Determinants of the competitiveness of international financial centres in Africa

Abstract

In recent years, the globalisation of economies has led to the rapid development of cities in various countries into international financial centres (IFCs). The IFCs contribute significantly to the country’s global competitiveness by making investing and conducting financial services and transactions easier, less risky and more attractive, thereby increasing economic development and growth. The Global Financial Centres Index (GFCI) is a benchmarking model developed by Z/Yen Group to evaluate the relative level of development and competitiveness of major IFCs. The business environment, financial sector development, human capital and infrastructure are theoretically known to be determinants of the competitiveness of IFCs, but the magnitude and statistical significance of their effect remain unknown as most studies on the competitiveness of IFCs are descriptive—only describe the characteristics of highly competitive IFCs—due to data limitations. A few studies have statistically analysed the effect of specific metrics such as capital access, inflation rate, internet usage and skilled workforce on the competitiveness of IFCs at the global level or outside Africa but have not evaluated the effect of the aggregate business environment, financial sector development, human capital and infrastructure. A targeted, context-specific empirical study on the competitiveness of African IFCs is needed to facilitate the development of better-suited policies and interventions to increase the competitiveness of these IFCs globally. Therefore, this study relied on the agglomeration, world city and global city theories underpinning the development and competitiveness of IFCs to fill the research gap by using a secondary panel data set drawn from four African IFCs over five years between 2019 and 2023. The study adopted the positivist research philosophy and a diagnostic quantitative research design. The study conducted a feasible generalised least squares estimation of the random effects regression model to determine the effect of the business environment, financial sector development, human capital and infrastructure on the competitiveness of IFCs in Africa. Descriptive statistics revealed that while some IFCs excelled in particular competitive areas, attaining low or moderate and inconsistent scores across other dimensions affected their GFCI ratings (overall competitiveness). The results revealed that the business environment had a statistically significant negative effect on the competitiveness of the IFCs. The financial sector development and human capital showed significant positive effects on the competitiveness of the IFCs. The study concluded that addressing weaknesses in the business environment and improving financial sector development and human capital could significantly enhance the global standing of African IFCs. The findings of this study may serve as a working guide to African governments, policymakers and city planners seeking to enhance their targeting efforts and identify better-suited policies to mitigate low global competitiveness. The results can help them highlight the specific competitive areas that require improvements to increase the overall competitiveness of their IFCs globally.