 Great thank you very much So my name is Daniel Poon. I'm from the North South Institute based in Ottawa, Canada And I'd like to thank the organizers for this opportunity. I have more slides than minutes So I will just jump right into it So this is the basic outline of my presentation my main main main point is to really help detail The role of capital account management or capital controls and in dust are the connection with that and industrial policy in East Asia And I'll focus particularly on China, but I would argue that that link is there for most of East Asian countries of Japan Taiwan and South Korea, and then I'm going to just quickly go into a comparative framework to help differentiate different African countries with regards to Approximate measures of how globally find how integrated they are to global financial markets And this is hopefully to help identify countries with possibly more policy space to conduct industrial policies and then finally a quick look at international investment positions for three countries that come out of that analysis and then a brief concluding and discussion and Just a quick note. I mean I wasn't able to go as far as I wanted to with this paper in terms of thinking about how a Country this is the burning question how a country that's already opened up. I can put the genie back into the bottle if I can put it that way and And what kind of options are open to African countries that have opened up quicker and whether the same policy policy tools are available so just to quickly get into this issue of The role of capital controls and industrial policy This was an issue obviously dealt with in Asia particularly an Asian crisis and this is my question Is it for Africa today now the question I asked this morning to the governor of the central bank of Tanzania More or less reinforce the point that I'm trying to make is basically with that one of his he did not mention Whether or not capital controls Was a particularly important tool and how that influence other tools and this is basically my argument and so here Jagdish Balwadi You know someone who's very appropriate trade and then now uses the language of freer trade As well as noticing the fact that the financial sector is the soft underbelly of capitalism like I quite like that saying and and and also Paul Krugman and that that's a quote coming out of the Asian crisis and basically Pointing out that people just didn't want to talk about capital controls and I would argue that this is similarly going on today with Africa Put another way Of course many countries have different industrial plans and ambitions What is less well understood is exactly the key factors that renders one Industrial policy framework configuration different from another and how that affects the availability of different instruments the ability to sustain domestic mobilization of resources as well as which I think influences the effectiveness of implementation implementation and the way the IP objectives are generally Formulated and attained and adjusted over time and as I put it that's that's the main contention on my paper is that The capital controls as part of the macro kind of like framework should be at the crux of discussions of industrial policy now just to dive right into it net the general assumption Is that is that free capital flows is is desirable and that that is Assumed and therefore with the impossible trinity, you know free capital flows a fixed exchange rate and independent monetary policy Is incompatible and you need to choose two out of the three this is what some people have called obliging to the hard corners of this triangle and I've definitely my argument is that Chinese policymakers as well as arguably Indian policymakers have operated away from the hard corners Which is pretty much held to be the conventional wisdom. So the orthodox configuration would be cap open capital flows more or less floating exchange rate and a so-called independent monetary policy, but again, you'd have to Dampen that with concerns over inflation. So inflation targeting I would argue would would take that a pen independent monetary policy away And in in this less orthodox case of what I would you know, China and India have been doing but more so China I would argue is really to play with degrees of account capital account management. So therefore not Free capital mobility and therefore that allows a certain amount of policy autonomy over exchange rates and an interest rate and monetary policy And sadly, I would argue that a lot of African Industrial policy literature has not really dealt into this or maybe from the 70s it has but not since then So just to quickly get into what how the IMF just after the Asian crisis financial crisis kind of, you know Stylize the so-called integrated approach to CAM capital account management is really if you focus on the So there's three stages and So stage one stage two and stage three and basically You start by liberalizing FDI flows long-term flows and then while you mainly focus on on these long-term flows You start focusing more on stage two on these short-term flows, but then also Doing that and sorry if you can't see it at the back, but you are you know doing a range of institutional buildings such as You know statistical improving statistical and accounting Revising legal frameworks strengthening potential rate. So you're doing all these things in stage two and then stage three is basically full liberalization because it's assumed that the economy is ready to pretty much manage risks all on its own and and so that that was the assumption coming out and obviously the Asian crisis was a big player a big factor in in the IMF at the time thinking about changing its articles of agreement But I don't have the time to get into that. So just keep on going ahead. So why capital controls and You know study if I'm a good And I'll Kind of outline the four fears So I was thinking the other authors think it's rogue off and Reinhardt or the other authors to that And so basically fear of appreciation is that you know with with uncontrolled capital inflows that your Currency will be affected by that and be increasing and then that'll price out domestic manufacturing And that will affect your economy through the impacts through tradeables and non tradeables fear of hot money again basically Surge in inflows to your it's your economy which causes distortions and this allocation of Capital but also the fact that this could possibly leave that hot money could leave and then leaving leaving economic dislocation in its wake and then again fear fear of large inflows, which is similarly This this fear of money just sloshing in and out of your economy and and the dislocations that will cause and obviously the last one The fear of loss of monetary autonomy, which is what the Trinity was talking about the impossible Trinity and the fact that you would possibly leave Have less policy options the more open you are to that flow So basically taking that four fears What Eulerian and Spence writing for the World Bank Growth Commission is basically saying that look China and India Approach reform using an idea called reform model uncertainty, which you know fits perfectly with the idea of these four fears out there and Basically that that because of this this uncertainty which they embedded in their decision-making models Leaders tended to treat advice for an advanced economies with the grain of the large grain of salt which instilled the form of pragmatism And then that in turn led to the notion of a gradual and experimental steps and the timing sequencing of the current capital accounts As well as proceeding with expert diversification Now just to kind of show this very briefly This is three country cases of capital account opening as measured by the Chin Edo Index and so what you see basically is South Korea and China later very much doing a step wise I would say non-linear kind of and so it's sorry this this index is as you go up It's to one. It's completely open and zero is closed and as you see with the green line You have Bolivia just kind of an example that I took You know starting out at a very high level of capital account liberalization and with the debt crisis in the 80s having to Change that mode, but then quickly thereafter opening up again And that's just a very much different pattern as you see from these Asian countries that I've labeled here now I don't want to put too much into this because the Chin Edo index does have its problems But that'll you know provide the nice visualization for you Five minutes on so I'm just gonna jump through this. This is just a very brief detailed account of you know How China slowly opened its capital account? I would say then 2001 with the its entry to WTO It's it's a promise to liberalize the financial sector fully within five years has not been Has not been respected or adhered to and just to give you an example You know Beijing still Controlled access to its mainland stock market exchanges through programs such as the qualified foreign institutional investor or QFI I So which was started in 2003 so by 2010 so seven years later when suppose of the You know liberalization was supposed to take place in financial sectors The QFI quarter was capped at 30 billion US Which represented still less than 1% of total market capitalization in the Chinese markets the mainland markets Which are about 3.5 to 4 trillion So let's just give you an example of some of that detail. What were the capital controls for well? there's a number of reasons for them, but And that basically to channel resources as well as to maintain those resources helping it insulate the exchange rate you know, there's a whole list of them and Basically capital controls can be used for different purposes again They would also the Chinese would also brought more broadly defined capital controls to include what they would call macro prudential measures And that would include things that that I've listed there That allow, you know, the capital controls with these other measures That that's is what you know is providing the room for maneuver and setting short-term interest rates and While also maintaining a degree of price stability without having to use inflation to discipline that Interest rate and that's what Steven Roach the former chief economist of Morgan Stanley Asia called You know China's approach to the kind of classic central banking at its best and so Just to give you a sense of this This is this is what leads to this investment led type growth model where you can set interest rates rather low and Not that they didn't worry about inflation, but they use other measures to deal with inflation and so that those arrows there for Japan in its formative years And these ruins are for China and so this elevated rate of investment is what? with what I think African countries are trying to get after not just African countries, but mostly developing countries in general and and What does that allow you to do? Well, that is what allows you to invest in those factories invest in the infrastructure and And so this is when you have a plan like this for say the renewable energy sector Well, then you know if you have that financing if you have that that that backing The resources at hand domestically as well as foreign to combine together These kinds of plans all of a sudden become much more realistic as well as the fact that the China's built up its reserves And is able to you know to allocate them to certain kinds of areas for for certain incentives Especially if it's if it's SOEs at the bottom there are healthier and stronger That's obviously going to make an impact for industrial policy in terms of vehicles of implementation Another advantage would be the advantage to to this is a graph kind of comparing World Bank loans to Africa versus Chinese Exxon Bank Loans and as you see the gray overtakes the red by 2005 and and That you know this availability of capital to the Chinese is also what's driving its interaction with the rest of the world Not just in you know accessing resources, but obviously also like getting in technologies and accessing markets So I don't know I'm running out of time, but just as an example You know when for example in Julie the car maker the domestic car maker in China bought Swedish automaker Volvo for 1.8 billion Back in 2010 You know it mainly to access Volvo's technologies engineering could be the capabilities Now that you know the deal was financed by a loan by the Bank of China China Construction Bank the Exxon Bank As well as as Julie itself and some of the local governments, but there's mainly to kind of point the To make the really you know push the point home that access the capital essentially is allowing China to upgrade its capabilities as well So unfortunately, I won't be able to get too far into the rest of my presentation, but this is generally a Just policy trends of industrial policy as as measured by the global trade alert And as you see on the top left it's the the broadest categories and use Africa with the most number of countries with the least amount of Industrial policy measures at you know or protectors measures as measured as as recorded by this database and the next one down Looks at the bricks and you see the number total and red the red basically meaning that it is clearly discriminating against foreign commercial interests And then you have on the right a breakdown of African at least some selected African countries and what they've done and so there's different ways of measuring industrial policy performance and capabilities You know for example this upcoming African transformation report by the African Center for Economic Transformation includes a transformation index that will have five indicators economic diversification technology productivity export competitive competitiveness human dimensions of transformation what I'm arguing is that We need to start looking at financial globalization This is just a broad The financial globalization has defined by external assets plus liabilities divided by GDP Here you have comparison between the bricks and some developed countries developed countries are you know several multi-multitudes or multiples of Of their assets of their gross assets whereas you see for example in China It's just reaching parity or level of one And Russia aside you generally have a lower level of financial globalization in those markets and so This is what I was getting at and I'll just wrap up after this is really to In the African situation. This is a Squadron analysis comparing de facto financial globalization with de jour financial Open so the bottom is de jour's what it's on the books and as you see a lot of African countries on the on the books Look quite closed But if you actually try to calculate or a proxy for the financial globalization You see that there's a whole range just as the earlier presenter had had kind of pointed to of different Exposure to financial global markets and and this is how that that quadrant would look like another way of doing that would just to just to calculate the change over time and here are Surprising to kind of point look at how how That that change in ratio is actually quite negative for most of the countries in this in this sample Which is only 30 countries and I apologize for this going over time, but basically after that I take Angola Rwanda and Zambia to kind of look at their the balance sheet Performance and basically you just going over this quickly just rise in reserve assets It's improving slightly But they're still generally in in a net negative position and as you see at the top here with you know Portugal Italy, Greece Spain versus China. There's problems with balance payments data, but generally they're rough Roughly right And so I will cut that off there. Thank you