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  • 1, International Monetary Fund
  • 2, International Monetary Fund

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AUG 2018




Exploring Different Channels

Francisco Arizala, Matthieu Bellon, Margaux MacDonald, Montfort Mlachila, and Mustafa Yenice


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Regional Spillovers in Sub-Saharan Africa

Exploring Different Channels

Francisco Arizala, Matthieu Bellon, Margaux MacDonald, Montfort Mlachila, and Mustafa Yenice


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Copyright ©2018 International Monetary Fund

Cataloging-in-Publication Data

Names: Arizala, Francisco. | Bellon, Matthieu. | MacDonald, Margaux. | Mlachila, Montfort. | Yenice, Mustafa. | International Monetary Fund.

Title: Regional spillovers in Sub-Saharan Africa : exploring different channels / Francisco Arizala, Matthieu Bellon, Margaux MacDonald, Montfort Miachila, and Mustafa Yenice.

Other titles: Spillover notes (International Monetary Fund); 12.

Description: Washington, DC : International Monetary Fund, 2018. | Spillover notes / International Monetary Fund; 12 | August 2018. | Includes bibliographical references.

Identifiers: ISBN 9781484367148 Subjects: LCSH: Africa, Sub-Saharan—Economic integration. | Fiscal policy—Africa, Sub-Saharan. | Financial institutions—Africa, Sub-Saharan. | Africa, Sub-Saharan—Economic conditions.

Classification: LCC HJ1445 .R433 2018

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  • Abstract
  • Introduction and Summary
  • Regional Trade Links Gaining Strength
    • Intraregional Trade Links are Growing
    • Global Comparisons
  • Banking Interdependence Becoming More Subregional
    • Presence of Foreign Banks Headquartered in Sub-Saharan Africa
    • African Bank Behavior and Trends in Correspondent Banking Relationships
  • The Dominant Role of South Africa Sovereign Spread Spillovers
    • Cross-Country Co-movement and Its Drivers
    • Estimating the Impact of South Africa
  • The Changing Pattern of Remittance Flows
  • The Foreign Direct Investment Channel—South Africa Rules the Roost
  • The Fiscal Channel—The Role of Unintended Consequences
    • Importance of Customs Unions
    • Unintended Spillovers from Nigeria’s Fuel Pricing Policies to Its Neighbors
  • The Rising Socioeconomic Impact of Forced Migration
  • Concluding Remarks
  • Appendix
  • References
  • Boxes
    • Box 1. Gravity Equation Estimation for 2010–16 Trade Flows
    • Box 2. GDP Growth Elasticities to the Growth of Trading Partners
    • Box 3. Sovereign Yield Spread Spillovers
    • Box 4. Gravity Equation Estimation for 2010–15 Remittance Flows
    • Box 5. Spillover Effects from Countries Sending Remittances
    • Box 6. South African Investment in Sub-Saharan Africa
    • Box 7. SACU Revenue-Sharing Formula
  • Figures
    • Figure 1. Sub-Saharan Africa: Trade, Banking, and Remittance Channels
    • Figure 2. Sub-Saharan Africa: Intraregional Trade, 1980–2016
    • Figure 3. Sub-Saharan Africa: Intraregional Trade, Percent of GDP, 1980–2016
    • Figure 4. Intraregional Exports by Region, 2016
    • Figure 5. Sub-Saharan Africa: Intraregional Exports, 2016
    • Figure 6. Sub-Saharan Africa: Intraregional Imports, 2016
    • Figure 7. Sub-Saharan Africa: Share of Intraregional Imports, 2016
    • Figure 8. Major Intraregional Trade Links
    • Figure 9. Countries with Substantial Trading Relationships from the Perspective of the Exporter
    • Figure 10. Major Intraregional Trade Relationships
    • Figure 11. Sub-Saharan Africa: Subregional Trade, 2016
    • Figure 12. Sub-Saharan Africa: Intraregional Trade by Subregions, 2016
    • Figure 13. Sub-Saharan Africa: Intraregional Exports, by Country Groups
    • Figure 14. Sub-Saharan Africa: Exports to the Rest of the World, by Country Groups
    • Figure 15. PAB and Subregional Bank Presence in SSA,2007–16
    • Figure 16. Sub-Saharan African PABs and Subregional Banks: Home and Host Countries
    • Figure 17. Systemic Foreign Owned PAB and Subregional Banks, 2007–16
    • Figure 18. Sub-Saharan Africa: Real, Financial, and Cross-Border Links
    • Figure 19. Bank Deposits in PABs and Subregional Banks,2007–16
    • Figure 20. Sub-Saharan Africa: Sovereign Spread Correlations, 2012–16
    • Figure 21. Sub-Saharan Africa: External Flows and Remittances
    • Figure 22. Remittance Inflows in Emerging and Developing Countries 2010–15
    • Figure 23. Sub-Saharan Africa: Remittance Outflows and Inflows, 2010–15
    • Figure 24. Sub-Saharan Africa: Major Remittance Corridors, 2010–15
    • Figure 25. Percentage Cost of Sending US,! $200 across Region and over Time
    • Figure 26. Total Average Cost by Remittance Sending Provider
    • Figure 27. Selected Sub-Saharan African Countries: Intraregional Foreign Direct Investment Stock Positions
    • Figure 28. SACU Revenues and Selected Macroeconomic Indicators
    • Figure 29. Differentials between Nigerian Gasoline Prices and Those of Benin and Togo
    • Figure 30. Sub-Saharan Africa: Within Migration, Refugees
    • Figure 31. Sub-Saharan Africa and Selected Countries: Internally Displaced Persons
    • Figure 32. Selected Sub-Saharan African Countries: Civil Unrest and Terroris
    • Box Figure 3.1. South African News and Sovereign Spreads
    • Box Figure 6.1. South Africa: Outward FDI in Sub-Saharan Africa
  • Tables
    • Table 1. Loan-to-Deposit Ratios, Largest Sub-Saharan African Countries, 2015
    • Table 2. Fuel Prices Correlation in Togo, Benin and Nigeria, 2008–17
    • Table 1.1. Determinants of Trade Flows
    • Table 2.1. GDP Growth Elasticities to the Growth of Trading Partners
    • Table 2.2. Sub-Saharan Africa and Other Developing Countries: GDP Growth Elasticities to the Growth of Trading Partners
    • Table 3.1. Impact of Global, Regional, and Domestic Factors on Sovereign Spreads, 2012–16
    • Table 4.1. Determinants of Average Remittances Flows
    • Table 5.1. Spillover Effects from Countries Sending Remittances
    • Table 6.1. South Africa: Major Multinationals
    • Appendix Table 1. Sub-Saharan Africa: List of Country Abbreviations
    • Appendix Table 2. Sub-Saharan Africa: Member Countries of Groupings
    • Appendix Table 3. Sub-Saharan Africa: Member Countries of Regional Groupings


After close to two decades of strong economic activity, overall growth in sub-Saharan Africa decelerated markedly in 2015–16 as the largest economies experienced negative or fat growth. Regional growth started recovering in 2017, but the question remains of how trends in the economies stuck in low gear will spill over to the countries that have maintained robust growth. This note illuminates the discussion by identifying growth spillover channels. The focus is on trade, banking, financial, remittance, investment, fiscal, and security channels, which are the most prominent and most likely to transmit growth trends across borders. In addition to bringing together findings from a broad array of existing research, the note identifies countries that are the most likely sources of regional spillovers and those that are most likely to be impacted, and provides estimates for the size of these channels. It finds that intraregional trade and remittance flows are an important channel for growth spillovers, while banking channels are less important but will remain a risk going forward. Finally, the note documents other important spillover channels through financial markets contagion, revenue-sharing arrangements in fiscal unions, commodity-pricing policies, corporate investment, and forced migration. The main takeaway is that the level of interdependence among sub-Saharan countries is higher than is generally assumed. Consequently, there is a need for additional emphasis on regional surveillance and spillover analysis, along with traditional bilateral surveillance.

Regional Spillovers in Sub-Saharan Africa: Exploring Different Channels
Author: Francisco Arizala, Mr. Matthieu Bellon, Ms. Margaux MacDonald, Mr. Montfort Mlachila, and Mustafa Yenice