Economy
Emerging Markets Still Deprived of Fit-For-Purpose Financial Systems
By Modupe Gbadeyanka
The lack of an efficient and resilient financial system is still holding back inclusive and sustainable growth in emerging markets. Policymakers, regulators and financial services organisations should more actively shape a financial system that is fit for purpose.
These are the main findings of a new PwC Project Blue report ‘Geared up for growth: Shaping a fit for purpose financial system’. In this paper, PwC sets out what an efficient, resilient and inclusive financial system looks like across eight key dimensions; and how leading emerging markets – Brazil, China, India, Indonesia, Mexico, Nigeria and South Africa – rate against its ‘fit for purpose’ targets.
The assessment highlights considerable room for further improvement in key areas, ranging from financial inclusion to pensions and protection.
While growth in emerging markets continues to outstrip developed counterparts and hundreds of millions of people have been lifted out of poverty, developing a well-functioning financial system remains critical to tackling poverty and sustaining economic growth over the long term. Emerging markets need a robust and broad-based financial infrastructure to channel funds efficiently, draw people into the market economy and enable them to share in the benefits.
The good news for emerging markets
In the PwC research, all seven emerging markets perform well on private sector lending, which is known to drive growth. With the exception of Brazil, the banking spread (difference between bank lending and deposit rates) in the emerging markets is low, improving borrowers’ ability to service debt. Another key area in which most of the seven emerging markets do reasonably well is controlling the size of their banking system. Only the size of China’s banking sector – compared to its economy – could raise systemic concerns.
Nigeria: financial system significantly impeding growth
This can’t be said about the other African country in PwC’s assessment. Not only has Nigeria by far the highest percentage of its population living in poverty, its financial system is also showing the least progress of all seven emerging markets. In five of the eight key areas, Nigeria’s financial system scores significantly below PwC’s fit-for-purpose targets, holding back inclusive and sustainable growth. However, the success of Nigeria’s auto-enrolment pension model is a bright spot.
South Africa: on the right track, but with a long way to go
Although poverty reduction has stalled in recent years and it has the worst income inequality of all seven emerging economies, South Africa is showing the most progress towards a fit-for-purpose financial system. Four of the eight key areas for a healthy financial system are already supporting inclusive and sustainable growth, and while more work is needed – for instance on the high levels of indebtedness – the country is moving in the right direction in the other four areas.
China and Indonesia underperforming in number of key areas
Compared to the other emerging economies, China has the biggest difficulties with its pension asset management and the size of its banking system. China’s banks are facing a troubling collision of swelling balance sheets, high corporate debt levels and a rise in insolvency and default. Indonesia seems particularly off track when it comes to financial inclusion and a well-functioning housing sector.
India: financial system showing mixed signs of progress
Strong innovation coupled with regulatory support is proving to be a boon for financial inclusion in India, with the Indian payments industry standing out from its emerging market counterparts by driving above-average growth in non-cash payments. However, the country’s pension asset management and life insurance penetration are both significantly below healthy targets.
Brazil and Mexico moving in right direction with e-payments
Brazil’s household debt and comparatively high banking spread make its financial system vulnerable. But policymakers are actively working to reduce its banking spread. Another positive sign is the country’s use of electronic payments, opening up access to financial services for under-served communities. Mexico’s banking spread is already low, while it’s also actively promoting e-payments to accelerate economic development. However, it has more work to do on financial inclusion and life insurance penetration.
Hugh Harley, Global Emerging Markets FS Leader, believes policymakers, regulators and financial services organisations should be more active in shaping a fit for purpose financial system.
“A fit for purpose financial system fosters inclusion, investment, access to credit and support for people when they retire, while promoting efficiency and protecting against systemic risks. The development of this financial system isn’t organic or passive. You shape it. Strong regulation and enforcement are essential for financial systems to develop, so regulators across different market sectors should get on the front foot and work together,” he said.
Andrew S. Nevin Ph.D., FS Advisory Leader and Chief Economist at PwC Nigeria and Project Blue Global Leader, stresses that emerging markets should try and learn from their peers.
“Our analysis clearly shows that some markets are ahead of others in different dimensions. Ask yourself the question: what can we learn from each other’s experience? Specifically financial services organisations should realise that many of the ground-breaking innovations in FS are being spearheaded in Asia and other emerging markets. Without ageing legacy systems to hold them back, they have clean sheets upon which to harness the latest developments in technology and develop their own distinctive business models,” he submitted.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange extended its stay in the south for the fourth consecutive session after it shed 1.18 per cent on Friday, March 13.
The unlisted securities market recorded a loss despite closing without a price decliner, and ending with two price gainers led by Geo Fluids Plc, which gained 1o Kobo to sell at N3.10 per share compared with the previous day’s N3.00 per share. Industrial and General Insurance (IGI) Plc appreciated during the session by 2 Kobo to trade at 54 Kobo per unit versus Thursday’s closing price of 52 Kobo per unit.
When the market closed for the day, the market capitalisation lost N29.83 billion to close at N2.489 trillion compared with the N2.519 trillion it finished a day earlier, and the NASD Unlisted Security Index (NSI) crashed by 49.84 points to 4,160.46 points from 4,210.31 points.
Market activity improved yesterday, as the volume of transactions rose 179.5 per cent to 10.4 million units from 3.7 million units, but the value of trades declined by 68.4 per cent to N29.9 million from N95.0 million, while the number of deals weakened by 11.5 per cent to 46 deals from 52 deals.
Central Securities Clearing Systems (CSCS) Plc remained the most active stock by value on a year-to-date basis with 38.4 million units worth N2.4 billion, Okitipupa Plc followed with 6.4 million units traded at N1.1 billion, and FrieslandCampina Wamco Nigeria Plc transacted 6.3 million units for N584.3 million.
Resourcery Plc ended the trading session as the most traded stock by volume on a year-to-date basis with 1.1 billion units valued at N415.6 million, trailed by Geo-Fluids Plc with 130.8 million units valued at N504.5 million, and CSCS Plc with 38.4 million units worth N2.4 billion.
By Adedapo Adesanya
The Naira continued to claw back some gains against the Dollar in the different segments of the foreign exchange (FX) market, as its value was strengthened on Friday.
In the black market, it gained N10 against the United States Dollar yesterday to close at N1,400/$1 compared with the preceding day’s rate of N1,410/$1, and at the GTBank forex counter, it chalked up N6 to close at N1,385/$1, in contrast to the N1,391/$1 it was traded a day earlier.
Similarly, in the Nigerian Autonomous Foreign Exchange Market (NAFEX), it appreciated against the greenback during the session by N5.28 or 0.38 per cent to quote at N1,366.23/$1 versus Thursday’s closing price of N1,371.51/$1.
It also improved its value against the Pound Sterling in the official market on Friday by N21.81 to settle at N1,812.99/£1 compared with the previous day’s N1,834.80/£1, and gained N13.86 against the Euro to sell at N1,568.03/€1 versus N1,581.89/€1.
Pressure eased further on the FX market as the Central Bank of Nigeria (CBN) continued interventionist operations this week, selling Dollars to banks to boost liquidity after a $500 million boost last week.
This was complemented by inflows from foreign investors, exporters and non-bank corporates, among others, while Nigeria’s gross external reserves remained above $50 billion, the highest since 2009.
The Governor of the apex bank, Mr Yemi Cardoso, also eased fears of a Naira devaluation, saying the country’s financial system has been strengthened by reforms.
Regardless, external pressure looms as the US Dollar strengthened globally due to its war with Iran, now ongoing for three weeks.
Meanwhile, the cryptocurrency market was largely down as traders and investors continue to align with current realities.
The market is adapting to the conflict in real time. Early in the war, every headline produced an outsized reaction because nobody could price the tail risk. Now, traders have a framework where strikes happen, oil spikes and bitcoin dips only to recover again.
Cardano (ADA) depreciated by 3.8 per cent to $0.2623, Dogecoin (DOGE) lost 1.7 per cent to finish at $0.0948, Ripple (XRP) slumped 1.5 per cent to $1.39, Solana (SOL) dropped 1.4 per cent to sell for $87.33, Binance Coin (BNB) went down by 1.3 per cent to $653.58, Bitcoin (BTC) declined by 1.1 per cent to $70,670.63, and Ethereum (ETH) decreased by 0.9 per cent to $2,078.78.
However, TRON (TRX) appreciated by 1.7 per cent to $0.2941, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Adedapo Adesanya
The price of the major crude oil grade, Brent crude oil, closed above $100 on Friday for the second consecutive session, as the Iran war heads toward its third week, with oil tanker traffic through the Strait of Hormuz still effectively at a standstill.
It gained 2.67 per cent or $2.68 during the trading day to close at $103.14 per barrel, while the US West Texas Intermediate (WTI) crude oil grade appreciated by 3.11 per cent or $2.98 to settle at $98.71 per barrel.
Brent futures were up about 10 per cent for the week following the 27 per cent rise seen last week, which marked the biggest weekly gain in oil prices since the COVID-19 pandemic in 2020. WTI futures, which saw their best week since 1983 last week, ended the week more than 8 per cent higher.
US President Donald Trump said American forces launched a major bombing raid on Iran’s strategic Kharg Island, targeting military facilities on the key Persian Gulf outpost while warning Iran that its vital oil infrastructure could be destroyed if shipping in the Strait of Hormuz is disrupted.
The terminal accounts for roughly 90 per cent of Iranian crude shipments, loading millions of barrels per day onto tankers bound largely for Asian markets.
The US and Israel’s strikes in the conflict have largely targeted Iranian military and nuclear infrastructure. Oil facilities elsewhere in Iran have been hit, but Kharg’s massive storage tanks, jetties, and pipelines had remained untouched until the latest strike.
Iran’s new supreme leader, Mojtaba Khamenei, vowed to keep fighting in a message delivered via state television.
There have been a number of attacks on foreign ships in or near the Strait, feeding into concerns that a prolonged war could translate to a global economic shock.
Prices are rising despite the US and its allies rolling out some measures to keep a lid on energy costs.
The International Energy Agency (IEA) has agreed to release 400 million stockpiled barrels, the largest such action in history.
The US has issued a 30-day waiver for India to purchase sanctioned oil from Russia. President Donald Trump is considering loosening rules under the Jones Act that require American ships to transport goods between domestic ports, including oil and gas, in an effort to lower costs.
Traders are continuing to monitor developments in the Middle East.
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