Sub-Saharan Africa’s Infrastructure Gap: A Failure of Financial Markets?

This research examines the role of financial market failure in explaining Sub-Saharan Africa’s (SSA) infrastructure gap. The core infrastructure examined are energy, telecommunication and transport. The model includes a nonlinear interaction variable as well as elements of expectation models. The study finds that fixed effects are dominant for all infrastructure except mobile telecommunication facilities in SSA. The dynamic panel regression results indicate that for most of the considered infrastructure, financial sector intermediation to the private sector is most critical. Banking and stock market development are, generally, less important. There is evidence that there is an interaction between most considered infrastructure and financial sector intermediation. JEL Classification: G2, O1, G10. Keywords: Financial markets, Infrastructure gap, Sub-Saharan Africa

Production Efficiency in the South African Banking Sector: A Stochastic Analysis

Abstract Econometric estimates of the level of efficiency at bank branches are likely to provide detailed insight into the overall level of efficiency in banking. Therefore this paper uses Bayesian stochastic frontier analysis to assess the production efficiency of 61 bank branches in the nine provinces of the Republic of South Africa. We find that every branch is operating at increasing returns to scale and that the level of production efficiency of bank branches is lower than it could be. We also find that at current levels of output, on average, bank branches can reduce their costs by about 17% if they improve the level of efficiency. In addition, we find that Gauteng Province has the lowest average level of returns to scale, while the Free State Province has the highest average level of the nine provinces. In addition, via estimates of the posterior mean for shares and price elasticities, we find that the price of capital is the largest predicted proportion of costs. These findings suggest that bank branches could also obtain cost reductions by increasing the level of output. Regulatory policy reforms and competitive incentives to enable banks to meet this objective should be encouraged.South Africa, banks, branches, efficiency, stochastic frontier, G21, C14, D2,

Cost structures and new technology: a case study of a bank in South Africa

There has been considerable development in the technology used to provide bank services. This has led to an increase in the number of channels which can be used to deliver bank services to retail clients. Accordingly, there is a need to assess the costs of using different technologies to provide services to retail bank clients. In this paper, detailed cost data are used to estimate two stochastic frontier models of the cost of providing retail services for clients who use the branch bank teller and those who use an information technology based approach. We remove the inefficiencies in the cost estimates of the two different technologies to enable forecasts of the cost consequences of shifts in technology to be based on production technique best practice. The findings suggest that benefits can be obtained by reducing inefficiency and by extending new technology more broadly to lower income retail clients.banks; cost function estimates; efficiency; South Africa; financial services; cost structures; retail banking; new technologies; automated teller machines; ATMs; internet banking; electronic banking; branch bank tellers.

An Analysis of a Free Cashflow Portfolio Investment Strategy

Many investment strategies are based on information derived from, or expectations related to, information in financial statements. Generally Accepted Accounting Practice (GAAP) are interpreted differently in various countries and this reduces the reliability of financial statements for international investors. This paper uses a market-based accounting research (MBAR) framework to examine an investment strategy for portfolio selection in domestic (South African) and foreign (African) equities. The strategy is based primarily on free cash flow and reduces reliance on the varied conventions of preparation of financial statements. The investment strategy selects firms that consistently generate free cash flows, have low free cash flow multiples, and low financial leverage. On average the selected equities in the domestic and foreign portfolios have systematic risks that are less than one, so without additional risk, the investment strategy yields higher returns than an international investment index. Further findings are that a domestic portfolio of Johannesburg Stock Exchange (JSE) listed equities designed with the same criteria as the foreign portfolio also earns returns that exceed the JSE Actuaries Overall Index (JSEAOI). African Journal of Finance and Management Vol.7(2) 1999:1-1

Bank Branch Location: a Count Analysis

Abstract This study undertakes an analysis of the association between socio-economic variables and the spatial distribution of bank branches in South Africa. To analyse retail bank branch location, parametric Poisson, negative binomial, Poisson-hurdle, and finite-mixture count models that accommodate unobserved heterogeneity have been estimated with a data set of bank branches in municipalities in South Africa. The key finding is that aggregate income in a municipal area is a statistically significant determinant of the number of bank branches. The results also suggest that the four core banks tend to cluster their branches in the same areas—suggesting the possibility of oligopolistic collusion. A more recent entrant locates its urban branches slightly away from the cluster and in some areas where the core banks have no presence. In addition, several socio-economic variables, some of which are unique to South Africa, do not appear to affect branch location. Situation des filiales de banques: une analyse à comptage RÉSUMÉ La présente étude entreprend une analyse de l'association entre des variables socio-économiques et la répartition de filiales de banques en République Sud Africaine. Pour analyser l'emplacement des filiales du secteur de la banque de détail, on a évalué des modèles de comptage de Poisson, de probabilités binomiales négatives, au taux étalon de Poisson, et aux mélanges finis, qui tiennent compte de l'hétérogénéité non observée au moyen d'un ensemble de données de filiales de banques dans des municipalités en Afrique du Sud. La principale conclusion est que le revenu total dans une zone municipale est un déterminant significatif statistiquement du nombre de filiales de banques. Les résultats semblent également indiquer que les quatre principales banques ont tendance à grouper leurs filiales dans les mêmes régions, ce qui semblerait indiquer la possibilité d'une collusion oligopolistique. Une banque arrivée plus récemment a réparti ses filiales légèrement hors de ce groupement, où les principales banques ne sont pas représentées. En outre, plusieurs variables socio-économiques, certaines desquelles sont particulières à l'Afrique du Sud, ne semblent pas affecter l'emplacement des filiales. Ubicación de sucursales bancarias: un análisis de recuento RÉSUMÉN Este estudio realiza un análisis de la asociación entre las variables socioeconómicas y la distribución espacial de sucursales bancarias en Sudáfrica. Para analizar la ubicación de sucursales de bancos minoristas, se han estimado modelos de recuento como el paramétrico de Poisson, binomial negativo, Poisson-hurdle (modelo en dos partes) y mezcla finita, que conllevan una heterogeneidad inadvertida, con un conjunto de datos de sucursales bancarias de municipalidades de Sudáfrica. El descubrimiento clave consiste en que los ingresos agregados en un área municipal representan un determinante estadísticamente significativo del número de sucursales bancarias. Los resultados también sugieren que los cuatro bancos principales tienden a agrupar sus sucursales en las mismas áreas, indicando la posibilidad de una colusión oligopolística. Un participante más reciente sitúa sus sucursales urbanas algo más alejadas del grupo, y en algunas áreas donde los bancos principales no están presentes. Asimismo, ciertas variables socioeconómicas, algunas de las cuales son exclusivas de Sudáfrica, no parecen afectar a la ubicación de la sucursal.Bank branches, count analysis, South Africa, C31, N27, R32,