Interview with Gilbert Gnany, chief strategy officer and executive director of MCB Group Ltd |22 August 2015
‘Seychelles is projected to pursue its socio-economic development path’
Gilbert Gnany is well versed in developments in Seychelles and has been a director of MCB Seychelles since its inception in 2003. He is currently the chief strategy officer and executive director of MCB Group Ltd.
He spoke to Seychelles NATION and shared his views on the current global economic context, the recent performance of and outlook for the Seychellois economy, as well as the overall positioning of the domestic financial sector.
Seychelles NATION: Mr Gnany, you are an economist by trade and a keen observer of the world economy. You also previously worked for the World Bank and the International Monetary Fund (IMF). What is your take on the current global economic situation?
Mr Gnany: The global economic situation remains delicate, with the world economy continuing to struggle with protracted headwinds and instabilities. The IMF (International Monetary Fund) projects global growth at 3.3% in 2015, which is marginally lower than in 2014, with mixed prospects across major regions. There is a pendulum effect which appears to be steering the global economy. On the one hand, growth is firming up in advanced economies, especially the Anglo-Saxon countries, which are performing relatively better than emerging markets and oil-exporting countries. On the other hand, the latter are bearing the brunt of structural bottlenecks, stiffer external conditions, a rebalancing in China, as well as a downtrend in world oil and commodity prices. Such a combination of factors is underpinning a tailing off of these countries’ above-trend growth over the past years and catch-up dynamics vis-à-vis advanced economies. All in all, the medium-term outlook for the global economy remains weak. The distribution of risks is tilted to the downside, with threats including low productivity levels, broad-based weaknesses in investment and persisting legacies of insufficient demand, geopolitical tensions, as well as heightened financial market volatility and disruptive asset price shifts. Moreover, the recent surprise Chinese yuan devaluation raises fears of a revival in currency wars and knock-on effects for global inflation levels.
Seychelles NATION: What about the situation in the eurozone, Seychelles’ main trading partner?
Mr Gnany: Euro area GDP (gross domestic products) edged up by 0.4% quarter-on-quarter and 1% year-on-year in the first quarter of 2015, according to the latest estimates of Eurostat, the statistical office of the European Union. While this quarterly expansion is the fastest rate recorded over the past two years, it now boils down to making it stick. The more so if we factor in the ongoing Greek debt crisis, as well as the fact that the pace of recovery is largely uneven across the currency area. At another level, while the unemployment rate has held steady, albeit at a still-high rate of 11.1% over the past quarter, the euro area annual inflation rate is expected to have remained stable at 0.2% in July, somewhat reinforcing signs that the region’s dip into deflation earlier in the year was only temporary. All in all, allow me to highlight that these encouraging signs of a positive inflexion are largely driven by: (i) low energy and food prices; (ii) a weak euro; (iii) the accommodating monetary policy stance of the European Central Bank, with its quantitative easing programme; and (iv) strengthening consumer confidence and recovery in domestic demand.
Seychelles NATION: What is your general assessment of the country’s recent macroeconomic performance?
Seychelles has made tremendous progress in toughing out the recession and acute balance of payments and debt crisis which hit the economy seven years ago in the wake of the global financial crisis, to embrace the promises of sustainable socio-economic development. This is reflected in the numbers; indeed, over the 2010-2014 period Seychelles posted an average real GDP growth rate of 5.9%. This commendable performance has been achieved thanks to the implementation of a comprehensive programme of reforms, supported by the IMF, which has contributed in reinforcing the country’s resilience and embedding macroeconomic stability. These reforms focused on simplifying the tax system, removing exchange rate restrictions, mopping up structural excess liquidity and steering inflation to low single digits, promoting private sector and financial sector development, as well as restoring sustainability in Seychelles’ public and external finances. Let me also point out that the IMF recently commended the Seychellois authorities, in its latest consultation report on the country, for their strong implementation of the programme and continued policy discipline, despite a soft external environment. In addition, Seychelles’ economic progress over time has been recognised by its recent graduation to high-income status, as per the World Bank country classification. In so doing, Seychelles became the first non-oil producing African country to join the club of high-income nations. As a matter of fact, the only other African country to feature in this exclusive group is the oil-rich Equatorial Guinea, which lags behind Seychelles, by far, in terms of human development.
Now, if we assess the economy’s performance specifically in 2014, we observe a deceleration in the pace of output expansion, with real GDP growth standing at 3.3%. This reflected difficulties in the country’s main trading partners and resulting impacts on Seychelles’ major export sectors, namely tourism and canned tuna. These sectorial performances, together with strong domestic demand, piled depreciation pressures on the dollar-rupee exchange rate until late 2014. Since then, falling world oil prices, domestic monetary policy tightening, a recovering tourism sector, coupled with the effect of the exchange rate depreciation on imports, have helped ease up external pressures felt in 2014. Thus, at the time we are speaking, macroeconomic outcomes remain robust, with the fiscal primary surplus over-performing targets, inflation remaining broadly contained, international reserves increasing and public debt dynamics continuing to improve. For its part, the exchange rate is recovering modestly against the dollar and moving broadly in line with its fundamentals. Of note, in light of these developments, Fitch Ratings freshly upgraded its sovereign risk ratings for Seychelles.
Seychelles NATION: You have often been consulted by regional governments, including the Seychellois authorities, on financial sector development strategy. How would you evaluate the competitive positioning of the financial services sector?
Mr Gnany: Over the past decade, Seychelles has made major advances in establishing itself as an international financial services jurisdiction of substance and good repute. Today, Seychelles’ financial services sector is a key engine of growth and driver of economic diversification. As such, it truly deserves its reference as third pillar of the domestic economy since it contributes to around 5% of GDP and notably penned a growth rate of 4.5% in 2014. Moreover, I would like to add that the sector has proven to be stable, sound and resilient over the years and especially during the global financial crisis. Indeed, despite the rapid increase in private sector credit observed lately, the sector’s soundness indicators remain robust, with appreciable profitability indicators, a generally stable non-performing loan ratio and capital adequacy ratios standing comfortably above domestic regulatory minima.
Let me also highlight that, over time, the depth and breadth of the sector have expanded thanks to ambitious on-going reforms initiated and implemented by the national authorities. These reforms promoted the liberalisation of exchange controls, financial sector deepening, financial inclusion as well as consumer and investor protection. A key driver of this reform momentum has been the authorities’ strategy of striking a good balance in developing an up-to-date legal and regulatory framework which also favours sound financial sector development. Such an approach enabled human capacity building, the transition towards forward-looking risk-based supervision to mitigate systemic risks, as well as product innovation, notably through the establishment of a credit information bureau, an electronic clearing house and the coming into force of a new law regulating financial leasing activities. This progress has, in fact, been recently saluted by the international community, with the conferment of two prestigious awards – one being regional and the other being international – to the Governor of the Central Bank of Seychelles.
Moreover, the country has made notable strides in enhancing its visibility and positioning for attracting bona fide international business spanning Africa, Asia and the Middle East. Towards these ends, the Ministries of Foreign Affairs and of Finance have, in recent years, been very proactive in broadening Seychelles’ network of double taxation avoidance agreements, with treaties signed with more than 30 countries. In addition, the country adheres to international norms and best practices, as evidenced by commitments made vis-à-vis the Global Forum, the US Foreign Account Tax Act (FATCA) and the OECD. In the latter respect, Seychelles’ engagement, as part of the Early Adopters Group of jurisdictions has been further reinforced with the signature in February of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Going forward, the execution of the Financial Sector Development Implementation Plan – which was spearheaded by the Ministry of Finance, CBS and Financial Services Authority, while leveraging on support from the World Bank and peer learning from countries, including Mauritius – promises to further reinforce the competitive positioning of Seychelles’ financial services sector.
Seychelles NATION: As an IMF external expert on statistical matters, could you provide us with insights on the pertinence and benefits of Seychelles’ recent graduation to the IMF Special Data Dissemination Standard (SDDS)?
Mr Gnany: Let me answer this question by first providing a quick outline of the SDDS. In a nutshell, the SDDS is an IMF initiative, which assists members in enhancing the availability of timely, comprehensive and reliable statistics and hence contributes in the promotion of access to information. As such, adherence to the SDDS helps in facilitating macroeconomic formulation and implementation to optimise the informed decision-making process. Of particular relevance to domestic financial and capital market development, graduation to the SDDS boosts access of financial market participants and international investors to adequate information to assess the country’s economic and financial situation, as well as its investment potential.
Coming back to Seychelles now, as a member of your national steering committee on the IMF SDDS, I have had the privilege to work in close collaboration with the national authorities which have been very proactive in enabling Seychelles’ smooth graduation to this higher tier of data standards, in record time, in May 2015. In so doing, the country became the third sub-Saharan African country to have subscribed to the SDDS and has confirmed its strong commitment to transparency and adoption of international accepted best practices in statistics. But most importantly, it has also further paved the way for an enhanced business climate which will tend to stimulate foreign direct investment and facilitate the economy’s ease and cost of access to international funding.
Seychelles NATION: All that said, going forward, how do you gauge the medium-term prospects for Seychelles?
Mr Gnany: For 2015, barring major external macroeconomic shocks, any adverse endogenous dynamics or policy relaxation, Seychelles is projected to pursue its socio-economic development path. Specifically, the growth outlook appears favourable, with latest indications pointing towards a real GDP growth rate of 3.5%. This forecasted performance is anticipated to be supported by the positive ramifications of lower world oil prices, as well as a continuing recovery in tourism, amidst a relative mending of conditions in the main countries of origin, particularly in Europe, as well as sustained growth thanks to market diversification inroads. Furthermore, increased public investment, improving conditions in the financial market and private sector should continue to support the current economic and social reform agenda.
At another level, price stability is likely to be sustained over the medium-term in the wake of the CBS’ commitment to develop a more forward-looking monetary policy framework, based on liquidity management and inflation targeting, as well as strong coordination with the fiscal authorities, in the context of a flexible exchange rate. For its part, the large current account deficit in 2014 is forecast to contract significantly in 2015, facilitated by monetary policy tightening, an improvement in the terms of trade and declining petroleum import costs. Moreover, Seychelles appears on track to achieve the authorities’ commitment to reducing the public debt to below 50% of GDP by 2018, if fiscal discipline and spending efficiency are maintained through continued public financial management reforms.
Beyond 2015, macroeconomic stability and resilience are likely to strengthen, with emphasis laid on furthering the country’s economic transformation, notably by harnessing the potential of natural resources, especially via the development of the blue economy and oil exploration, as well as by implementing the financial sector development strategy. This hinges upon continued sound policies and structural reforms in order to anchor expectations, build buffers, increase the economy’s productivity and external competitiveness, with the ultimate aim of fostering sustained and inclusive development.