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Domestic Credit Provided by Banks 1996-2002

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					Snapshot of NBFIs Development in Africa


             Michael Pomerleano
               The World Bank


     Regional Workshop on NBFIs in Africa
           December 9 – 11, 2003
                  Mauritius
Financial Sector Structure and
Conditions

   Large gaps between countries with sizeable financial
    systems and countries with much smaller financial
    systems.
   South African Financial System is dominant in the
    region
   Ownership in the banking sector is evolving from a
    predominantly state-controlled to privately owned.
   The performance of the banking system has improved
    but it is still low in the majority of countries. Average
    share of non-performing loans was over 20% in 1997.
Financial Sector Structure and
Conditions (cont.)

   Banking sector lending is low compared to other
    regions. (26% when South Africa excluded, 81%
    when South Africa included)
   With the exception of South Africa, financial systems
    offer limited range of financial products. Lending is
    short term, government securities have short
    maturities.
   Institutional environment is still deficient in many
    countries. Effective regulation and supervision is still
    weak or inexistent.
Financial Sector Structure
% of GDP                                                                                        Microfinance

  140.0%                                                                                        Pension
                                                                                                Other NBFI
  120.0%
                                                                                                Insurance

  100.0%                                                                                        Banks


   80.0%

   60.0%

   40.0%

   20.0%

     0.0%
                                               s




                                                                                            a
                                                          ia
                         l
            on




                                  na




                                                                               a
                                                                      ia
                      ga




                                             iu




                                                                             nd



                                                                                         bi
                                                        er


                                                                    an
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                                ha


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                                                                                        m
                    ne




                                                      ig




                                                                           ga
                                                                  nz
                                         au




                                                                                     Za
         G




                               G




                                                    N
                  Se




                                                                           U
                                                               Ta
                                        M




Source: Data from FSAP Findings and World Bank Financial Structure Database
All data for 2000, except Zambia 2001, Ghana Insurance and other NBFIs 1999. Microfinance data for Gabon, Ghana,
Mauritius, Nigeria and Zambia were not available.
   Domestic Credit Provided by Banks
   Credit growth is sluggish, Financial intermediation has not grown

           180
           160
           140
% of GDP   120
           100
            80
            60
  1996
            40
  2001      20
             0




                         si a
                  Po e




                        bi a
                  d'Iv l




               u th tes
             it e rit ius



                 Ma ca
                          da




                           a




              Zi m l and
             Ca a nia




                           e
                           n




                Ma il e
                 Na ya
                        ga
                        oir


                       bw
                       an
                      roo




                         i
                     Ch
                       n
                     an




                    Af r
                    lay
                     ta
                    ne




                    mi
                   Ke
                   Gh
                   nz




                   ba
                  me




                    u
                 dS
                 Ug




                 Se
                Ta




               te




            So
            Co




           Un

             Source: World Bank, GDF & WDI Central Database
 Composition of Domestic Credit
 Public sector is a disproportionate beneficiary of credit in
 some countries
                                            100%
          2001, as a % of Domestic Credit


Public
Private
                                             90%
                                             80%
                                             70%
                                             60%
                                             50%
                                             40%
                                             30%
                                             20%
                                             10%
                                              0%
                                                     Ug re




                                                                e
                                                   Ta oo n




                                                                a
                                                   Ma g al




                                                              da




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                                                               ia




                                                                d
                                                ited fric a




                                                            tius
                                                  uth h ile




                                                 Ca ny a
                                                            te s
                                                    Na ia




                                                            an
                                                           bw
                                              Co olan
                                                           voi
                                                        mib
                                                             s




                                                         an
                                                        ne
                                                      Sta
                                                       lay




                                                       ur i
                                                        C




                                                          r



                                                      Gh
                                                      Ke




                                                      ba
                                                      nz
                                                      d' I
                                                       A




                                                     me
                                                    Se


                                                      P
                                                   Ma




                                                   te
                                              So
                                             Un




                                                   Source: World Bank, GDF & WDI Central Database
                                                                                                             2001
                                                                                                                      1996
                                                       Ta
                                                           nz




                                                                         0
                                                                             20
                                                                                  40
                                                                                       60
                                                                                            80
                                                                                                 100
                                                                                                       120
                                                                                                                140
                                                                                                                       160
                                                                an
                                                         Ug ia
                                                     Ca and
                                                         m a
                                                            er
                                                                 oo
                                                           G n
                                                     Sw ha n
                                                                                                                             % of GDP

                                                          az a
                                                              ila
                                                        Le nd
                                                  Co so
                                                       te tho
                                                           d'
                                                              I
                                                      Bo voi
                                                          ts re
                                                             wa
                                                        Se na
                                                             ne
                                                                  ga
                                                           Ke l
                                                     Zi ny
                                                        m
                                                           ba a
                                                                 bw
                                                          Po e
                                                                la
                                                        Na nd
                                                             m
                                                       M ib ia
                                                          au
                                                              r it
                                                                  iu
                                                 Un                  s
                                                    ite      Ch
                                                        d          ile
Source: World Bank, GDF & WDI Central Database

                                                  So Sta
                                                      ut te
                                                         h           s
                                                            Af
                                                       M rica
                                                          al
                                                             ay
                                                                  sia
                                                                                                                             Domestic Credit to Private Sector
Stock Market Development

• African stock markets are characterized by high
  diversity in terms of age, size and performance. (I.e
  market capitalization: South Africa 128% GDP,
  Swaziland 7 % of GDP.
• In general, limited number of listed companies, low
  capitalization, low liquidity and little diversity among
  market participants.
• However, recently the region is witnessing faster
  development of equity markets.
• Newer markets have grown fast, whereas the situation
  with more mature ones are mixed.
• High volatility in the rate of return.
     Selected Stock Markets
                                     Number of                         Market
                 Year                Listed           No of            Capitalization
Country          Established         Companies        Brokers          (USD mln)
Mozambique                    1999                4-                              120
Swaziland                     1990                6                2              127
Malawi                        1997                7                1              156
Namibia                       1992               37                7              171
Zambia                        1994               14                3              217
Tanzania                      1998                4                6              580
Ghana                         1989               24              12               740
Mauritius                     1988               40              11             1,328
Kenya                         1954               50              20             1,423
Botswana                      1989               27                2            1,723
Nigeria                       1960              195             226             5,740
Zimbabwe                      1947               76              12           15,632
South Africa                  1887              450             118          184,622
     Source: Emerging Markets Database, WDI 2002, and National Stock Exchanges
     Data for end of 2002, except Tanzania, Namibia, Zambia, Malawi and Swaziland 2001
     Number of Companies Listed 2002
     Egypt                                                                                  1151
South africa                                       450
    Nigeria                       195
 Zimbabwe                   76
     Kenya              50
   Morocco              50
   Namibia             37
  Mauritius            40
  Botswana             27
    Ghana          24
    Zambia         14
     Malawi        7
 Swaziland         6

               0                 200         400          600          800           1000   1200   1400

                                        Source: FIBV, and National Stock Exchanges
                 Sw




                                  0
                                          50
                                                    100
                                                          150
                                                                200
                                                                      250
                                                                            300
                   az                                                                   350
                      ilan
                              d




                                  3
                     Gh
                         a
                  Ma na




                                      7
                     ur i
                          tiu
                              s




                                      7
                     Ke
                         ny
                              a



                                      7
                    Za
                       mb
                 Bo          ia

                                      8
                    tsw
                        a
                 Zim na               14
                     ba
                        bw
                  Mo          e
                                      20



                      ro c




Source: FIBV
                            co
                                      21




                    Nig
                          eri
                              a
                                          28




                    Me
                        xic
                   Na o
                                               51




                       mi
                           b
                   Th ia
                                                    72




                      ail
               So         a
                 uth n d
                                                                                              Total New Listings, 1995-2001




                                                     86




                      Afr
                           ic a
                                                                                  309
                                                                                                   2001
                                                                                                          1995
                                                         Za
                                                             m




                                                                            50
                                                                                 100
                                                                                       150
                                                                                             200
                                                                                                   250
                                                                                                            300




                                                                        0
                                                                 b
                                                          P o ia
                                                        Na land
                                                      Bo mib
                                                  Co tsw ia
                                                       te a n
                                                          d a
                                                                                                                  1995-2001


                                                     Sw 'Ivo
                                                         az ire
                                                             ila
                                                          G nd
                                                     Zi ha
                                                        m na
                                                          ba
                                                       M bw
                                                         au e
                                                             r it
                                                                 iu
                                                                    s
                                                       Au d  In
                                                           st ia
                                                              ra
                                                 Un               l
                                                    ite    Ja ia
                                                        d pa
                                                          St n
                                                              at
                                                  So C e s
Source: World Bank, GDF & WDI Central Database        ut h
                                                         h ile
                                                           A
                                                       M fric
                                                         al a
                                                            ay
                                                                 sia
                                                                                                                  Market Capitalization as % of GDP,
      Average Annual Gross New Capital
      Raised by Domestic Companies,
      1995-2002 (billion US$)
New ly issued         7
shares
Already Issued        6
shares
                      5

                      4

                      3

                      2

                      1

                      0
                              W bia




                              Th ri a

                                           d
                                N s
                               Lu a




                               N bi




                              ex o
                             M ka




                                          a
                                       nd




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                                        iu




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                                         n




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                                      ro



                                   sa
                                   sa
                                   ha




                                     d
                                       i
                                   ri t
                                  il a




                                 am
                                  ai




                                 an



                                 Af
                                  e
                                ar




                                 a
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                                G
                               az




                               M




                              th
                 Sw




                          S
                          &



                        E
                       ro



                   JS
                    ai
                  C




                              Source: FIBV
                                                                                     2002
                                                                                            2001
                                                                                                   1996
                                                             trading volume as % of market cap.
                                                          G
                                                            ha




                                                                          50
                                                                               100
                                                                                      150
                                                                                                   200
                                                                                                          250




                                                                      0
                                                                n
                                                          Ke a
                                                      Bo ny
                                                         ts a
                                                           wa
                                                        Na na
                                                            m
                                                              ib
                                                         Ni ia
                                                            g
                                                       M eri
                                                          or a
                                                       M o cc
                                                         au o
                                                     Zi r itiu
                                                        m
                                                          ba s
                                                      In bw
                                                        do e
                                                            ne
                                                       A s
                                                  So ust ia
                                                      ut ra l
                                                        h ia
                                                           Af
                                                              ric
                                                 Un
Source: World Bank, GDF & WDI Central Database
                                                    ite    Ja a
                                                       d pa
                                                          St n
                                                             at
                                                                es
                                                            In
                                                               di
                                                                  a
                                                                                                                Turnover Ratio, 1996, 2001, 2002
   Capital Returns (%)
1997
       120
1998
       100
       80
       60
       40
       20
        0
       -20
       -40
       -60




                       e
                     ria




            Za ia
                     na




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           Na o
                    na




                      ia
                       a

          M us




                       a
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                  ib




                   s
       So g e
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                   i
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              wa




               r it




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              Eg




               m
             Ke




              af




             ba
            Tu
            au

             or



            Ni
             G
            ts




            h
         Bo




         M




         ut




        Zi
             Source: Political Economy Research Institute, working paper no: 17
     Market Infrastructure
Country      Instruments Traded                    Trading method                       Settlement
                                                                                        Period

 Botswana    Equities, bonds and short-term        Call over system                     T+5
             commercial paper
 Ghana       Equities and corporate                Call over system                     T+5
 Kenya       Equities, preference shares,          Open outcry                          T+5
             corporate bonds and treasury bonds
 Malawi      Equities                              Single price auction                 T+7
 Mauritius   Equities and corporate debentures     Open outcry                          T+5

 Namibia     Equities, pref. Shares and bonds      Automated                            T+5

 Nigeria     Equities, pref. Shares, industrial    Automated                            T+5
             loans and government bonds
 Swaziland   Equities, debentures and government   Single price auction                 T+5-t+12
             bonds
 Tanzania    Equities and bonds                    Open outcry                          T+5

 Zambia      Equities and treasury bonds           Single price auction, manual order   T+3
                                                   matching with automated clearing
                                                   settlement
 Zimbabwe    Equities, debentures, warrants,       Call over system                     T+7
             government stocks and bonds and
             Zimbabwe depository receipts
             Source: Stock Exchanges of Africa, Standard Equities Research, Dec. 1999
     Market Infrastructure
Country               How are securities           Registration period           Foreign ownership
                      held                                                       limits
Botswana              Physical                     2-3 weeks                     None
Ghana                 Physical                     2-3 weeks                     10% individual, 74%
                                                                                 aggregate
Kenya                 Physical (establishing       Up to 60 days                 75% aggregate
                      central depository)
Malawi                Physical                     2-3 days                      10% individual, 49
                                                                                 % aggregate
Mauritius             Central Depository           N/A                           15% in sugar
                                                                                 companies only
Namibia               Physical                     Up to 1 week for locally      None
                                                   registered cos., longer
                                                   for foreigners
Nigeria               Central Depository           N/A                           None
Swaziland             Physical                     Up to 2 weeks                 None
Tanzania              Central Depository           10-20 days                    Total foreign
                                                                                 restriction
Zambia                Central Depository           N/A                           None
Zimbabwe              Physical                     2-3 weeks                     10% individual, 40%
                                                                                 aggregate
            Source: Stock Exchanges of Africa, Standard Equities Research, Dec. 1999
Public Debt Market

   Public debt securities development still in early stages in most
    countries
   Disparity in level of development among markets
   External debt is greater than domestic debt in most markets with
    the exception of South Africa, Mauritius, Zimbabwe and Namibia.
   Relative to GDP, Zambia has the largest amount of total debt
    relative to all other emerging countries sampled in the World
    Bank/IMF survey during 2001-2002.
   Domestic debt is mostly local currency denominated
   Government Securities are mainly short term and fixed term,
    except in South Africa and Botswana (recently)
   Mid-long term market is developing
              Debt Markets - Size of the market
             60

             50

             40
US$billion




             30

             20

             10

             0




                                                                                                  Namibia
                                                 Zambia
                                      Ghana




                                                                             Uganda
                            Nigeria




                                                                  Tanzania




                                                                                      Mauritius
                                                          Kenya
                  South
                  Africa




                                                                                                            Botswana


                                                                                                                       Swaziland
                        External debt         Domestic government securities             Other debt



             Source: World Bank Government Bond Market Development Survey, June 2003
             Note:Data for 2002 except Tanzania, South Africa, Swaziland, Botswana 2003, Kenya & Nigeria 2001
           Total Government Debt as % of GDP
            Most countries in the region rely on external debt


           250


           200
% of GDP




           150


           100


           50


            0




                                                                                                                     Namibia
                 Zambia


                              Ghana




                                                Nigeria
                                       Uganda




                                                          Tanzania




                                                                              Mauritius
                                                                      Kenya




                                                                                                         Swaziland




                                                                                                                               Botswana
                                                                                          South Africa




                                                                                                                                          Aggregate
                                      Domestic debt                  External debt
                          Source: World Bank Government Bond Market Development Survey, June 2003
             Government Debt Compared to
             other Regions

           90%
           80%
           70%
           60%
% of GDP




           50%
           40%
           30%
           20%
           10%
            0%
                       MENA              SSA              LAC             EAP              ECA

                                          External debt        Domestic debt
           Note: Data is based on simple averages of countries included in the World Bank/IMF Survey,
           during 2001- 2003
                  External Debt by Regional Groups
1996
                  70
2002
                  60

                  50
  As a % of GDP




                  40

                  30

                  20

                  10

                  0
                         Africa      Sub-Sahara     Developing    Middle East     Western
                                                      Asia        and Turkey     Hemisphere


                  Source: World Economic Outlook, Public Debt in Emerging Markets, September 2003
Domestic Government Securities
by Tenor
Simple average
     Botsw ana
  South Af rica
      Mauritius
    Sw aziland
         Kenya                                                                              < 1 year

        Namibia                                                                             1-5 years

        Zambia                                                                              > 5 years

      Tanzania
         Ghana
         Nigeria
        Uganda

                0%           20%           40%          60%           80%          100%

Source: World Bank Government Bond Market Development Survey, June 2003
Note: Data for 2002 except Tanzania, Uganda, South Africa, Swaziland, Botswana 2003, Nigeria 2001
Pensions and Insurance
Development

• Government controlled pension funds are
  predominant
• Private pensions schemes are small or non-
  existent.
• High administrative costs, generous benefits and
  increasing ratio of pensioners/contributors.
• Mostly pay-as-you-go systems.
• Reserves are invested in relatively short term
  deposits at commercial banks. Longer term
  investments are in real estate holdings.
       Public Pension Fund Reserves
       as % of GDP
                 60

                 50

                 40

                 30

                 20

                 10

                  0
                                                      abw e

                                                         an d




                                                                                                          e
                                                             n


                                                            a
                                      ria
                           da




                                                           da
                          ania




                                                          g al




                                                       iland




                                                                        a


                                                                                         ark
                                                                                                       ic a
                                                                                                      ib ia
                                                         cc o


                                                                               itius
                                                         te s




                                                                                                    ap or
                                                     J apa


                                                     Gha n




                                                                       Keny
                                 Nig e
                      Ug an




                                                    Ca na




                                                                                                  h Afr
                                                   Sene




                                                                                       De nm
                                                  d Sta




                                                                                                 Na m
                                                   Thail




                                                  Moro
                   Tanz




                                                                              Maur
                                                Swaz
                                                 Zimb




                                                                                                Sing
                                                                                               Sout
                                            Un ite




Source: World Development Indicators; Kaufman et. Al (2002), Social protection Discussion Paper Series No: 0219
Note: Data for 2000 except Senegal and Nigeria 1998, Ghana, Tanzania Swaziland 1995
     Global prevalence of public funds
                                           Percent of countries (average % of GDP)


                           South Asia                                               (16.6)


                            East Asia                                               (7.0)


                 Sub-Saharan Africa                                                  (8.7)


                High income OECD                                                    (10.8)


                       Latin America                                                 (8.4)


           Middle East/North Africa                                                 (12.3)


                                        0%     20% 40% 60% 80% 100%

Source: Robert Palacios Presentation, Public Pension Fund Management Conference, September 24-26, 2001 Washington, DC
        Private Pensions Assets, Selected Countries
                                                        Mandatory private
Country                     Assets as % of GDP             schemes                   Year                    Source
Zambia                               0.2                      No                     1994              World Bank (a), 1997
Costa Rica                           0.6                      No                     1998                  FIAP, 2000
Hungary                              1.2                      Yes                    1999                 SPPFS, 1999
Kazakhstan                           1.4                      Yes                    1999                  FIAP, 2000
Egypt                                1.6                      No                     1995              World Bank (b), 1997
Indonesia                            2.5                      No                     1994                  Chad, 1996
Kenya                                2.7                      No                     1994              World Bank (a), 1996
Korea                                4.0                      No                     1998                 OECD, 2000
Jordan                               4.9                      No                     1996              World Bank (c), 1998
Germany                              5.8                      No                     1996                 OECD, 1997
Norway                               7.3                      No                     1996                 OECD, 1997
Brazil                              14.0                      No                     1999                  FIAP, 2000
Sweden                              32.6                      Yes                    1996                 OECD, 1997
Japan                               41.8                      No                     1996                 OECD, 1997
Canada                              47.7                      No                     1998                 OECD, 2000
South Africa                        57.0                      No                     1990              World Bank (a), 1994
United States                       86.4                      No                     1998                 OECD, 2000
Netherlands                         87.3                      Yes                    1996                 OECD, 1997
Switzerland                         117.1                     Yes                    1996                 OECD, 1997
                Source: "International Patterns of Pension Provision", Palacios & Pallares-Miralles, 2000
                                                                                              C Za
                                                                                                os m




                                                                                                                       10.0
                                                                                                                              20.0
                                                                                                                                     30.0
                                                                                                                                            40.0
                                                                                                                                                   50.0
                                                                                                                                                          60.0
                                                                                                                                                                 70.0
                                                                                                                                                                        80.0
                                                                                                                                                                               90.0




                                                                                                                 0.0
                                                                                                   ta bi a
                                                                                                       R
                                                                                             Ka Hun ica
                                                                                                 za g a
                                                                                                    kh ry
                                                                                                        st
                                                                                                           a
                                                                                                In Eg n
                                                                                                  do yp
                                                                                                      ne t
                                                                                                    Ke si a
                                                                                                         n
                                                                                                     Ko ya
                                                                                                   Jo rea
                                                                                                G rd
                                                                                                  er an
                                                                                                      m
                                                                                                  N an
                                                                                                     or y
                                                                                                        w
                                                                                                     Br ay
                                                                                                  Sw az
                                                                                                       ed il
                                                                                                     Ja e n
                                                                                             So Ca pan
                                                                                            U uth nad
                                                                                             ni A a
                                                                                               te f
                                                                                             N d S ric
                                                                                              et t a
                                                                                                 he at
                                                                                                     rla es
Source: "International Patterns of Pension Provision", Palacios & Pallares-Miralles, 2000



                                                                                                         nd
                                                                                                             s
                                                                                                                                                                                      Private Pensions Assets as a % of GDP
      Private Pensions Assets as a % of GDP
      Private pensions assets are growing around the world

  % of GDP 120

                   100
   1990              80
   1998
                     60

                     40

                     20

                       0
                                    s




                                                                                               e
                                   m
                                  nd




                                                                             ca
                                                                   le
                                  es




                                                                                             sia
                                 nd




                                                                                             or
                                                                   i
                               do
                                la




                                                                Ch


                                                                             ri
                               at




                                                                                         ap
                                                                                          ay
                              la




                                                                          Af
                             er


                            ng




                            St
                            er




                                                                                       al

                                                                                      ng
                         it z




                                                                        h
                        Ki


                        th




                                                                                  M
                        d




                                                                     ut




                                                                                   Si
                    Sw




                     ite
                    Ne




                                                                   So
                     d
                  ite




                 Un
                 e
               Un


               Th




Source: 1990 data from Davis (1995) and national central banks, as quoted by Vittas (1998); all other data from World Bank database
     Financial sector development impact of
     Pension Reserves
            Sri Lanka
               Kenya
                Nepal
          Costa Rica
               Tunisia
               Ghana
             Morocco
            Mauritius
           Swaziland
            Malaysia
               Jordan
          Philippines
                Korea
            Indonesia
              Zambia

                         0%      20%        40%        60%        80%        100%       120%

                                  Reserves as % of stock market cap
Source: Robert Palacios Presentation, Public Pension Fund Management Conference, September 24-26, 2001 Washington, DC
Investment of Typical DB Plans
     Investment    Mozambique        Nigeria        Ethiopi     Mauritius       Chad
      Allocation   1998              1996           a 1996      1999            1998


    Govt. Issues                     8%             66%         59%             41%


        Equities   32%               40%                        13%             2%
         Shares
         Bonds

     Real Estate   24%               38%            14%         11%             56%


    Banks/Cash     42%               2%                         13%             1%


       Offshore    2%                                           4%


         Others                      12%            20%



Source: Presentation by Aniruddha Bonnerjee, World Bank at Defining Pension Reform Priorities
and Approaches for Africa Workshop - November 26, 2001
                                       Life
                                              Non-Life




                                    0
                                    2
                                    4
                                    6
                                    8
                                   10
                                   12
                                   14
                                   16
                                   18
                           Alg e
                                ria
                           Egyp
                                 t
                         Nige
                               ria
                         Tu nis
                                ia
                     Ivory
                           Coas
                                  t
                         M exi
                               co
                          Ken y
                               a




Source: Swiss Re
                        M oro
                             cco
                                                         as % of GDP, 2001




                      Zi mb
                           a bwe
                        M aur
                              it ius
                         Th ail
                               a  nd
                   Unit e
                         d St a
                                tes
                           Japa
                                   n
                    Sou t
                          h Af r
                                 ica
                                                         Insurance Penetration: Premiums

				
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