Characterising market power and its determinants in the Zambian banking indudstry

This article evaluates the intensity of competition by estimate a bank-specific and time varying Lerner Index as a measure of market power by Zambian banks in the post-reform period. Using a model of oligopolistic conduct, we show that Zambian banks exercised market power in setting prices. Furthermore, market concentration, efficiency performance, diversity in revenue sources and regulatory intensity accounted for much of the banks’ exercise of market power. However, the results indicate that credit risk and macroeconomic uncertainty had a weakening effect on the banks’ exercise of market power. The policy lesson from the analysis is that regulatory authorities should continue with the policy of opening up the financial sector to more players in order to foster contestability in the banking industry.Banking, market power, competition

Characterising market power and its determinants in the Zambian banking indudstry

This article evaluates the intensity of competition by estimate a bank-specific and time varying Lerner Index as a measure of market power by Zambian banks in the post-reform period. Using a model of oligopolistic conduct, we show that Zambian banks exercised market power in setting prices. Furthermore, market concentration, efficiency performance, diversity in revenue sources and regulatory intensity accounted for much of the banks’ exercise of market power. However, the results indicate that credit risk and macroeconomic uncertainty had a weakening effect on the banks’ exercise of market power. The policy lesson from the analysis is that regulatory authorities should continue with the policy of opening up the financial sector to more players in order to foster contestability in the banking industry

Characterising market power and its determinants in the Zambian banking indudstry

This article evaluates the intensity of competition by estimate a bank-specific and time varying Lerner Index as a measure of market power by Zambian banks in the post-reform period. Using a model of oligopolistic conduct, we show that Zambian banks exercised market power in setting prices. Furthermore, market concentration, efficiency performance, diversity in revenue sources and regulatory intensity accounted for much of the banks’ exercise of market power. However, the results indicate that credit risk and macroeconomic uncertainty had a weakening effect on the banks’ exercise of market power. The policy lesson from the analysis is that regulatory authorities should continue with the policy of opening up the financial sector to more players in order to foster contestability in the banking industry

Performance of Zambian Commercial Banks in the Post-Liberalisation Period: Evidence on Cost Efficiency, Competition and Market Power

This study investigates three aspects important of performance for Zambia commercial banks. Specifically, the thesis addresses the aspect of cost efficiency and the factors that affect inefficiency performance. The study also empirically answers the policy question regarding the banks' exercise of market power and the low degree of competition. Using a richly assembled panel data set obtained from the Bank of Zambia on individual banks from 1998 to 2006, the thesis utilises theoretically sound methodologies in addressing these research questions. The results from the analysis reveal the following. Firstly, using stochastic frontier estimation approach, cost inefficiency was estimated to be 8 percent. This means that mismanagement of resources was an impediment to the efficiency performance. Nonetheless, we observed a reduction in cost inefficiency over time, with domestic private banks displaying remarkable improvement. A combination of bank-specific and exogenous factors deterred banks from attaining optimal cost efficiency. Notably, impaired loans, asset concentration and macroeconomic instability undermined the banks' ability to operate optimally. Regulatory factors did not exacerbate cost inefficiency. Secondly, Zambian banks operated in an oligopolistic set-up. Based on a methodology anchored in the New Empirical Industrial Organisation literature, the results of a competitive test showed that banks earned their revenue under conditions of monopolistic competition. This finding was buttressed by the estimated time varying Lerner Index, a measure of market power. The index showed that commercial banks set their prices above marginal cost by more than 50 percent. However, the degree of market power narrowed towards the end of the sample period. Market concentration, efficiency performance, diversity in revenue sources and regulatory intensity accounted for much of the banks' exercise of market power. On the other hand, the high proportion of interbank deposits, credit risk exposure and inflation dampened the banks' exercise of market power. To our knowledge, this study is the first of its kind in Zambia. Therefore, the results of the thesis have important policy implications. More significantly, since there is room for deepening the degree of competition and furthering efficiency gains, regulatory authorities should strengthen measures aimed at ameliorating risk problems in the banking industry in a bid to lower the banks' exercise of market power. The authorities should also accelerate should also accelerate efforts of reducing recourse to Treasury bills as a deficit financing tool in order to negate the banks' appetite for securities as a source of revenue. This can be done by placing more emphasis on the legal and institutional framework for resolving problem credit situations. This will intensify competition and propagate efficiency gains in the banking market. The authorities should also expeditiously tackle instability in the macroeconomic environment, particularly the high rate of inflation which hampered the banks' revenue performance and exacerbated the exercise of market powe

Harnessing Resource Revenues for Prosperity in Zambia

This paper examines the macroeconomic management of Zambia’s natural resource endowment over the past century. We describe how the state has adopted different strategies to secure a share of the rents from copper mining, how these strategies have affected incentives for exploration and production and how the associated macroeconomic policy regimes have shaped the value and distribution of the natural resource rents. We focus principally on the shift from public back to private ownership and control of the sector that took place at the end of the 1990s and on how the terms of the privatization affected the impact of the commodity price boom of 2003-08 on the domestic economy. We suggest that while the state and people of Zambia captured a nugatory share of the rents accruing from this boom, high levels of investment in the sector, combined with recent reforms to the mining taxation regime and in the conduct of macroeconomic policy have left Zambia better-placed to benefit from future growth in the copper sector.Zambia, macroeconomic management, copper mining, rents, natural resources, private ownership, commodity price

African Economic Outlook 2015: Thinking regional to foster Africa's structural transformation

Le document est disponible en ligne : http://agritrop.cirad.fr/576298/7/Losch-Thinking_regional-Art_2015.pdfNational audienceAfrican economies need to liberate the potential of their many regions to foster endogenousgrowth and accelerate structural transformation by adopting regional approaches to development - multi-sectoral, place-based and participative - and building on specific localresources.Structura