NAIROBI, November 10 – Governments across the globe have been urged to get together and work out a new global regulatory scheme for the financial markets.
Dr Ahmed Ashour an economist and director with Skopos Consulting explained that the ongoing financial crisis has shown that the sector cannot be left to market forces alone.
“Nations also need to consult and work on a new system of globalisation as well come up with a new role of the government that enables the State to check these institutions. The IMF and the World Bank will not do this for them,” he told Capital Business in an interview.
Mr Ashour said that market failures that were being witnessed now flourished in the ‘laissez faire’ capitalism that has been promulgated in the last two or three decades.
“The market mechanism is socially and developmentally blind. But we have now discovered that State intervention is vital,” he emphasised.
He added that speculation, monopolistic and greedy activities had been destructive to economies and if they surpassed the productive activities in sectors such as agriculture and manufacturing that could have an adverse effect on the real economy.
A recent study shows that speculative activities in the stock market worldwide amount to 55 times the Gross Domestic Product of the world.
“This means that the value of the real economy has been inflated greatly by the speculations of the stock market and this is not good. In such situations, the economy is run like a casino and these are some of the lessons that we have to learn,” he said adding that it is essential for the State to balance the growth and sustain development.
Mr Ashour said governments need to ensure that their fundamentals are sound in order to shield their economies from such occurrences.
He suggested that nations should also engage sectors such as the civil society organisations and the private sector in playing a leading role in development.
“The State needs to ensure that equity prevails; that the fruits of development are equally distributed and that the economic activities and the foundations of the real economy are there to sustain development and make sure that vitality over the long run will prevail,” he stressed.
For corporate companies, he recommended that they should also ensure that the good performance, productive and innovation in their firms.
“They need to examine and audit their strategic direction as well as the implementation framework to ensure that they don’t leave the direction of the economy to the monopoly of government,” he added.
However, the economist observed that although African markets were not largely affected by the credit crunch due to their minimal integration with global financial institutions there would be ramifications on their economies.
Exports to the developed world would for example decline while the amount of Foreign Direct Investment would also decrease.
"The implications of such crises will also be seen in other indicators such as unemployment and a few bankruptcies in the region,” he added.
This would in effect slow down the continent’s GDP growth rate which had over the last decade recorded positive growth averaging six percent per year.
“It is important to realise the various ramifications of such crisis and to be ready to tackle the threats and transform them into opportunities,” he said.