nep-afr New Economics Papers
on Africa
Issue of 2009‒10‒10
seventeen papers chosen by
Quentin Wodon
World Bank

  1. The Derivatives Market in South Africa: Lessons for sub-Saharan African Countries By Olatundun Janet Adelegan
  2. Growth in high-value export markets in Sub-Saharan Africa and its development implications By Miet Maertens; Bart Minten; Jo Swinnen
  3. Financial Deepening in the CFA Franc Zone:The Role of Institutions By Kangni Kpodar; Dhaneshwar Ghura; Raju Singh
  4. Sub-Saharan Africa's Integration in the Global Financial Markets By Corinne Deléchat; Smita Wagh; Gustavo Ramirez; John Wakeman-Linn
  5. Credit Growth in Sub-Saharan Africa - Sources, Risks, and Policy Responses By Plamen Iossifov; May Y. Khamis
  6. Understanding the Growth of African Financial Markets By Charles Amo Yartey; Mihasonirina Andrianaivo
  7. Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization By Mario Mansour; Michael Keen
  8. Fiscal Vulnerability and Sustainability in Oil-Producing Sub-Saharan African Countries By Robert C. York; Zaijin Zhan
  9. Spillovers from the Rest of the World into Sub-Saharan African Countries By Gustavo Ramirez; Paulo Flavio Nacif Drummond
  10. The Successful Ghana Election of 2008 – a Convenient Myth? Ethnicity in Ghana’s Elections Revisited By Heinz Jockers; Dirk Kohnert; Paul Nugent
  11. The Gambia: Demand for Broad Money and Implications for Monetary Policy Conduct By Subramanian S. Sriram
  12. Gender differences in pay in African manufacturing firms By Christophe J. Nordman; François-Charles Wolff
  13. Empirical Evidence on the Effects of Tax Incentives By Alexander Klemm; Stefan van Parys
  14. The Macroeconomics of Scaling Up Aid: The Gleneagles Initiative for Benin By Issouf Samaké; Joannes Mongardini
  15. Is the East African Community an Optimum Currency Area? By Kishor, N. Kundan; Ssozi, John
  16. Exchange rate and output fluctuations in the small open economy of Mauritius By Bastos, Fabiano; Angelo Divino, Jose
  17. An Assessment of External Price Competitiveness for Mozambique By Francis Vitek

  1. By: Olatundun Janet Adelegan
    Abstract: This paper examines the role of the derivatives market in South Africa and provides policy options for promoting the development of derivatives markets in sub-Saharan Africa. South Africa's derivatives market has grown rapidly in recent years, supporting capital inflows and helping market participants to price, unbundle and transfer risk. There are tight regulations on asset allocations by insurance and pension funds to prevent excessive risk taking. The development of derivatives markets in sub-Saharan African countries could enable market participants to self-insure against volatile capital flows. Theiroverdependence on bank credit as a source of funding could be reduced and their management of seasonal risk could be improved through the introduction of commodity futures. However, these markets must be appropriately regulated and supervised. Since such markets would likely be small, consideration should be given to the establishment of a regional derivatives market.
    Keywords: Bond markets , Capital flows , Capital markets , Financial instruments , Financial risk , Investment , Liquidity management , Risk management , Securities markets , Securities regulations , South Africa , Stock markets , Sub-Saharan Africa ,
    Date: 2009–09–15
  2. By: Miet Maertens; Bart Minten; Jo Swinnen
    Abstract: During the past decades the global food system changed dramatically with increased trade in high-value food products, increased exports from developing countries, increased consolidation and dominance of large multinational food companies, and increased proliferation of public and private food standards. As a consequence, global food trade is increasingly organised around vertically coordinated supply chains rather than around spot market transactions. While there is consensus that these structural changes are profoundly changing the way food is produced and traded, there is no consensus on the overall welfare implications of increased high-value food exports and supply chain restructuring in poor countries. In this paper we discuss the income and poverty implications of expanded horticulture exports and changing supply chain structures for rural households in Sub- Saharan African exporting countries. We put together the economic arguments; distinguish different channels through which rural households are affected; provide evidence from three comparative case-studies on high-value horticulture exports; and derive implications for policy makers, private investors, and the development aid community.
    Keywords: trade, poverty, modern supply chains, Africa
    JEL: F2 J43 O12 Q12 Q17
    Date: 2009
  3. By: Kangni Kpodar; Dhaneshwar Ghura; Raju Singh
    Abstract: During the 1980s and early 1990s many Sub-Saharan African (SSA) countries undertook reforms to promote financial sector deepening. Nevertheless, financial sectors in SSA countries remain among the shallowest in the world and, within Sub-Saharan Africa, financial depth in the CFA franc zone is even more limited. This paper sets out to investigate empirically factors that may explain why financial depth in the CFA franc zone is shallower than in the rest of SSA using panel data for a sample of 40 countries for 1992-2006. The results indicate that the gap in financial development between the CFA franc zone countries and the rest of SSA can be explained by differences in institutional quality (e.g., availability of credit information, and strength and enforcement of property rights), variables that policy makers can influence.
    Keywords: Credit policy , Cross country analysis , Currencies , Economic models , Financial sector , Governance , Private sector , Sub-Saharan Africa ,
    Date: 2009–05–29
  4. By: Corinne Deléchat; Smita Wagh; Gustavo Ramirez; John Wakeman-Linn
    Abstract: The paper uses a unique database covering 44 countries in sub-Saharan Africa (SSA) countries between 2000 and 2007 to study the determinants of the allocation and composition of flows across countries, as well as channels through which private capital flows could affect growth. In our sample, the degree of financial market development is an important determinant of the distribution of capital flows across countries as opposed to property rights institutions. The fairly consistent positive association between net capital flows and growth for SSA countries contrasts with the more pessimistic results of recent studies, though our data do not allow us to make conclusive inferences about a causality relationship.
    Keywords: Capital flows , Capital inflows , Cross country analysis , Economic growth , Economic integration , Financial sector , Private sector , Revenue sources , Sub-Saharan Africa ,
    Date: 2009–05–29
  5. By: Plamen Iossifov; May Y. Khamis
    Abstract: In this paper, we analyze credit growth in Sub-Saharan Africa over the past decade focusing on the post-2002 rapid credit growth in select countries. We develop regression models of the fundamental determinants of bank credit and use them to examine whether they can fully explain developments in rapid credit growth countries. We then argue that rapid credit expansion, whether a manifestation of a credit boom or driven by fundamentals, can give rise to prudential and macroeconomic risks. We detail these risks and discuss the choice of policies to mitigate them. We conclude by evaluating the likely impact of the ongoing global recession and financial crisis on credit growth in Sub-Saharan Africa.
    Keywords: Bank credit , Bank supervision , Banking sector , Credit demand , Credit expansion , Credit risk , Cross country analysis , Economic models , Financial crisis , Fiscal policy , Household credit , Private sector , Sub-Saharan Africa , Time series ,
    Date: 2009–08–25
  6. By: Charles Amo Yartey; Mihasonirina Andrianaivo
    Abstract: This paper examines empirically the determinants of financial market development in Africa with an emphasis on banking systems and stock markets. The results show that income level, creditor rights protection, financial repression, and political risk are the main determinants of banking sector development in Africa, and that stock market liquidity, domestic savings, banking sector development, and political risk are the main determinants of stock market development. We also find that liberalizing the capital account promotes financial market development only in countries with high incomes, well- developed institutions, or both. The powerful impacts of political risk on both banking sector and stock market development suggest that resolution of political risk may be important to the development of African financial markets.
    Keywords: Africa , Banking sector , Banking systems , Banks , Bond markets , Capital markets , Corporate sector , Cross country analysis , Economic models , Investment , Political economy , Private savings , Private sector , Stock markets ,
    Date: 2009–08–26
  7. By: Mario Mansour; Michael Keen
    Abstract: This paper evaluates the nature and extent of, and possible responses to, two of the central challenges that globalization poses for revenue mobilization in Sub-Saharan Africa (SSA): from corporate tax competition, and from trade liberalization. It does so using a new dataset with features needed to meaningfully address these issues: a distinction between resourcerelated and other revenues, and a disentangling of tariff from commodity tax revenue. Countries' experiences vary quite widely, nonresource revenues have been essentially stagnant. Corporate tax revenues have held up, despite a reduction in rates and evidence of substantial base-narrowing-something of a puzzle-and trade tax revenue reductions have been largely offset by other measures. Options for dealing with the continuation and intensification of the challenges, which the present crisis is likely to accelerate-including through regional cooperation-are discussed.
    Keywords: Corporate taxes , Cross country analysis , Globalization , International trade , Revenue mobilization , Sub-Saharan Africa , Tax incentives , Tax reforms , Tax revenues , Trade liberalization , Trade policy ,
    Date: 2009–07–28
  8. By: Robert C. York; Zaijin Zhan
    Abstract: Over many years rises and fall of world oil prices have been repeatedly reflected in the boom-bust cycles in oil-exporting countries the world over. The recent spectacular rise and equally spectacular fall in prices provides an opportunity to inquire whether anything is different this time. In this paper we limit the analysis to the experience, outlook, and longterm fiscal policy considerations for eight of the world's oil-producing countries in sub- Saharan Africa. Because we are interested in gauging their fiscal vulnerability and sustainability from the angle of managing exhaustible oil wealth, we focus on the non-oil primary balance as the relevant indicator of how initial conditions and resource endowments can influence long-term considerations in several different models of fiscal rules.
    Keywords: Cross country analysis , Economic growth , Fiscal policy , Fiscal sustainability , National income , Oil prices , Oil producing countries , Oil production , Oil revenues , Oil sector , Sub-Saharan Africa ,
    Date: 2009–08–13
  9. By: Gustavo Ramirez; Paulo Flavio Nacif Drummond
    Abstract: This paper investigates the impact of a global slowdown on individual African countries using a series of dynamic panel regressions for countries in the region, relating real growth in domestic output to world growth in trade weighted by partner countries and several control variables: oil prices, non-oil prices, financial variables, and country fixed effects. Estimates are then applied to prepare country-specific simulations. The model, which is shown to estimate well out-of-sample spillover effects in the region, shows that countries in the region are significantly affected by lower external demand for their exports, declines in commodity prices and the terms of trade, and tighter financial conditions abroad. The last, proxied by the spread of three-month Libor to US treasury bills, is to our knowledge one of the first applications of such a measure of financial conditions for countries in the region.
    Keywords: Commodity price fluctuations , Commodity prices , Cross country analysis , Demand , Economic growth , Economic models , Exports , External shocks , Oil prices , Spillovers , Sub-Saharan Africa , Terms of trade ,
    Date: 2009–07–22
  10. By: Heinz Jockers; Dirk Kohnert (GIGA Institute of African Affairs); Paul Nugent (Centre of African Studies at the University of Edingburgh)
    Abstract: Ghana’s 2008 elections have been hailed by national and international observers as a model for Africa. This perception has prevailed despite persistent concerns about “ethnic block voting” and electoral fraud. Electoral malpractice and vote rigging along ethnic lines in Ghana’s virtual two-party system could regain decisive importance as a “third force” that could tip the balance in future, possibly coming to represent an even more important factor than the smaller opposition parties. Unfortunate diplomatic and technocratic biases in election monitoring, combined with a reluctance on the part of the responsible authorities to investigate irregularities in what appears to be a long history of fraudulent “ethnic block voting”, amounts to a dangerous time bomb of unresolved conflict which could explode in future elections.
    Keywords: elections, ethnicity, election observation, informal institutions, impunity, Ghana
    Date: 2009–09
  11. By: Subramanian S. Sriram
    Abstract: This paper evaluates the demand for broad money (M2) in The Gambia for January 1988-June 2007. There appears to be a long-run relationship for demand for real M2, but the relationship is not stable. Exogenous output shocks, financial innovation, changes in income velocity, and inadequate data quality contribute to the instability. The authorities may need to apply the monetary targeting regime flexibly in the overall objective of preserving price stability. A possible option for The Gambia is to become an inflation targeter lite.
    Keywords: Central bank policy , Commercial banks , Demand for money , Economic growth , Economic models , Financial sector , Gambia, The , Inflation targeting , Interest rates on deposits , Liquidity , Monetary policy , Price stabilization , Sub-Saharan Africa , Time series ,
    Date: 2009–09–10
  12. By: Christophe J. Nordman (DIAL - Développement, institutions et analyses de long terme - IRD : UR047); François-Charles Wolff (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: Using matched employer-employee data collected in seven African countries, we present comparative evidence on the magnitude of the gender wage gap in African manufacturing sectors. Using OLS regressions, differences in male and female earnings are found both in Mauritius and Morocco, while the gender wage gap turns out to be insignificant in Benin, Kenya, Madagascar, Senegal and Uganda. Results from quantile regressions indicate that the wage gap remains not constant across the wage distribution. Finally, we study the role of firm characteristics and job segregation across firms as potential factors explaining the gender wage gaps.
    Date: 2009
  13. By: Alexander Klemm; Stefan van Parys
    Abstract: This paper considers two empirical questions about tax incentives: (1) are incentives used as tools of tax competition and (2) how effective are incentives in attracting investment? To answer these, we prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985–2004. Using spatial econometrics techniques for panel data to answer the first question, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax rate. We find no evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower corporate income tax rates and longer tax holidays are effective in attracting FDI, but not in boosting gross private fixed capital formation or growth.
    Keywords: Africa , Caribbean , Competition , Corporate sector , Corporate taxes , Cross country analysis , Developing countries , Economic growth , Foreign direct investment , Investment , Latin America , Tax incentives , Tax rates , Time series ,
    Date: 2009–07–07
  14. By: Issouf Samaké; Joannes Mongardini
    Abstract: This paper assesses the macroeconomic implications of scaling up aid for Benin in line with the Gleneagles commitment to double aid to poor countries over the next three years to reach $85 per capita by 2010 and keep it at that level thereafter. The analysis suggests that the additional aid inflows can be accommodated under Fund-supported programs without major disruptions to macroeconomic stability, provided the inflows are highly concessional and used effectively. There are, however, significant risks that the impact on growth and poverty reduction of the additional aid inflows could fall short of expectations, given Benin's limited absorptive and administrative capacity.
    Keywords: Absorptive capacity , Aid flows , Benin , Concessional aid , Debt sustainability , Domestic investment , Financial assistance , Financial risk , Fiscal sustainability , Infrastructure , Millennium Development Goals ,
    Date: 2009–05–29
  15. By: Kishor, N. Kundan; Ssozi, John
    Abstract: This paper investigates whether the East African Community (EAC) constitutes an optimum currency area (OCA) by estimating the degree and evolution of business cycle synchronization between the EAC countries. We also investigate whether the degree of business cycle synchronization has improved after signing of the EAC treaty in 1999. The degree of business cycle synchronization is estimated using an unobserved components model of structural shocks obtained from a structural VAR model. We then use a time-varying parameter model to estimate the evolution of business cycle synchronization. Our results indicate that the proportion of shocks that is common across different countries is small, implying weak synchronization. However, we also find that the degree of synchronization has improved after signing of the EAC treaty in 1999.
    Keywords: East African Community; Optimum Currency Area; Business Cycle Synchronization; Structural VAR; State-Space Model
    JEL: F15 E42 F33
    Date: 2009–10–03
  16. By: Bastos, Fabiano; Angelo Divino, Jose
    Abstract: The authors estimate a VAR and compute generalized impulse response to analyze the joint dynamics of four key macroeconomic variables in the small open economy of Mauritius. Results suggest that nominal exchange rate and interest rate have limited ability to impact output growth over the medium-run. Large error bands hinder analysis of the inflation output trade-off, but evidence points to a weak relationship in the short run as well. These findings are used to shed some light into the policy response to the current worldwide economic slowdown affecting Mauritius.
    Keywords: Debt Markets,Emerging Markets,Economic Stabilization,Currencies and Exchange Rates,Economic Theory&Research
    Date: 2009–09–01
  17. By: Francis Vitek
    Abstract: This paper conducts an assessment of external price competitiveness for Mozambique. A variety of indicators suggest that Mozambique has recently lost external price competitiveness with respect to its major trading partners. Consistent with these indicators, an exchange rate assessment indicates that the metical is overvalued by 26 to 41 percent in real effective terms. If sustained, an overvaluation of this magnitude has the potential to retard economic growth and jeopardize external stability, calling for an adjustment of monetary policy to gradually restore external price competitiveness.
    Keywords: Competition , Exchange rate assessments , Exchange rates , External sector , Mozambique , Price structures , Real effective exchange rates , Terms of trade ,
    Date: 2009–08–07

This nep-afr issue is ©2009 by Quentin Wodon. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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