Browsing by Author "Biekpe, Nicholas"

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    An Analysis of the Profitability of Savings Groups in South Africa
    (2019) Muroyiwa, Mildreat; Biekpe, Nicholas; Marwa, Nyankomo
    This research investigated the factors that determine the profitability of Savings Groups in South Africa using the Ordinary Least Squares model (OLS). Over the years, savings groups have increased their reach within the rural poor in South Africa who are often not reached by financial services. Financial inclusion has been a topical issue in South Africa over the past two decades due to the legacy created by apartheid, which deliberately excluded much of the population from economic participation. Specifically, the research analysed savings groups specific factors such as number of members in a group, savings as a percentage of loans outstanding, average annualised savings per member, total savings among others and how they affect profitability which is proxied by, return on assets (ROA) and return on savings (ROS). The sample data was made up of purely of secondary data from 31 projects representing 3477 Savings Groups in South Africa, that with a total membership of approximately 66 911 and was extracted from the Savings Groups International Exchange (SAVIX), an international data platform. The data used was annualised cross-sectional data. The main findings were that, total number of members (TNM) and total assets (TA), are positive and significant in explaining return on assets (ROA), while total number of groups (TNG), and total savings (TS) are negative and significant in explaining return on assets (ROA). When return on savings (ROS) was used instead as a dependent variable, total number of members, and total assets remained positive and significant in explaining return on savings. Total number of groups, total savings, total value of outstanding loans, dropout rate and average number of members per group were all significant but negative in explaining return on savings. All other variables were insignificant for both dependent variables. Return on assets and return on savings were both adopted as profitability measures in the study to cater for the possible differences in constitution of the two variables. Also considering that the research was based on savings groups, it was deemed suitable to see if the independent variables posed any significant effect on the core business of the groups, which is savings. The study contributes to the currently limited literature on profitability of savings groups. The results show that there could be some factors that can be manipulated to enhance the profitability of savings groups hence the results can inform policy formulation and regulation. The results also give an indication that some of the factors that affect the profitability of banks may also be the same for savings groups.
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    Are Public Private Partnerships catalysing economic growth in Sub-Saharan Africa?
    (2018) Matsolo, Nolitha; Biekpe, Nicholas; McPherson, Sharron L
    Governments in Sub-Saharan Africa are experiencing increased pressure to find quick, efficient solutions to the challenge of maintaining, improving and investing in new infrastructure. A range of funding options to finance infrastructure development has been used, however fiscal capacity constraints have become a challenge. To balance availability of funding and economic development constraints, governments in Sub-Saharan Africa have had to find alternative funding methods. Public private partnerships, as an alternative method, have gained prominence in Sub-Saharan Africa. This study therefore explores the notion of the catalytic effect of public private partnerships on economic growth in Sub-Saharan Africa. This study uses unbalanced fixed panel data methodology over a cross section of infrastructure projects across Africa. Data obtained over the period 1994 – 2015 is assessed for the catalytic effects of public private partnerships on economic growth. The results of the empirical analysis indicate that PPPs in SSA over the period tested in the study do have an influence and impact on economic growth. However, the effect of PPPs on economic growth was observed to depend on the proxy used, with significant effect only found when the number of PPPs is employed. The results of the study therefore imply that the PPPs examined here do catalyse economic growth in SSA. Recommendations for future studies include: a further probe into which infrastructure financing method in SSA has the most positive catalytic effect in economic growth. The extent of the impact of unmitigated negative externalities created by the implementation of infrastructure projects financed by PPP arrangements.
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    Assessing the effect of domestic resource mobilization on Namibia's economic development
    (2022) Ambunda, Katrina Kandiwapa; Biekpe, Nicholas; Motelle, Sephooko
    Effective resource mobilization from both domestic and foreign sources is necessary to achieve economic growth. However, the decline in trade and financial flows brought on by the 2009 global financial crisis, together with the unpredictability and volatility of development assistance flows globally, increased the need for more stable and long-term development funding alternatives. Thus, domestic resource mobilization (DRM) has emerged as a crucial instrument for achieving and sustaining rapid growth in developing countries. Since DRM can expand the available budgetary space, encourage quicker economic growth, and lessen poverty. As such, the aim of this study was to empirically measure the impact domestic resource mobilization strategies have had on Namibia's Economic growth in the period 1990 to 2020. The study evaluated and investigated the causal relationship between DRM and economic growth in Namibia using the Harrod and Domar growth model. On specified growth models, the study applied the ARDL Bounds testing approach to cointegration. The study discovered strong evidence for a connection between Namibia's DRM and economic growth. Thus, the study finds with a 98 percent confidence that there would be a long term, positive causal relationship between tax revenue, domestic savings, and domestic credit. Inferring that domestic savings, taxation, and credit patterns can have a direct and beneficial impact on the pace of growth of the Namibian economy over time. Additionally, the study concludes that government actions through banking sector policies and strategies can have a significant and long-lasting impact on Namibia's economic growth. Therefore, the study recommends that the Namibian government to initiate policies that trigger more savings, and support technology enhancement towards curtailing the economy's capital output ratio.
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    Assessing the Principal Agent Problem in Mobile Money Services: Lessons from M – PESA in Lesotho
    (2018) Thabane, Matela; Biekpe, Nicholas
    The expansion and diffusion of mobile phones globally has resulted in the provision of financial transactional services over the existing mobile phone platforms, generally referred to as mobile money. The supply end of mobile money services is an important factor in the success of the financial transactions offering. This research assessed vulnerabilities in the mobile money supply network that are inherently related to the existence of the principal – agent problem and their implications on availability and access to the services. The research study was conducted using a qualitative approach. Qualitative information was collected through interviews guided by open – ended questionnaires. Thematic analysis approach was followed to systematically analyse the data and generate findings of the study. Agent transactional data was analysed to complement the findings from qualitative analysis The findings suggest that the principal agent problem permeates the mobile money delivery network mainly after businesses joining as agents and manifests as moral hazard. Moral hazard is the dominant feature of the principal – agent problem, with adverse selection very low. Drivers of moral hazard are demonstrated by the influences and demands of agents’ core businesses and challenges in agent monitoring and training. The existence of the principal – agent problem has limited or no implications on access and availability of services. However, overtime the combined vulnerabilities identified related to the principal agent problem are likely to manifest into risks that are likely to affect access and availability of mobile money services. Regulators, Mobile Network Operators and agent enterprises must collectively review monitoring approaches for mobile money service providers to address challenges identified and increase the effectiveness of monitoring. Service provision standards should be reviewed to suit the various business environments the services are provided within. Mobile Network Operators and agent enterprises need to institute stronger partnership arrangements that enhance ownership and obligations for all parties, in particular agent enterprises. Agreements must enable application of different mobile money delivery models suitable to meet the demands and requirements of the agents’ core businesses. Innovations such as Near Field Communication (NFC) can be integrated with Point of sale (POS) applications and mobile money platforms to reduce the administration burden on agents and human error. Such applications must consider the cost implications of adoption from the agents’ business perspective.
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    An assessment of capital budget planning and municipal borrowing as funding source in Overstrand Municipality in the Western Cape
    (2015) Alexander, Donovan Patrick; Biekpe, Nicholas; Alagidede, Paul
    The major challenges confronting municipalities in South Africa are poor governance, lack of effective performance, backlogs in service delivery, over- and in most cases under-spending on capital infrastructure, and poor audit outcomes. It is therefore very important for municipalities to deliver on the constitutional mandate as enshrined in the South African Constitution in terms of Section 153. Municipalities need to structure and manage the organisation's budgeting, administration and planning processes effectively in terms of their strategic five-year Integrated Development Plan (IDP). The research problem of this study encompasses the assessment of the capital budget planning processes and expenditure patterns in relation to capital infrastructure to determine whether the planning processes followed are in alignment with the IDP and the relevant legislation. The core objective of the research was to investigate the extent to which the Overstrand Municipality funded their capital budget with external borrowing in terms of the budget planning process in relation to capital infrastructure spending over a three year period in compliance with the relevant legislation.
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    Bridging the “missing middle” for green small and growing businesses in South Africa: The case of the Green Outcomes Fund
    (2019) Dobson, Blaise; Biekpe, Nicholas; Henriksen,Tine Fisker
    Climate change poses numerous challenges for emerging economies whilst, if framed as such, also holding promise for economic opportunity. South Africa’s economic history has benefitted from abundant fossil fuel resources, with the result that it has grown into Africa’s leading greenhouse gas (GHG) emitter and one of the continent’s largest economies. Meanwhile, the Intergovernmental Panel on Climate Change (IPCC) Special Report on Global Warming of 1.5°C (IPCC, 2018a) argues that the world needs to transition towards a net zero GHG emission scenario by 2050 in order to remain within safe climatic bounds. Transitioning the South African economy towards a net zero emissions orientation is a significant challenge given the country’s historical reliance on fossil fuel sources, vested economic interests in the minerals-industrial complex, and socio-economic considerations for South African workers. Realigning capital allocations to achieve this transition is necessary to grow new businesses that can assist in creating net zero emission jobs and production, and to replace existing businesses that are unable to adapt to the net zero emission constraint. To this end, this study elucidates the barriers faced by South African green “small and growing businesses” (SGBs) in accessing capital to expand. It analyses the typical business lifecycle, financiers’ roles within the chain of finance - the J-curve - and the investment gaps that exist which could impede green SGBs from growing into mature, private or publicly listed companies. Through an analysis of primary documentation and key informant interviews, the study outlines the challenges faced by early-stage financiers investing in South African green SGBs using the Green Outcomes Fund as an instrumental case study. The research highlights a gap for early venture capital investments into green SGBs in South Africa between approximately ZAR 5‒22 million (USD 360 000‒USD 1.584 million) and makes a contribution towards the theory as to how this gap may be closed. South African policy makers can take on board the challenges faced by green SGBs and their financiers to tailor specific funding offerings supported by the public and private sector (e.g. the South African SME Fund). Moreover, failure to nurture and scale green SGBs will impede South Africa’s transition to a net zero emissions economy.
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    Competitiveness and efficiency of commercial banks and economic growth in the frontier economies of Africa
    (2018) Banya, Rowland Mwesigwa; Biekpe, Nicholas
    Various studies have examined the relationship between competition and efficiency in the banking sector, and others have looked at how this relates to broader economic growth. Goldsmith (1969) and King and Levine (1993), among others, consequently found that financial reform in the banking sector has led to improved efficiency and competition and, as a result, led to economic growth. Financial reform in Africa came about as a result of financial liberalization that took place during the late 1980’s. This reform process was structured to increase competition and efficiency of the financial sector. This has motivated academic inquiry into the assessment and measurement of bank efficiency, bank competition and the impact on economic growth. The literature available indicates a myriad of factors that impact upon bank efficiency and bank competition. A determinant that is scarcely addressed in the literature on Africa however is the quality of institutions. Against this background, this thesis presents a collection of empirical papers on competition, efficiency and economic growth of the banking sector in Africa. Explicitly, annual firm level data on banks from 10 frontier African countries is employed to study different economic theories using various panel data econometric methodologies. The findings reveal that the banking industry in Frontier Africa is characterised by monopolistic competition. In addition, our results may suggest that bank competition could be beneficial for economic growth. As bank competition increases via the efficiency channel, this would ultimately increase economic growth. Furthermore, we also analyse the relationship between bank competition and efficiency. We observe a positive relationship between bank competition and both profit and cost efficiency, as a consequence these findings reject the Quiet Life Hypothesis. We also observe low levels of bank efficiency and competition across the sample. However, the study finds that diversification into non-interest generating activities enables Frontier African banks increase their earnings potential. The study also looks at the quality of institutions and the impact on bank competition. Our results indicate in general, we find that regulatory quality has a positive effect on the degree of competition in the banking sector. The findings recommend that to improve economic growth, policy makers should aim at improving competitive and efficiency conditions in the banking sector because a competitive banking system will allocate resources more efficiently and spur economic growth is as a result. The focus of this policy should therefore be on competition policies, comprehensive financial liberalisation policies, macroeconomic policies and regulatory and supervisory policies.
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    Competitiveness of the banking industry in the Southern African development community
    (2014) Motelle, Sephooko Ignatius; Biekpe, Nicholas
    The literature is replete with the determinants of economic growth and identifies financial development as one of the important drivers of growth. Financial development is viewed as a process through which financial intermediaries such as banks lubricate the economy by creating a conduit for resources to flow from surplus sectors to deficit sectors. Effective financial development depends on many factors such as financial integration which facilitates international trade and free mobility of capital. However, in order for the positive impact of financial integration to be fully felt on financial development, it must stimulate competition in the domestic banking market without eroding financial stability. Therefore, the central hypothesis of this study is that financial integration can enhance financial development if such integration makes the local banking industry more competitive without increasing its vulnerability to financial instability. The study employs various panel data techniques to test this hypothesis using the Southern African Development Community (SADC) as a case study. The findings reveal that the banking industry in SADC is characterised by monopolistic competition. In addition, financial integration enhances banking competitiveness in the region through removal of barriers to free flow of capital between countries. Furthermore, higher competition is found to be good for financial development as it reduces the magnitude of the financial intermediation spread. Moreover, the study finds that the flipside of financial integration lies in its potential to cause financial instability in the region with negative repercussions for financial intermediation. The findings imply that, even though financial integration is good for financial development through its ability to increase the degree of competition in the banking industry and reduce the spread between lending and deposit rates, member states must put policies in place to effectively prevent the likely erosion of financial stability. No single policy is sufficient on its own to achieve this. Therefore, this study recommends that as members of SADC move towards deeper financial integration, they must ensure that they formulate and implement sound and appropriate common policies in order to ensure that financial stability is not compromised as restrictions to capital-flows are abolished or reduced. Such a policy-mix requires four ingredients, namely; sound financial liberalisation policies, competition policies, macroeconomic policies and regulatory and supervisory policies.
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    A critical assessment of the South African bond market
    (2016) Sze, Winnie W Y; Biekpe, Nicholas
    This paper looks at the experience of South Africa in the development of its local‐currency, so‐called domestic, bond market. Whilst South Africa had the deepest financial market in Sub‐Saharan Africa it also had one of the shallowest domestic bond markets, until 2009. This changed with the rapid bond issuances by the national government as a means to fund its expanding government expenditure. The paper finds that the government issuances served to deepen the market for rand‐based bonds and lengthen the maturities of bonds, for the benefit of itself, state‐owned enterprises, and the private sector, particularly the banks. At the same time, it has heightened the risk of negatively impacting economic development. The World Bank and other multilaterals advocate the development of the domestic bond market as a financial cushion against financial stress and as a way to better channel domestic savings towards domestic investment. There is argument that South Africa's domestic bond market acts as a substitute and competition for the dominant bank market. At the same time, given the market infrastructure and regulation, there is also high risk that the bond market could act as a co‐contagion in the event of a bank crisis. There is no evidence that total savings improved as a result of the bond market, however the provision of a long‐term instrument more theoretically suitable to South Africa's specialist pension and insurance funds suggest that the market provides beneficial intermediation. The recommendations focus on mitigating the negative biases of market infrastructure supports and the pension fund regulation.
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    Determinants and macro-volatility impact of international capital flows in selected sub-saharan African countries
    (2012) Brafu-Insaidoo, William G; Biekpe, Nicholas
    International capital flows have been an important subject of discussion in the finance and development literature as well as among policymakers. Discussion on international capital flows is inspired by the associated potential benefits which, in turn, have motivated a number of countries in sub-Saharan Africa and other regions to liberalise cross-border capital flows and to encourage greater inflows of foreign capital in recent times. The result of these efforts has been the recent surge in capital flows and changes in its composition towards more short-term flows...In this thesis the major determinants of the volume and maturity of foreign capital flows in selected sub-Saharan African countries are investigated. The impact of the volume and type of international capital flows on the volatility of investment, output and consumption growth in the selected countries are also examined. The studies involved dynamic panel and time series regression analyses of data obtained from the World Bank and the International Monetary Fund. The results of the research work are presented as six stand-alone essays.
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    Determinants of capital flight in Namibia
    (2019) Tjaondjo, Cornelia Nangoi; Biekpe, Nicholas
    The research investigated the determinants of capital flight and the behaviour of capital flight before and after the passage of Regulations 28 and 29 in Namibia. Using annual data form 1990 to 2016, the unit root and cointegration analyses were performed. The findings of the study indicate that foreign direct investment, current account deficit, change in foreign exchange reserves and external debt are important determinants of capital flight, whereas corruption and political uncertainty do not influence capital flight. The researcher therefore recommends that these factors should be taken into account when designing policies to prevent and reduce the outflows of capital from Namibia. Thus, the combination of good governance and fostering fiscal discipline and tax adjustments is also recommended.
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    Determinants of Economic Growth-The Case of Zimbabwe
    (2019) Ncube, Trinity M; Biekpe, Nicholas; Charteris, Ailie
    The paper investigated the determinants of economic growth in Zimbabwe over the period 1980 to 2017 drawing from previously identified factors as discussed in international literature which had been acknowledged as important determinants. The variables included human capital, gross fixed capital formation, unemployment, inflation and government expenditure. The study employed Unit Root Tests. The Auto Regressive Distributed Lag model was used to examine the mixed variable while the Ordinary Least Squares model and the Johansen test were used to examine all stationary and non-stationary variables respectively. In the case of co-integration, the Error Correction Model and the Causality test were run. Ultimately, the results indicated that in the long-run gross fixed capital formation has a positive influence on economic growth while human capital development has a negative influence. ECM found that in the short run there is a positive relationship between lags of economic growth, government expenditure, inflation and human capital with economic growth.
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    Determinants of exports in Zambia’s Manufacturing Sector
    (2018) Mwiinga, Mwiinga; Biekpe, Nicholas
    The cyclical price movements of primary products exported from Zambia has placed the country at a disadvantage. This stems mainly from the fact that lower prices of primary commodities have had negative effects on the balance of payments and the developmental agenda of the Zambian government. It is therefore important that efforts are made by the government to move towards supporting product sophistication, primarily focusing on the growth of industries that offer the greatest possible impact. In this regard, the growth of the manufacturing sector becomes of the utmost importance. This is mainly because the more the manufacturing sector is developed, the greater the technological transfer which will in turn facilitate product sophistication. This will also mitigate the dependency on exports of primary commodities such as copper, and make the economy less susceptible to cyclical price movements of primary commodities. It was therefore important that the study investigated the determinants of export performance in Zambia’s manufacturing sector. Variables analysed included Foreign Direct Investment (FDI), inflation rate, exchange rate, Gross Domestic Product (GDP) and lending rates. The study utilised the Ordinary Least Square (OLS) and the Auto Regressive Distributive Lag techniques to capture the dynamic relationships. The results revealed that Inflation and FDI were statistically significant. It was further observed that inflation was negatively related to exports in manufacturing sector. FDI, on the other hand, was positively related to exports in the manufacturing sector in the long run. GDP and lending rates were statistically insignificant, which could be as a result of the openness of the economy and low productive capacity. One of the key recommendations made was for government to effectively manage its policies in a way that maximises FDI inflows, whilst minimising inflation to effectively create a favourable macroeconomic environment for the sustained growth of the manufacturing sector. It was further observed that FDI, GDP and Inflation rate jointly affected exports in the manufacturing sector, therefore confirming that the three variables do have a joint effect on exports in the long run.
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    Determinants of remittance channels amongst immigrants in South Africa
    (2019) Luhabe-Morrison, Lumko Ndumiso; Biekpe, Nicholas
    South Africa, being viewed as the centre of opportunities and enormous business prospects, is noted as having a long history of migrants, stemming from the South African Development Community region, seeking employment opportunities, both legal and illegal. Extant literature shows that there is a substantial flow of remittances from South Africa to other countries in the SADC region. Due to stringent South Africa's migration laws, many of these migrants remain undocumented, and hence use informal channels to remit to their countries of origin. This study investigates the determinants of remittance behaviour, which includes choice of remittance channels and level of remittances amongst immigrants residing in South Africa. This research contributes to the development finance (regional remittance market) body of knowledge by looking at South Africa within the SADC context. The research methodology employed was quantitative in nature, several statistical techniques were used to analyse the data including descriptive statistics with frequency tables, correlation, and binary logistic regression. SPSS and Stata 12 were used for data management and all statistical calculations. The descriptive statistics, including tallying of frequencies in the calculation of percentages, and central tendency summaries were used to summarise the data and present the sample profile and characteristics; binary logistics was used to test the three hypotheses on relationships and influences of the dependent and independent variables of interest. The findings of the study showed that sex, age, rental payments, and household expenditure were significant determinants or influencers of remittance behaviour. Furthermore, it showed that more immigrants were male, as compared to female immigrants in this study. This study concluded that since sex, age, rental payments, and household expenditure are significant determinants of remittance behaviour, the government, banks, and other stakeholders need to review their policies to create a platform that enables ease of remittances. Keywords: remittances, remittance channels, determinants of remittances, immigrants, remittance levels.
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    The effect of housing micro-finance on household welfare
    (2017) Sobukwe-Whyte, Akyere Andiswa; Biekpe, Nicholas; Marwa, Nyankomo
    The affordable housing crisis in South Africa has created a need for better quality and efficient housing alternatives. The aim of this research is to identify how housing microfinance contributes towards improved living conditions and welfare of low-income households through a case study analysis. Data was collected from employees and beneficiaries of Ikhayalami's loan finance programme using observations, pictures and semi structured individual interviews. Data was analysed for content with the aim of interpreting emerging trends and concepts. The findings reveal a significant positive effect via an increase in community status and housing conditions. If afforded sufficient infrastructure and support – housing microfinance has the potential to grow in scale and move developmental objectives forward.
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    Effect of Monetary Policy Announcements on Stock Prices in South Africa
    (2019) Macalagh, Constance; Biekpe, Nicholas
    The purpose of the monetary policy is to attain and sustain price stability in order to achieve balanced and sustainable economic development and growth. The stock market contributes to the growth of vital sectors of the economy and thus ultimately has an impact on the economy of a country. Prior to making investment decisions, investors consider the required rate of return, making stock prices largely sensitive to macroeconomic announcements. The purpose of the study is to define the extent to which the monetary policy rate announcements influence the behaviour of stock prices for firms that are listed on the Johannesburg Stock Exchange (JSE). A general conclusion from studies done in developed countries is that there is an inverse relationship between monetary policy and stock returns. The existing literature for developing economies, mainly Africa, focuses more on the relationship between long-term interest rates and stock prices and less on the policy rate effects on stock prices which have a number of limitations. According to literature, these limitations can be overcome by utilising the event study methodology. The event study methodology is known for using a short event period around the announcement of the policy rate in order to avoid limitations. In order to examine the impact of the policy rate announcement on the JSE, the study adopted the event study methodology to analyse data from October 2006 to September 2018. The data was collected from South African Reserve Bank publications and JSE daily trading reports. The results showed that abnormal returns were present for stock prices when there was a policy rate announcement. However, it was found that monetary policy rate announcements had no significant effect on companies listed on the JSE. The study concluded that there is no inverse relationship between the monetary policy announcement and the stock prices in South Africa. Monetary policy rate changes have an immediate effect on commercial banks and because of this, it assumed that the monetary policy rate announcement will have a greater impact on commercial bank stock prices than it would have on non-bank stock prices. The results from this study did not confirm this assumption as the bank stocks were not impacted more by the monetary policy rate announcement than the non-bank stocks were. This paper further confirms the finding of studies done in developing countries where it is found that policy rate actions do not significantly influence the stock markets in developing countries and more importantly those within Sub-Saharan Africa.
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    The effects of the liberalisation of capital controls with respect to the inflow of foreign direct investment in the mining industry in South Africa
    (2014) Maitho, Edwin; Brafu-Insaidoo, William G; Biekpe, Nicholas
    South Africa has in the recent past endeavoured to attract foreign direct investment through the liberalisation of capital controls. The question that has been raised is whether, in the wake of the recent global financial crisis and the corresponding response of economists that now more than ever the re-introduction of capital controls is necessary, the liberalisation of capital controls in South Africa is necessary. Therefore the study endeavours to investigate, taking cognisance of the pecularity of the country, whether the liberalisation of capital controls in the form of exchange controls has had a positive effect in attracting foreign direct investment. Other determinants of foreign direct investment are considered to identify whether focus should perhaps be on these determinants to inform policies implemented to attract foreign direct investment.
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    Efficiency, competition and risk-taking behaviour in the short-term insurance market in South Africa
    (2016) Alhassan, Abdul Latif; Biekpe, Nicholas
    In the regulation of financial services markets, policy makers have generally pursued the twin-goal of improving efficiency and competition to promote stability. This has stimulated academic inquiries into measurement and assessment of efficiency; competition and its effects on market stability in the achievement of these regulatory objectives. Despite the recognition of the role of insurance markets in complementing other financial services to promote economic growth in emerging markets; studies examining the industrial organization and microeconomics of insurance markets appear to be more focused on developed markets. Against this background, this thesis presents a collection of empirical papers on the efficiency, competition and stability of the largest short-term insurance market in Africa. Specifically, annual firm level data on 80 firms in the short-term insurance market in South Africa from 2007 to 2012 is employed to examine several industrial economics theories using a series of panel data econometric techniques. The findings from the empirical analysis are summarized as follows: First, the results from the data envelopment analysis technique indicate that short-term insurers operate at about 50% of their productive capacity, with only 20% of insurers operating at an optimal scale. Productivity growth, which reflects efficiency changes over time, is attributable to technological changes. Firm size, product line diversification, reinsurance and leverage are identified as the significant determinants of efficiency and probability of operating at constant returns to scale. The effect of size was, however, found to be non-linear. Over the study period, the results of convergence analysis suggest a slower rate of 'catch-up' by inefficient firms. Second, the estimates of the Panzar-Rosse H-statistic suggest that short-term insurers in South Africa earn their revenues under conditions of monopolistic competition. Further analysis also reveals that competitive pressures in the market are driven by the activities of small, foreign-owned and single-line insurers. Using the stochastic frontier analysis, average cost and profit efficiency scores of 80.08% and 45.71% respectively suggest that short-term insurers have high levels of efficiency in cost and low efficiency in profit. Competition is found to be positively related to cost and profit efficiency to validate the "Quiet-Life" hypothesis that competition improves efficiency. In examining a broader set of firm level characteristics that drive the exercise of high pricing power, proxied by the Lerner index, the thesis identifies firm size, cost efficiency, product line diversification, concentration, leverage and reinsurance contracts as significant predictors of pricing power in the market. However, the effect of cost efficiency, business line diversification and reinsurance are found to be heterogeneous across different quantiles of pricing power. Third, the thesis also documents evidence in support of the 'competition-fragility' hypothesis to indicate that competition is detrimental to the stability of the short-term insurance market. The 'competition-fragility' effect is, however, found to be stronger for weaker insurers compared with stronger insurers. Firm size, capitalization, reinsurance, business line diversification and foreign-ownership were also identified as other significant predictors of market stability. Three main policy recommendations for the regulation of the market are derived from the findings. First, in order to improve on the high levels of inefficiency in the market, the insurance regulator is encouraged to direct efforts at improving competitive conditions since competition is found to be efficiency-enhancing. Second, the regulator is also encouraged to place restrictions on mergers that result in increased market concentration. This will reduce market power and the tendency for the exercise of high pricing power. Another way of improving competitive conditions in the market is through the increased presence of foreign-owned insurers. This could be achieved through the formulation of policies that are friendly to encourage and attract foreign-owned insurers to participate in the local market. This will help reduce the monopolistic tendencies enjoyed by domestic-owned insurers. Finally, in order to ensure a positive effect of competition on market stability, the regulator should seek to reduce information imbalances through institutionalization of a reference bureau on claims. This will be useful in collecting data to achieve actuarial fair pricing of insurance policies and reduce the incidence of adverse selection and moral hazards which are characteristic of competitive insurance markets and induces instability.
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    Evaluating the impact of financial Inclusion on rural development in Sub-Saharan Africa
    (2022) Shifidi, Lovisa; Biekpe, Nicholas
    The financial services sector in Sub-Saharan countries is one of the principal formal and informal employers. Financial inclusion in Africa has been described as poor and needs more attention as compared to other regions. Record based on previous research shows that the link between rural development and financial inclusion has been focused on emerging economies. The majority of the previous research analysed the association between financial inclusion and economic growth or demographic factors. The rural communities have historically experienced challenges in accessing financial services and products, with banks' availability being very low based on certain variables such as infrastructure development, electricity, water, and sanitation, which has limited the sector's growth. Therefore, it is imperative to gauge the relationship between access to financial services and rural communities' growth across the Sub-Saharan African region. To examine the effects of financial inclusion on rural development, the research sought to firstly, explore whether an association exists between financial inclusion and rural development and secondly, determine whether a granger causality exists between rural development and financial inclusion. The research employed the Generalised Method of Moments technique covering 23 economies spanning from 2011 to 2020. The results from GMM indicated that financial inclusion is statistically significant in influencing rural communities' development in the SSA region. Additionally, the sensitivity test results revealed that financial inclusion maintained similar significance suggesting that the heavily indebted status of a country does not impact the relationship. Lastly, the granger causality results showed a uni-directional relationship between financial inclusion and rural development. These findings strengthen the notion that in Sub-Saharan Africa, rural development can be heartened by financial inclusion
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    Factors affecting access to finance by Smallholder Farmers in Zambia
    (2019) Siwale, Mwaya; Biekpe, Nicholas; Marwa, Nyankomo
    About seventy-seven percent of Zambia’s citizens who are engaged in primary activity in the agriculture sector are poor (Economies, 2017). One of the ways in which the poverty levels can be reduced is by lessening constraints of access to finance in agriculture sector. The implications of the low access to credit in the agriculture sector is reduced productivity, high food insecurity and perpetual poverty particularly in Zambia’s rural areas. Most of the studies conducted focused on identifying factors which limit participation in agriculture finance from the bank’s perspective and not farmers. Therefore, this study sought to fill the gap and assess variables directly related to smallholder farmers access to finance. It further examines the dynamism of access to finance depending on location, gender and transport infrastructure. The data employed in the study was obtained from a survey conducted in 2013 by IAPRI and UNZA with a sample size of 1,231 households in six districts of Zambia. Agricultural credit for small holder farmers (SHFs) in rural areas is mostly provided in the form of cash or in kind through supply of inputs to these SHFs. This data was modeled based on the logistic regression. The results showed that 14.1% of the SHFs had access to finance. Among these farmers only 13% were female. In addition, secondary education, access to finance information, farm size, access to collateral and distance between the location of the farmer and the financial services, were significant factors in determining access to credit. A recommendation proposed to policy makers based on results presented include sensitization on various finance facilities available to rural farmers so that they are aware and can make necessary efforts to access the finance. Rural education is directly related to access to finance, therefore government should promote education for its citizens. Lack of collateral has been identified as a factor that gravely hinders access levels by most. Government should implement standardized policies that ensure availability of credit to farmers with little or no collateral. In conclusion, improved credit permeation in agriculture sector promotes sustainable and inclusive growth in Zambia and will eventually eradicate absolute poverty.