding the recent experience of one of Wall Street’s big investment banks at the hands of a leading Kenyan brokerage firm.

Attracted by the prospects of lucrative business by partnering with a local firm in a highly publicised initial public offering, the Wall Street outfit’s senior personnel were slightly shocked when their kind hosts offered them plastic garden chairs in their boardroom.

While light debate may rage on as to why one of Wall Street’s finest took an early leave from the meeting opting for another firm, one fact remains starkly clear, the fast paced growth in Kenya’s capital markets is still taking time to sink in; even for market players.

In the last five years, turnover at the Nairobi Stock Exchange has grown phenomenally from Sh2.9 billion in 2002 to Sh95 billion last year while the number of CDSC accounts – prerequisite to trading at the stock exchange – have in the last two years increased from 80,000 in 2005 to an estimated 700,000 investors to date.

This rally has literally spawned millionaires overnight, creating a hunger of stock market investments with the oversubscription of all the initial public offerings in the last year to date, a clear testament to the insatiable investment appetite in the country.

The strong returns posted by Kenyan equities listed at the NSE have not gone unnoticed with international interest in the country’s markets building up in recent years.

But with only 15 active stock exchanges in Sub Saharan Africa, the regions equity markets pale in size to other emerging markets worldwide posting a combined market capitalisation of US$39.2 billion, excluding South Africa, in 2005.

The JSE which is the 16th largest exchange in the world, had a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub—Saharan Africa’s total market cap.
As it is, the JSE’s market cap is 14 times larger than all the other African markets combined.

With limited growth and lack of expansion by firms in Africa, few are able to list in exchange markets thus leading to a shortage of tradable securities in those markets.

Data from the World Bank’s Climate Investment study indicate that business losses due to investment climate constraints such as power outages, transport failures, and logistics delays are largely responsible for shortfalls in productivity of a number of African firms.

This data has suggested that African firms are faced with constraints that prevent them from increasing productivity and expanding their operations.

A long—term strategy for attracting more investment has been the focus towards increasing the supply of available securities In Kenya, lack of enough securities at the NSE has led to liquidity concerns with too many buyers chasing too few shares.

But the introduction of high level Initial Public Offers and automation of the trading system continue to raise the profile of the NSE and spur growth in the Kenyan equity markets.

Representing between 70 and 80 per cent of Kenya’s financial assets, the banking sector is also poised for a growth spurt along with the capital markets.

Kenya’s banking sector’s robust growth in the last four years moving in tandem with the country‘s economic recovery has provided a solid pillar for financial services to thrive.

Available statistics indicate a 43.7 per cent increase in pre-tax profits to Sh27.3 billion at the end of 2006 with total assets in the sector estimated at Sh760.8 billion reflecting an 18.2 per cent growth from 2005.

Reforms by the Central Bank and the modernisation of the financial sector have also played a crucial role in the growth of banking services in the country.
The introduction of the Real Time Gross Settlement has expedited up the settlement of online and cheque payments while tighter supervision of banks has raised the levels of governance in Kenya’s financial institutions.

Long burdened by massive non performing loans, the Kenyan banking sector is well on its way to recovery as the Government owned banks – the main holders of NPLs – improve their balance sheet positions in readiness and write off bad debts.

The Government’s withdrawal from commercial banking has led to the return to profitability of Kenya Commercial Bank — the country’s largest bank in terms of branch network— and plans are under way to restructure National Bank of Kenya which currently has the largest non performing loan in the sector.

In insurance, the Government has tightened regulation of the industry introducing new rules for minimum capital requirements for insurance firms and new rules for minimum capital guarantees by brokers and agents.

Introduction of new mandatory, nationwide health and pension insurance plans will boost demand for these types of insurance, including for supplementary health and pension products provided by the private sector.

The penetration of potential insurance markets in Kenya is expected to grow past the current 3 percent level as the costs of insurance come down and confidence in underwriters picks up.

AIG Global eyes African trade opportunities

Written by James Makau
Mr. Steven Gutenman31-July-2007: Four years ago, the idea of Africa as an investment destination would have evoked little or no interest among the world’s elite investment institutions.

But with economic growth buoyed by improving macro-economic policies in most African countries, the forgotten continent seems like the place to be for global investors.

Keen to tap into this growth, AIG Global Investment Group, soon to be known as AIG Investments, will this week set up operations in Uganda as part of its Pan Africa expansion strategy .

With an estimated US$700 billion in total institutional assets under management and the largest insurance firm under its umbrella, AIG Global is seeking to consolidate its presence in a region it first ventured into nine years ago.

Mr Steven Guterman, senior managing director, global business development at the New York- based firm, said investments were growing in the region.
“Opportunities around the world are beginning to shift and the tremendous opportunities that exist in Africa cannot be ignored,” said Mr. Guterman.

In an interview with the Business Daily, Mr Guterman said the confluence of better regulations, more transparency by governments and increased information flow brought about by technology improvements would spur further investments..

With most of their investments in Kenya are spread out among equities and fixed income, AIG is also looking to grow its private equity partnerships with firms and investors in the region.

AIG last year coughed up US$15 million to acquire a significant minority interest in Blue Financial Services, a pan African Micro-finance company based in South Africa. The firm focuses on providing micro lending products to people with limited access to formal banking.

Considered an early entrant in the insurance arena in emerging market countries, AIG’s investments in private equity and real estate are seen necessary to offset insurance liabilities in many of these countries.

Although he declined to comment .on AIG’s planned private equity transactions, Mr. Guterman said the firm would soon launch a Pan Africa portfolio product for its investors aimed at tapping into African markets.

With the growth of African economies set to accelerate to 5.9 per cent this year on the back of increased demand for commodities as well as sound economic policies, the resurgence of the investment interest in the continent is bound to pick up.

“Africa is clearly going to continue delivering strong returns as economies continue to grow.” says Mr. Guterman.African stock markets have continued to deliver impressive returns with the continent’s two top markets – Nigeria and Botswana – posting returns of up to 50 per cent in the first quarter of the year.

The strong showings by African equities listed at the NSE have not gone unnoticed, with international interest in the country’s markets building up in recent years.

But with only 15 active stock exchanges in Sub-Saharan Africa, the regions equity markets pale in size to other emerging markets worldwide posting a combined market capitalization of US$39.2 billion, excluding South Africa, in 2005.

The Johannesburg Stock Exchange (JSE) is the 16th largest exchange in the world with a market capitalisation of US$ 566billion, accounting for 94 per cent of Sub-Saharan Africa’s total market cap. JSE’s market cap is 14 times larger than all the other markets combined.

With limited growth and lack of expansion by firms in Africa, few are able to list in stock exchangethus leading to a shortage of tradable securities in those markets. A long-term strategy for attracting equity investment has been the focus towards increasing the supply of available securities—since demand will come naturally through the market.

The watershed Sh34 billion Safaricom IPO slated for later this year is seen by many analysts as a step towards solving the shorfall in the supply of equities at the Nairobi Stock Exchange.

The Safaricom offering has also caught the eye of prestigious Wall Street financial firms, a number of whom are looking to partner with local players in the flotation of the mobile telephony company.

And with project financing set to gain prominence in coming years as infrastructure development builds up, Africa will continue to attract international capital, leading to the strengthening of local economies.

“Most economies have taken off with the entry of international capital. Without this capital, local companies can find it very hard to grow.” says. Mr. Guterman.

SADC to launch regional army brigade, early warning centre

SADC to launch regional army brigade, early warning centre
By WILFRED EDWIN
Special Correspondent
The Southern African Development Community will launch an emergency army brigade on September 1, Tanzania Foreign Minister Bernard Membe has said.

The group will also launch an early warning system whose centre will be in Gaberone, Botswana.

Mr Membe said the region’s brigade would act as an African stand-by force to be known as SADCBrig.

The brigade will be inaugurated in Lusaka, Zambia, during the SADC heads of state summit.

Speaking at the just ended meeting of the SADC Ministerial Committee of the Political Defence and Security Co-operation Organ held in Dar es Salaam, the minister said the Botswana centre will help issue early warnings against impending natural disasters such as floods, cyclones and locusts to member states.

“The centre will be equipped with modern equipment for the task,” he said.

However, the cost of the entire system could not be immediately established.

Already SADC has in place a Regional Early Warning System (REWS), a mechanism for assembling and analysing food security information within the region.

REWS provides advance information on food security through analysis and monitoring of food crop production prospects, food supplies and requirements in order to alert member states and the humanitarian agencies of likely food shortages in sufficient time for appropriate interventions to be made.

In 2003, REWS was merged within the Food, Agriculture and Natural Resources Directorate, where its core functions and activities have continued to be carried out within an expanded role.

This includes widening the scope of early warning to include broader food security issues such as coverage of livestock and commodity markets, livelihood vulnerability analysis and cross-cutting issues, with stronger linkages to the SADC policy environment.

Three East African economies begin to converge

By DAVID MUSOKE
Special Correspondent
Economies of the original member states of the East African Community post modest achievements during 2006 in their convergence efforts, says the East African Development Bank.

Kenya, with real GDP growth rate of 6 per cent, came out on top followed by Tanzania at 5.9 per cent and Uganda at 5.4 per cent.

The 2006 annual report and accounts 2006 of the EADB says the real GDP performance of the three economies during the review period did not attain the targeted seven per cent level.

“Although by the end of 2006, the member states’ performance with regard to the quantifiable convergence parameters was modest, it represented gradual progress,” it said.

The report said that with the commencement of the implementation of the East African Customs Union in January 2005, the member states have been working towards the convergence of key macroeconomic variables. The harmonisation of macroeconomic policies among the partner states continued to put emphasis on exchange rates, and monetary and fiscal policies.

The harmonisation is aimed at ensuring co-operation in monetary and financial matters and maintenance of convertibility of currencies of the member states as a basis for the eventual establishment of a single currency, the report said.

The parameters that form the convergence criteria are: Achieving and maintaining a real GDP growth of 7 per cent; achieving and maintaining an underlying inflation rate of less than 5 per cent; reducing the current account deficit as a percentage of GDP to sustainable levels; reducing the budget deficit, excluding grants, as a percentage of GDP to sustainable levels of less than 5 per cent and raising the ratio of gross savings to GDP to at least 20 per cent; and building foreign reserves to a level equivalent to six months of goods and non factor services.

The report said that the regional economies remained on course towards attainment of convergence on broad, non-quantifiable policy aspects.

The report said that as a reflection of the general inflationary pressure experienced in the three economies, the underlying inflation for Uganda and Tanzania surpassed the 5 per cent target while Kenya managed to attain the convergence criteria target.

During the period under review, Uganda registered the highest underlying inflation at 9.8 per cent, Tanzania 6.8 per cent and Kenya 3.8 per cent.

The respective member states’ central banks, according to the report, continued to pursue monetary policies to address the inflation pressure, bearing in mind that the headline inflation for Kenya and Uganda was at double digit levels by the end of the year.

Tanzania had the lowest headline inflation of 6.7 per cent followed by Uganda at 11.3 per cent and Kenya at 15.6 per cent.

The member states continued to put in place measures aimed at diversifying their export bases, especially due to the dependence of their commodity exports.

The report highlights the seven most important exports for the three countries. Coffee at 61.7 per cent continues to be the most important traditional export in Uganda and fish and fish products (53.1 per cent) was the most important contributor to nontraditional exports by December 2005/06.

In Tanzania, the most important export was tobacco (24.4 per cent) followed by coffee (23 per cent) and cotton (20.9 per cent) and the most important non-traditional export was gold ( 51.9 per cent).

In Kenya, the most important export is tea (19.4 per cent) followed by horticulture (14.8 per cent) and manufactured goods (12.1 per cent). Kenya has a category of other exports (31.5 per cent), which is unidentified. The report does not have figures of non-traditional exports for Kenya for the year under review.

With regard to nominal GDP, Kenya tops the list with $23.3 billion followed by Tanzania at $11.7 billion and Uganda at $9.2 billion. Equally, Kenya registered the highest gross national savings as well as gross domestic savings — almost as much as Tanzania and Uganda combined.

While Uganda and Tanzania were able to meet six months of import cover of foreign reserves, Kenya missed the target, although it attained its budgeting expectations. Foreign reserves (months of import cover) for Kenya were 4.5, Tanzania 6.0 and Uganda 6.2.

The bank said there was progress in strengthening the tax authorities, with tax reform measures being put in place to reduce reliance on external budgetary support, especially in the case of Uganda and Tanzania.