Do Banks Steer Economic Growth in Emerging Markets? Empirical Evidence from Zimbabwe

Tests of the finance-growth nexus to date have not been conclusive on the nature & direction of the relationship between economic growth and financial sector development. A number of studies on the role played by banks in economic development have shown considerable variation across countries. In this paper we empirically examine the causal and nature of relationship between financial sector development and economic growth in Zimbabwe for the period 1980 to 2006; using time series analysis namely Granger Causality tests in a Vector Autoregressive (VAR) framework. All variables were tested for stationarity using the Augmented Dickey–Fuller (ADF) Test and became stationary in levels, 1st difference and 2nd difference. A general uni-directional relationship was found to exist running from banking sector development to economic growth in Zimbabwe hence the supply-leading hypothesis is supported. The study recommends that policy makers should come up with policies that steer continuous growth of the banking sector. In this regard the government could reduce its borrowings from the domestic money market, promote a savings culture by encouraging banks to increase their deposit rates (through moral suasion) and attract more deposits for onward lending to the private sector and improve the country’s low credit risk rating to lure foreign investors. Keywords: Banks, Economic Growth, Unit root Tests, Granger Causality, VA

Significance of infrastructure investments in emerging markets to institutional investors.

Doctoral Degree. University of KwaZulu-Natal, Durban.The worldwide financial crisis of 2007/8 and the subsequent economic slump led to significant funding and solvency challenges for institutional investors as their financial positions were adversely affected. The former institutional investors’ investment ‘safe haven’, being real property/estate, was one of the catalysts for the 2007/8 crisis as the real estate market experienced substantial losses. These experiences altered institutional investors’ perceptions towards their traditional asset and portfolio allocation strategies. In an attempt to avoid poor returns and excessive volatility from real estate, bonds and money market instruments, institutional investors are now in a new drive to diversify and supplement their core assets. As a result, institutional (and individual) investors are on the hunt for better yields, diversified portfolios, and inflation hedged returns so that they can meet their long term inflation-indexed liabilities and remain afloat. Infrastructure sector investments, given their theoretical narratives and attractive investment characteristics qualify to be the new investment niche and appropriate for long term institutional investors. This claim to the attractiveness of infrastructure investments can be rejected or shelved if empirical analysis of infrastructure investment features yields contrary results as the attractive risk-return profile of infrastructure investments might be ‘illusory’. The illusion is amplified by the differences in infrastructure investments in developing and developed markets. This thesis evaluated the economic or financial intrinsic infrastructure investment features to ascertain if institutional investors (in their hunt for new investment avenues), can derive value from the same in emerging markets where the infrastructure gap is high and the infrastructure market still developing. Academic studies on infrastructure investments in emerging and developed markets are scant. The few available academic studies applied very basic statistical measures on the subject matter. The present study adopted, portfolio optimization approach, risk-adjusted return measures, linear and non-linear autoregressive distributed lag (ARDL) models, panel ARDL as well as EGARCH and GJR-GARCH models to achieve the set objectives. As such, the study makes notable contributions to the body of knowledge by applying appropriate econometric models using emerging nations as a case. The results indicated that unlisted or private infrastructure securities can amplify portfolio returns and dampen portfolio risk. The significance of infrastructure investment to institutional investors is thus limited to enhancing portfolio returns and reducing portfolio risk. The results showed that listed or exchange traded infrastructure’s risk-return profile is similar to that of real property and general emerging equity market returns in emerging markets. Private and listed infrastructure exhibited different stochastic and distributional features implying that they can play a complementary role in a portfolio. This implies that investors can hold listed and private infrastructure in the same portfolio without sacrificing portfolio performance. Listed infrastructure exhibited remote inflation hedging ability on short term basis. All other assets are poor inflation hedges in emerging markets implying that investors must consider other assets which can hedge inflation risk. All the assets under consideration exhibited significant volatility clustering, volatility persistence and leverage effects. GJR-GARCH specification under GED proved to be the optimal volatility model for all assets under study. This implies that corporates in the infrastructure sector (as well as real property and general equity) in developing economies should be prepared to absorb an additional risk premium as lenders are exposed to significant volatility persistence. On the same note, investors should also come up with other sources of liquidity as volatility persistence will increase the cost of providing liquidity in emerging markets. Investors are recommended to allocate a significant part of their capital to unlisted infrastructure so that they can enhance their portfolio performance and reduce portfolio diversifiable risk. In order to hedge inflation risk, investors are recommended to look beyond infrastructure, real property and the general equity market in emerging markets. Policy makers in emerging companies are recommended to design contracts and concessions which link returns from long term infrastructure returns to inflation rate. On the same note, regulators in emerging financial markets are recommended to come up with policies which dampen the volatility of asset prices which in turn restore investor confidence, thereby attracting long term capital. Investors are encouraged to consider leverage effects when computing their value-at-risk figures and when making investing decisions. Researchers are encouraged to unbundle the infrastructure sector, and emerging markets ‘groups’ when making future studies. On the same note, as data become available and the economic environment changes, inflation hedging capabilities of the assets covered in this study can be evaluated on a longer term basis in different inflation environments

Stock Market Development and Economic Growth: An Empirical Analysis of Zimbabwe (1989-2014)

The relationship between stock market development and economic growth varies across nations and regions. This relationship is of significance to regulatory authorities, investors and portfolio managers in their operations aimed at enhancing the welfare of the citizens and clients at large. The purpose of this study is to examine the relationship between these two variables in Zimbabwe for the period 1989 to 2014. The paper employed the Vector Error Correction Model approach after establishing the order of integration (unit root tests) and cointegration between variables. All the variables were found to be stationary at 1% level after first differencing using the Phillips-Peron tests. The long run relationship was negative, whereas the short run coefficients were insignificant. Though contrary to financial theory, the results, to a large extent, testify to what happened during the period. Based on these findings, the Zimbabwe Stock Exchange and Securities and Exchanges Commission are urged to come up with alternative products to lure new listings from the small to medium enterprises. It is also recommended that all the stakeholders focus beyond the Zimbabwe Stock Exchange to promote economic growth as the firms seem to raise funds from other sources

Examining the relationship between savings and deposit rates

Using the VECM approach, the study analysed the link between savings rates in Zimbabwe and deposit rates and other macroeconomic variables for the period 1983 to 2006. The study established a long run relationship exists between the savings and deposit rates. The speed of adjustments toward long run equilibrium was found to be 83% per annum which is a swift adjustment. It was also established that shocks to savings rates in Zimbabwe explained much of the variances even up to ten years. This implies that savings rates are less exogenous, though inflation rates and deposit rates are the independent variables which explain variability in savings rates. It is against these findings that the Zimbabwean monetary authorities vary the savings rates directly to influence the volume of capital saved as all other independent variables influence savings rates after more than 5 years.peer-reviewe

Internet banking adoption and usage in Zimbabwean commercial banks : an analytical approach

Technology is revolutionizing the way business is conducted in every industry and commercial world. This study aimed at analysing the adoption and usage of Internet banking in Zimbabwe. It covered issues such as various banking services available through internet banking in Zimbabwe, factors influencing internet banking adoption in Zimbabwe, factors impacting negatively on customers’ utilization of internet banking and banks’ perceptions of internet banking. Questionnaires were administered to selected banking customers and staff of commercial banks using purposive and simple random sampling techniques. Findings from the study indicate that internet banking services in Zimbabwe include checking of balances and account activity, request for cheque book and same bank funds transfer. Lack of awareness on internet banking security, accessibility, lack of familiarity, age, gender, educational level and cultural resistance are some of the factors that affect internet banking adoption among customers. Internet banking is still in its teething stage and most of the banks do not offer full-fledged Internet banking though they have plans to do so. Bankers see Internet banking as a strategic opportunity that can be used to reduce transaction costs and enhance customer service delivery. It is therefore recommended that banks develop appropriate internet banking marketing strategies that maximizes value for customers and satisfaction in the long run.peer-reviewe

Las dimensiones culturales y la interacción entre el desempeño empresarial en las pequeñas y medianas empresas en Zimbabwe

Although culture is generally considered as a determinant of entrepreneurship, consensus is generally lacking on the precise influence of this variable on entrepreneurial performance in emerging economies. Using a quantitative approach, this confirmatory, cross-disciplinary study sought to investigate the effect of cultural dimensions, on entrepreneurial performance of among Small and Medium Enterprises in Zimbabwe. The independent variables were derived primarily from Hofstede's cultural dimensions and a total of 250 questionnaires were distributed to Small and Medium Enterprises in Zimbabwe. The research adopted a multisector approach and respondents were drawn from the ten provinces of Zimbabwe. To confirm the existence of a relationship between cultural dimensions and entrepreneurial performance, structural equation modeling, a confirmatory, multivariate technique, was employed, starting with representing the causal relationships between these variables in a pictorial form. The findings from this research are consistent with the propositions that the dimensions of culture have a significant and positive influence on entrepreneurial performance. The results also affirm the findings of previous studies that have been carried out on the influence of culture on entrepreneurial performance. Over and above the generic dimensions of culture, this study adds the mediating role of the propensity to act and perceived feasibility.Aunque generalmente se considera que la cultura es un factor determinante de la capacidad empresarial, generalmente no se cuenta con el consenso sobre la influencia precisa de esta variable en el desempeño empresarial en las economías emergentes. Utilizando un enfoque cuantitativo, este estudio confirmatorio y multidisciplinario buscó investigar el efecto de las dimensiones culturales sobre el desempeño empresarial de las Pequeñas y Medianas Empresas en Zimbabwe. Las variables independientes se derivaron principalmente de las dimensiones culturales de Hofstede y un total de 250 cuestionarios fueron distribuidos a Pequeñas y Medianas Empresas en Zimbabwe. La investigación adoptó un enfoque multisectorial y los encuestados fueron extraídos de las diez provincias de Zimbabwe. Para confirmar la existencia de una relación entre las dimensiones culturales y el desempeño empresarial, se empleó el modelado de ecuaciones estructurales, una técnica confirmatoria y multivariada, comenzando por representar las relaciones causales entre estas variables en forma pictórica. Los hallazgos de esta investigación son consistentes con las proposiciones de que las dimensiones de la cultura tienen una influencia significativa y positiva en el desempeño empresarial. Los resultados también confirman los hallazgos de estudios previos que se han llevado a cabo sobre la influencia de la cultura en el desempeño empresarial. Más allá de las dimensiones genéricas de la cultura, este estudio agrega el papel mediador de la propensión a actuar y la viabilidad percibida

Basel III LCR Requirement and Banks’ Deposit Funding: Empirical Evidence from Emerging Markets

In December 2010, the Basel Committee on Baking Supervision introduced the liquidity coverage ratio (LCR) standard for banking institutions in response to disturbances that rocked banks during the 2007/08 global financial crisis. The rule is aimed at enhancing banks’ resilience to short term liquidity shocks as it requires banks to hold ample stock of high grade securities. This study attempts to evaluate the impact of the LCR specification on the funding structures of banks in emerging markets by answering the question “Did Basel III LCR requirement induced banks in emerging market economies to increase deposit funding more than they would otherwise do?” The study found that the LCR charge has been effective in persuading banks in emerging markets to garner more stable retail deposits. This response may engender banking sector stability if competition for retail deposits is properly regulated

Cultural dimensions and entrepreneurial performance interaction in small and medium enterprises in Zimbabwe

Although culture is generally considered as a determinant of entrepreneurship, consensus is generally lacking on the precise influence of this variable on entrepreneurial performance in emerging economies. Using a quantitative approach, this confirmatory, cross-disciplinary study sought to investigate the effect of cultural dimensions, on entrepreneurial performance of among Small and Medium Enterprises in Zimbabwe. The independent variables were derived primarily from Hofstede's cultural dimensions and a total of 250 questionnaires were distributed to Small and Medium Enterprises in Zimbabwe. The research adopted a multisector approach and respondents were drawn from the ten provinces of Zimbabwe. To confirm the existence of a relationship between cultural dimensions and entrepreneurial performance, structural equation modeling, a confirmatory, multivariate technique, was employed, starting with representing the causal relationships between these variables in a pictorial form. The findings from this research are consistent with the propositions that the dimensions of culture have a significant and positive influence on entrepreneurial performance. The results also affirm the findings of previous studies that have been carried out on the influence of culture on entrepreneurial performance. Over and above the generic dimensions of culture, this study adds the mediating role of the propensity to act and perceived feasibility.Aunque generalmente se considera que la cultura es un factor determinante de la capacidad empresarial, generalmente no se cuenta con el consenso sobre la influencia precisa de esta variable en el desempeño empresarial en las economías emergentes. Utilizando un enfoque cuantitativo, este estudio confirmatorio y multidisciplinario buscó investigar el efecto de las dimensiones culturales sobre el desempeño empresarial de las Pequeñas y Medianas Empresas en Zimbabwe. Las variables independientes se derivaron principalmente de las dimensiones culturales de Hofstede y un total de 250 cuestionarios fueron distribuidos a Pequeñas y Medianas Empresas en Zimbabwe. La investigación adoptó un enfoque multisectorial y los encuestados fueron extraídos de las diez provincias de Zimbabwe. Para confirmar la existencia de una relación entre las dimensiones culturales y el desempeño empresarial, se empleó el modelado de ecuaciones estructurales, una técnica confirmatoria y multivariada, comenzando por representar las relaciones causales entre estas variables en forma pictórica. Los hallazgos de esta investigación son consistentes con las proposiciones de que las dimensiones de la cultura tienen una influencia significativa y positiva en el desempeño empresarial. Los resultados también confirman los hallazgos de estudios previos que se han llevado a cabo sobre la influencia de la cultura en el desempeño empresarial. Más allá de las dimensiones genéricas de la cultura, este estudio agrega el papel mediador de la propensión a actuar y la viabilidad percibida