Measuring the Impact of Trade Finance on South African Export Flows

Trade finance (or short-term credit) plays a crucial role in facilitating international trade yet is particularly vulnerable to financial crises as banks increase the pricing on all trade finance transactions to cover increased funding costs and higher credit risks. Whereas South Africa’s financial institutions largely managed to strengthen their capital positions during the global financial crisis, the country’s trade flows and access to capital (in particular trade finance and its costs) were hit hard by the crisis. Little is known about the extent of shortages or ‘gaps’ in trade finance and the impact of this on South Africa’s recent trade performance. Whilst our research recognises that access to trade finance is not the main cause of South Africa’s trade contraction, our research suggests that a one percentage point increase in the interbank lending rate of our trade partner could reduce exports by approximately ten percent, all else equal.exports trade finance crisis

Bringing Pankaj Ghemawat to Africa: Measuring African economic integration

A wealth of literature dealing with trade liberalisation, capital market liberalisation, labour mobility and related issues concerning globalisation asserts that economies that are more integrated with the global economy and, more specifically with their neighbours, tend to enjoy higher sustained levels of growth. Empirical evidence with solid quantitative findings recently conducted by Pankaj Ghemawat has confirmed that more ‘open and connected’ economies display higher rates of economic growth, higher per capita income levels and greater levels of human welfare. Against this backdrop, it is notable that the available evidence – whilst incomplete – suggests that African economies are amongst the least integrated in the world. Given that integration and connectedness matter, and that there are material gaps in the evaluation of integration for African economies, it is important to develop better measures of African economies’ connectedness with their neighbours and with the world, how this connectedness is evolving and establish more comprehensive and robust means of economic integration compared to those historically available. Using Ghemawat’s framework, which measures flows of trade, capital, information and people (TCIP) to determine connectedness, we develop the Visa Africa integration index to provide a more comprehensive and detailed gauge of economic integration for 11 African countries in three clusters: East Africa, West Africa and Southern Africa. The index results suggest that African economies are emerging off a modest base, with some economies demonstrating progressive structural improvements toward higher levels of integration with their respective regions and the world. East Africa, in particular, shows signs of rising connectedness over the survey period. The index also illustrates that some countries are more integrated globally than regionally and vice versa, which is important information for policy makers toward improving deeper and broader integration in their respective regions. The index builds on previous research in the broad area of integration and helps us better understand the challenges and opportunities presented by Africa’s economic changes and some of the implications for economic growth.http://www.sajems.orgam2016Gordon Institute of Business Science (GIBS

Using an inflation-augmented price-earnings ratio to guide tactical asset allocation

Asset allocation plays a central role in determining investment outcomes, and available evidence shows that portfolio results can be enhanced through tactical asset allocation if managers use the simple price-earnings ratio as a predictor of equity returns. Recently, some international evidence has emerged which shows that, by augmenting the price-earnings metric with information about consumer price inflation, further enhancements can be achieved in tactical asset allocation.  This study reviews these arguments  as they apply to South Africa, and finds that an inflation-augmented price-earnings ratio is more successful in forecasting equity returns than is the simple price-earnings ratio.  Moreover, the metric is found to be significant in explaining relative asset class returns. On a risk-adjusted basis, however, the tool fails to improve the portfolio results when compared to a buy-and-hold strategy

Using Benford's law to detect data error and fraud : an examination of companies listed on the Johannesburg Stock Exchange

Accounting numbers generally obey a mathematical law called Benford's Law, and this outcome is so unexpected that manipulators of information generally fail to observe the law. Armed with this knowledge, it becomes possible to detect the occurrence of accounting data that are presented fraudulently. However, the law also allows for the possibility of detecting instances where data are presented containing errors. Given this backdrop, this paper uses data drawn from companies listed on the Johannesburg Stock Exchange to test the hypothesis that Benford's Law can be used to identify false or fraudulent reporting of accounting data. The results support the argument that Benford's Law can be used effectively to detect accounting error and fraud. Accordingly, the findings are of particular relevance to auditors, shareholders, financial analysts, investment managers, private investors and other users of publicly reported accounting data, such as the revenue services

Ensuring that Africa keeps rising : the economic integration imperative

Cyclical factors and the commodities boom have played a big part in Africa’s impressive growth record since 2000. Yet the ‘Africa rising’ narrative is increasingly supported by significant macroeconomic reforms and structural changes that bode well for sustained levels of growth and development. A critical determinant of whether this positive growth trend continues will be the extent of Africa’s economic integration with the rest of the world and within the continent. The TCIP framework – tracking the flow of trade, capital, information and people – developed by Pankaj Ghemawat demonstrates how economic openness and integration facilitate economic growth and socio-economic advancement. However, poor levels of integration, a lack of understanding and the data deficit that measure these flows have left Africa out of these empirical studies. In this article, data from traditional sources together with the TCIP framework provide insights into the state, nature and contribution of these flows in Africa. In addition, a look at proprietary data from Visa further elucidates the changes and opportunities presented by Africa’s economic integration.http://www.tandfonline.com/loi/rsaj202016-10-31hb2016Gordon Institute of Business Science (GIBS

A modified Shiller's cyclically adjusted price-to-earnings (CAPE) ratio for stock market index valuation in a zero-interest rate environment

The cyclically adjusted price-earnings ratio (CAPE) is a tool that has become widely used to predict market returns. However, recently, deterioration in its forecast strength has surfaced. At the same time, global long-term interest rates have declined and are expected to remain at record lows, which the CAPE fails to consider. Omitting to fully examine the impact of the cost on capital on the effectiveness of CAPE as a valuation tool represents a gap in knowledge. This study uses a modified CAPE to account for interest rates, known as the excess CAPE yield (ECY), to offer an alternative – and potentially improved – model for predicting global stock market returns. We find that CAPEs peak when real interest rates are between 3% and 5%, while the ECY fails to improve on the predictive abilities of the CAPE.https://www.tandfonline.com/loi/riaj202023-03-19hj2023Gordon Institute of Business Science (GIBS

Investec GIBS savings index: The real facts about saving

GIBS Foreword: The capacity of a nation to save – through its citizens, companies and the public sector – is strongly related to its ability to achieve elevated, sustained and inclusive economic growth and social development. South Africa’s poor track record when it comes to recent years is of growing concern, and remedies to address our lacklustre performance need to be at the fore of our collective agendas. Significantly improving responsible performance on the part of both individuals and organisations is core to our GIBS mission. Without the production of applied scholarship dedicated to investigating the levers of performance that will drive South Africa forward and enable its people and country to reach their inherent potential, selecting appropriate paths of action is difficult. The generation of thought leadership is integral to any business school. At GIBS we seek to focus on applied research that not only contributes to scholarship, but is relevant to practitioners alike. The Investec GIBS Savings Index, prepared by Associate Professor Adrian Saville, provides a much needed tool to deconstruct, critically evaluate, and track the key drivers of South Africa’s performance when it comes to saving. The resulting study goes beyond providing a comprehensive analysis that shows South Africa’s poor performance when it comes to saving behaviour. It highlights the importance of moving from growth that relies on consumer consumption and government spending to growth that stems from increased levels of investments and exports. It shows that current trends in investment are way below what is required to fuel sustained and inclusive economic growth. Saville provides compelling evidence to show why the decline in gross domestic savings as a % of GDP must be reversed. Our role at GIBS is to elevate management performance through high quality education. We thank Investec, one of our corporate partners who play a critical role in funding scholarly research. This report provides compelling evidence to show what’s needed. Our collective challenge is to convert knowledge into action if we are to progress. Professor Nicola Kleyn Dean of GIBSInvestec Foreword: South Africa’s (SA) poor savings rate over the last two decades has been no secret, however, the importance of savings to fuel investment for sustained economic growth is less understood. At Investec, one of our core philosophies is to make a contribution to society, macro-economic stability and the environment. Our approach includes a strong focus on education and entrepreneurship. As such, we believe it is important that we not only raise awareness of the poor savings rate but also drive a discussion from a corporate, economic, academic and social perspective on how we can challenge the convention and approach this task. We have therefore partnered with the Gordon Institute of Business Science (GIBS) to provide the research to form the foundation for further debate and through the Investec GIBS Savings Index we hope to increase awareness in all sectors of the importance of taking action to improve South Africa’s savings. The index aims to provide the following: (1) Research the real facts behind the structural decline of SA’s national savings rate (2) Create an aspirational national savings benchmark to support SA’s economic growth objectives (3) Measure the performance of the SA economy in terms of its critical savings components (4) Call to action for all sectors of SA’s society to make a positive contribution to SA’s savings culture On a personal note, I have been involved in the savings and investment industry for close to a decade and have seen numerous initiatives from industry to improve the awareness of the importance of savings at an individual level. However, in my view, we have not focused enough on the environmental factors or savings influences that impact the general population’s ability to save. My hope is that the Investec GIBS Savings Index and the research behind it will assist in a call to action to all stakeholders in addressing the savings trap that we are caught in as a nation. René Grobler Head of Investec Cash Investment

Tougher than the rest? The impact of COVID-19 on South African exporters

DATA AVAILABILITY : Data is publicly available at https://www.enterprisesurveys. org/en/data.BACKGROUND : This article examined the performance of South African export-oriented firms during the coronavirus disease 2019 (COVID-19) pandemic. The study is conducted against the backdrop of an export sector which has grown in importance since South Africa came out of economic isolation in the early 1990s, an effect which has been amplified in the last decade given that the world economy has grown meaningfully faster than the domestic sector of the South African economy. OBJECTIVES : Given the importance of the rising importance of the export sector, the performance of South African exporting firms is considered, given the observed resilience of export-oriented firms in developed and developing markets. Notably, the impacts of the COVID-19 pandemic challenged this resilience by disrupting export-oriented firms on the demand side and supply side in their home and foreign markets, potentially threatening network effects and diversification benefits, which have been traditional sources of resilience. METHOD : Drawing on data for 1023 South African firms, regression analysis was used to assess the impacts of the pandemic on exporting firms relative to non-exporting firms. The study also considered various heterogeneous aspects of exporting firms to provide further insight on their resilience, including firm size, firm age, industry of operation and the nature of export relationships. RESULTS : Incorporating the above various factors, the study results show that export-oriented firms were significantly more vulnerable than non-exporting firms to the impacts of the COVID-19 pandemic. CONCLUSION : The findings have important implications for policy. First, export-oriented firms are found to be more vulnerable to disruption than non-exporting firms. This is contrary to expectations and different to experiences in other markets. This finding highlights the importance of policy support to the export sector during periods of uncertainty. Second, the export sector’s contribution to the South African economy has grown meaningfully over the past three decades, underlining the importance of supporting a sector that experiences heightened vulnerability when crises strike.The National Research Foundation (NRF) of South Africa.http://www.jtscm.co.zahj2023Gordon Institute of Business Science (GIBS

The influence of affordances on user preferences for multimedia language learning applications.

This study investigates the influence of sensory and cognitive affordances on the user experience of mobile devices for multimedia language learning applications. A primarily audio-based language learning application – ‘Vowel Trainer’, was chosen against a comparison, text and picture-based language learning application – ‘Learn English for Taxi Drivers’. Impressions of the two applications were assessed on two different devices that have virtually the same interface and identical sound output (when headphones are used), but differ in physical size: the iPhone and the iPad. A mixed design was chosen, with native language as a group factor and device type (iPad vs. iPhone) and language application type (audio vs. video) as within groups factors. Assessments of sensory and cognitive affordances were made, along with measurement of learner preferences of each application. Data from 41 participants (21 native English speakers, 20 non-native English speakers) were analysed, revealing device differences in both audio and visual subjective quality ratings, despite only visual quality being affected by the device's physical limitations. We suggest that sensory affordances (indexed by subjective quality) are not simply a function of physical limitations, but are heavily influenced by context. The implications for developing design guidelines for language learning and other multimedia applications are discussed