Southern Africa Shows Strong Financial Inclusion Progress, Emphasizes Digital Solutions

Financial experts highlighted significant advancements in financial inclusion across Southern Africa from 2011 to 2021, driven in part by the rapid adoption of digital financial services, particularly mobile money. These insights were shared during a webinar on the African Financial Sector Southern Africa organized by the Economic Commission for Africa (ECA) in collaboration with the West African Economic and Monetary Union (WAEMU).

Eunice Kamwendo, Director of ECA’s Subregional Office for Southern Africa, underscored the region's potential for growth, innovation, and sustainable investments in the financial sector despite facing challenges such as liquidity issues, debt distress, and regulatory constraints. She emphasized the importance of prioritizing financial sector development to ensure stability, mobilize domestic resources, and foster an environment conducive to investment.

Andrew Bamugye, Senior Investment Manager at the Trade and Development Bank, presented a report on Southern Africa's economic landscape, highlighting the banking sector's resilience with adequate capital and profitability from 2021 to 2023. He noted challenges including strong interconnections between banks, non-banking financial institutions, and foreign markets, posing risks of contagion. Bamugye proposed expanding fiscal space through diversified tax bases and simplified tax systems to mitigate sovereign risks.

Punki Modise, Chief Strategy and Sustainability Officer at ABSA Bank, discussed varying debt-to-GDP ratios across African countries, cautioning against unsustainable debt strategies observed in some nations. She stressed the importance of enhancing competition in banking systems to improve financial inclusion, advocating for robust risk management practices throughout banking operations.

Capital market discussions revealed disparities in market capitalization across Southern Africa, with the Johannesburg Stock Exchange leading at $1022.8 trillion, representing 133% of GDP in 2023, compared to lower figures in other countries like Mauritius and Namibia. Challenges such as limited liquidity and a concentrated stock market were also highlighted, alongside recommendations to deepen the pool of insurers to accelerate green bonds growth.

Experts addressed the low pension fund penetration in most Southern African countries, contrasting it with higher rates in South Africa, Namibia, and Botswana due to effective investment strategies and strong asset allocations. Bernard Yen, Managing Director at Aon Solutions Ltd, Mauritius, emphasized structural reforms and tax incentives to boost pension fund participation, particularly among informal sector workers.

Regarding SMEs, participants noted widespread financial constraints exacerbated by governance and skill gaps and stringent collateral requirements. Bamugye stressed the need for tailored support programs and blended finance structures to assist SMEs in developing viable business plans and accessing credit.

In conclusion, the webinar emphasized the importance of continued innovation and collaboration to enhance financial inclusion across Southern Africa. Participants called for leveraging digital solutions and exploring new financial instruments to address persistent challenges and promote sustainable economic growth in the region.