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Policy Briefs

Publication

Information Contagion and Systemic Risk

Toni Ahnert & Co-Pierre Georg
Systemic risk is a key concern for policy makers entrusted with safeguarding financial stability. It is defined as the risk of joint default of a substantial part of the financial system, resulting in large social costs. One major source of systemic risk is information contagion: when investors are sensitive to news about the health of the financial system, bad news about one financial institution can adversely spill over to other financial institutions. For instance, the insolvency of one money market mutual fund with a large exposure to Lehman Brothers spurred investor fears and led to a widespread run on all money market mutual funds in September 2008. In South Africa, the insolvency of African Bank spurred fears about the health of South African money market mutual funds and only decisive policy intervention prevented a widespread run akin to the one following the Lehman insolvency.
Oct 2017
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Publication

Decomposing the South African CO2 Emissions within a BRICS Countries Context: The Energy Rebound Hypothesis

Roula Inglesi-Lotz
In the energy literature, the rebound effect is the reason why energy saving and energy efficiency policies do not have necessarily and always the expected impact on the reduction of CO2 emissions. A new energy-saving technology (which can be a programme, a tax or an actual tangible technology) aims at lowering the energy bill of the consumers and hence, eventually, a reduction in emissions. However, such a “lowering of the bill” may be perceived as a reduction of the real price of energy services and hence, a tendency of the consumers to eventually increase their demand for energy which partially offsets the energy-saving potential of the initial technology. Also, by this reduction in energy prices, the real incomes of consumers increase, and the consumers spend the increases in consuming other goods and services, offsetting here once more the emission reduction prospects of the initial technology. In the literature, technologies that were evaluated for their rebound effects were the carbon tax and technologies that directly increase the energy efficiency of consumers.
Sep 2017
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Publication

Decomposition of the Technical Efficiency: Pure Technical and Scale Efficiency of the Financial System

Sanderson Abel and Alex Bara
Banks are vital institutions in any society as they significantly contribute to the development of an economy through facilitating development of saving plans and are instruments of the government's monetary strategy. Given the centrality of banking institutions an analysis of the bank efficiency is used to evaluate the sources of banking profitability. An efficient bank is supposed to generate its profits through effective utilisation of resources rather than through exploitation of market. Banks that are efficient reduces wastage of resources and enhance competition. Bank managers can improve cost efficiency by adopting better technologies; alternatively, enhance capital through improving profit efficiency by adopting new marketing and pricing methods.
Sep 2017
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Publication

Do monetary policy announcements affect foreign exchange returns and volatility? Some evidence from high-frequency intra-day South African data

Cyril May, Greg Farrell and Jannie Rossouw
Understanding exchange rate dynamics is one of the crucial issues in international finance and open-economy macroeconomics. In South Africa, exchange volatility is an important element of exchange rate, monetary and macroeconomic policy decisions. Currency volatility often acts as a signal of uncertainty to market participants and policymakers.
Sep 2017
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Publication

Analysis of tax harmonisation in SADC

Michael Ade
In this paper the authors provide an analysis of the extent of tax harmonisation (including tax rates and tax policy) in the SADC and also assess robust levels of tax harmonisation on foreign direct investment (FDI) inflows. Anecdotal evidence shows that the environment in which multinationals operate in the SADC is characterised by tax information asymmetry, corruption, inefficiency, lack of specialised skills and tax policy uncertainty. All such factors reinforce each other, creating a situation in which countries tend to be inward looking (focusing domestically), striving to maximise FDI inflows and tax revenue from their respective tax bases. This can result in costly tax competition, a governmental strategy of attracting capital and high value human resources by minimising the overall taxation level (Letete, 2012). For instance, countries in the SADC can lower their tax rates on income earned by foreigners within their borders, so as to attract FDI from such parties. The argument is that without harmonised or co-operative regimes, such a practice may lead to an inefficient tax level or what the Tax Justice Network-Africa and ActionAid International (2012) termed the race to the bottom. This contrasts with a common SADC practice (on taxation or FDI) as outlined in the 2002 MOU on taxation or the 2006 finance and investment protocol (FIP). Consequently, the ability for countries to attract FDI through taxation is largely based on a country-by-country initiative, rather than regional initiative. Given that countries may advertently or inadvertently gravitate towards tax competition, the paper argues the increased need for better coordination in taxable activities, towards improved economic activities and FDI.
Sep 2017
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Publication

Has South Africa’s Investment in Public Healthcare Improved Health Outcomes?

Lucas Bidzha, Talita Greyling and Jugal Mahabir
Since 1994, the South African government has invested significantly in public healthcare. This invested intended to improve access to quality health services to the majority of the population that were previously disenfranchised under the apartheid regime. In addition, access to improved healthcare services would consequently improve health outcomes, which is not only a key social objective but also contributes to long term economic growth. South Africa’s total public health expenditure equate to around 9% of its gross domestic product, which is above the average of other countries classified as middle-income countries. However, when compared to these very same countries, South Africa’s indicators of health outcomes remain relatively lower. This holds true when one considers the country’s infant mortality rate and life expectancy at birth in 2014, which stands at 37% and 57 years respectively. Given these trends, one needs to question the actual impact of healthcare expenditure on health outcomes in South Africa. Given the current tight fiscal framework and the growing needs and priorities, the South African government needs to ensure that limited funds are prioritised in areas that are contributing to social and economic welfare. In addition, the success of the country’s investment in social services need to be scrutinised in order to assist policy makers in improving the effectiveness of spending priorities. This study answers these key questions by undertaking a panel data analysis for South Africa’s nine provinces over the period from 2005 to 2014 to ascertain the impact of healthcare spending on health outcomes.
Aug 2017
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Publication

Black living standards in South Africa before democracy

Bokang Mpeta, Johan Fourie and Kris Inwood
The history of living standards in South Africa is a complex and incomplete picture. We know much more about the pre-1994 living standards of white South Africans – the descendants of European immigrants since the 17th century – than of black South Africans, the indigenous, Bantu-speaking population that had inhabited most of modern-day South Africa before the arrival of Europeans and have since formed the majority of the population. The reason for this dearth of knowledge is the lack of source material: whereas meticulous records were kept on white living standards from the beginning of settlement, the colonial and apartheid-era records often neglected to record the wages or incomes of black South Africans at the individual level. A different approach is thus necessary to provide a more complete picture of the evolution of South Africa’s living standards before the advent of democracy.
Aug 2017
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Publication

Human capital inequality and electoral outcomes

Biniam Bedasso and Nonso Obikili
Inequality is a problem which has beset South Africa for a long time with the country being on record as having one of the highest levels of inequality in the world. However, little is known about horizontal inequality between different groups in South Africa. Given the level of racial and ethnic diversity in South Africa, it is important to have a good grasp of the dynamics of group inequality in the country.
Aug 2017
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Publication

The impact of Home and Host Country Institutions in the Internationalization of an African Multinational Enterprise

Johh M. Luiz, Dustin Stringfellow and Anthea Jefthas
We demonstrate that firms can exploit their knowledge of ‘weak’ institutional settings and turn it into a source of advantage as they internationalize into locations with similar institutional ‘weaknesses.’ Using the case of one Africa’s most successful multinational enterprises we illustrate the...
Aug 2017
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Publication

Shaping macroeconomic outcomes

Chris Loewald
By early 2016, financial market participants had become increasingly critical of unsustainable current account deficits and low, unbalanced growth in many emerging economies. In response, adjustments have occurred (or are in process) in a wide range of countries – including Russia, Brazil, Mexico, Colombia, Ghana – gradually guided by policy in some instances and much more abruptly forced by recession in others. South Africa’s trajectory lies somewhere between – with some decline in the current account deficit in late 2016 and into 2017, but few clear steps to shift the composition of economic growth to something more sustainable. The recent current account moderation has fallen on the private sector, resulting in very weak investment and economic growth.
Jul 2017
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