Showing papers in "African Development Review in 2014"

Factors affecting economic growth in Africa: are there any lessons from China?

Abstract: Since generating sustained economic growth in Africa remains one of the most pressing challenges to development, it is imperative that Africa-specific determinants of economic growth are investigated. At the same time, in spite of recent slight slowdown, China's economic growth and its capacity to move in thirty years from underdevelopment and extreme poverty to an emerging global economic power had attracted the attention of many developing countries, including those in Africa. Some key questions arise: Can China serve as a growth model for Africa? And what lessons can we draw from the Chinese experience of soaring economic growth? We therefore investigate the determinants of economic growth in Africa (North and sub-Saharan Africa), using an Africa-only sample with five non-overlapping three-year averages of cross-sectional data between 1996 and 2010. We also do the same for China for the period, 1980 to 2010, while discussing recent trade, investment and aid/debt relations between Africa and China. Our results suggest that domestic investment, net ODA inflows, education, government effectiveness, urban population, and metal prices positively and significantly affect Africa's economic growth. For China, the key factors driving its economic growth are domestic investment, trade openness, initial income, and rural share of the population. Factors driving down China's growth include inflation rate, domestic credit to the private sector, net ODA inflows, population growth, telephone density, and oil and agricultural/raw materials prices. One key finding is that while Africa is almost twice as open as China, openness does not positively and significantly affect Africa's growth, unlike in China. A principal source is that Africa imports (mainly consumer goods) more than it exports while the reverse is true for China. Moreover, the structure of Africa's exports is biased towards traditional primary commodity exports unlike China that has rapidly shifted towards manufactures. In addition, Chinese domestic investment is about double that of Africa. The key lessons for Africa from the soaring Dragon's experience are discussed.

Does Oil Wealth Affect Democracy in Africa

Abstract: This paper uses recent data on historical oil wealth to provide new evidence on the effect of oil wealth on democracy in Africa from 1955 to 2008 We find that oil wealth is statistically associated with a lower likelihood of democratization when we estimate the relationship in a pooled cross-sectional and time-series setting In addition, when estimated using fixed effects and IV-2SLS methods, the strong negative statistical association continues to hold Indeed, this result is robust to the source of oil wealth data, the choice and treatment of the variables set, and the sample selection Our results also show other interesting and important results The cross-country evidence examined in the study confirms that the ‘Lipset/Aristotle/modernization hypothesis’ (that prosperity stimulates democracy) is a strong empirical regularity Also, the propensity for democracy rises with population size, population density, ethnic fractionalization, having British legal origin or colonial heritage, and having a supportive institutional environment in the form of maintenance of the rule of law However, apart from oil wealth, democracy tends to fall with linguistic fractionalization and rough (mountainous) terrain Moreover, consistent with the data, North Africa consistently fails to favor democratic development

Marital Status, Household Size and Poverty in Nigeria: Evidence from the 2009/2010 Survey Data

Abstract: This paper examines the effect of marital status and household size, among other correlates, on poverty in Nigeria, using the Harmonized Nigeria Living Standard Survey (HNLSS) data of 2009/2010. Our results show that monogamous marriage, divorce/separation and widowhood are negatively and significantly correlated with the probability of being poor. However, monogamous marriage has the largest probability of reducing poverty in Nigeria. We also find that household size matters in determining poverty in the country: a one-person household negatively and significantly reduces poverty while addition of members to the household, progressively increases the probability of being poor. In addition, our results show that there is a significant concave (inverted-U shaped) relationship between age and poverty. Other variables found to significantly reduce the probability of being poor include: being a male, completion of post-secondary education, being in paid household employment, and residence in the North Central and South East geopolitical zones. Variables that increase the probability of being poor in Nigeria include rural residence, possessing no education, being a self-employed farmer, and residence in the North West geopolitical zone of the country. Based on the results, we recommend a number of policy interventions necessary to reduce poverty in Nigeria. Keywords: Marital Status, Household Size, Poverty, Nigeria JEL Classification: I32, I38, J11, J12

Aid, Employment and Poverty Reduction in Africa

Abstract: Growth in Africa is weakly linked to poverty reduction. The reason is that Africa has failed to create enough good jobs. Structural transformation—the relative growth of employment in high productivity sectors—has not featured in Africa's post-1995 growth story. As a result, the region's fastest growing economies have the least responsiveness of employment and poverty to growth. Development aid is partly responsible. Across Africa more aid went to countries with a low employment intensity of growth. The study proposes a new approach to aid and poverty in Africa, one that focuses on supporting structural change for job creation.

Inequality, Economic Growth and Poverty in the Middle East and North Africa (MENA)

Abstract: In this paper, we have presented the patterns of inequality, growth and income inequality in the MENA region. Using a cross-sectional time series data of MENA countries for the period 1985–2009, we have also investigated the effect of income inequality on key societal development, namely economic growth and poverty, in the region. Our empirical results show that income inequality reduces economic growth and increases poverty in the region. Other factors having significant negative effect on economic growth in the MENA region include previous growth rate, exchange rate, government consumption expenditure or government burden, initial per capita GDP, inflation and primary education. On the other hand, variables positively and significantly associated with MENA's economic growth are domestic investment rate, urbanization, infrastructure development, and mineral rent as a percentage of GDP. In addition, apart from income inequality, other factors increasing poverty in the region are foreign direct investment, population growth, inflation rate, and the attainment of only primary education. Poverty-reducing variables in the region include domestic investment, trade openness, exchange rate, income per capita, and oil rents as a percentage of GDP.

Does Intra-African Trade Reduce Youth Unemployment in Africa?

Abstract: This study empirically estimates the effect of Africa's intra-regional trade on the burgeoning youth unemployment in the continent This is necessary since very few studies have been undertaken in the particular context of African countries To the best of our knowledge there are no studies exploring the intra-African trade–youth unemployment nexus in Africa We investigate both the aggregate and gender-specific impacts Our empirical estimates, using available cross-sectional time series data over the period 1980 to 2010, suggest that higher levels of intra-African trade reduce both the aggregate, female and male youth unemployment in Africa In addition, our results show that domestic investment rate, institutionalized democracy, secondary education, inflation, economic growth, and higher urbanization tend to reduce youth unemployment both on the aggregate and gender-differentiated and therefore are good for youth unemployment reduction in the continent On the other hand, higher real per capita GDP and to a lesser extent credit to the private sector have a significant positive effect on youth unemployment in Africa Government consumption expenditure and foreign direct investment have an insignificant effect on both the aggregate level and the gendered level of youth unemployment in Africa Based on these results, some policy recommendations are proffered

Impact of Regional Road Infrastructure Improvement on Intra‐Regional Trade in ECOWAS

Abstract: This study employs the gravity model of trade to examine the impact of improving the quality of a regional road infrastructure in the ECOWAS sub-region, from its current level to the level of roads in South Africa, on intra-regional trade The study augments the traditional gravity model to include variables for language, common border and road quality The positive difference in per capita GDP of trading partners is also included to test the Linder hypothesis The parameters in the model are estimated using the random-effect model and the result shows that such improvement will lead to a US$35606 million (497 per cent) increase in intra-regional trade relative to the 2012 level, ceteris paribus Moreover, the ancillary benefits of improvement in road quality in terms of increased movement of factors of production will foster further intra-regional trade in the medium and long terms To enhance the benefits of the improvement in the road quality, ECOWAS governments needs to put in place other ‘soft’ infrastructures to fast-track the achievement of the objectives of the ECOWAS trade liberalization scheme However, increasing the quality of roads demands huge financial investment, thus a cost-benefit trade-off must be carefully considered

Electricity Consumption–Economic Growth–CO2 Emissions Nexus in Sub‐Saharan Africa: Evidence from Panel Cointegration

Abstract: This study explores the causal relationship among electricity consumption, economic growth and CO2 emissions for a group of 14 sub-Sahara African (SSA) countries from 1980 to 2009 using panel cointegration and panel vector error correction modelling methods. The findings demonstrate that in the long run electricity consumption has a statistically significant positive impact on CO2 emissions. The results also reveal that the inverted U-shaped Environmental Kuznets Curve (EKC) hypothesis exists in the SSA countries' case. The panel causality tests indicate that there is short-run unidirectional causality running from economic growth to CO2 emissions and electricity consumption respectively. Simultaneously, there is long-run bidirectional causality between electricity consumption and economic growth, electricity consumption and CO2 emissions, economic growth and CO2 emissions. Depending on the results, relevant policies can be initiated without negatively affecting economic growth.

Software piracy and scientific publications: knowledge economy evidence from Africa

Abstract: This paper is an extension of the debate on the nexus between the strength of IPRs and prospects for knowledge economy. It assesses the relationships between software piracy and scientific publications in African countries for which data is available. The findings which reveal a positive nexus are broadly consistent with the school of thought postulating that, the East Asian miracle has been largely due to weaker IPRs regimes at the early stages of development. As a policy implication, less stringent IPRs regimes on scientific-related software (at least in the short-run) will substantially boost contributions to and dissemination of knowledge through scientific and technical publications in Africa. IPRs laws (treaties) on scientific-oriented software should be strengthened in tandem with progress in: scientific and technical publications and; knowledge spillovers essential for economic growth and development. More policy implications are discussed.

Knowledge Economy and Financial Sector Competition in African Countries

Abstract: The goal of this paper is to assess how knowledge economy (KE) plays out in financial sector competition. It suggests a practicable way to disentangle the effects of different components of KE on various financial sectors. The variables identified under the World Bank’s four knowledge economy index (KEI) are employed. An endogeneity robust panel instrumental variable fixed-effects estimation strategy is employed on data from 53 African countries for the period 1996-2010. The following findings are established. First, education and innovation in terms of scientific and technical publications broadly bear an inverse nexus with financial development. Second, the incidence of information and communication technologies is positive on all financial sectors but increases the non-formal sectors to the detriment of the formal sector. Third, economic incentives have positive implications for all sectors though the formal financial sector benefits most. Fourth, institutional regime is positive (negative) for the semi-formal (informal) financial sector. The findings contribute at the same time to the macroeconomic literature on measuring financial development and respond to the growing fields of informal sector importance, microfinance and mobile banking by means of KE promotion. Policy implications and future research directions are discussed.

Determinants of household's education and healthcare spending in Nigeria: evidence from survey data

Abstract: This study employs household-level data from Nigeria to examine expenditure patterns for educational and healthcare services for rural and urban households in the country. It uses a double-hurdle model that allows the analysis of both the decision to spend and how much to spend on educational and healthcare services. The empirical results show that a household's decision on whether to spend and how much to spend on educational and healthcare services are positively and significantly related to household income, household size and the level of education of the household head. The findings also reveal that female-headed households tend to spend more on education of household members and healthcare services, compared to male-headed households.

The Will to Integrate: South Africa's Responses to Regional Migration from the SADC Region

Abstract: This paper surveys frameworks of labour migration in southern Africa and determines South Africa's policy responses to inflows of migrants from seven neighbouring countries Legislations, policy reports and scientific publications on migration were thoroughly reviewed and interviews and correspondence with key policymakers were conducted Statistical analyses of data on foreign worker recruitments and permits issued by South Africa's Department of Home Affairs were also performed The absence of a migration protocol in southern Africa suggests SADC Members have not implemented the African Union'smigrationpolicybasicguidelinesTwosystemscoexistinsouthernAfricathatcomplicatemigrationgovernance:aSouth Africa-managed bilateral migration policy, and aspirations for a formal SADC-managed migration policy Bilateral agreements between South Africa and neighbours have established a labour migration system that dims prospects for a regional migration policy SACU Members could establish a two-tier policy to achieve free movement while maintaining managed migration policy outside SACU An official multilateral migration governance mechanism would serve SADC better than the current ad-hoc measures

Patterns and determinants of poverty transitions among poor urban households in Nairobi, Kenya

Abstract: We examine the patterns and determinants of household transitions into and out of poverty among the urban poor in two Nairobi informal settlements in Kenya between 2006 and 2009. We find worsening household poverty over time, with the proportion of poor households increasing from 51.2 percent in 2006 to 54.9 percent by the end of 2009. Over the period, 34.5 percent of households remained in chronic poverty, 20.4 percent fell into poverty, 16.7 percent successfully escaped poverty and 28.4 percent fully remained out of poverty. We identify slum of residence, gender and marital status of household head, attainment of at least secondary education by household head, consistent engagement in formal employment, household size and the incidence of births within a household, among key determinants of household poverty transitions. Our results underscore the need for anti-poverty policy options around provision of economic opportunities, addressing disadvantages of female-headed households, promoting access to at least secondary education, smaller household norms and birth control among the urban poor. While the outcomes are consistent with some national trends, the need for the design and implementation of slum and sub-group specific anti-poverty policies are significantly evident.

Aid Categories that Foster Pro‐Poor Growth: The Case of Sierra Leone

Abstract: This paper examines the effect of different categories of foreign aid on poverty reduction. It uses a country case study for Sierra Leone to explore the impact of different aid types on pro-poor growth as a dimension of poverty reduction. Using annual time series data spanning from 1970 to 2007 and employing the bounds test approach to cointegration by Pesaran and Shin (1999), the study finds strong evidence to suggest that only aid in the form of grants do have a pro-poor effect. This result is more obvious in the long run than in the short run. Aid in the forms of loans and technical assistance could not prove signficant for fostering pro-poor growth in the country. Thus, even though total aid reveals a highly significant long-run impact in improving pro-poor growth in Sierra Leone, when disaggregated, only aid in the form of grants shows strong evidence of reducing poverty in the country. The implication of these findings is that for reducing poverty in typically poor and fagile states, aid in the form of grants should be encouraged. The increasing donor interest in technical assistance aid in recent years should be reconsidered as there is no strong evidence that it reduces poverty.

Trade, Remittances and Economic Growth in Nigeria: Any Causal Relationship?

Abstract: This study examined the causal relationships among GDP, export, imports and remittances The study, among others, investigated the validity of export-led and remittances-led growth hypotheses Specifically, the study investigated the causal relationship between remittances and GDP, remittances and export and remittances and imports Employing a VECM Granger Causality for data spanning between 1980 and 2012, imports and remittances significantly Granger-caused GDP in the short run Also, there were reverse causalities running from GDP to export and imports This implies that export-led growth hypothesis holds in Nigeria Furthermore, there was a unidirectional causation running from remittances to GDP, implying that remittances matter for economic growth But since the effect was more from the demand side, it could lead to inflationary pressure The policy recommendation is that the authorities should intensify efforts on the export base of the economy The monetary authorities should implement necessary policy to cool the pressure arising from conspicuous spending of remittances

Revisiting the Finance–Growth Nexus in Sub‐Saharan Africa: Results from Error Correction‐based Panel Cointegration Tests

Abstract: This paper re-examines the long-run finance-growth nexus in sub-Saharan Africa (SSA) using data from 17 countries over the period 1975–2005. We apply error correction-based panel cointegration tests that take into account cross-sectional dependence among countries. Our results — unlike a previous study using the same data — indicate the existence of a long-run relationship between financial and economic development in SSA countries. Moreover, our results clearly show that the long-run causality runs from financial to economic development, although a muted support for the reverse causal impact is observed when financial development is measured by the percentage of liquid liabilities in GDP. The estimated long-run parameters measuring the finance–growth link are positive and statistically significant. Therefore, our results strongly support policies aimed at developing the financial sector in SSA in order to promote long-run economic development.

Performance of Intra‐COMESA Trade Integration: A Comparative Study with ASEAN's Trade Integration

Abstract: This paper aims at assessing the performance of intra-COMESA trade integration on the basis of success of ASEAN integration, using an out-of-sample approach. The analysis employed a gravity approach to estimate the coefficients of the ASEAN model which are used as a benchmark to project the potential trade for eight COMESA members. The success of COMESA is estimated by the ratio of potential to actual trade. The results pointed out that all countries of the selected sample are far from their potential trade level, implying unfavorable performance of the regional trade integration among COMESA members. The results also indicate that the gap between potential and actual trade has decreased in the last decade, suggesting a convergence toward the potential trade level over time. Finally, the paper ends with some policy recommendations regarding promoting regional cooperation among COMESA members.

Impact of Real Exchange Rate on Trade Balance in Nigeria

Abstract: The study investigated whether the depreciation of exchange rate has a favourable impact on trade balance in Nigeria, based on the Marshall–Lerner (ML) condition. The Johansen method of cointegration and vector error correction methodology (VECM) was employed to investigate the existence of a long-run relationship between trade balance and the specified set of independent variables. The results confirm the satisfaction of the Marshall–Lerner condition in Nigeria, implying that depreciation of the exchange rate has a positive effect on trade balance in the long run. The study also established that a one per cent depreciation in the exchange rate would improve trade balance by 1.16 per cent. In the light of these findings, the study recommends a gradual depreciation of the exchange rate, which should be accompanied with export policy that encourages domestic production of non-oil products for exports.

Agency Conflict and Bank Interest Spreads in Ghana

Abstract: This study examines the relationship between interest rate spreads in the Ghanaian banking industry and variables that reflect convergence/divergence between managerial goals and corporate goals of which the key variables are executive compensation and bank ownership structure. Using data covering the period 1999–2011, this study employs a panel regression to examine how agency factors affect interest rate spreads in Ghana. The results of the study indicate that executive compensation is associated with higher net interest margins, suggesting that managers operate on higher margins since they can extract excess rents. The findings of the study also show that asset size, the level of concentration in the banking industry, the level of capital held by banks, the reserve requirement, and the level of inflation all positively contribute to the observed high interest spreads. Our results are robust to the control of several bank-specific, industry-specific, regulatory and macroeconomic factors.

Oil Wealth, Ethno‐Religious‐Linguistic Fractionalization and Civil Wars in Africa: Cross‐Country Evidence

Abstract: We empirically examine the effect of oil wealth and ethno-religious-linguistic fractionalization on civil war prevalence in Africa, by using three different estimation strategies and alternative measures of societal diversity. We show that oil wealth and the three distributional measures of ethnic fractionalization, religious fractionalization and linguistic fractionalization are significant correlates of civil war in Africa. These effects persist as we use an alternative measure of the prevalence of civil war. Thus, while oil wealthy, ethnically and linguistically fractionalized countries are more likely to experience civil violence, religiously fractionalized ones are less likely to experience significant civil violence in the Continent. We also find that countries with large population size, rough (mountainous) terrain and coup-prone are at greater risk for civil war than those that are more democratic with high per capita income and economic growth.

Welfare Implications of COMESA-EAC-SADC Tripartite Free Trade Area

Abstract: This study investigated the extent to which the implementation of the COMESA-EAC-SADC tripartite free trade area (T-FTA) will impact on the 26 participating member countries. The impact analysis was done with respect to welfare implications. The World Integrated Trade Solution (2011), the Software for Market Analysis and Restrictions on Trade (WITS-SMART) approaches were employed for the research. The findings were that close to $2 billion worth of new trade will be created, with the main beneficiaries being DRC and Angola. Around $454 million trade will be diverted resulting in a positive net trade of $1.5 billion across the 26 countries. The results also suggest that around $1 billion revenue will be lost following removal of import duties.

Facteurs Microéconomiques du Déficit de Financement des PME au Cameroun

Abstract: Resume La presente etude a pour but d'effectuer une evaluation econometrique des facteurs microeconomiques responsables du probleme de financement externe des PME au Cameroun. A l'aide d'un modele logit multinomial l'on a estime la variable «Principale source de financement» sur la base des donnees d'enquete aupres des acteurs du financement portant sur un echantillon de 413 PME du Cameroun. Les resultats montrent que le deficit de financement externe est explique par l'absence d'information comptable, le statut juridique Societe a Responsabilite Limite (SARL) et Societe Anonyme (SA), l'appartenance au secteur industriel, le faible effectif d'employe, le taux d'interet eleve et les demandes de credit a long terme. Ces deux dernieres causes etant renforcees par la toute derniere crise financiere. Ces resultats conduisent a interpeller Les differents acteurs sur les decisions a prendre en fonction de leur niveau de responsabilite dans ces elements de frein au financement des PME.

Does Trade with China Have an Impact on African Countries' Growth?

Abstract: The results of growth regressions using panel data econometric models for 37 African countries from 1985 to 2012 show that trade with China has had a positive impact on African GDP, but only during the final decade of that period. They also suggest that during this period, trade with China tended to have more impact on African economies than trade with the EU. Furthermore, several robustness tests are performed and confirm these conclusions.

Market Integration and Spatial Price Transmission in Niger Grain Markets

Abstract: This paper investigates price transmission from international and regional markets to Niger domestic grain markets using monthly wholesale prices. Cointegration and error correction models were employed to analyze the degree of price transmission. Tests of causality were also performed. In general, the results showed that grain markets in Niger respond to negative and positive shocks in regional and international markets differently. Maize and rice markets have high speed of adjustments to world prices compared to millet and sorghum markets. The speed of adjustment of prices to the long-run equilibrium varies between 30 percent, 35 percent, 48 percent and 40 percent respectively for millet, sorghum, maize and rice prices. Nigeria, Burkina-Faso, Mali, Togo and Vietnam markets have shown significant transmission in Niger markets. Supply and demand shocks in these markets will definitely affect Niger food prices. Based on this analysis, we suggest that Niger should develop a proper trade policy with its neighboring countries to facilitate regional market integration. This will enable Niger to import cereals from regional surplus-producing areas to supply its food shock regions to reduce the negative impacts of price shocks on households. For rice, Niger should encourage local production to limit high dependence on international markets.

Infrastructure access and household welfare in rural Ghana

Abstract: Empirical evidence in the literature on the extent to which access to different infrastructure services contribute to enhancing household economic welfare remains limited. Our paper contributes to fill in the gap by assessing the influence of access to public infrastructure on welfare in rural areas of a developing country such as Ghana, taking into account the heterogeneity in household endowment. Based on pseudo panel modelling and using three waves of nation-wide household living standard surveys between 1991 and 2006, the empirical findings suggest that access to public transport, electricity and water infrastructure has important but differential impacts on household welfare.

Regional Integration Models and Africa's Growth in the 21st Century: A Fitness Evaluation

Abstract: The study explores Africa's regional integration models with a view to determining their suitability or otherwise for rapid economic growth. Using annual data spanning 1980–2012, the study employs the Johansen (1998) and the Johansen and Juselius (1990) method of cointegration and Vector Error Correction Mechanism (VECM) to test for the presence of long-run equilibrium relationships among the variables and estimate their static and dynamic coefficients. The study found a significant positive role for infrastructure financing, and human and physical capital accumulation both of which significantly influenced Africa's economic growth. Intra-African trade, though positive and significant, was found to be less effective in inspiring growth compared to the above growth fundamentals. Trade openness and government spending were the only variables discovered to significantly influence Africa's economic growth in both the short and long run. The study concludes that the traditional approach to regional integration may not provide the best alternative for Africa's economic growth. It, thus, recommends the adoption of a mixed policy approach to regional economic integration to foster Africa's economic growth in the 21st century. The contribution of the study lies in its ability to subject Africa's models of regional integration to practical examination using modern approaches.

The Ten Commandments of Applied Regional Integration Analysis: The African Case

Abstract: This paper offers ten guidelines for researchers to improve their analysis of regional integration and their approach to regional integration. By way of analysis, regional integration statistics are often misunderstood or poorly constructed. In one way or another this leads to an oversimplification of their meaning. With respect to the approach taken by policymakers to regional integration, the goals of Africa's regional integration have not been seriously interrogated; nor have the necessary national and regional preconditions for achieving even a minimal form of regional integration that is sustainable.

Household Expenditure Components and the Poverty and Inequality Relationship in Malawi

Abstract: The paper looks at how inequality in household expenditure components affects total inequality and poverty in Malawi. Total household expenditure is disaggregated into four mutually exclusive and exhaustive expenditure items namely; expenditure on food, expenditure on health, expenditure on education, and expenditure on non food and non human capital items. Using data from the second integrated household survey (IHS2), we find that the elasticities of poverty with respect to within-component and between-component inequality are positive, suggesting that an increase within-component and between-component inequality increases overall poverty in Malawi. The results also show that the elasticities of poverty, as measured by the poverty gap and poverty indices, with respect to inequalities in expenditure on food and health are positive and are about the same in magnitude. The results vindicate the exemptions and zero rating of some food, health, and education related goods and services under the Value Added Tax (VAT) system. More importantly, they also suggest that expanding the coverage of zero rating and exemption would have a poverty reducing effect. These findings hold at the national level, as well as when rural and urban areas are treated separately. Additionally, the results are insensitive to choice of poverty line.

Banking Activity Sensitivity to Macroeconomic Shocks and Financial Policies Implications: The Case of CEMAC Sub‐region

Abstract: This paper aims to assess qualitatively and quantitatively the level of resilience of the financial sector in the CEMAC sub-region to macroeconomic shocks and highlight the financial policies that could be implemented. For this purpose, a descriptive analysis of the CEMAC sub-region banking sector, followed by a panel-based econometrics study has been undertaken. The main result from the analysis is that the banking sector of CEMAC is relatively vulnerable to macroeconomic shocks. Accordingly, the decrease of GDP per capita growth rate, long-term financing and real exchange rate as well as the increase of interest rate leads to lower bank provisions. Lower levels of short-term financing induce a lower level of net income commission, while the change in interest rates is an increasing factor. The influence of changes in interest rates on bank's interest margin remains ambiguous. These results confirm the necessity of taking into account the existence of macroeconomic shock constraints in the implementation of financial policies in the sub-region. The paper is original in the manner that it bridges some knowledge gaps of shock management in the monetary zone. It offers policymakers two main insights: the potential rewards for timely intervention to mitigate potential shocks and the need for better control for the credibility and sustainability of the banking system.