Snapshot of NBFIs Development in Africa

Michael Pomerleano The World Bank

Regional Workshop on NBFIs in AfricaDecember 9 – 11, 2003

Mauritius

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.

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.

Financial Sector Structure

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

% of GDP

Gab

on

Seneg

al

Gha

na

Mau

ritius

Nigeria

Tanzania

Uganda

Zambi

a

Microfinance

Pension

Other NBFI

Insurance

Banks

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

Domestic Credit Provided by Banks Credit growth is sluggish, Financial intermediation has not grown

020406080

100120140160180

Uga

nda

Tanz

ania

Cam

eroo

nG

hana

Sen

egal

Cot

e d'

Ivoi

reP

olan

dZi

mba

bwe

Ken

yaN

amib

iaC

hile

Mau

ritiu

sU

nite

d S

tate

sS

outh

Afr

ica

Mal

aysi

a

1996

2001

Source: World Bank, GDF & WDI Central Database

% of GDP

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%M

alay

sia

Nam

ibia

Chi

leS

outh

Afri

caU

nite

d S

tate

sS

eneg

alM

aurit

ius

Pol

and

Cot

e d'

Ivoi

reU

gand

aK

enya

Cam

eroo

nTa

nzan

iaZi

mba

bwe

Gha

na

PublicPrivate

2001

, as

a %

of

Dom

esti

c C

red

it

Source: World Bank, GDF & WDI Central Database

Composition of Domestic CreditPublic sector is a disproportionate beneficiary of credit in some countries

Domestic Credit to Private Sector% of GDP

0

20

40

60

80

100

120

140

160

Tanza

nia

Uganda

Cameroon

Ghana

Swazila

nd

Leso

tho

Cote d'

Ivoire

Botsw

ana

Seneg

al

Kenya

Zimba

bwe

Poland

Namibia

Mau

ritius

Chile

United S

tate

s

South

Afri

ca

Mala

ysia

1996

2001

Source: World Bank, GDF & WDI Central Database

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.

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

CountryYear Established

Number of Listed Companies

No of Brokers

Market Capitalization (USD mln)

Mozambique 1999 4 - 120

Swaziland 1990 6 2 127

Malawi 1997 7 1 156

Namibia 1992 37 7 171

Zambia 1994 14 3 217

Tanzania 1998 4 6 580

Ghana 1989 24 12 740

Mauritius 1988 40 11 1,328

Kenya 1954 50 20 1,423

Botswana 1989 27 2 1,723

Nigeria 1960 195 226 5,740

Zimbabwe 1947 76 12 15,632

South Africa 1887 450 118 184,622

Number of Companies Listed 2002

Source: FIBV, and National Stock Exchanges

6

7

14

24

27

40

37

50

50

76

195

450

1151

0 200 400 600 800 1000 1200 1400

Swaziland

Malawi

Zambia

Ghana

Botswana

Mauritius

Namibia

Morocco

Kenya

Zimbabwe

Nigeria

South africa

Egypt

Total New Listings, 1995-2001

Source: FIBV

3 7 7 7 8 14 20 21 28

5172

86

309

0

50

100

150

200

250

300

350

0

50

100

150

200

250

300

Zambia

Poland

Namibia

Botsw

ana

Cote d'

Ivoire

Swazila

nd

Ghana

Zimba

bwe

Mau

ritius

India

Austra

lia

Japa

n

United S

tate

sChile

South

Afri

ca

Mala

ysia

1995

2001

Market Capitalization as % of GDP, 1995-2001

Source: World Bank, GDF & WDI Central Database

0

1

2

3

4

5

6

7New ly issuedsharesAlready Issuedshares

Average Annual Gross New Capital Raised by Domestic Companies, 1995-2002 (billion US$)

Source: FIBV

Turnover Ratio, 1996, 2001, 2002

Source: World Bank, GDF & WDI Central Database

0

50

100

150

200

250

Ghana

Kenya

Botsw

ana

Namibia

Niger

ia

Mor

occo

Mau

ritius

Zimba

bwe

Indo

nesia

Austra

lia

South

Afri

ca

Japa

n

United S

tate

sIn

dia

1996

2001

2002

trad

ing

volu

me

as %

of

mar

ket c

ap.

Capital Returns (%)

-60

-40

-20

0

20

40

60

80

100

120

Botsw

ana

Egypt

Ghana

Kenya

Mau

ritius

Mor

occo

Namibia

Niger

ia

South

afri

ca

Tunisi

a

Zambia

Zimba

bwe

1997

1998

Source: Political Economy Research Institute, working paper no: 17

Market InfrastructureCountry 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

Source: Stock Exchanges of Africa, Standard Equities Research, Dec. 1999

Market Infrastructure

Source: Stock Exchanges of Africa, Standard Equities Research, Dec. 1999

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

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

Debt Markets - Size of the market

0

10

20

30

40

50

60

South

Afr

ica

Nig

eria

Ghana

Zam

bia

Kenya

Tanzania

Uganda

Mauritius

Nam

ibia

Bots

wana

Sw

azila

nd

US

$b

illio

n

External debt Domestic government securities Other debt

Source: World Bank Government Bond Market Development Survey, June 2003Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001

Total Government Debt as % of GDP Most countries in the region rely on external debt

0

50

100

150

200

250

Zam

bia

Ghana

Uganda

Nig

eria

Tanzania

Kenya

Mauritius

South

Afr

ica

Sw

azila

nd

Nam

ibia

Bots

wana

Aggre

gate

% o

f G

DP

Domestic debt External debt

Source: World Bank Government Bond Market Development Survey, June 2003

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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

MENA SSA LAC EAP ECA

% o

f G

DP

External debt Domestic debt

External Debt by Regional Groups

0

10

20

30

40

50

60

70

As

a %

of

GD

P

Africa Sub-Sahara DevelopingAsia

Middle Eastand Turkey

WesternHemisphere

1996

2002

Source: World Economic Outlook, Public Debt in Emerging Markets, September 2003

Domestic Government Securities by Tenor

0% 20% 40% 60% 80% 100%

Uganda

Nigeria

Ghana

Tanzania

Zambia

Namibia

Kenya

Sw aziland

Mauritius

South Africa

Botsw ana

Simple average

< 1 year

1-5 years

> 5 years

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

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.

Public Pension Fund Reserves as % of GDP

Source: World Development Indicators; Kaufman et. Al (2002), Social protection Discussion Paper Series No: 0219Note: Data for 2000 except Senegal and Nigeria 1998, Ghana, Tanzania Swaziland 1995

0

10

20

30

40

50

60

Tan

zani

aU

gan

daN

iger

iaS

eneg

alC

ana

daZ

imba

bwe

Tha

ilan

dJa

pan

Sw

azila

ndG

hana

Un

ited

Sta

tes

Mor

occ

oK

enya

Mau

ritiu

sD

enm

ark

Sou

th A

fric

aN

am

ibia

Sin

gap

ore

Global prevalence of public funds

0% 20% 40% 60% 80% 100%

Middle East/North Africa

Latin America

High income OECD

Sub-Saharan Africa

East Asia

South Asia

(12.3)

(8.4)

(10.8)

(8.7)

(7.0)

(16.6)

Percent of countries (average % of GDP)

Source: Robert Palacios Presentation, Public Pension Fund Management Conference, September 24-26, 2001 Washington, DC

Private Pensions Assets, Selected Countries

Source: "International Patterns of Pension Provision", Palacios & Pallares-Miralles, 2000

Country Assets as % of GDP Mandatory private

schemes Year SourceZambia 0.2 No 1994 World Bank (a), 1997Costa Rica 0.6 No 1998 FIAP, 2000Hungary 1.2 Yes 1999 SPPFS, 1999Kazakhstan 1.4 Yes 1999 FIAP, 2000Egypt 1.6 No 1995 World Bank (b), 1997Indonesia 2.5 No 1994 Chad, 1996Kenya 2.7 No 1994 World Bank (a), 1996Korea 4.0 No 1998 OECD, 2000Jordan 4.9 No 1996 World Bank (c), 1998Germany 5.8 No 1996 OECD, 1997Norway 7.3 No 1996 OECD, 1997Brazil 14.0 No 1999 FIAP, 2000Sweden 32.6 Yes 1996 OECD, 1997Japan 41.8 No 1996 OECD, 1997Canada 47.7 No 1998 OECD, 2000South Africa 57.0 No 1990 World Bank (a), 1994United States 86.4 No 1998 OECD, 2000Netherlands 87.3 Yes 1996 OECD, 1997Switzerland 117.1 Yes 1996 OECD, 1997

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

Zambi

a

Costa

Rica

Hungar

y

Kazak

hsta

n

Egypt

Indo

nesia

Kenya

Korea

Jord

an

Ger

man

y

Norway

Brazil

Sweden

Japa

n

Canada

South

Afri

ca

United

Sta

tes

Nether

land

s

Private Pensions Assets as a % of GDP

Source: "International Patterns of Pension Provision", Palacios & Pallares-Miralles, 2000

Private Pensions Assets as a % of GDPPrivate pensions assets are growing around the world

0

20

40

60

80

100

120% of GDP

Switzer

land

United K

ingdom

The N

ether

lands

United S

tate

sChile

South

Afri

ca

Mala

ysia

Singap

ore

1990

1998

Source: 1990 data from Davis (1995) and national central banks, as quoted by Vittas (1998); all other data from World Bank database

Financial sector development impact of Pension Reserves

0% 20% 40% 60% 80% 100% 120%

Zambia

Indonesia

Korea

Philippines

Jordan

Malaysia

Swaziland

Mauritius

Morocco

Ghana

Tunisia

Costa Rica

Nepal

Kenya

Sri Lanka

Reserves as % of stock market cap

Source: Robert Palacios Presentation, Public Pension Fund Management Conference, September 24-26, 2001 Washington, DC

Investment of Typical DB Plans

Investment Allocation

Mozambique 1998

Nigeria 1996

Ethiopia 1996

Mauritius 1999

Chad 1998

Govt. Issues   8% 66% 59% 41%

EquitiesSharesBonds

32% 40%   13% 2%

Real Estate 24% 38% 14% 11% 56%

Banks/Cash 42% 2%   13% 1%

Offshore 2%     4%  

Others   12% 20%    

Source: Presentation by Aniruddha Bonnerjee, World Bank at Defining Pension Reform Priorities and Approaches for Africa Workshop - November 26, 2001

Insurance Penetration: Premiums as % of GDP, 2001

Source: Swiss Re

0

2

4

6

8

10

12

14

16

18

Alg

eria

Egy

ptN

ige

riaT

uni

sia

Ivor

y C

oast

Mex

ico

Ken

yaM

oroc

coZ

imba

bwe

Mau

ritiu

sT

hai

land

Uni

ted

Sta

tes

Japa

nS

outh

Afr

ica

Non-Life

Life