TheCable

Pricewaterhouse Coopers (PwC) says the lack of an efficient and resilient financial system is still holding back inclusive and sustainable growth in emerging markets, with Nigeria showing the least progress.

PwC, the second largest professional service firm in the world, revealed this in new Project Blue report “Geared up for growth: Shaping a fit for purpose financial system”.

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.

Projecting findings in Nigeria, PwC said “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.”

The assessment highlights considerable room for further improvement in key areas, ranging from financial inclusion to pensions and protection.

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.

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,” the report revealed.

“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.”

Andrew Nevin, chief economist at PwC Nigeria and Project Blue global leader, emphasises 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.”