nep-afr New Economics Papers
on Africa
Issue of 2020‒04‒20
five papers chosen by
Sam Sarpong
The University of Mines and Technology

  1. Competition in South African Banking- An assessment using the Boone Indicator and Panzar-Rosse approaches By Mpho Rapapali; Witness Simbanegavi
  2. Covid-19 pandemic and economic crisis: The Nigerian experience and structural causes By Ozili, Peterson K
  3. On the impact of the occult on state legitimacy and democratization aid in Africa By Kohnert, Dirk
  4. On the Link between Trade Liberalization and Firm Productivity: Panel Data Evidence from Private Firms in Ghana. By Hoedoafia, Mabel Akosua
  5. Digitalisation and its impact on SME finance in Sub-Saharan Africa: Reviewing the hype and actual developments By Disse, Sabrina; Sommer, Christoph

  1. By: Mpho Rapapali; Witness Simbanegavi
    Abstract: This paper uses the Boone indicator and the Panzar-Rosse H-statistic to assess competition in the South African banking sector. Results point to substantial exercise of market power by South African banks. More precisely, we find evidence of ‘monopoly’ or ‘cartel’ tendency when using either the Boone indicator or the Panzar-Rosse approaches. The results are robust to different model specifications. We thus conclude that over the period 2008–2018, the nature of conduct by South African banks was ‘monopoly’ in the sense that banks’ market shares or revenues are little affected by the behaviour or actions of other banks. Given the role of banks in the transmission of monetary policy, and for economic growth more generally, the weak competition in the sector may have negatively affected the efficacy of monetary policy during this period, and may partly explain South Africa’s weak economic growth performance post the GFC.
    Date: 2020–03–30
  2. By: Ozili, Peterson K
    Abstract: The economic downturn in Nigeria was triggered by a combination of declining oil price and spillovers from the Covid-19 outbreak, which not only led to a fall in the demand for oil products but also stopped economic activities from taking place when social distancing policies were enforced. The government responded to the crisis by providing financial assistance to businesses, not to households, that were affected by the outbreak. The monetary authority adopted accommodative monetary policies and offered a targeted 3.5trillion loan support to some sectors. These efforts should have prevented the economic crisis from occurring but it didn’t. Economic agents refused to engage in economic activities for fear of contracting the Covid-19 disease that was spreading very fast at the time. In this paper, I analyse the Covid-19 spillovers to Nigeria and the structural weaknesses in Nigeria’s infrastructure that helped bring on the current economic crisis and discuss prospects for reform.
    Keywords: Nigeria, Covid-19, Coronavirus, SARS-CoV-2, outbreak, pandemic, financial crisis, global recession, public health, spillovers, monetary policy, fiscal policy, liquidity provision, Central banks.
    JEL: G1 G15 G18 G21
    Date: 2020
  3. By: Kohnert, Dirk (GIGA - German Institute of Global and Area Studies, Hamburg)
    Abstract: The impact of occult belief on legitimacy of the state and on aid for democratization in Africa: Among politicians and development experts in Africa alike there is a growing awareness of the never decreasing importance of the belief in magic and witchcraft on political decision making since pre-colonial times. Demonstration of the control of occult forces as a means of enhancing legitimacy of traditional or charismatic rule had been considered for over a century to be the prerogative of traditional chiefs and their marabouts; now it proved to be effective for the modern political elite and the state as well. An increasing number of African states officially recognized the existence of magic and witchcraft, and they adapted the imposed colonial law accordingly. In addition magic-religious belief systems, as represented by the vodun or African independent churches (e.g. the Kimbanguists), boasting to control witchcraft, are promoted by African political leaders to enhance legitimacy both of the political class and of state governance. At the same time, development experts tried to take into account the socio cultural dimension of development; they called for an "endogenization" of development aid. This call was justified, because endogenization should be considered as a pre-requisite of sustainable aid; however, under certain conditions it may be ambiguous and dangerous as well. Concerning the consideration of occult belief it may lead to the promotion of illegitimate rule and violation of basic human rights.
    Date: 2020–04–14
  4. By: Hoedoafia, Mabel Akosua
    Abstract: The private sector is deemed as an engine of growth. As such, many developing countries including Ghana have sought to develop the private sector to propel the growth of their economies. This notwithstanding, much has not been done to examine the effects of such efforts on the productivity of firms in relation to trade reforms in the context of the private sector. This paper contributes to the trade literature by examining how tariffs affect the productivity of manufacturing firms in Ghana’s private sector using firm-level data from 1991 to 2001. In the first step, productivity is estimated via the Levisohn-Petrin approach in order to correct for the well-known simultaneity and selection biases. In the second step, the effect of tariffs on the derived productivity is analysed. The findings suggest that lower tariffs are associated with a decline in the productivity of Ghanaian private firms in the manufacturing sector.
    Keywords: tariffs, productivity, trade liberalization, private sector, manufacturing
    JEL: D24 F10 F13 F14 F61 L25
    Date: 2020–03–31
  5. By: Disse, Sabrina; Sommer, Christoph
    Abstract: Small and medium-sized enterprises (SMEs) are pivotal for inclusive economic development, but suffer disproportionally from institutional and market failures, especially from constrained access to external finance. Digitalisation of the financial industry is often seen as a game changer. This paper aims to answer the question what the role is of digital financial instruments in SME finance in Sub-Saharan Africa (SSA). It discusses the opportunities and challenges of digital advances for SME finance in general and of three specific financing instruments in Sub-Saharan Africa, namely mobile money (including digital credits), crowdfunding (including peer-to-peer lending) and public equity, in order to contrast the hype around digital finance with actual market developments and trends. Over 90 per cent of firms are small and medium-sized enterprises employing more than half of the formal workforce worldwide and more than 60 per cent in low- and middle-income countries (LMICs). SMEs also account for most of the new jobs created (or at least as much as larger firms). They create economic opportunities such as employment, skill development and upward mobility in diverse geographic areas and economic sectors, and provide a livelihood and income for diverse segments of the labour force, including low-skilled workers as well as disadvantaged and marginalised groups such as young people, women and minorities. Hence, SMEs can foster inclusive economic development and subsequently contribute to social cohesion. A substantial share of national value added is attributed to SMEs and the SME segment is strongly and positively associated with economic growth (even though no causality can be claimed in this respect) and economic diversification. SMEs are also vital for advances in productivity and innovation, as small and young firms may introduce new, efficient technologies or - especially important for LMICs -make small modifications in order to adapt innovations to the local or national contexts or benefit from knowledge spillover. In short, SMEs play a crucial role for economic development. (...)
    Date: 2020

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