The FINANCIAL — Estimates from PwC analysis show the financial development opportunity in Sub-Saharan Africa could range between $490 and $950 billion of additional credit for the region with the right regulatory, banking and technology support.
The findings, from PwC’s latest Global Economy Watch outlook, examine the development of the sub-saharan African banking system.
To date, Sub-Saharan Africa (SSA)’s financial sector remains relatively small and underdeveloped. However, African banks have started to expand their footprint across Sub- Saharan Africa. The number of cross border subsidiaries of African banks has almost tripled since 2002 and there are now ten pan-African banks (PABs) with a presence in at least ten SSA countries, and one with a presence in over 30 SSA countries.
The majority of SSA countries have relatively shallow financial systems at present. However, this varies greatly across the region, with total credit ranging from 114% of GDP in Mauritius to 10% in Lesotho. This represents an opportunity for PABs to capitalise on (see Figure 6).
PwC analysis shows that the potential size of the opportunity for pan-African banks could range between $490 and $950 billion of additional credit (in 2016 prices). This depends on whether the SSA economies reach a level of financialisation similar to Mauritius or South Africa.
To fully realise this growth potential, African regulators need to get to grips with the key issues affecting SSA, including restricting the increased risk of contagion that this could bring to the region, but also making sure that financial inclusion is accelerated across all sectors of the economy and especially households.
Barret Kupelian, senior economist at PwC, commented:
“A healthy banking system is a vital ingredient for inclusive and sustainable growth in any economy. In Sub-Saharan Africa, however, financial development lags far behind comparable regions. Added to this, since the financial crisis, many Western banks have retrenched to their core markets.
“To realise this opportunity, policymakers have a critical role to play. First, they’ll need deal with the issue of financial inclusion. Second, they’ll need to facilitate cross-border regulation. And third, they’ll need to put in mechanisms in place to limit potential contagion risks.
“If regulators, banks and technology companies work together to drive financial inclusion forward then pan African banking could help businesses and households reap the advantages of a well-functioning credit market.”
Cheap and simple technological developments have been critical in helping improve access to financial services. For example, SSA is a world leader in the field of mobile banking. Worldwide 2% of adults have a mobile money account compared to 12% in SSA2. Fintech can also enable SSA to leapfrog stages of financial development.
The analysis shows growing intra-regional trade in SSA. The expansion of domestic businesses into SSA markets has seen cross-border banks follow corporate clients abroad.
Looking further afield, the Global Economy Watch has revised upwards the projections for GDP growth in the Eurozone to around 2% this year – the fastest since 2015. The Eurozone economies are experiencing a synchronised upswing in economic activity with the core and periphery both growing at relatively fast rates including record bumper years for tourism in Malta and Cyprus.
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