Skip to main content

Advertisement

SpringerLink
Log in

Financial Sector Development Indicators and Economic Growth in Cameroon and South Africa

  • Published:
Social Indicators Research Aims and scope Submit manuscript

Abstract

This study seeks to identify, compare and appreciate salient differences in the financial sector development and economic growth experiences of Cameroon and South Africa. A comparative study is often conducted in the early stages of development of a branch of science in order to help research to progress from the initial level of exploratory case studies to a more advanced level of general model invariance, such as causality. Furthermore, a comparative study can also help in understanding the root cause of the development and/or weakness of one system (economy). A comparison between the financial sectors of Cameroon and South Africa will help to identify whether or not the level and structure of a financial sector can explain differences in terms of the effects of the latter on economic growth. The paper first compares the economic growth experiences of Cameroon and South Africa and examines the development of their financial sector. This is to assist in understanding their economic situations, in order to acknowledge the experiences of the two countries, which may explain the nature of the development of their financial sectors. The paper then analyzes the further development of their financial sectors using various indicators of financial deepening. This is to evaluate how all the policies implemented in order to restore the economic situation in these countries have impacted on their financial sector, either in terms of the number of players (financial widening), or in terms of their efficiency (financial deepening). Implications and conclusion are then included. It has been suggested that in Cameroon, during the pre-reform period, the country as well as the financial sector, excelled the most, partly due to the discovery of oil in 1978. However, the mid 1980s economic shock experiences of Cameroon significantly affected the financial sector. Subsequent financial sector development policies of Cameroon have failed to improve the economic situation. In the post-reform period, the banking sector was unable to efficiently collect savings and allocate these to the economy, possibly because of the loss of confidence in the banking sector although few efforts were made to attract savings from the economy. Furthermore, real interest rate, which reflects the real cost of funds to the borrower and the real yield to the lender, was almost negative throughout the period under review, and did not attract savings, even when it was positive. For South Africa, throughout the period under review, there has been a trend of an increase in almost all the indicators of the financial sector development selected. Savings have been better mobilised and effectively allocated to the economy and the financial sector has done well since the liberalisation of the sector.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9
Fig. 10
Fig. 11

Similar content being viewed by others

Notes

  1. The simplest definition of economic growth is an increase in real gross domestic product (GDP) (this refers to GDP adjusted for inflation).

  2. The depreciation of the US dollar caused a 44 % fall in the terms of trade between 1986 and 1988, and the export price indices of primary products fell as follows: coffee (−11 %), rubber (−20 %), cocoa (−24 %) and oil (−65 %). For more details, see Fambon (2002).

  3. From 1985 onwards, oil prices witnessed a drastic fall, which continued in 1986: from 27 USD/barrel in 1985 to below 10 USD/barrel in 1986.

  4. The first programme established by the government was in 1987, basically aimed at reducing the government deficit and lightening the weight of the public sector in the economy. However, this turned out to be insufficient to stem the economic crisis. In effect, between 1987 and 1988, the GDP fell by 7.86 % in real terms (2,000 = 100), and the current account balance continued to deteriorate. Finally, the budget deficit remained high (5.8 % of GDP), although with a downward trend relative to the preceding year (12.8 % in 1986/1987) (Fambon 2006:9). In view of the continued deterioration of the economic conditions in the country, the government reluctantly engaged in negotiations with Bretton Woods institutions. Given the extent of deterioration in terms of trade and its adverse impact on revenues, the government adopted an austerity programme in 1988, supported by an IMF and World Bank structural adjustment credit (SAC), which was aimed at: reducing spending, liberalising the trade regime, restructuring the banking system, and restructuring or privatising some public enterprises, among other things.

  5. From 1 French franc for 50 francs CFA to 1 French franc for 100 francs CFA.

  6. In 2003, 80 % of the total bank branches were located in Douala and Yaoundé (the two largest cities in the country) (Avom and Eyeffa 2007:198).

  7. The intermediation rate, which is the ratio of the number of branches to the population, shows that the degree of bank penetration is still weak. Between 1995 and 2005, there was less than one bank branch per 100,000 people (IMF 2007:35).

  8. Taking from the website of all the commercial banks in Cameroon. Assessed on October 2008.

  9. Societe General des Banques au Cameroun (SGBC), Societe Commercial des Banques Crédit Lyonnais Cameroun (SCB-CL) and Banque Internationale pour le Commerce et l’Industrie (BICIC).

  10. Real interest rates that are positive (i.e. where the nominal rate is higher than the inflation rate) are good for depositors as they allow them to purchase more real goods and services after they have earned interest for any period of time than they could have done if they had not deposited their funds in interest earning accounts. Negative real rates of interest, on the other hand, will leave them with less real buying power when they come to withdraw and spend their funds than those funds had when they were deposited—a situation which holders of funds will usually avoid, simply by not depositing funds in accounts which offer negative real interest rates.

References

  • Akinboade, A. O., & Makina, D. (2006). Financial sector development in South Africa (1970–2002). Journal of Studies Economics and Econometrics, 30(1), 101–128.

    Google Scholar 

  • Avom, D., & Eyeffa, S. (2007). Quinze ans de restructuration bancaire dans la CEMAC: Qu’avons-nous appris?. Revue d’économie financière, 89, 183–205.

    Article  Google Scholar 

  • Azarian, R. (2011). Potentials and limitations of comparative method in social science. International Journal of Humanities and Social Science, 1(4), 113–125.

    Google Scholar 

  • Banque des Etats de l’Afrique Centrale (BEAC) (2008). Electronic data from www.beac.int. Accessed 10th July 2008.

  • Beck, T., Levine, R., & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58, 261–300.

    Google Scholar 

  • Bencivenga, V. R., & Smith, B. D. (1991). Financial intermediation and endogenous growth. Review of Economic Studies, 58, 195–209.

    Article  Google Scholar 

  • Bencivenga, V. R., Smith, B. D., & Starr, R. M. (1995). Transactions costs, technological choice, and endogenous Growth. Journal of Economic Theory, 67, 53–177.

    Google Scholar 

  • Calderon, C., & Liu, L. (2003). The direction of causality between financial development and economic growth. Journal of Development Economics, 72, 321–334.

    Article  Google Scholar 

  • Darrat, A. F. (1999). Are financial deepening and economic growth causally related? Another look at the evidence. International Economic Journal, 13, 19–35.

    Google Scholar 

  • De Gregorio, J., & Guidotti, P. E. (1995). Financial development and economic growth. World Development, 23, 433–448.

    Article  Google Scholar 

  • Europa (2007). Africa South of the Sahara. Routledge.

  • Europa (various editions). Africa south of the Sahara. Routledge.

  • Fambon, S. (2002). Endettement du Cameroun. WIDER discussion paper No 2002/49, May.

  • Fambon, S. (2006). Lessons from experience with ex-ante poverty impact assessments of macroeconomic policies in Cameroon. Electronic source http://idl-bnc.idrc.ca/dspace/handle/123456789/33568. Accessed 22nd July 2007.

  • Gerschenkron, A. (1962). Economic backwardness in historical perspective: A book of essays. Cambridge, MA: Belknap Press.

    Google Scholar 

  • Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy, 98(5), 1076–1107.

    Article  Google Scholar 

  • Hawkins, P. (2004). South Africa’s financial sector ten years on: Performance since democracy. Development Southern Africa, 21(1), 179–204.

    Article  Google Scholar 

  • International Monetary Fund (2005). Post-apartheid South Africa: the first ten years. Michael Nowak and Luca Antonio Ricci (eds), Washington, DC: ISBN 1-58906-470-4.

  • International Monetary Fund (2006). International financial statistic CD room, Washington

  • International Monetary Fund (2007). Cameroon: Selected Issues. Working paper Country Report No. 07/287.

  • Jung, W. (1986). Financial development and economic growth: International evidence. Economic Development and Cultural Change, 34(2), 333–346.

    Google Scholar 

  • Khan, M., & Senhadji, A. (2000). Financial development and economic growth: An overview. IMF Working Paper WP/00/209.

  • King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108, 717–738.

    Article  Google Scholar 

  • Landau, Daniel. (1995). Do country characteristics matter for economic growth among the developed country? Atlantic Economic Journal, 23(2), 113.

    Article  Google Scholar 

  • Levine, R. (1991). Stock markets, growth, and tax policy. Journal of Finance, 46, 1445–1465.

    Google Scholar 

  • Levine, R., & Zervos, S. (1998). Stock markets, banks, and economic growth. American Economic Review, 88, 537–558.

    Google Scholar 

  • Levine, R., Loayza, N., & Beck, T. (2000). Financial intermediation and growth: Causality and causes. Journal of Monetary Economics, 46, 31–77.

    Article  Google Scholar 

  • Liu X., Song H., & Romilly, P. (1997). An empirical investigation of the causal relationship between openness and economic growth in China. Applied Economics, 29, 1679–1686.

    Google Scholar 

  • Lynch, D. (1993). Alternative measures of financial development. Centre for studies of money, banking and finance (CMBF), Paper No. 5, University of Macquarie.

  • Njinkeu, D. (1997). Impact of the banking sector reforms in francophone Africa. African Development Review, 9(1), 113–155.

    Article  Google Scholar 

  • Rostow, W. W. (1960). The stages of economic growth: A non-communist Manifesto. Cambridge: Cambridge University Press.

    Google Scholar 

  • Takaendesa, P., & Odhiambo, N. (2007). Financial sector development and economic growth: An empirical analysis of two Southern African countries. Journal for Studies Economic and Econometric, 31(3), 61–79.

    Google Scholar 

  • Vogel, R., & Burser, S. (1976). Inflation, financial repression, and capital formation in Latin America. In R. McKinnon (Ed.), Money and finance in economic growth and development. New York: Marcel Dekker, Inc.

    Google Scholar 

  • Wunde, K. (2001). An analysis of deepening in the Cameroon’s financial sector. South African Journal of Economic History, 16, 224–238.

    Article  Google Scholar 

  • Wurgler, J. (2000). Financial markets and the allocation of capital. Journal of Financial Economics, 58, 187–214.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Pretoria, South Africa

    Oludele Akinloye Akinboade & Emilie Chanceline Kinfack

Authors
  1. Oludele Akinloye Akinboade
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Emilie Chanceline Kinfack
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Oludele Akinloye Akinboade.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Akinboade, O.A., Kinfack, E.C. Financial Sector Development Indicators and Economic Growth in Cameroon and South Africa. Soc Indic Res 115, 813–836 (2014). https://doi.org/10.1007/s11205-013-0236-8

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11205-013-0236-8

Keywords

Search

Navigation