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Snapshot of NBFIs Development in Africa

Snapshot of NBFIs Development in Africa. Michael Pomerleano The World Bank Regional Workshop on NBFIs in Africa December 9 – 11, 2003 Mauritius. Financial Sector Structure and Conditions.

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Snapshot of NBFIs Development in Africa

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  1. Snapshot of NBFIs Development in Africa Michael Pomerleano The World Bank Regional Workshop on NBFIs in Africa December 9 – 11, 2003 Mauritius

  2. Financial Sector Structure and Conditions • Large gaps between countries with sizeable financial systems and countries with much smaller financial systems. • South African Financial System is dominant in the region • Ownership in the banking sector is evolving from a predominantly state-controlled to privately owned. • The performance of the banking system has improved but it is still low in the majority of countries. Average share of non-performing loans was over 20% in 1997.

  3. Financial Sector Structure and Conditions (cont.) • Banking sector lending is low compared to other regions. (26% when South Africa excluded, 81% when South Africa included) • With the exception of South Africa, financial systems offer limited range of financial products. Lending is short term, government securities have short maturities. • Institutional environment is still deficient in many countries. Effective regulation and supervision is still weak or inexistent.

  4. Financial Sector Structure Source: Data from FSAP Findings and World Bank Financial Structure Database All data for 2000, except Zambia 2001, Ghana Insurance and other NBFIs 1999. Microfinance data for Gabon, Ghana, Mauritius, Nigeria and Zambia were not available.

  5. Domestic Credit Provided by BanksCredit growth is sluggish, Financial intermediation has not grown % of GDP Source: World Bank, GDF & WDI Central Database

  6. Composition of Domestic CreditPublic sector is a disproportionate beneficiary of credit in some countries 2001, as a % of Domestic Credit Source: World Bank, GDF & WDI Central Database

  7. Domestic Credit to Private Sector% of GDP Source: World Bank, GDF & WDI Central Database

  8. Stock Market Development • African stock markets are characterized by high diversity in terms of age, size and performance. (I.e market capitalization: South Africa 128% GDP, Swaziland 7 % of GDP. • In general, limited number of listed companies, low capitalization, low liquidity and little diversity among market participants. • However, recently the region is witnessing faster development of equity markets. • Newer markets have grown fast, whereas the situation with more mature ones are mixed. • High volatility in the rate of return.

  9. Selected Stock Markets Source: Emerging Markets Database, WDI 2002, and National Stock Exchanges Data for end of 2002, except Tanzania, Namibia, Zambia, Malawi and Swaziland 2001

  10. Number of Companies Listed 2002 Source: FIBV, and National Stock Exchanges

  11. Total New Listings, 1995-2001 Source: FIBV

  12. Market Capitalization as % of GDP, 1995-2001 Source: World Bank, GDF & WDI Central Database

  13. Average Annual Gross New Capital Raised by Domestic Companies, 1995-2002 (billion US$) Source: FIBV

  14. Turnover Ratio, 1996, 2001, 2002 trading volume as % of market cap. Source: World Bank, GDF & WDI Central Database

  15. Capital Returns (%) Source: Political Economy Research Institute, working paper no: 17

  16. Country Instruments Traded Trading method Settlement Period Botswana Equities, bonds and short-term commercial paper Call over system T+5 Ghana Equities and corporate Call over system T+5 Kenya Equities, preference shares, corporate bonds and treasury bonds Open outcry T+5 Malawi Equities Single price auction T+7 Mauritius Equities and corporate debentures Open outcry T+5 Namibia Equities, pref. Shares and bonds Automated T+5 Nigeria Equities, pref. Shares, industrial loans and government bonds Automated T+5 Swaziland Equities, debentures and government bonds Single price auction T+5-t+12 Tanzania Equities and bonds Open outcry T+5 Zambia Equities and treasury bonds Single price auction, manual order matching with automated clearing settlement T+3 Zimbabwe Equities, debentures, warrants, government stocks and bonds and Zimbabwe depository receipts Call over system T+7 Market Infrastructure Source: Stock Exchanges of Africa, Standard Equities Research, Dec. 1999

  17. Country How are securities held Registration period Foreign ownership limits Botswana Physical 2-3 weeks None Ghana Physical 2-3 weeks 10% individual, 74% aggregate Kenya Physical (establishing central depository) Up to 60 days 75% aggregate Malawi Physical 2-3 days 10% individual, 49 % aggregate Mauritius Central Depository N/A 15% in sugar companies only Namibia Physical Up to 1 week for locally registered cos., longer for foreigners None Nigeria Central Depository N/A None Swaziland Physical Up to 2 weeks None Tanzania Central Depository 10-20 days Total foreign restriction Zambia Central Depository N/A None Zimbabwe Physical 2-3 weeks 10% individual, 40% aggregate Market Infrastructure Source: Stock Exchanges of Africa, Standard Equities Research, Dec. 1999

  18. Public Debt Market • Public debt securities development still in early stages in most countries • Disparity in level of development among markets • External debt is greater than domestic debt in most markets with the exception of South Africa, Mauritius, Zimbabwe and Namibia. • Relative to GDP, Zambia has the largest amount of total debt relative to all other emerging countries sampled in the World Bank/IMF survey during 2001-2002. • Domestic debt is mostly local currency denominated • Government Securities are mainly short term and fixed term, except in South Africa and Botswana (recently) • Mid-long term market is developing

  19. Debt Markets - Size of the market Source: World Bank Government Bond Market Development Survey, June 2003 Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

  20. Total Government Debt as % of GDPMost countries in the region rely on external debt Source: World Bank Government Bond Market Development Survey, June 2003

  21. Government Debt Compared to other Regions Note: Data is based on simple averages of countries included in the World Bank/IMF Survey, during 2001- 2003

  22. External Debt by Regional Groups Source: World Economic Outlook, Public Debt in Emerging Markets, September 2003

  23. Domestic Government Securities by Tenor Source: World Bank Government Bond Market Development Survey, June 2003 Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001

  24. Pensions and Insurance Development • Government controlled pension funds are predominant • Private pensions schemes are small or non-existent. • High administrative costs, generous benefits and increasing ratio of pensioners/contributors. • Mostly pay-as-you-go systems. • Reserves are invested in relatively short term deposits at commercial banks. Longer term investments are in real estate holdings.

  25. Public Pension Fund Reserves as % of GDP Source: World Development Indicators; Kaufman et. Al (2002), Social protection Discussion Paper Series No: 0219 Note: Data for 2000 except Senegal and Nigeria 1998, Ghana, Tanzania Swaziland 1995

  26. Global prevalence of public funds Source: Robert Palacios Presentation, Public Pension Fund Management Conference, September 24-26, 2001 Washington, DC

  27. Private Pensions Assets, Selected Countries Source: "International Patterns of Pension Provision", Palacios & Pallares-Miralles, 2000

  28. Private Pensions Assets as a % of GDP Source: "International Patterns of Pension Provision", Palacios & Pallares-Miralles, 2000

  29. Private Pensions Assets as a % of GDPPrivate pensions assets are growing around the world Source: 1990 data from Davis (1995) and national central banks, as quoted by Vittas (1998); all other data from World Bank database

  30. Financial sector development impact of Pension Reserves Source: Robert Palacios Presentation, Public Pension Fund Management Conference, September 24-26, 2001 Washington, DC

  31. Investment Allocation Mozambique 1998 Nigeria 1996 Ethiopia 1996 Mauritius 1999 Chad 1998 Govt. Issues 8% 66% 59% 41% Equities Shares Bonds 32% 40% 13% 2% Real Estate 24% 38% 14% 11% 56% Banks/Cash 42% 2% 13% 1% Offshore 2% 4% Others 12% 20% Investment of Typical DB Plans Source: Presentation by Aniruddha Bonnerjee, World Bank at Defining Pension Reform Priorities and Approaches for Africa Workshop - November 26, 2001

  32. Insurance Penetration: Premiums as % of GDP, 2001 Source: Swiss Re

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