South Africa’s financial sector is much larger and more developed than those of the other focus countries. The total assets of deposit money banks in South Africa amounted to $211.2 billion at the end of 2006, more than triple the total assets of the 23 other African focus countries combined ($64.8 billion). South Africa’s bank assets are twice the size of Chile’s and about 10 percent greater than those of Malaysia.

The disparity is still larger when comparing estimated total assets of financial intermediaries for South Africa with the combined total for the other 23 African countries. Reflecting South Africa’s welldeveloped pension and insurance subsectors, the total assets of South Africa’s financial intermediaries (estimated at $465.3 billion at end-2006) are more than five times greater than the combined total of the other 23 African focus countries. As a percentage of GDP, the total assets of South Africa’s financial intermediaries (192.1 percent) are also much greater than those of the other focus countries, except Namibia (165.5 percent), with which South Africa has extensive financial and economic connections,<sup>6</sup> and Cape Verde (107.3 percent).<sup>7</sup> The next highest ratio is only 52.4 percent (Kenya). Five countries have ratios between 25 and 50 percent; 15 countries have ratios below 25 percent.

Interestingly, Namibia tops the list in total pension system assets as a percentage of GDP. At 58 percent, it exceeds the South African pension system’s ratio by 21 percentage points (table 2.2). The basis for Namibia’s pension system was acquired on obtaining independence in the late 1940s (albeit with extremely limited coverage in its early form), and pension funds have grown rapidly since, driven by private sector growth. Namibia’s high ratios must be viewed in the context of the (small) size of the country’s economy. The country’s estimated total pension system assets (at $3.3 billion) are far less than South Africa’s ($80.2 billion).<sup>8</sup> South Africa’s estimated total insurance sector assets (at $173.9 billion) is 77 times the counterpart figure for Namibia ($2.24 billion). The rest of the focus countries trail far behind.

Thus, institutional investors play a relatively predominant role as financial intermediaries in South Africa compared with the other African focus countries. According to the data in table 2.2, total estimated assets of South African institutional investors (based on the combined assets of insurance companies and pension funds) were $254.1 billion, or 109 percent of GDP. This number is likely a significant underestimate, given the lack of recent data for South African pension fund assets, and that this figure 6 These links antedate Namibia’s independence from South Africa in 1990. Namibia’s four commercial banks continue to have strong ties with South Africa’s banking sector. Three of them are subsidiaries of South African banks; the fourth has a South African bank as its largest shareholder (IMF 2007c).

7 In Cape Verde, the banking sector accounts for the vast majority of financial intermediaries’ assets. The ratio of banking sector assets to GDP has increased rapidly, from 70 percent at end-2004 (IMF 2006b) to 86.7 percent at end-2006, with lending concentrated heavily in the real estate and construction sectors. Even more so than in the case of Namibia, the relatively high ratio of bank assets to GDP also reflects the small size of the country’s economy relative to the financial sector: With nominal GDP in 2006, at $919 million, Cape Verde’s economy was by far the smallest of all the AICD countries.

8 Data on pension fund assets in Namibia and South Africa are rough estimates, given that the figures are dated (2004). Namibia’s nonbank regulator, Namibia Financial Institutions Supervisory Authority ( NAMFISA), is reportedly limited in its capacity to compile comprehensive, accurate and timely data (IMF 2007c). According to South Africa’s Financial Services Board release of 2005 data was delayed until September 2007. Data on South African pension fund assets include statistics for privately administered funds, which represent 3,407 of the 13,603 funds under the supervision of the regulator; the balance of 10,196 funds are underwritten funds that consist exclusively of insurance policies.

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