• Says, its financial system shows least progress
Iyobosa Uwugiaren in Abuja
The lack of an efficient and resilient financial system is still holding back inclusive and sustainable growth in emerging markets across the globe including Nigeria, a global financial and economy consultant, PwC Project Blue, has stated in its recent findings.
The financial expert also said that Nigeria had the highest percentage of its population living in poverty, with its financial system showing the least progress of all the seven emerging markets: Nigeria, Brazil, China, India, Indonesia, Mexico and South Africa.
‘’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 respected institution said.
The report is entitled: ‘Geared up for growth: Shaping a fit-for- purpose financial system’.
In the paper, PwC sets out what an efficient, resilient and inclusive financial system looks like across eight key dimensions; and how leading emerging markets – Nigeria, Brazil, China, India, Indonesia, Mexico and South Africa – rate against its ‘fit for purpose’ targets.
The assessment highlights considerable room for further improvements 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’’, PwC added.
‘’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.
‘’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.’’
According to PwC, the financial system in Nigeria is significantly impeding growth.
However, the good news for emerging markets in the PwC research is that all the 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 also 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.
The organisation said that South Africa is on the right track, but with a long way to go.
According to the assessment, ‘’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.’’
It further added that China and Indonesia are under-performing in number of key areas.
Compared to the other emerging economies, the organisation said 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’’, it stated.
In the report, 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’’, Harley stated.
‘’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.”
Dr. Andrew S. Nevin, 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.”
PwC Project Blue explores the major trends that are transforming the global economy and competitive landscape for financial services (FS) organisations worldwide. It also sets out the implications of these trends for public policy and regulation, and how governments and regulators can forge an efficient, resilient and inclusive financial system.
PwC said its purpose is to build trust in society and solve important problems, adding, ‘’We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services.’’