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Research Papers in Economics

AFRICAN DEVELOPMENT REVIEW / REVUE AFRICAINE 
DE DEVELOPPEMENT 
VOL. 23 No. 1 March / Mars 2011 
 
Introduction  
Kupukile Mlambo and Victor Murinde
pages 1-3 
 
Competition and Efficiency in the Banking Sector in South Africa 
Kupukile Mlambo and Mthuli Ncube 
pages 4-15 
 
Concurrence et compétitivité bancaire en Algérie:  économétrie de 
panels sur la période 2000–2007  
Taoufik Rajhi and Hatem Salah  
pages 16-29 
 
Bank Deregulation and Performance in Nigeria 
Tianshu Zhao and Victor Murinde 
pages 30-43 
 
The Competitiveness and Efficiency of the Financial Services Sector 
in Africa: A Case Study of Kenya 
Francis Mwega  
pages 44-59 
 
Financial Sector Reforms, Bank Performance and Economic Growth: 
Evidence from Zambia 
Abraham Mwenda and Noah Mutoti  
pages 60-74 
 
The Competitiveness of Commercial Banks in Ghana  
Nicholas Biekpe  
pages 75-87 
 
Competitive Conditions in the Tanzanian Commercial Banking 
Industry  
Anthony M. Simpasa  
pages 88-98 Competitiveness and Efficiency of the Banking Sector and Economic 
Growth in Egypt 
Sunil S. Poshakwale and Binsheng Qian 
pages 99-120 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Competition and Efficiency in the Banking Sector in South Africa 
Kupukile Mlambo and Mthuli Ncube 
Abstract: We analyse the evolution of competition and efficiency of the banking sector in 
South Africa using firm-level data for the period 1999–2008. We adopt a three-step 
estimation approach. First, we measure efficiency using the data envelopment analysis 
(DEA) methodology. Second, we use the Panzar–Rosse approach to derive the H 
statistic for competitive conditions in banking. In the third stage, we take into account 
the role of managerial ability in competition by re-estimating the Panzar–Rosse model, 
with the DEA efficiency scores as an explanatory variable. Overall, the results show that 
although average efficiency was trending upwards over the period, the number of 
efficient banks was falling. Also, it is found that for the period 1999–2008, the structure 
of the South African banking industrywas characterized by monopolistic competition. 
This result may reflect domination by five large banks, which together account for over 
85 per cent of total banking assets. 
 
Concurrence et compétitivité bancaire en Algérie:  économétrie de 
panels sur la période 2000–2007  
Taoufik Rajhi and Hatem Salah  
Résumé: L’objet de ce papier est de mesurer la compétitivité des services financiers en 
Algérie en testant les conditions de concurrence dans le secteur bancaire algérien 
avant et après la restructuration bancaire. Pour ce faire, nous utilisons quatre mesures 
de la compétitivité des marchés bancaires en Algérie la statistique H de Panzar Rosse 
(1987), l’indice Lerner, le paramètre Thêta issu de l’approche CV (conjectural variation), 
et l’inverse de l’élasticité de demande de l’industrie bancaire. Il en découle de ces 
mesures que la concurrence s’est intensifiée sur les marchés bancaires en Algérie en 
dépit de la tendance à la concentration. La structure des marchés semble de type 
oligopolistique. Enfin, les banques à participation étrangère ne contribuent pas, jusqu’à 
présent, au renforcement de la concurrence en raison de la taille modeste du secteur 
des banques privées en Algérie. 
 
Bank Deregulation and Performance in Nigeria 
Tianshu Zhao and Victor Murinde 
Abstract: We investigate the interrelationships among bank competition, risk taking and 
efficiency during banking sector reforms in Nigeria (1993–2008). Our modelling 
procedure involves three stages: we measure bank productive efficiency, using data 
envelopment analysis, and the evolution of bank competition, using conjectural 
variations (CV) methods; then, we use the CV estimates to test whether regulatory 
reforms influence bank competition; finally we investigate the impact of the reforms on 
bank behaviour. The evidence suggests that deregulation and prudential re regulation 
influence bank risk taking and bank productive efficiency directly (direct impact) and via 
competition (indirect impact). Further, it is found that as competition increases, 
excessive risk taking decreases and efficiency increases. Overall, the evidence on 
Nigeria affirms policies that foster bank competition. 
 
 The Competitiveness and Efficiency of the Financial Services Sector 
in Africa: A Case Study of Kenya 
Francis Mwega 
Abstract: This paper reviews the broad structural shifts in banks and other financial 
institutions in Kenya in the face of globalization. It is found thatKenya has moved into 
universal banking, reflected by the gradual elimination of ‘specified’ non-bank financial 
institutions since 1994 and the increased share of net commissions and fees in the 
banks’ total income, from 10 per cent in 1998 to 21 per cent in 2007. The evidence 
suggests that the sector experienced reduced concentration and presumably more 
competition during 1998–2007. Further, it is found that small banks are the least 
competitive (most concentrated), followed by large banks and then medium-sized banks. 
 
Financial Sector Reforms, Bank Performance and Economic Growth: 
Evidence from Zambia 
Abraham Mwenda and Noah Mutoti  
Abstract: This paper investigates the effects of market-based financial sector reforms on 
the competitiveness and efficiency of commercial banks, and economic growth, in 
Zambia. The results show that reforms adopted in Phase II (strengthening of regulatory 
and supervisory, payments and settlements, and financial operations frameworks) and 
Phase III (implementation of a comprehensive financial sector development plan) had 
significant positive effects on bank cost efficiency. Macroeconomic variables such as 
per capita GDP and inflation were insignificant. Further, using an endogenous growth 
model in which industrial production is a proxy for GDP growth, it was found that bank 
cost efficiency, financial depth, Phase II and III financial sector reforms, the degree of 
economic openness, and rate of inflation were significant determinants of economic 
growth. Phase II policies and the inflation rate have negative effects while the rest of the 
variables have positive effects on economic growth. Some plausible policy lessons are 
offered. 
 
The Competitiveness of Commercial Banks in Ghana  
Nicholas Biekpe  
Abstract: The paper empirically investigates the degree of bank competition and 
intermediation efficiency in Ghana. The evidence obtained suggests a non-competitive 
market structure in the Ghanaian banking system, which hampers financial 
intermediation. The study also finds that Ghanaian banks are monopolistically 
competitive. It is argued that the structure, as well as the other markets characteristics, 
constitutes an indirect barrier to entry thereby shielding the large profits in the Ghanaian 
banking system. Further, it is argued that policies that encourage and stimulate greater 
consolidation in the financial sector would go a long way to enhance competition among 
banks and improve efficiency and profitability. 
 
 
 
 
 Competitive Conditions in the Tanzanian Commercial Banking 
Industry  
Anthony M. Simpasa  
Abstract: Since 1991, Tanzania has made important improvements in reforming its 
financial sector, dismantling the state-dominated banking sector and allowing foreign 
bank entry. Despite this, the banking industry is still concentrated with low accessibility 
to financial services. Large foreign banks dominate the financial landscape, preventing 
competitive dynamism to permeate the sector. This paper analyses the competitive 
nature of the Tanzanian banking industry from 2004 to 2008. Utilizing a rich bank level 
data set, we employ the Panzar–Rosse methodology to compute the competitive index, 
taking into account risk, efficiency, regulatory and macroeconomic factors. The results 
show that banks in Tanzania earned their income under conditions of oligopolistic 
conduct. Moreover, the competitive index derived from an interest revenue equation 
was not significantly different from that obtained using an aggregate revenue measure. 
This suggests that the degree of contestability from traditional intermediation activities 
approximates overall bank behaviour. The overall message is that greater market 
contestability can be achieved by adopting measures aimed at stimulating 
competitiveness in the banking sector, including consolidating gains on the 
macroeconomic front and allowing more foreign bank entry so as to increase the spread 
of banking services. 
 
Competitiveness and Efficiency of the Banking Sector and Economic 
Growth in Egypt 
Sunil S. Poshakwale and Binsheng Qian 
Abstract: This paper investigates the impact of financial reforms on competitiveness and 
production efficiency of the banking sector, as well as the short-term and long-term 
impact on economic growth, in Egypt during 1992–2007. The results suggest that the 
reforms have a positive and significant effect on competitiveness and production 
efficiency. Also, the evidence shows that state-owned banks are generally less 
competitive than private banks and foreign banks are less competitive than domestic 
banks. The average x-inefficiency of Egyptian banks is around 30 per cent, which is 
comparable to those reported for other African countries. Finally, there is evidence to 
suggest a significant relationship between financial bank productive efficiency and 
economic growth in the short run but not in the long run. Overall, the results support the 
argument for continuing the financial sector reform programme in Egypt. 

African Development Review Vol 23 NÂ°1

http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/AFDR%20Vol%2023%20No%201.pdf

African Development Review Vol 23 NÂ°1

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Research Papers in Economics