Saturday, October 11, 2008

SA’s financial system ranks among world’s best

Wednesday, 10 September 2008

South Africa's financial system has been ranked 25th in the World Economic Forum's first Financial Development Index.

Released in New York on Tuesday, the report is a comprehensive analysis of financial systems and capital markets in 52 countries that looks at key drivers of financial system development and economic growth in developing and developed nations.

Nouriel Roubini, Professor of Economics at New York University, says "The Index is intended to serve as a basis for discussion about financial system development and how countries can use financial system reform to drive economic growth, and provide capital and opportunity to those who most need it."

The top half of the index is dominated by developed countries with the US and the UK taking the top two positions. South Africa however ranked ahead of competitors within the emerging market economies group, such as India (31), Russia (36), and Brazil (40), and just below China who was ranked 24th. Nigeria is the only other African country to appear on the list, ranked 50th.

The rankings are based on over 120 variables spanning institutional and business environments, financial stability, financial intermediation through banks, markets and other financial institutions as well as the size, depth and access to capital markets.

"South Africa achieves solid performance across most of the pillars in the Index," states the report. "Its insurance markets are highly evolved with a high degree of penetration and healthy growth in premiums. It banks are efficient and equity markets have a very high level of capitalization as a share of GDP."

Within the Institutional Environment category, South Africa scored particularly well in a number of indices. The country has the most liberal domestic sector of all the countries surveyed and also ranked first in the shareholder rights index. SA also scored well in the indices measuring the extent of incentive-based compensation (2), efficacy of corporate boards (4) and strength of auditing and accounting standards (6).

South Africa fared well in the Financial Stability category, with SA averting the risk of a systemic banking crisis through entry and capital restrictions for banks as well as private monitoring of the banking industry. South Africa was ranked the world's best in all of these areas.

South Africa's shining star faded in the Business Environment pillar. "Its information technology infrastructure generally scores quite low compromising the quality of its business environment," states the report.

Other challenges such as the quality of maths and science education (51), the brain drain and ease of hiring foreign labour (50), the quality of telephone/fax infrastructure and the number of broadband internet subscribers (43), made this SA's lowest performance category, earning an overall score of 36.