University of Stellenbosch Business School (USB)

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Efficiency and sustainability of Tanzanian saving and credit cooperatives
(Stellenbosch : Stellenbosch University, 2015-12) Marwa, Nyankomo Wambura; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. Graduate School of Business.
ENGLISH ABSTRACT: Despite the consensus among economists that finance plays a critical role in growth and development at national/regional and enterprises/household levels, more than 90% of Tanzanians are excluded from the mainstream banking. To fill the existing financing gap, there has been an explosive growth of microfinance institutions including Saving and Credit Cooperatives (SACCOs) during the past two decades. Given the risky segment in which SACCOs operate, such an explosive growth may signal either a stairway to economic heaven or a highway to micro-financial crisis. Hence, it is necessary to empirically investigate the performance (efficiency and sustainability) of the SACCOs. Specifically, knowledge of SACCOs’ performance could generate valuable and concrete information for policy makers, industry managers and academics. This is of particular interest for the nascent but fast-growing Saving and Credit Cooperatives industry in developing countries such as Tanzania. The aim of this study is to conduct an empirical investigation of the performance of SACCOs in Tanzania. Specifically the study addressed the following three questions: a) How efficient are they? b) Are they sustainable and profitable? c) What drives their performance in terms of efficiency and sustainability? The study employed data envelopment analysis with bootstrap approach to estimate the efficiency of the SACCOs. Standard financial ratios were used to assess profitability and sustainability. A multiple case study approach was used for an in-depth investigation into the drivers of performance in high- and low-performing SACCOs. Secondary data from 103 SACCOs was collected from the Ministry of Cooperatives and Food Security and the regional headquarters of the Cooperatives Audit and Supervision Corporation. Primary data was collected from managers, board members and regulators through face-to-face interviews. The results of the study have been organized into four empirical essays. The first essay investigates the technical and scale efficiency of SACCOs using data envelopment analysis. The bias corrected results show that average scores are 32%, 43% and 77% for technical, pure technical and scale efficiencies, respectively. Since most of the inefficiencies are either technical or scale in nature, the study recommends increasing the operating scale for smaller firms. Firms operating beyond the optimal scale may need to downsize. The managers from technically inefficient firms may reduce the waste of productive resources by utilizing inputs more efficiently. The second essay estimates the profitability and financial sustainability of SACCOs. The results show that approximately 61% of the SACCOs in the sample are operationally sustainable and 51% of the SACCOs are both operationally and financially sustainable. The average sustainability score was 127%. On average, our results for profitability, measured by return on assets, are higher than some of the results reported for standard microfinance in the region and globally. The third essay benchmarks the performance of SACCOs using an efficiency-profitability matrix to distinguish best performers from struggling SACCOs. The findings show that the majority of the firms (61%) were classified in the low efficiency, low profitability category. Only 12% (12 out of 103) of the SACCOs are classified as best performers in both efficiency and profitability dimensions. It can be concluded that the performance of SACCOs in Tanzania needs a well thought through turnaround strategy to mitigate the problem of low performance. For the majority of the SACCOs, both profit- and efficiency-increasing strategies are required. The last essay complements the previous three essays by using a multiple case study approach. The essay explores the perceptions of regulators, board members and managers to elicit the key drivers of performance in the industry. It emerged that limited capital, low level of members’ education on cooperatives, effective governance and leadership are major performance constraints common to both high and low performing SACCOs. High performing SACCOs tend to have an income diversification strategy, committed and dedicated leaders, as well as well-articulated lending processes and procedures which apply to everyone including board members and management. In contrast, weak performing SACCOs have weak governance and/or management teams, discriminatory lending processes allowing management and board members to have special privilege on loan allocations, and a less diversified income strategy. A more conservative capital growth strategy that leverages on internal capital mobilization, effective oversight of management, members’ education and training could foster the prosperity of the industry. In conclusion, it was found that there is a significant potential for performance improvement in both efficiency and sustainability. While SACCOs are on average sustainable, the fact that about 49% of them are not financially sustainable is a matter of concern. The effort in resolving capital constraints, effective regulation, governance and members’ education could improve the performance of the industry.
Essays on exchange rate behaviour and macroeconomic performance in Ghana
(Stellenbosch : Stellenbosch University, 2017-03) Amoah, Lordina; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
ENGLISH SUMMARY : In the presence of increased globalisation and liberalisation of trade and payment regimes, the role of the exchange rate in macroeconomic adjustments has become even more crucial, particularly for developing economies. In fact, the economic crisis in Ghana between the late ‘70s and early ‘80s is attributed to inappropriate exchange rate policies such as exchange rate controls and overvalued exchange rates, among other factors. Thus, in 1983 the government of Ghana adopted the International Monetary Fund (IMF) and World Bank (WB) sponsored programmes and embarked on exchange rate, trade and payment reforms among others. In particular, the exchange rate reforms were aimed at correcting the misaligned exchange rate and enhancing the competitiveness of the export sector in order to improve trade with the rest of the world. Even though the macroeconomic performance has improved after the reforms, the economy is still confronted with series challenges including persistent trade deficits and inflation, leading to macroeconomic instability. In addition, since the exchange rate was completely liberalised in 1988, it has generally been on a depreciating path. The impact and response of exchange rate movements on the macro-economy has been a subject of interest among economists and policy makers. This thesis contributes to this body of research. Generally, the main aim of this study is to examine the behaviour of the exchange rate and its impact on the macroeconomic performance of Ghana. The specific questions addressed are as follows: a) Is there an association between the trends in the exchange rate in the various exchange rate regimes and key macroeconomic variables? b) What are the macroeconomic variables that determine movements in the long-run equilibrium exchange rate? c) Is the exchange rate moving in tandem with its equilibrium path or is it misaligned? d) What is the relationship between movements in the exchange rate and the trade balance? e) What is the extent of pass-through of exchange rate to consumer prices? f) Is the pass-through symmetric or asymmetric? Various methods, including the descriptive method, the Johansen cointegration and Vector Error Correction techniques and the Autoregressive Distributed Lag (ARDL) approach are employed in analysing the data used in the thesis. The empirical analysis makes use of secondary data from various sources including the World Bank, World Development Indicator, the International Monetary Fund, International Financial Statistics, and the Bank of Ghana. The questions addressed in the study have been organised into four empirical essays. The first essay examines the association between the trends in the exchange rate in the various exchange rate regimes and key macroeconomic variables using the descriptive method. The key lessons of this study are summarised as follows: The flexible exchange rate regime has introduced a series of fluctuations in the exchange rate that was not an issue during the fixed exchange rate period. For a small open economy heavily reliant on imported goods, such fluctuation may affect domestic prices and overall macroeconomic stability. Second, the increase in trade with exports lagging behind imports has resulted in consistent trade deficits, which has implications for economic growth. Thus, in order to ensure macroeconomic stability and growth in a managed float exchange rate system, improvement in export competitiveness and the quality of locally produced goods, and proper management of reserves is vital. The second essay explores the presence and extent of exchange rate misalignment of the Ghana cedi relative to trading partner currencies using the Johansen cointegration approach and error correction models. Results point to significant misalignment of the exchange rate. There are two major episodes of undervaluation and overvaluation. The undervaluation episode was consistent from 1984 until 2007, when the overvaluation episodes occurred mainly due to the redenomination exercise. The implication is that the actual real effective exchange rate has not been moving in line with its equilibrium trajectory or the path dictated by the underlying fundamentals that drive movements in the exchange rate. This suggests that exchange rate policy and management has been very poor over time. The study makes some recommendations. First monetary authorities could adopt the floating exchange rate system where market forces are allowed strictly to determine the equilibrium exchange rate. Second, in pursuing the managed float system of exchange rate, it is imperative that the two extremes of misalignment be reconciled. Going forward, the exchange rate may have to be devalued to bring it closer to the equilibrium. Subsequently, market forces should be allowed to correct the exchange rate back to equilibrium. Thereafter, monetary authorities should, closely monitor the equilibrium in order to engage in timely interventions when deviations are significantly far from the equilibrium. The third essay examines the link between movements in the real effective exchange rate and the trade balance of Ghana using both linear and nonlinear ARDL approach. Both symmetric and asymmetric effects of the exchange rate on the trade balance are explored. The results emanating from this study reveal the relationship between the exchange rate and the trade balance is symmetric model. Accordingly, both depreciation and appreciation episodes of the real effective exchange rate do not result in an improvement in the trade balance. In addition, the relationship between the domestic income and the trade balance is significant and negative, whereas foreign income is insignificant. The findings of this study imply that the real effective exchange rate is important for trade, however it is not sufficient alone to drive the growth needed to improve the trade balance substantially. Hence, complementary policies are necessary in achieving improvement in the trade balance. That is, in order to improve the trade balance position, it is critical that measures be put in place to significantly increase exports and also reduce the import bill. The fourth essay explores the magnitude of Exchange rate Pass-Through (ERPT) to consumer prices in Ghana for the period 1980 to 2015 employing the Johansen Maximum Likelihood approach. There is evidence to suggest a significant asymmetry with respect to direction and size of exchange rate changes. Specifically, ERPT is incomplete but relatively higher in periods of depreciation than in periods of appreciation; that is 53% against 3%. ERPT is also higher during episodes of large changes (about 51%). It is imperative that the monetary authorities critically monitor exchange rate movements to ensure swift policy action to counteract any inflationary pressures from the external sector. In particular, monetary authorities should pay attention to events and arrangements that could result in large depreciation of the exchange rate. The overarching evidence presented in this thesis suggests that the exchange rate influences macroeconomic stability through its impact on inflation. In addition, exchange rates alone will not provide the needed growth in the trade sector and, hence, influence economic growth in Ghana. The findings point to weaknesses in the underlying structure of the economy. Therefore, appropriate complementary policies like trade policy and industrial policy that support the production of high quality goods of international standards are critical. This will deliver results in terms of improvement in trade performance, ensuring macroeconomic stability and position the economy on a consistent growth path.
Essays on exchange rate behaviour in South Africa
(Stellenbosch : Stellenbosch University, 2018-03) Khomo, Melvin Muziwakhe; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
ENGLISH SUMMARY: The dissertation presents four essays on exchange rate behaviour in South Africa with a focus on misalignment and volatility of the real effective exchange rate (REER), and the concomitant influence of exchange rate uncertainties on both economic growth and exports. Motivating the study is the proposition in recent literature that proactive exchange rate policies centred on exchange rate disequilibria and deliberate currency undervaluation can foster economic growth through exports. Despite exchange rate behaviour receiving much attention in the literature, several questions regarding the pass-through effects to the economy remain unanswered in the South African context where the country faces the challenges of low economic growth, high unemployment and significant inequality. The major question therefore is whether exchange rate policy can be used in South Africa to promote exports, thus aiding economic growth and employment creation. To answer this question, I model exchange rate misalignment and volatility, and then assess the influence of both factors on growth and exports with an emphasis on the possible asymmetries in the reaction to undervaluation and overvaluation episodes. The results are presented in four essays. In this context, the first essay applies cointegration techniques in the behavioural equilibrium exchange rate (BEER) framework of Clark and MacDonald (1998) to estimate the equilibrium value of the rand consistent with economic fundamentals, and interpret the deviation of the observed exchange rate from this level as exchange rate misalignment. A Markov regime switching method is then applied to quantify whether the exchange rate’s departure from the equilibrium level is meaningful enough to be considered as either over- or undervalued. The results indicate that a long-run equilibrium relationship exists between the rand’s REER and economic variables that include the terms of trade, external openness, external capital flows and government expenditure. Frequent deviations of the observed exchange rate from the estimated equilibrium level are found over the period studied (1985-2014) and the Markov regime-switching model correctly captures the exchange rate misalignment as distinct episodes of exchange rate overvaluation and undervaluation. It is important to note that the observed misalignments have been mainly in response to economic shocks emanating from either the South African economy or global factors and not in response to deliberate policy action. In the second essay, univariate symmetric and asymmetric generalised autoregressive conditional heteroscedasticity (GARCH) approaches are used to model the volatility of the South African rand’s REER. The objective is to explore the relevance and compare the performance of the GARCH family of models in terms of their ability to capture the stylised facts of the rand’s volatility and thus identify the best model to apply for volatility modelling and forecasting. The findings from the essay show that exchange rate volatility in South Africa is quite persistent and exhibits volatility clustering and asymmetric effects. In terms of sample-fit, the results confirm that the GJR-GARCH (1,1) with the normal error distribution is the best fitting model for the rand’s REER volatility, when compared to the ARCH, GARCH (1,1) and EGARCH (1,1) models with in-mean and different error distribution assumptions. The GJR-GARCH (1,1) model is able to accurately capture the significant increases in exchange rate volatility experienced in South Africa over the sample period, with such episodes of high volatility linked to the historical exchange rate depreciation experiences (e.g. at the height of the political crisis in 1985, the emerging market crisis of 1997-1998, speculative attacks on the rand in 2001 and lastly the global financial crisis of 2007-2008). Asymmetric autoregressive distributed lag (ARDL) cointegration methods are used in the third essay to explore the effects of exchange rate misalignment on economic performance. Specifically, I investigate the response of economic performance to exchange rate misalignment depending on the direction and size of misalignment such that the reaction would be contingent on whether the exchange rate is undervalued or overvalued, and if the magnitude of the misalignment (small or large) is important in explaining the influence on the economy. Given the fact that both exchange rate misalignment and volatility represent uncertainty, the essay also seeks to ascertain whether a combination of both uncertainty indicators could be important in explaining the exchange rate’s influence on economic activity. Although not robust, the results confirm asymmetry in the reaction of economic performance in South Africa to exchange rate misalignment, with exchange rate undervaluation of approximately 10% being positively correlated with economic performance. Although not statistically significant, the results indicate that exchange rate overvaluation has a negative influence on economic performance in South Africa. Finally, the essay concludes that exchange rate volatility, as specified through a GJR-GARCH (1,1) model, does not have a significant influence on real GDP. The last essay empirically assesses the reaction of South Africa’s exports to exchange rate misalignment occurrences and volatility with the major focus being possible asymmetries in such a relationship. This study brings in a new dimension to the literature by making a comparison as to whether it is only exchange rate misalignment or volatility, or a combination of both, that influences South African exports at both aggregate and sectoral levels. At the aggregate level, the findings confirm asymmetry as exports appear to benefit less from exchange rate undervaluation than they suffer from an overvalued exchange rate. The same observation is true for manufactured exports, while the results confirm no meaningful relationship between exchange rate misalignment and agricultural and mining exports. On volatility, it is found that this variable on its own does not have an influence on exports. When considered together with misalignment (overvaluation and undervaluation), volatility exerts a negative and statistically significant influence on both gross and manufactured exports. Regarding the size of misalignment (for both overvaluation and undervaluation), based on the sample data, the study fails to confirm evidence of hysteresis in the reaction of exports to exchange rate misalignment for both aggregate and manufactured exports. This result is probably a confirmation of the weak influence of exchange rate misalignment on exports in South Africa. In summary, the thesis contributes to the literature on modelling exchange rate misalignment and volatility in South Africa. The main contribution of the study is through testing for asymmetries in the reaction of economic performance and export performance to exchange rate developments in the country. The results from the study provide credence to the view that maintaining the exchange rate at an appropriate competitive level is desirable as a measure to boost manufactured exports and growth, although such a policy should be secondary to labour productivity, and a good supportive infrastructure that allows manufacturers to produce at full capacity, together with macroeconomic stability. From a policy perspective, efforts to avoid exchange rate overvaluation and smooth out excessive currency volatility are desirable as a measure to support South Africa’s economic performance. In episodes of exchange rate appreciation and concomitant overvaluation, the Reserve Bank could use such opportunities to intervene in the foreign exchange market as a measure to boost foreign exchange reserves. Further research in this area could focus on the application of different methods to estimate the equilibrium exchange rate (e.g. FEER, NATREX) or the influence of exchange rate misalignment on other economic variables such as investment, imports, the balance of payments or employment.
Financial development, financial inclusion and welfare dynamics in sub-Saharan Africa
(Stellenbosch : Stellenbosch University, 2017-03) Tita, Fomum, Anthanasius; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
ENGLISH SUMMARY : Over two decades of post reforms, the financial system of many sub-Saharan African countries remained underdeveloped and highly exclusive with only 34% of adults 15 years and above having a basic bank account. Nevertheless, sub-Saharan Africa has experienced robust growth, on average 4.8% per annum over the past 15 years surprisingly with widening income inequality and sluggish decline in headcount poverty ratio. This unfolding evidence challenged conventional thinking about the role of finance on growth and welfare. However, there is a shortage of empirical evidence linking financial development and financial inclusion to welfare. Knowledge of this relationship is important to shape policy thinking on how financial reforms can help to redress poverty and income inequality in sub-Saharan Africa. The purpose of this study is to fill this knowledge gap by examining the relationship between financial development, financial inclusion and welfare dynamics in sub-Saharan Africa. The thesis is structured into four main chapters, a descriptive chapter and three empirical chapters. The evidence from the descriptive analysis showed that financial inclusion, financial stability, financial integrity and consumer financial education are interrelated and under a suitable balance re-enforces each other. It also emerges that the level of financial intermediation in sub-Saharan Africa is low. As a result, huge unmet demands for credit and saving facilities exist across all regions. By regions, the rate of formal saving and borrowing in Southern, Eastern and West African countries is two times higher than the rate in French West and Central African countries. Overall, the level of financial inclusion in French West and Central Africa is the lowest in sub-Saharan Africa. The results from Chapter 3 revealed that income inequality will increase at the early stages of financial development but the positive trend reverses to negative as the financial sector reaches a higher stage of development – inverted u-shape. Specifically, financial sector might lend more to the rich and well-connected elites at some levels of financial development especially when institutions are weak, but as the system develops, more people have access and resultant effects tickles down to the lower income earners, hence income inequality starts to reduce. Finally, income inequality has some links with GDP per capita – increases with lower GDP per capita and declines as GDP per capita grows, translating into an inverted u-shape. Empirical evidence from Chapter 4 suggests that financial inclusion has both positive and negative relationships with welfare, depending on the aspect of financial inclusion and the indicator of welfare used. First, account ownership, formal loan and saving have a positive relationship with human development index but the relationship with electronic payment is mixed. Secondly, health insurance and loan to pay school fees reduces headcount poverty whiles, account ownership, formal loan and health insurance reduces under-five mortality rate per 1000 live birth. Finally, formal account use for business purposes, electronic payment and formal loan increases income inequality at least in the short run. These results reflect the prevailing robust growth and rising levels income inequality in sub-Saharan Africa. Finally, evidence from Chapter 5 revealed that financial inclusion has a positive relationship with assets ownership. The results suggests that a one-unit change in financial inclusion (credit, monthly saving and insurance) can increase assets ownership by 21% at the 10th quantile of the conditional assets distribution for users of financial services compared to non-users holding other factors constant. For all the aspects of financial inclusion analysed, the magnitude of the response to a unit increase in financial inclusion at the 10th, 20th and 30th quantiles is higher than the response at the median quantile. This suggests that financial inclusion and assets building programmes can have a substantial effect at the bottom of the assets distribution. Hence, this evidence provides a good case for a progressive assets building social welfare for the poor and low-income families in South Africa. In summary, these results showed that French speaking west and Central African countries have lower levels of financial inclusion compared to other regions in sub-Saharan Africa. Furthermore, the emerging evidence suggest that financial development increases income inequality in the group of African countries studied and that low GDP per capita also increase income inequality. Finally, evidence also revealed that financial inclusion exerts some positive influence on welfare with exception of income inequality and that asset building social welfare programmes can be used to complement the income transfer approach to poverty reduction.
Financial institutions, markets and structure linkages with economic performance in selected African countries: Time series evidence
(Stellenbosch : Stellenbosch University, 2018-03) Rateiwa, Ronald; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
ENGLISH SUMMARY: As traditional sources of financing such as bank lending have slowed down, the call to mobilise financial resources for the attainment of the SDGs and the Africa Agenda 2063 has grown louder. Consequently, the need for more research to identify and understand untapped and underused sources of economic growth has become even more urgent. Unfortunately, although research on the finance-growth linkage is substantial, there seems to be no agreement on the channels and magnitude through which different institutions influence economic growth. For that reason, and to contribute to the finance-growth discourse, 264 trivariate models were estimated for each country (792 in total) in this thesis, to identify the channels and magnitude through which financial systems influence economic growth. The estimation is based on the cointegration and vector-error correction techniques within the Johansen cointegration framework. Estimating trivariate models enabled us to apply one of the 22 control variables at a time, thus testing the robustness of the relationship under different conditions. To cover different aspects of financial systems, 8 different measures of financial development were used. Also, the study was carried out at country level to avoid problems associated with cross-country studies. The study uses time series data from Africa’s three biggest economies, namely: Egypt, Nigeria and South Africa1 over the period 1971-2013. The thesis is organised into five empirical chapters. Firstly, results from our analysis show that the link between bank development and economic growth in all the three countries is weak and mixed. Egypt is the only country to report overall results, though weak, which show a positive relationship between bank development and economic growth. The results for Nigeria and South Africa are not only weak, but mixed. Secondly, analysis in respect of the relationship between stock market development and economic growth shows that such a relationship is positive in all three countries, albeit based on different measures. In Egypt, our results show that stock market development positively influences economic growth based on both stock market capitalisation and stock market value-traded measures. Results obtained in respect of Nigeria show that stock market value-traded is likely to positively influence economic growth. The results for South Africa are surprisingly weak, given that this is the country with the deepest stock market in Africa. Thirdly, results from this thesis show that there is potential for NBFIs to stimulate economic growth in Egypt and South Africa. In Nigeria, no evidence was found to show the influence of NBFIs on economic growth. Rather, the weak evidence that was found in respect of Nigeria suggests that economic growth will negatively influence the development of NBFIs. Fourthly, results in respect of financial structure show that in Egypt, the liquidity of the financial system is influenced by the growth of the economy. In Nigeria, results show that the liquidity of financial markets positively influences economic growth. The results for South Africa show a positive relationship, suggesting that an increase in the liquidity of the financial markets will spur greater economic growth. Lastly, results obtained from this thesis suggest that causality runs from stock markets and banks to NBFIs in Egypt and Nigeria, where the level of NBFI development is low. However, in South Africa, where the NBFIs are fully developed, NBFIs influence the development of stock markets and banks. Thus, these results highlight the different channels through which financial development influences economic growth in the three countries. Note 1. These three countries are the three biggest economies in Africa
Financial liberation and international remittances in Sub-Saharan Africa : a panel data analysis
(Stellenbosch : Stellenbosch University, 2014-12) Adenutsi, Deodat Emilson; Ocran, Matthew K.; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. Graduate School of Business.
ENGLISH ABSTRACT: This study analyses the implications of financial liberalisation programme for international remittance inflows with regard to the macroeconomic determinants and also the implications of remittances for economic growth and development in sub-Saharan Africa (SSA) between 1980 and 2009. The methodological approach to the analytical framework of this study is based on the hypothesis that financial liberalisation causes higher inflows of international migrant remittances through official channels to augment the scarce domestic financial resources, and to stimulate economic growth for sustainable development in capital-constrained SSA. Prior to the macroeconometric analyses, the study addressed definitional and measurement issues on international remittances and financial liberalisation, and provided an overview of the macroeconomic policy environment in post-independent SSA, as well as the magnitude and the trends in remittances received by SSA relative to other developing economies. First, the system Generalised Method of Moment (GMM) for dynamic panel-data estimation was used to determine the macroeconomic factors responsible for the changing trends in remittance inflows. Then an inquiry into the impact and causal effects of financial liberalisation on international remittance inflows in SSA following the static panel-data modelling and panel Granger non-causality estimation procedures was undertaken. Following this, the system GMM was further employed to examine the impact of remittances on long-run economic growth, and the effects of remittance inflows on economic development in SSA. Essentially, the economic development indicators considered in this study are poverty, income inequality, labour market outcomes, human capital development, and financial development. It is revealed in this study that the most appropriate measure of international migrant remittances is the sum of “workers‟ remittances” and “compensation of employees” excluding “migrant transfers”. Using remittances per capita, which the study found to be the best proxy for remittances per migrant rather than the commonly used remittances as a percentage of GDP, it is shown that SSA is the least recipient of official migrant remittances in the world, with no SSA country receiving remittances worth US$1 per day. This study further establishes that the macroeconomic factors that influence remittance inflows in SSA have varying rather than static impact in response to changing macroeconomic policy environment. Also, macroeconomic factors have different influences on attracting remittances from abroad in relation to migrant duration status – permanent or temporary. Although financial liberalisation Granger-causes international remittances, not sufficient evidence exists that a significant proportion of the official remittances received in SSA passes through the banking system. Besides, the extent to which financial liberalisation can Granger-cause and/or positively impact on international remittance inflows in SSA is directly and ultimately conditional to the macroeconomic fundamentals of the remittance-receiving SSA country. It was also found out that generally, international migrant remittances propel higher economic growth in SSA, with greater impact on SSA countries with relatively higher growth rates. International remittance inflows have significant positive developmental impact, with no sufficient evidence of moral hazard effects. Overall, international remittances contribute to reducing poverty and unemployment but not necessarily income inequality and, at worse, remittances have no significant impact on labour productivity and participation in SSA. Higher remittance inflows promote human welfare, educational attainment, life expectancy, and financial development in SSA. With the exception of educational attainment, the developmental effects of remittances vary across countries, depending upon the level of economic development.
Foreign capital flows and economic growth in selected Sub-Saharan African economies
(Stellenbosch : Stellenbosch University, 2017-03) Adeola, Omolola Oluwatoyin; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
ENGLISH SUMMARY : The need for foreign capital flows to developing countries to supplement domestic savings for investment and economic growth cannot be overemphasized. This is especially the case in sub-Saharan Africa (SSA) where there is high level of poverty and low domestic capacity to save. To achieve sustainable economic growth, countries require other sources of capital outside the domestic economy. This has led many countries in SSA to liberalise their financial systems with a view to attracting inflow of capital to the region. This has resulted in substantial capital flow to the region. However, the extent to which the various capital flows have contributed to the growth of the economies remains unclear. If they do contribute to economic growth, which of the capital flows contributes the most to the growth of their respective economies? Against this backdrop, the study explored the effect of different foreign capital flows (foreign direct investment, foreign portfolio investment, foreign debt flows, official development assistance and remittances) on economic growth in four selected sub-Saharan Africa’s major economies to determine the foreign capital flows that contributes most to the economic growth in these countries. Tests of Co-integration and Vector Error Correction modelling were used in the estimation to achieve this. The thesis comprises of four empirical chapters with each chapter focusing on a particular country. A country each was chosen from the three sub-regions of SSA. South Africa, Nigeria, and Kenya to represent the regional economies of Southern, Western and Eastern Africa respectively; and lastly Mauritius was included as a success story in SSA. The first empirical chapter explains the need for external capital flows to South Africa where there are high levels of poverty, unemployment, inequality and low domestic capacity to save. This chapter analyses the effects of four major capital flows into South Africa in order to determine the relative contribution of these flows to South Africa’s economic growth. The second empirical chapter shows how foreign capital plays a major role in the economic growth of developing countries such as Nigeria through bridging the savings-investment gap. The effects of four major capital flows into the Nigerian economy were analysed to determine their relative contribution to economic growth. In light of vision 2030 for Kenya, the third empirical chapter provides a synopsis of capital flows in Kenya and analyses the effects of five major capital flows into Kenya to determine these capital flows’ relative contribution to the economic growth of the nation. The last empirical chapter of the thesis analyses the effects of three major capital inflows into the Mauritius economy in order to determine the relative contribution of these flows to Mauritius’ economic growth. Overall, it appears that the evidence gathered from this thesis indicates that remittances, which is a growing form of foreign capital flows, contributes the most to economic growth in two out of the four countries studied in sub-Saharan Africa. Foreign direct investment was also another capital flow that contributes to economic growth. This implies that policies should be geared towards the increase of foreign direct investment and remittances in sub-Saharan Africa to enhance economic growth.
Small enterprise development in South Africa : an exploration of the constraints and job creation potential
(Stellenbosch : Stellenbosch University, 2015-04) Mthimkhulu, Alfred Mbekezeli; Aziakpono, Meshach; Stellenbosch University. Faculty of Economic and Management Sciences. Graduate School of Business.
ENGLISH ABSTRACT: This thesis, presented in six thematic chapters, investigates an approach for promoting the growth of small businesses in South Africa. Chapter 1 motivates the thesis by discussing the contested role of small businesses in reducing unemployment and fostering social equity. Chapter 2 reviews the small business development policy in South Africa and explicates the socioeconomic conditions underpinning the policy. Chapters 3, 4 and 5 are empirical analyses using data from the World Bank Enterprise Surveys of 2003 and 2007, and the World Bank Financial Crisis Survey of 2010 to determine key impediments to the growth of small businesses and characteristics of firms creating and retaining most jobs in South Africa. Chapter 3 uses two methods to investigate the key impediments. The first method is based on a count of obstacles that entrepreneurs rate as seriously affecting enterprise operations. The second estimates the effects of the obstacles on growth through sequential multivariate regressions and identifies binding constraints for different categories of firms. It emerges that medium-sized firms are mildly affected by most obstacles but micro and small firms are significantly affected by crime, electricity and transportation problems. The chapter provides important insight on the sequencing of interventions to address the impediments to growth. Chapter 4 studies the finance constraint. It evaluates the importance of the constraint firstly by assessing whether firms rating finance as a serious problem underperform firms rating the problem as less important. Thereafter, the chapter studies the experiences of firms when seeking external finance and identifies four levels of the finance constraint. Using an ordered logit model and a binary logit model, the chapter explores the profile of financially constrained firms. Results show that firms owned by ethnic groups disadvantaged in the apartheid era are more likely to be credit-constrained. The results also suggest that the likelihood of being credit-constrained decreases with higher levels of formal education. The results inform policy on the types of firms that financial interventions must target. Chapter 5 builds on a growing body of evidence which shows that a small proportion of firms in an economy account for over 50 percent of net new jobs. The evidence from the literature suggests that such high-growth enterprises have distinct characteristics that could make it possible for interventions to nurture or for other firms to emulate. The chapter employs two methods to investigate the characteristics of high-growth firms. The first is logit regression, which the investigation uses to determine characteristics of firms that create more jobs than the average firm. The characteristics are also interacted to identify interaction terms most associated with growth. The second method is quantile regression, which makes it possible to assess the importance of each characteristic for firms in different levels of growth rates. The results show that the typical high-growth firm is more likely to be black-owned. The results of the chapter however highlight the need for further research into characteristics that may perhaps explain high-growth firms more robustly than variables in the survey instrument. The research ends with a summary, a discussion of areas of further research, and policy recommendations in Chapter 6.

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