Folks, this is a very interesting article. Has some very good points.
What Can We Do About the Dalasi?
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The Independent (Banjul)
October 28, 2002
Posted to the web October 28, 2002
Ousman Manjang
Banjul
Bakoteh Layout October 2002 Free fall
The dalasi's continued free fall is becoming a cause for growing concern for
people of all walks of life and from all over the country. But with this,
more and more ordinary people are beginning to grasp some elementary but
basic lessons on how modern economies work. People who have until recently
been trapped in the economy of subsistence and have had only little clue
about the way money-economy works are now beginning to wonder about the
mystery that shrouds money as a commodity, its role in the economy and the
arithmetic's of its exchange ratios. As the fall of the dalasi is being
increasingly perceived as the main cause behind all recent price-rises and
soaring cost of living, the clamour for the arrest of its decline is growing
rapidly. But can anything be done?
Haven't we, our government, and its cadre of professional economists chosen
the one and only path to economic prosperity, the neo-liberal, free-market
and private sector-led option. Doesn't that choice inevitably wrest from our
hands the duty and the right to do anything like controlling or regulating
the most important commodity in the capitalist market: money. It seems to me
that state intervention to stop the dalasi's fall would be a most heretic
violation of one of capitalism's most fundamental laws, the one on supply
and demand.
According to conventional capitalist wisdom, the dalasi's value in relation
to other currencies is the direct result of our collective economic efforts
as a nation. It reflects the volume of our products and services that others
are prepared to buy, in relation to how much we are ready to buy from
others. The more we sell to, or the less we buy from people from other
currency areas, the more the dalasi's value would appreciate. Vice versa,
the less we are able to sell and the more we buy from others, the less the
dalasi's value will become. It follows therefore that to keep the dalasi
strong and rolling we need to produce more and make others buy our products
and services. This fundamental law of national economics is straightforward
enough. But it is when we begin to apply this law to the Gambian economy and
its dalasi that the learning curve becomes difficult to overcome. In fact
the harder we look at it the less we find this law applicable to Gambian
realities. First as a nation of re-exporters, the value of our currency
depends significantly on not what we produce, but what others do which we
are able to import and re-export to other neighbouring countries. Secondly,
the favourable rains of recent years and the bumper groundnut harvests that
followed ought to have helped the dalasi appreciate, or at least to be
stable; not to come tumbling down as it has been over the last six months or
so. After the coup in July 1994, everyone expected the dalasi to take a
nose-dive down the doldrums. Luckily that did not happen.
Attempts at explaining this are still only speculative and on the whole
unconvincing. The dalasi seems to be defying all logic: when expected to
depreciate it goes up, when it should appreciate it goes down, as it is
doing now. What is going on? Some of us have been prompted to ask. To have a
clue, we may have to go down memory lane a little.
Inevitable turn-around
Though at the time of the military take-over in July 1994 The Gambia's
reserves could cover an impressive five and a half months of import,
everyone knew a turn-around to the worst was inevitable. Our re-export
activities , which then accounted for about 80% of our exports and 35% of
imports, were severely affected by the suspension of repurchases of CFA
franc notes outside the CFA zone in August 1993, accompanied by a tightening
of border control by Senegal and a substantial devaluation of the CFA in
January 1994. Poor rainfall and the confusion surrounding the sale of the
Gambia Oilseeds Processing and Marketing Company to Alimenta was plunging
the groundnut sector in to serious crisis. The radical militancy of the
early days of the 1994 coup itself plunged the business community into near
paralysis and there was significant slow-down in economic activity. Rumours
of impending shortages rattled both government and consumers into panicky
measures that began pressing prices high. The donor community cut off almost
all aid and left the new military government with almost no external
resources. To make matters worse acrimonious travel advisories were being
issued by some foreign governments and tourist arrivals dropped down by half
in the 1994/95 tourist season. Decline in tourist-related services followed
automatically. An arbitrary style of rule and general instability led to
political and other uncertainties that in turn sent ripples through the
economy slowing down growth and even causing reversals in a number of key
economic indicators. Real GDP, which had recovered substantially in the
1980s and early 1990s dropped by more than 4% in 1994/95. Government revenue
also tumbled by more than 5% under the period 1994/95 through 1995/96.
By this time however, both domestic and international pressures were
mounting for a return to civilian and democratic rule. Perhaps to prepare
itself, by making itself more electable, Government resorted to a spree of
public expenditure that was very popular at the time but that made little
economic sense, given the gloomy economic background.
Expenditure increased to about 30% of GDP by the end of 1996. Overall
deficits, excluding grants, grew fourfold; domestic debt doubled, reaching
24% of the GDP by the end of 1997 and broad money growth multiplied as
Government resorted increasingly to domestic banking for the funding of its
activities. Not withstanding all these, however, the dalasi dwindled only a
little and remained fairly robust, to the great surprise of many. Few could
explain this. Some believed it was due to the growing volume of remittances
by the swelling overseas Gambian communities, others the strength of the
pre-coup economy, while still others resorted to weird magical explanations.
Then the 1996/97 elections came and went. The military AFPRC-regime changed
to the civilian APRC government. Old wine in new bottles? Not completely so,
as we shall see.
Wooing the donor community
With the coming in of the new government in early 1997 there came what
seemed a new official policy of arresting the economic decline and improving
relations with the donor community. The donor community were to be wooed
over by reforms in the controversial area of governance. The new regime soon
heralded important changes in Government's policy framework. The framework
was developed in a series of UNDP supported workshops on good governance and
public administration. The programme worked out included components such as:
local government reforms; review of constitutional and electoral processes;
promotion of civic education and strengthening of parliamentary structures.
Though the implementation of the programme has been somewhat one-sided,
Government's declaration of intent alone got a number of important doors
opened.
Government entered an Enhanced Structural Adjustment Facility (ESAF)
arrangement with IMF in August 1998. Remarkable progress was made in
reducing macro-economic imbalances. A number of institutional and structural
reforms were carried out and the fiscal regime was tightened vigorously.
Following the usual IMF dictat the Gambia's trade policy was further
liberalized, reducing tariffs by down to 17% from rates that were as high as
93% and cutting the tariff bands to less than five from thirty-six. This,
according to many, helped boost the country's competitiveness. Furthermore,
moves were made to strengthen the national accounts and to improve price,
monetary, customs and balance of payment data. In efforts aimed at
bolstering private sector participation new laws were introduced to
strengthen the supervision of financial institutions and monetary policy
operations. A new regulatory and privatisation framework was established and
plans were started for the setting up of a one-stop investment centre and an
export-processing zone.
Inflation was managed below 4% a year and both exports and imports
recovered. External balances improved with reduction in the current account
deficit and international reserves started to grow again. The real GDP
growth was increasing to nearly 6% and gone were the fears of imminent
economic collapse and that the state might not be able to pay salaries.
Confidence in the economy was growing again and this could be seen in the
boom in private construction and rise in private consumption. Shooting it's
self in the foot
By the third quarter of 1999, Government began spoiling things for itself,
or shooting it's self in the foot, as some will say. In a rash move, it
seized property belonging to the Gambia Groundnut Corporation without any
compensation accusing the company of sabotage and money-laundering.
Alimenta, the Swiss owners of the corporation took the matter to the
International Centre for Settlement of Investment Disputes. In 1993 the
previous PPP-regime had sold the Gambia Oilseeds Processing and Marketing
Company in a privatisation exercise that was done with little transparency
and without any support mechanism for Gambian farmers and the agricultural
sector in general. In an effort to right those historical wrongs or as some
belief, in a crude effort to use the company for its own political gains,
the new regime had gone and ruffle the feathers of one of the biggest
players in the world of groundnuts. Since then, Gambian farmers have been
without any sure and certain market for their nuts.
As if the damage was not sufficient enough, Government turned around to
fumble with the next "best" thing that was around. This happened to be the
re-export trade, which together with tourism, the groundnut trade and
foreign aid, are the four main pillars of the economy. So at around the same
time of the Alimenta debacle in 1999, Government introduced the Pre-shipment
Inspection Programme (PIP), to everybody's consternation.
Not only was the programme introduced at a bad time, but the awarding of the
contract was done without competition and not enough time was allowed for
adequate preparations. Clamour from the business community and a vociferous
public outcry could do little to stop a headstrong government from doing
what it was hell bent on doing. In less than three months loss of custom
revenue was reaching about 1.5% of GDP. Well up to about nine months into
the programme, Government was refusing to admit its mistake and by the time
the programme was quietly stopped in September 2001, substantial damage had
already been done and it was almost already late. By this time, when the
lessons of the PIP's failure ought to have been fresh in the mind of the
authorities, government once again decided on another non-competitive award:
this time the mobile telephony operations, 80% of which was privatised in
violation of a contract with Alcatel, a long-term telecommunications
collaborator. It was not until April 2002 that government was forced to
rescind on this affair. Then in July 0f 2001 Government surprised everyone
with the introduction of new D100-bills, claiming that it was in response to
requests by the business community. Few knew who those businessmen were,
when, how and where they had approached the authorities to make known that
their requests.
What Government can do
True, over the last year or so, the whole world's economy has been
experiencing what looks like a slow-down, if not a downright recession.
Many countries, especially so-called developing ones, are currently in the
throes of some serious economic difficulties. But a good deal of what is now
happening to the Gambian economy seems to me to have been self-inflicted.
Damages to national economies can be done easily and rather quickly, but
once they are done, some damages can take generations to rectify. It is
therefore important that policy-makers go about their business with utmost
care, discipline, transparency and patriotism. Proposals, before they are
adopted as policy, must be subjected to thorough, all-round and critical
scrutiny. Policies, once adopted, must be followed with religious fidelity.
There is no point drawing a budget that will not be adhered to. The whole
policy-making process must be transparent enough to allow inputs from
citizens and above-all as a mechanism against corruptible and other
"non-economic" influences.
True also that The Gambia is and continues to be one of the least developed
countries of the world. On top of this is the fact that the country is of a
small size and very scarce resources. The foundation for all the pillars of
our economy lies on very shaky grounds. The rains decides our harvests,
foreign tour operators determine the number of arrivals, the volume of our
re-exports depends on the temperament of neighbouring custom officials, and
the level of our earnings on the mood of the donor community. Only long-term
strategies, enlightened and dedicated governance and the participation of
the broad masses of our peoples can make any significant difference.
Meanwhile, our policy-makers continue to act like hostages of international
financiers, the donor community and the two Brettonwood institutions, the
World Bank and the IMF. Other than the rains, it is these two institutions
that really rule the Gambia, like most other African countries. The line has
been drawn in the so-called Medium-term Economic Framework. Its landmarks
are the PRSP, the HIPC initiative and PRGF programme.
Nevertheless, the little room left for Government to manoeuvre, if properly
utilised, can go a long way in arresting the current economic decline and
even helping to eradicate some of the worst facets of mass poverty in The
Gambia. As far as saving the dalasi is concerned, Government can take the
following short-term measures:
?Revamp currency exchange sector, by stricter control of the parallel
market, closer monitoring of its activities, and weeding out of unserious
vendors.
?Temporary ban on official purchasing of expensive vehicles; luxurious and
non-essential goods; military wares, etc;
??Revitalise groundnut trade by widening marketing outlets. Temporary
transformation of embassies and other diplomatic legations into groundnut
selling missions to boost up foreign earnings.
?Curtail publicly paid overseas travels.
?Temporary government intervention, if not take over, in the management of
fishing companies with a view of intensifying the marketing and export of
high value fish and other sea-food products in a sector where returns and
come quick and big.
??Run a promotional campaign for the export of horticultural products by
using diplomatic offices to scout for markets, simplifying export
procedures, and pressing down freight costs.
??Introduce fuel rationing for non-essential, luxurious and private
motoring. And introduce less expensive and more environment friendly fuel
like our groundnut oil as alternative to gas oil. Remember the first diesel
engine invented by the German Mr. Rudolph Diesel was fuelled with groundnut
oil at its first run in the Paris World Fair of 1900.
??Launch sensitisation campaign for custom officials, airport and other
border-post officials and the general public on the need for the promotion
of exports, hassle-free import/export procedures and the horrible
consequences of corruption.
I am not saying that these are by themselves any guaranteed or even suitable
solutions to the dalasi crisis. But they have a common underlying suggestion
behind them, one of urgency, originality and, above all, the spirit that
Government ought to, and can do something, about the dalasi, for the sake of
Gambians.
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