Does Access to International Capital Markets Affect Investment Dynamics in Sub-Saharan Africa?

ABSTRACT

This study investigates the influence of government borrowing through international capital markets on investment dynamics in Sub-Saharan Africa (SSA). We apply the synthetic control method to Gabon, Ghana and Senegal to assess whether this kind of government borrowing affects public and private investment, and FDI in these countries using annual data for the period 1995–2017. Our results suggest that government borrowings through international capital markets have not affected public and private investment, but that the move may have boosted these countries’ capacity to attract FDI. These results lend support to the hypothesis that these countries’ exposure to international capital markets constitutes an opportunity to register on the investors’ radar.

KEYWORDS:

• Investment
• synthetic control method
• Sub-Saharan Africa

Notes

¹ Our analysis does not include the South African Republic given its difference in economic structure and characteristics with the rest of the SSA region.

² This was for instance recognized by the Ghanaian Minister of Finance who stated on June 23, 2015 that “Ghana’s planned Eurobond will prevent the government from borrowing from the domestic money market and in turn reduce the chances of crowding out the private sector by ensuring small and medium enterprises can access loans at affordable rates”. See for details http://afkinsider.com/98707/ghanas-Eurobond-will-help-private-sector-by-containing-local-rates/.

³ The following countries have been considered: Angola, Cameroon, Congo, Rep., Cote d’Ivoire, Ethiopia, Gabon, Ghana, Rwanda, Senegal, Seychelles, Kenya, Namibia, Nigeria, Tanzania, Mozambique and Zambia as market economies; and Benin, Botswana, Burkina Faso, Burundi, Cabo Verde, Central African Republic, Chad, Comoros, Congo, Dem. Rep., Djibouti, Gambia, Equatorial Guinea, Eswatini, Guinea, Guinea-Bissau, Lesotho, Madagascar, Malawi, Mali, Mauritania, Mauritius, Niger, Sierra Leone, Sudan, Togo and Uganda as non(yet)-market economies.

⁴ This database is available online at http://dataportal.opendataforafrica.org/bbkawjf/afdb-socio-economic-database-1960-2019.

⁵ This database has been developed by Daniel Kaufmann of Natural Resource Governance Institute (NRGI) and Brookings Institution, and Aart Kraay of World Bank Development Research Group. Data and further details are available on http://info.worldbank.org/governance/WGI/#home.

⁶ See http://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B for further details.

⁷ Data and further details are available on http://unctadstat.unctad.org/wds.