Inefficiency and Gaps in Financial Stability in sub-Saharan Africa

Figures & data

Table 1. Descriptive statistics of variables (2007 to 2018)

Variable	Obs	Mean	Std. Dev.	Min	Max
$FS$	360	9.302	4.419	2.204	21.544
$Crd$	380	19.306	24.264	2.267	160.125
$Unem$	396	6.346	6.357	0.317	28.551
$InQ$	388	53.214	6.887	21.4	69.1
$Inf$	364	118.985	36.201	57.154	337.45
$Debt$	300	15.304	55.965	0.005	405.35
$Emp$	396	65.142	12.199	39.37	87.82
$Sav$	336	14.735	14.411	−70.263	44.498
$Arr$	265	3.22	4.142	0	19.401
$Gef$	363	−0.865	0.483	−1.848	0.509
$Req$	363	−0.714	0.48	−2.156	0.499

Source: Authors’ Construction.

Table 2. Stochastic frontier estimates

Dependent: Log of Financial Stability
Independent Variables	Coefficient	Standard Error	P-value
$Crd$	0.006***	0.001	0.000
$Unem$	−0.022***	0.006	0.001
$InQ$	0.014	0.009	0.103
$Inf$	0.001	0.001	0.338
$Debt$	−0.001	0.001	0.519
$Constant$	3.181***	0.534	0.000

Source: Authors’ Computation. Note: ***, ** and * signify statistically significant at 1%, 5%, and 10% respectively.

Table 3. Drivers of inefficiencies in financial stability

Dependent: Inefficiency in Financial Stability
Independent Variables	Coefficient	Standard Error	P-value
$Emp$	−0.044***	0.013	0.001
$Sav$	−0.011**	0.004	0.014
$Arr$	0.035***	0.0105	0.001
$Gef$	−0.405	0.256	0.113
$Req$	−1.154***	0.319	0.000
$Constant$	1.818***	0.602	0.003
$\mathrm{s}\mathrm{i}\mathrm{g}\mathrm{m}\mathrm{a}-\mathrm{s}\mathrm{q}\mathrm{u}\mathrm{a}\mathrm{r}\mathrm{e}\left({\sigma }^2\right)$ −2.199*** $\mathrm{G}\mathrm{a}\mathrm{m}\mathrm{m}\mathrm{a}=\gamma =\frac{{{\sigma }_{\mathrm{u}}}^2}{{{\sigma }_{\mathrm{u}}}^2+{{\sigma }_{\mathrm{v}}}^2}$ 0.475 LR test of one-sided error 208.2681*** Wald chi2(5) 23.20 Log likelihood −22.922469

Source: Authors’ Computation Note: ***, ** and * signify statistically significant at 1%, 5%, and 10% respectively.

Figure 1. Financial stability (FS) gap in SSA countries.

Figure 2. Mean potential, actual, efficiency and gap in financial stability for sub-regional communities in SSA.

Source: Authors’ construction.

Table 4. Mean of efficiency, potential, actual, and gap in financial stability (FS) in SSA countries (2007 to 2018)

Countries	Mean of Efficiency in FS	Mean of Potential FS	Mean of Actual FS	Mean of FS GAP
Angola	0.561989	19.73929	11.09326	8.646033
Benin	0.754502	18.89189	14.25397	4.637924
Burkina Faso	0.486848	13.84085	7.350968	7.102466
Cameroon	0.515125	18.48344	9.521286	8.962155
Central Africa republic	0.347195	17.31191	6.557026	11.3013
Chad	0.553654	17.14375	9.491699	7.652054
Congo, dem rep.	0.486848	8.922951	4.344118	4.578833
Congo, rep.	0.235421	18.45257	4.344118	14.10845
Cote d’Ivoire	0.909438	18.48674	16.81254	1.674202
Ethiopia	0.707865	13.82646	9.787265	4.039198
Gabon	0.486848	28.30386	13.77967	14.52419
Gambia, the	0.492644	18.8428	9.282794	9.560009
Ghana	0.377375	20.10002	7.585245	12.51477
Guinea	0.299483	17.64511	5.764818	12.3607
Guinea-Bissau	0.267327	20.92591	5.594049	15.33186
Kenya	0.938129	19.4919	18.28592	1.205986
Lesotho	0.517306	17.42691	9.015045	8.411868
Liberia	0.545587	14.06795	7.675286	6.392661
Madagascar	0.486848	11.28242	5.99217	5.789602
Mali	0.486683	17.02638	9.039756	8.739938
Mozambique	0.486848	8.028599	4.264042	4.119894
Niger	0.840898	16.67001	15.29212	2.652231
Nigeria	0.486848	30.99722	16.46283	15.90629
Rwanda	0.439232	17.60207	8.434237	9.870687
Sao tome and Principe	0.486848	3.797011	3.697132	1.948445
Sierra Leone	0.228097	17.71078	4.407028	13.671
South Africa	0.703184	18.18082	13.94667	5.396366
Tanzania	0.59004	17.55724	11.30125	7.197762
Togo	0.218771	18.19236	4.341776	14.21239
Uganda	0.680613	17.49234	12.98784	5.58682
Zambia	0.469202	17.3019	8.856086	9.183821
Zimbabwe	0.486848	5.309395	3.446489	2.724528

Source: Authors’ construction

Table 5. Mean of efficiency, potential, actual, and gap in financial stability (FS) in sub-regional groups in SSA (2007 to 2018)

Sub Regional Communities	Mean of Efficiency in FS	Mean of Potential FS	Mean of Actual FS	Mean of FS GAP
ECCAS	0.444563	16.05936	7.689361	9.010775
EAC	0.671176	17.194	12.22517	5.58009
ECOWAS	0.491885	18.72292	9.555025	9.59665

Source: Authors’ construction

Table A6. List of SSA countries considered for the study

Angola	Comoros	The Gambia	Liberia	Rwanda	Uganda
Benin	Congo, D.R.	Ghana	Madagascar	Sao Tome and Principe	Zambia
Burkina Faso	Congo, Rep.	Guinea	Mali	Sierra Leone	Zimbabwe
Cameroon	Cote d’Ivoire	Guinea Bissau	Mozambique	South Africa
Central Africa Republic	Ethiopia	Kenya	Niger	Tanzania
Chad	Gabon	Lesotho	Nigeria	Togo

Source: Author’s Construction, 2020

Table B7. List of countries in the sub-regional communities understudy

ECCAS	EAS	ECOWAS
Angola*	Ethiopia	Benin
Cameroon	Kenya	Burkina Faso
Central Africa Republic	Rwanda	Cote d’Ivoire
Chad	Tanzania*	The Gambia
Congo, D.R*	Uganda	Ghana
Congo, Rep.		Guinea
Gabon		Guinea Bissau
Sao Tome and Principe		Liberia
		Mali
		Niger
		Nigeria
		Sierra Leone
		Togo

Source: Author’s construction. Note: Countries with an asterisk (*) are also members of SADC

Table C8. Variable description and sources

Variable	Description	Source
Financial Stability	Measured using the Z-score at the country level. The Z-score is a measure of bank insolvency risk which is calculated as the return on asset plus capital-asset ratio all divided by the standard deviation of asset return	World Bank’s Global Financial Development (GFD)
Credit	Financial resources that are provided to the private sector by financial corporations, such as via loans, purchases of nonequity security, and trade credits as well as other accounts receivable that establishes a claim for repayment. This is measured as a percentage of GDP	World Bank’s World Development Indicators (WDI)
Unemployment	Total unemployment, measured as a percentage of the labour force	World Bank’s World Development Indicators (WDI)
Employment	Proportion of a country’s population that is employed. The focus is on people ages 15 and above (as a percentage of the total population)	World Bank’s World Development Indicators (WDI)
Institutional Quality	This is an index created from 12 institutional measures. Thus, property rights, judicial effectiveness, government integrity, tax burden, government spending, fiscal health, business freedom, labour freedom, monetary freedom, trade freedom, investment freedom, and financial freedom	Heritage Foundation
Inflation	Variations in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or varied at specified intervals such as annually	World Bank’s World Development Indicators (WDI)
Domestic Debt	total amount of government domestic borrowing, measured in billions of USD	IMF World Economic Outlook
Savings	Domestic savings measured as GDP less final consumption expenditure (total consumption). This is measured as a percentage of GDP	World Bank’s World Development Indicators (WDI)
Government Domestic Arrears	Change in the stock of government domestic payment arrears, measured as a percent of GDP	IMF Survey
Government Effectiveness	This is measured from the perceptions of the public and civil services quality, as well as the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies. Its estimates range from −2.5 to 2.5.	World Bank’s Worldwide Governance Indicators (WGI)
Regulatory Quality	Perceptions of the government’s ability to formulate and implement sound policies and regulations that permit and promote private sector development. Its observations range from −2.5 to 2.5	World Bank’s Worldwide Governance Indicators (WGI)

Source: Author’s construction.

Table D9. Variance inflation factor test for multicollinearity

Variables	VIF	1/VIF
Regulatory Quality	9.919	0.101
Government Effectiveness	7.046	0.142
Institutional Quality	4.973	0.201
Unemployment	3.425	0.292
Employment	3.027	0.33
Credit	2.449	0.408
Savings	2.275	0.44
Domestic Debt	2.114	0.473
Government Domestic Arrears	1.561	0.641
Inflation	1.044	0.958
Mean VIF	3.783

Source: Authors’ construction