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Holborn Assets Reviews: the South African Financial System

8th December 2015

South Africa is recognized as having one of the leading institutions in the world in terms of financial governance, which is actually quite strange because South Africa is still an Emerging Market and in many ways it’s lagging behind developed economies.  Healthcare and educations are considered some of the worst in the world.  This is a paradox as the country was quite isolated because of the sanctions during the apartheid era and the process to reintegrate within the global economy was very slow.  The reason why South Africa has been doing so well it is because the institutions that govern finance in South Africa are well run, there is a cluster of institutions like the Banking regulation or the Stock Exchange, providing a full range of services from commercial and retail banking to insurance and investment.

The regulations are quite supportable and quite conservative and this conservatism is a good thing when you’re looking at the financial system, because during times of crisis and recession the economy can withstand the internal and external headwinds much better.  According to the World Economic Forum’s Global Competitiveness Report 2014-2015, South Africa is ranked in the 7th place as having one of the world’s most developed financial systems, based on the levels of trustworthiness, confidence and efficiency.

South Africa has been leading from a responsible investment point of view, the Johannesburg Stock Exchange was one of the first stock exchange to come up with a Sustainability Index and has done so for the last number of years.  South Africa also has very forward-looking regulatory policy for pension funds.

Pension savings have become a vital component of the financial system for South Africa as it represents 87.6% of GDP and pension funds own more than 40% of the Johannesburg Stock Exchange which contributes to a very liquid capital markets.  This constitutes a very big factor to the soundness of South Africa’s financial system and the ability to trade a variety of financial instruments has opened up the door for overseas pension funds to invest in South Africa.

If it weren’t for the financial system competitiveness, South Africa would not have had access to cheaper funding and subsequently there would have been tougher regulation in place.  However, since South Africa enjoys a huge asset base in pension funds they have now established a good presence in the world’s biggest financial centers like London.

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