nep-afr New Economics Papers
on Africa
Issue of 2014‒03‒15
twenty papers chosen by

  1. A Disaggregated Analysis of Product Price Integration in the Southern African Development Community By Neil Balchin, Lawrence Edwards and Asha Sundaram
  2. Working Paper 198 - Can Intra-Regional Trade Act as a Global Shock Absorber in Africa? By Mthuli Ncube; Zuzana Brixiova; Meng Qingwei
  3. Non-Farm Entrepreneurship in Rural Africa: Patterns and Determinants By Nagler, Paula; Naudé, Wim
  4. Profiling Sectoral Risks of Foreign Direct Investment in Africa By Henri Bezuidenhout, Zahné Coetzee and Carike Claassen
  5. From Economic Vulnerability to Sustainable Livelihoods: The Case of Oromia Coffee Farmers Cooperative Union in Ethiopia By Meskela, Tadesse; Teshome, Yalem
  6. Timing a Hedge Decision: The Development of a Composite Technical Indicator for White Maize By Susari Geldenhuys, Frans Dreyer and Chris van Heerden
  7. Remittances and Child Labour in Africa: Evidence from Burkina Faso By Bargain, Olivier; Boutin, Delphine
  8. Working Paper 197 - Estimating the Economic Cost of Fragility in Africa By Mthuli Ncube; Basil Jones; Zorobabel Bicaba
  9. Price setting behaviour in Lesotho: Stylised facts from consumer retail prices By Mamello Amelia Nchake, Lawrence Edwards and Neil Rankin
  10. Monetary Policy and Heterogeneous Inflation Expectations in South Africa By Alain Kabundi, Eric Schaling and Modeste Some
  11. A Historical CGE Simulation of the South African Economy from 2006–2013: Analysing Changes in the Use of Primary Factors by Industries By Heinrich R. Bohlmann and Martin C. Breitenbach
  12. Nonlinear Econometric Approaches in Testing PPP of SADC Economies towards Monetary Union By Mulatu F. Zerihun, Marthinus C. Breitenbach and Francis Kemegue
  13. The Missing People: Accounting for Indigenous Populations in Cape Colonial History By Johan Fourie and Erik Green
  14. Impact of intermittent screening and treatment for malaria among school children in Kenya : a cluster randomized trial By Halliday, Katherine E.; Okello, George; Turner, Elizabeth L.; Njagi, Kiambo; Mcharo, Carlos; Kengo, Juddy; Allen, Elizabeth; Dubeck, Margaret M.; Jukes, Matthew C.H.; Brooker, Simon J.
  15. Entrepreneurship and Immigration: A Study of Africans in the Korean Economy By DeLancey, Rebecca Mbuh
  16. Does Massive Funding Support of Researchers Work?: Evaluating the Impact of the South African Research Chair Funding Initiative By J.W. Fedderke and M. Velez
  17. Mobile money services development : the cases of the Republic of Korea and Uganda By Gutierrez, Eva; Choi, Tony
  18. An assessment of the performance of the Cameroon Water Corporation for the period 1967 to 2013 By Saidou Baba Oumar and Josue Mbonigaba
  19. Working Paper 199 - Microcredit for the Development of the Bottom of the Pyramid Segment: Impact of Access to Financial Services on Microcredit Clients, Institutions and Urban Sustainability By Mutisya Emmanuel; Yarime Masaru
  20. Customs, brokers, and informal sectors : a Cameroon case study By Cantens, Thomas; Kaminski, Jonathan; Kaminski, Jonathan; Raballand, Gael; Tchapa, Tchouawou

  1. By: Neil Balchin, Lawrence Edwards and Asha Sundaram
    Abstract: Empirical evidence on the extent to which product markets are integrated within Africa remains noticeably limited. This paper uses highly disaggregated retail price data for 32 narrowly defined products collected at the district level in five SADC countries (Botswana, Malawi, South Africa, Tanzania and Zambia) and Uganda to assess the extent to which product prices are integrated within and between these countries. We find evidence of large and persistent absolute deviations from the law of one price (LOP) both within and between each of the six countries. We also find that price dispersion is higher between the six countries in comparison to within individual countries. Simple econometric estimates indicate that, on average, absolute price deviations between country pairs are smaller for countries adjacent to each other and for countries that share common membership in the Southern African Customs Union, the Common Market for Eastern and Southern Africa or the East African Community. We find no evidence that product prices in the region have become more integrated between 2001 and 2011, despite the liberalization of tariffs under the SADC Protocol on Trade. This implies that trade liberalization may not be sufficient on its own to generate greater product market integration within the region.
    Keywords: Product market integration, Price dispersion, Retail prices, Law of one price, African regional integration, Southern African Development Community
    JEL: F14 F15
    Date: 2014
  2. By: Mthuli Ncube; Zuzana Brixiova; Meng Qingwei
    Abstract: The global financial crisis hasreiterated the need for Africa tobuild resilience to global outputshocks. In this paper we examineempirically the role of intra-regionaland intra-African trade linkages inbeing an absorber of the globaloutput shocks in two Africanregional economic communities. Wefind that deeper intra-regional andintra-African tradeties have helpedthe East African Community (EAC)absorb the global output shocks. Incontrast, the Southern AfricaCustom Union (SACU) region hasbeen less able to cope with globaloutput shocks partly due to weakerregional integration. Intra-regionaland intra-African trade with fast-growing economies, together withgeographically diversified tradelinkages, can strengthen thecapacity to absorb global shocks.
    Date: 2014–03–05
  3. By: Nagler, Paula (Maastricht University); Naudé, Wim (Maastricht School of Management)
    Abstract: We are the first to provide a comparative empirical analysis of non-farm entrepreneurship in rural Africa, using the World Bank's unique LSMSISA dataset. This dataset covers six countries over the period 2005 to 2012. We find that rural enterprises tend to be small, informal household enterprises that provide predominantly goods and services to the local economy, and operate intermittently due to seasonality in farming. We furthermore establish that the likelihood of operating an off-farm enterprise depends on individual capabilities, household characteristics and institutional factors. While the results of some variables show consistency across the sample, we also find much heterogeneity, suggesting that rural entrepreneurship is also a response to country-level circumstances and policies. Although more than 50 years have passed since rural development was identified as a priority for African countries, rural entrepreneurship continues to fulfill mainly a risk-diversifying role. This may suggest that policies to foster effective rural-urban migration and wage employment in rural areas, have largely failed in Africa.
    Keywords: entrepreneurship, rural development, Sub-Saharan Africa, informal sector, labour markets, small business, SMEs
    JEL: Q12 O13 O55 M13 J43
    Date: 2014–02
  4. By: Henri Bezuidenhout, Zahné Coetzee and Carike Claassen
    Abstract: Despite Africa’s exceptional FDI performance during the past decade, the majority of FDI inflows have been directed to a few selected countries. As investors face many risks when investing in developing countries, it is argued that risk perception plays a vital role in the FDI inflows into Africa. This article focuses on the relationship between risk and FDI. A structural equation model is used to analyse this relationship with a dataset of ten risk categories and FDI data from 42 African countries. The study focuses on four sectors, namely metals, automotive, communications and real estate. Overall, results indicate that government effectiveness and legal and regulatory risks produce the biggest concern for investors. The conclusion is that each sector has different risk patterns regarding FDI. The empirical results imply that if African countries need to focus on government effectiveness, stability and transparency to attract the levels of FDI required to stimulate economic growth.
    Keywords: Foreign Direct Investment, Africa, Risk, Structural Equation Modelling
    JEL: F21 F23
    Date: 2014
  5. By: Meskela, Tadesse; Teshome, Yalem
    Abstract: We present the case study of a fast growing agribusiness cooperative in Ethiopia, Oromia Coffee Farmers Cooperative Union (OCFCU). OCFCU was established in 1999 by 34 cooperatives and a capital of US$90,000. Nowadays, OCFCU has 240 cooperatives and a capital exceeding $12,000,000 USD. Well known in the specialty coffee market, OCFCU works with growers across Ethiopia influencing communities economically and socially. Using the GLIMPSE perspective, we investigate the raw-bean procurement, transportation, quality control, economies realized through coordination, on-going initiatives to capture value added in processing, and associated challenges in the East African context of small-holder farmers, credit and infrastructure constraints.
    Keywords: Ethiopia, coffee farmers, co-operatives, specialty coffee market, exports
    JEL: O13 Q01 Q13 Q17
    Date: 2014–02–23
  6. By: Susari Geldenhuys, Frans Dreyer and Chris van Heerden
    Abstract: South African white maize is considered to be significantly more volatile than any other agricultural product traded on the South African Futures Exchange (SAFEX). This accentuates the need to effectively manage price risk, by means of hedging, to ensure a more profitable and sustainable maize production sector (Geyser, 2013: 39; Jordaan et al., 2007: 320). This paper attempts to address this challenge by making use of technical analysis, focusing on the development of a practical and applicable composite technical indicator with the purpose of improving the timing of price risk management decisions identified by individual technical indicators. This substantiated the compilation of a composite indicator that takes both leading and lagging indicators into account to more accurately identify hedging opportunities. The results validated the applicability of such a composite indicator, as the composite indicator outperformed the individual technical indicators in the white maize market over the period under investigation.
    Keywords: Agricultural commodity market, efficient market, composite indicator, hedging, technical analysis, trading market, trending market, South Africa, white maize
    JEL: G13 G14 G32
    Date: 2014
  7. By: Bargain, Olivier (University of Aix-Marseille II); Boutin, Delphine (EDHEC Business School)
    Abstract: This paper explores the effects of remittance receipt on child labour in an African context. We focus on Burkina Faso, a country with a high prevalence of child labour and a high rate of migration. Given the complex relationship between remittance receipt and child labour, our identification relies on different instruments capturing the employment conditions in remittance-sending countries. We first find that receiving remittances has no significant effect on child labour on average. However, when the disruptive effect from the absence of a family member is ruled out, remittances significantly reduce child labour. We provide an extensive robustness check and estimate heterogeneous effects. These show no gender difference but a significant age effect: remittances affect the labour market participation of younger children only, suggesting a progressive integration of children into work activities.
    Keywords: remittances, migration, child labour, Africa
    JEL: F24 I25 J22
    Date: 2014–02
  8. By: Mthuli Ncube; Basil Jones; Zorobabel Bicaba
    Abstract: A fiscally constrained global environment has heightened the interest of development partners in the economic cost of fragility. State fragility and civil war have become a central topic in the development debate and Africa is a continent particularly affected by fragility. A stronger engagement with fragile states is one of three areas of special emphasis in the African Development Bank’s Ten Year Strategy 2014-2022.This paper evaluates and quantifies the economic costs of fragility using two approaches: a simple convergence model and synthetic counterfactual approach. To the best of our knowledge, this paper is the first to use the synthetic counterfactual approach to evaluate the economic costs of fragility in Africa. Our estimations show that fragile states lose an opportunity to double their initial GDP per capita after a period of 20 years. Second, the synthetic counterfactual shows that in 20 years of fragility, the cumulative economic cost of fragility in Liberia, Sierra Leone and Burundi amounted toUS$31.8 billion, US$16.0 billion and US$12.8 billion respectively. Our simulations suggest, for example, that if Central Africa Republic, Liberia and Sierra Leone had growth rates equivalent to those of the synthetic country in the model in 2010, it would take 34.5 years,19.2 years and 20.8 years respectively to recover the level of GDP per capita had these countries not been exposed to fragility.
    Date: 2014–03–05
  9. By: Mamello Amelia Nchake, Lawrence Edwards and Neil Rankin
    Abstract: This paper documents some of the main features of price setting behaviour by retail outlets in Lesotho over the period March 2002 to December 2009. The sample of data covers 229 product items for 345 retail outlets. The paper has three main objectives. Firstly, it presents key indicators of price setting behaviour such as the frequency of price changes, the average size of price changes and the probability of price changes at the retail outlet level. Secondly, it identifies some of the dynamic features of price changes, including the synchronization of price changes and the relationship between the frequency and size of price changes and the duration of the existing price. Finally, the paper compares the stylised facts on price setting behaviour in Lesotho to other countries and South Africa in particular. The findings of the paper corroborate those in the international empirical literature. Substantial heterogeneity in price setting behaviour is found across products, outlets and time. Variations in inflation are strongly correlated with the average size of price changes, but rising inflation raises the frequency of price increases and reduces the frequency of price decreases. Surprisingly, the frequency and size of price changes in Lesotho differ substantially from those in South Africa, despite the presence of common retail chains and their joint membership in a customs union and common monetary area. Further research is required to unpack the sources of heterogeneity in the setting of prices and the stark differences in price setting behaviour in Lesotho and South Africa.
    Keywords: Lesotho, price changes, price rigidity, Inflation
    JEL: E31 D40 D21 L21
    Date: 2014
  10. By: Alain Kabundi, Eric Schaling and Modeste Some
    Abstract: This paper examines the relationship between in‡ation and in‡ation expectations of analysts, business, and trade unions in South Africa during the inflation targeting (IT) regime. We consider inflation expectations based on the Bureau of Economic Research (BER) quarterly survey observed from 2000Q1 to 2013Q1. We estimate in‡ation expectations of individual agents as the weighted average of lagged in‡ation and the inflation target. The results indicate that expectations are heterogeneous across agents. Expectations of price setters (business and unions) are closely related to each other and are higher than the upper bound of the official target band, while expectations of analysts are within the target band. In addition, expectations of price setters are somewhat related to lagged in‡ation and the opposite is true for analysts. The results reveal that the SARB has succesfully anchored expectations of analysts but that price setters have not sufficiently used the focal point implicit in the inflation targeting regime. The implication is that the SARB may be pushed to ccommodate private agents' expectations.
    Keywords: Monetary policy, Inflation Targeing, Heterogeneous Inflation Expectations, Expectations Trap
    JEL: C51 E52 E58
    Date: 2014
  11. By: Heinrich R. Bohlmann and Martin C. Breitenbach
    Abstract: This paper uses a dynamic CGE model to help explain some apparent contradictions between changes in the structure of the South African economy and movements in related variables over the 2006 to 2013 period. Most notably, an increase in the capital-labour ratio was identified, despite a relative increase in the price of capital rentals. To calibrate this result with conventional economic theory suggests that a change in the preferred capital-labour ratio of industries must have occurred. We quantify this change and comment on what this means for policymakers trying to reduce the country’s high level of unemployment. Other changes to the economy over this period are also quantified and explained.
    Keywords: CGE Simulation, South African Economy, Analysing changes, Primary Factors
    JEL: F21 F23
    Date: 2014
  12. By: Mulatu F. Zerihun, Marthinus C. Breitenbach and Francis Kemegue
    Abstract: The theory of purchasing power parity implies that real exchange rate series should be stationary. However, conventional unit root tests on the Southern African Development community (SADC) real exchange rates confirm the existence of a unit root. Such deficiencies in the investigation of the dynamics of real exchange rates in the region calls for nonlinear methods like the method used in this study to be pursued, which may better explain the dynamics of real exchange rates in SADC. In this paper two nonlinearity tests are employed: the nonparametric test developed by Brock, Dechert, and Scheinkman - known as the BDS test and the Fourier stationarity test. The BDS test detects the independent and identically distribute (iid) assumption of the time series used in the analysis while the Fourier approximation mimics a wide variety of breaks and other types of nonlinearities. Both tests confirm the non-linear nature of real exchange series in SADC. The result from the Fourier stationarity test further provides strong evidence of an OCA among the 11 SADC countries included in the study
    Keywords: Optimal Currency Area (OCA), Purchasing Power Parity (PPP), Real Exchange Rate, Fourier Stationarity Test, BDS Test
    JEL: C22 C32 F31
    Date: 2014
  13. By: Johan Fourie and Erik Green
    Abstract: Because information about the livelihoods of indigenous groups is often missing from colonial records, their presence usually escapes attention in quantitative estimates of colonial economic activity. This is nowhere more apparent than in the eighteenth-century Dutch Cape Colony, where the role of the Khoesan in Cape production, despite being frequently acknowledged, has been almost completely ignored in quantitative investigations. Combining household-level settler data with anecdotal accounts of Khoesan labour, this paper explores the effect of including Khoesan farm labour estimates in earlier calculations of slave productivity, societal inequality, and GDP growth in the Dutch East India Company period.
    Keywords: Cape Colony, Khoesan, labour, settler, Africa
    Date: 2014
  14. By: Halliday, Katherine E.; Okello, George; Turner, Elizabeth L.; Njagi, Kiambo; Mcharo, Carlos; Kengo, Juddy; Allen, Elizabeth; Dubeck, Margaret M.; Jukes, Matthew C.H.; Brooker, Simon J.
    Abstract: This paper investigates the effects of intermittent screening and treatment of malaria on the health and education of school children in an area of low-to-moderate malaria transmission. A cluster randomized trial was implemented with 5,233 children in 101 government primary schools on the south coast of Kenya in 2010-12. The intervention was delivered to children randomly selected from classes 1 and 5 who were followed up twice across 24 months. Once during each school term, public health workers used malaria rapid diagnostic tests to screen the children. Children who tested positive were treated with a six-dose regimen of artemether-lumefantrine. Given the nature of the intervention, the trial was not blinded. The primary outcomes were anemia and sustained attention and the secondary outcomes were malaria parasitaemia and educational achievement. The data were analyzed on an intention-to-treat basis. Anemia in this setting in Kenya, intermittent screening and treatment, as implemented in this study, is not effective in improving the health or education of school children. Possible reasons for the absence of an impact are the marked geographical heterogeneity in transmission, the rapid rate of reinfection following artemether-lumefantrine treatment, the variable reliability of malaria rapid diagnostic tests, and the relative contribution of malaria to the etiology of anemia in this setting.
    Keywords: Health Monitoring&Evaluation,Disease Control&Prevention,Primary Education,Adolescent Health,Educational Sciences
    Date: 2014–02–01
  15. By: DeLancey, Rebecca Mbuh
    Abstract: Entrepreneurship has long been recognized as an important player in the development of Korea's economy. This is clearly demonstrated in the humble beginnings of Korea's giant conglomerates such as Samsung, Hyundai, Posco, and LG that started as small businesses. This research presents analysis of entrepreneurial activities of African immigrants in Korea. This study combines data from questionnaires of 45 respondents and in-depth interviews with six of the respondents. The findings of this present research are different from other studies in that this study shows how immigrants fill economic gaps by creating employment for themselves while providing needed services to the immigrant and Korean populations. By creating informal employment, immigrants demonstrate that they are assets in their new environments. Coping mechanisms utilized by immigrant entrepreneurs as they confront challenges that might hinder them from pursuing entrepreneurial activities were revealed in this study.
    Keywords: African immigrant entrepreneurs, Korea, entrepreneurial opportunities, entrepreneurial challenges, coping strategies
    JEL: M13 M16
    Date: 2014–02–15
  16. By: J.W. Fedderke and M. Velez
    Abstract: Does knowledge and innovation need to come with a big price tag? The question of resource allocation to research is of perennial concern for management of both public and private entities. In this study we evaluate whether a substantial increase in public funding to researchers makes a material difference to their productivity. To do so, we compare performance measures of researchers who were granted substantial funding against researchers with similar scholarly standing who did not receive such funding. We find that substantial funding does raise researcher performance - though the impact is moderate. Moreover, the impact is strongly conditional on the quality of the researcher who receives the funding, and is more successful in some disciplines than others. Moreover the cost per additional unit of output is such as to raise questions about the viability of the funding model. The implication is that public research funding will be more effective in raising research output where selectivity of recipients of funding is strongly conditional on the established track record of researchers.
    Keywords: Massive funding, funding initiative
    Date: 2014
  17. By: Gutierrez, Eva; Choi, Tony
    Abstract: This study intends to increase understanding of how different types of mobile money services have developed in different environments. For this purpose, two countries were selected, the Republic of Korea and Uganda. From these study cases, some conclusions emerge. The development of mobile banking services can appear at different stages of financial sector development, but it requires a vibrant and competitive telecommunications sector. The regulatory environment does not need to be very sophisticated for the mobile industry to emerge. However, some elements appear to be important. The legal framework should allow (or at least not explicitly forbid) nonbank financial institutions to issue money and use banking agents or correspondents. To ensure wider use of the service by the population, it is important to educate the population on the benefits of mobile money services.
    Keywords: E-Business,Banks&Banking Reform,Environmental Economics&Policies,E-Finance and E-Security,Emerging Markets
    Date: 2014–02–01
  18. By: Saidou Baba Oumar and Josue Mbonigaba
    Abstract: This paper assesses the performance of the Cameroon Water Corporation (CWC) in delivering services after four decades of existence (1967- 2013) and relates that performance to organization theories. It uses secondary data on services provision and primary data on users’ perceptions of the CWC’s performance. The assessment is conducted using descriptive as well as inferential methods of data analysis. The paper observes that despite political, technical, managerial and financial constraints that impaired the efficient delivery of drinking water and sanitation services in the country over the years, the company registered modest successes that attracted the financial support of domestic and worldwide development partners. However, more than half of the population is sceptical about better future services delivery by the CWC. Classical organization theory (COT) explains most of the failure in the operating environment of the CWC, while the formulations in modern organization theory (MOT) are found to be relevant to the improvement of water services. As a policy recommendation, the CWC should focus on MOT, while maintaining some aspects of COT to improve performance.
    Keywords: Drinking water; sanitation; management; organization; Cameroon
    Date: 2014
  19. By: Mutisya Emmanuel; Yarime Masaru
    Abstract: The focus of microcredit for the bottomof the pyramid segment in urban areas isincreasingly becoming an area of focus asdevelopment policy-makers worktowards improving the lifestyles of urbanpoor. Previous research has had a keenfocus on the impacts of financial servicesto business outcomes,leaving behindother equally vital aspects ofdevelopment. In addition, very little ofthis research has focused on socio-economic and sustainability outcomes inurban areas. Using randomizedcontrolled trials, this paper measures theimpacts of microcredit to selected groupsof people in Kibera slum in Nairobi city,using a combination of double differenceand propensity score matchingtechniques to evaluate the impacts ofthese financial services on businesses,households, microfinance institutionsand urban sustainability outcomes.Whilethe paper finds little evidence on urbansustainability outcomes,there is asignificant,althoughsmall,improvementon business and households outcomes.
    Date: 2014–03–05
  20. By: Cantens, Thomas; Kaminski, Jonathan; Kaminski, Jonathan; Raballand, Gael; Tchapa, Tchouawou
    Abstract: Based on extensive interviews with informal importers and brokers in Cameroon, this paper explains why customs reform aimed at reducing fraud and corruption may be difficult to achieve. Informal traders and brokers (without licenses) follow various business models and practices, which are product-specific. Overall, what matters first are customs brokers'practices. Information asymmetries mark transactions between brokers and importers and are accompanied by misperceptions of the costs and risks of informal brokers working among informal importers. In a low-governance environment with widespread informal practices, blanket policies should be avoided in order to discourage activities of unprofessional and systematic bribe-taker brokers. It is also essential that customs officials disrupt information asymmetries and better disseminate information to informal importers on customs processes and official costs. Finally, customs should more strongly sanction some informal brokers in order to reduce collusion with some customs officers.
    Keywords: Debt Markets,E-Business,Transport Economics Policy&Planning,Customs and Trade,Financial Intermediation
    Date: 2014–02–01

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