FINANCIAL EFFICIENCY AND PRIVATE INVESTMENT IN SUB-SAHARAN AFRICA

Abstract

Investment is considered a strategy for creating jobs and reducing poverty in many economies. Sub-Saharan African’s financial efficiency (FE) is still low and cannot be compared to that of the world's industrialized nations. This research investigates the impact of the financial efficiency (FE) (institution and market based efficiency) on investment in Sub-Saharan Africa. The study employed pooled mean group autoregressive distribution lag to analyze the data and discovered that private investment in Sub-Saharan Africa cannot be explained by any of the explanatory factors in the short run at any of the conventional levels of statistical significance. In the long run, variables found to be significant include financial institution efficiency, external debt and debt servicing. This suggests that a rise in financial institution efficiency has a negative impact on private investment. External debt has a negative influence on private investment at the 1% significance level; debt servicing has a positive influence on private investment at the 5% level of significance. Based on findings, the study recommended that sufficiency of capital should be pursued by financial institutions and monitored by regulatory authorities. Regulatory authorities should ensure that the capital base of these institutions is adequate to cover their risk profile to foster investment.