Ilse Botha

Credit extension in South Africa: A business cycle perspective for the period 1985 to 2009

This paper investigates and quantifies the relationship between the macroeconomic business cycle and bank-granted credit in South Africa for the period 1985 to 2009. The main question that this research seeks to answer is what role do banks play in amplifying the business cycle and what is the impact of this on the macroeconomy? The outcomes of the econometric model support the hypothesis that a positive relationship exists between bank-extended credit and the business cycle. The vector autoregression technique was used to prove the relationship between credit and the underlying cycle. The analysis shows that a two-way relationship exists between credit and the coincident indicator, credit and insolvencies and credit and prime. Results from the vector error correction model show a significant short-run relationship of equilibrium in the cointegrating equation between credit and the coincident indicator. This corroborates the underlying theory that credit is a unifying variable that rapidly responds to shocks emanating from the dynamic interaction of cointegrating variables in the economy.

Non-linear models for tourism demand forecasting:

Quantitative methods for forecasting tourist arrivals can be subdivided into causal methods and non-causal methods. Non-causal time series methods remain popular tourism forecasting tools due to the accuracy of their forecasting ability and general ease of use. Since tourist arrivals exhibit seasonality, Seasonal Autoregressive Integrated Moving Average (SARIMA) models are often found to be the most accurate. However, these models assume that the time series is linear. This article compares the baseline seasonal Naïve and SARIMA forecasts of a seasonal tourist destination faced with a structural break in the data with alternative non-linear methods, with the aim of determining the accuracy of the various methods. These methods include the unobserved components model, smooth transition autoregressive model and singular spectrum analysis. The results show that the non-linear forecasts outperform the other methods. The linear methods show some superiority in short-term forecasts when there are no structural changes in the time series.

Sovereign Credit Rating Contagion in the EU

Abstract The recent persistent and synchronised deterioration in the euro zone had severe consequences for the euro community, the effects of which have been felt by the global community. This study proved that sovereign rating contagion existed between euro countries during the two recent windows of crises, namely the Lehman and sovereign debt crisis. Compelling evidence from the analysis provided a clear indication of contagion during the two periods of crisis. Results indicated a higher vulnerability to shocks and a higher degree of connection during the windows of crises than during the tranquil periods. Notable was that the European Union (EU) sovereign debt crisis experienced a more pronounced degree of contagion than the Lehman crisis period did. During the sovereign debt crisis window, a dominant theme was the highly integrated connection between the Portugal, Italy, Greece and Spain (PIGS) group of countries.

Determinants of Private Equity Investments across the BRICS Countries

The determinants of private equity investments (particularly venture capital investments) have been studied extensively across developed economies, but this is not the case across emerging markets. This study primarily focuses on the determinants of private equity (inclusive of all sub-classes) among the BRICS countries. Six macroeconomic and market-related explanatory variables, including the Corruption Perception Index, are examined. Private equity funds raised across BRICS serve as the proxy for private equity investments. The study reveals that GDP growth and real interest rate are both statistically significant and positively related to private equity investments across the BRICS countries. Furthermore, market capitalization growth and corporate tax rates are statistically significant, and both are found to be negatively related to the dependent variable.

The Determinants of Sovereign Credit Ratings in Africa: A Regional Perspective

Often there is underinvestment by rating agencies for developing countries with detrimental consequences. Investors will both be totally unaware of this underinvestment and base their decisions on inefficient credit ratings or they will have to supplement the credit ratings with additional information (Ferri, J Appl Econ 7:77–98, 2004). The importance of obtaining a sovereign credit rating from an agency is still underrated in some developing economies and even more so in Africa. Less than half of the African countries have a formal sovereign credit rating even though Africa has been identified as an emerging investment destination. Africa is a very unique continent and African countries are at various development stages and are classified by the World Bank according to income groups. Literature on the determinants of sovereign credit ratings in Africa is scarce. Therefore, the purpose of this research is to determine what the determinants are for sovereign credit ratings in Africa and whether these determinants differ between regions and income groups. A sample of 27 countries’ determinants of sovereign credit ratings is compared between 2007 and 2014. Sovereign credit rating variables are classified as categorical variables, and conventional econometric methods used in identifying the determinants are not always appropriate for a model with a categorical-dependent variable. The ordered response panel data model which allows for a categorical-dependent variable and a panel framework that accounts for unobserved country heterogeneity will be employed in addition to the standard panel models. The results indicated that the determinants of sovereign credit ratings differ between African regions and income groups. The Southern African region’s determinants were mostly in line with findings in literature. The developmental indicators, including variables such as regulation and corruption, as determinants of sovereign credit ratings were the most significant determinants across most income groups.

The Procyclicality of African Sovereign Credit Ratings

Credit rating agencies are supposed to have a long-term outlook when assigning credit ratings to sovereign states. It is unwarranted to assign high (low) ratings to sovereigns that are experiencing momentary successes (impediments). Ratings should therefore be assigned without taking the business cycle into account. If the business cycle is taken into account in the process of rating assignments, ratings are assigned procyclically. This paper empirically investigates the behaviour of rating agencies when assigning sovereign ratings for African countries. It makes use of ordered probit models which control for macroeconomic factors to determine if Standard and Poor’s, Fitch, Moody’s and a South African based research entity, NKC African Economics take the business cycle into account in their rating processes. The results show that three of the four agencies act in a procyclical manner to a certain extent when assigning ratings to African countries.