Financial markets in Africa are increasingly supportive of investment

Summary:

  • Average overall score climbs to 52.7 out of 100 in 2019 from 49.6 in 2017

  • Countries perform best in ‘market transparency, tax and regulatory environment’

  • Biggest improvement was in ‘legality and enforceability of standard financial markets master agreements’, where the average score jumps to 55 from 47

  • South Africa still tops the index due to its sizeable lead in ‘market depth’, but other index countries are catching up

  • Egypt has the highest score in ‘macroeconomic opportunity’, overtaking South Africa

  • Mauritius and Kenya claim the two top spots in ‘legality and enforceability of standard financial markets master agreements’

  • Ethiopia, which announced plans to launch a stock exchange in 2020, shows significant potential for improvement in the coming year

Photo by energepic.com from Pexels.

Listen to Absa's George Asante discuss South Africa's sizeable – but shrinking - lead in the Absa Africa Financial Markets Index 2019.

New financial products, regulatory improvements and more responsive economic policies have enhanced the performance of countries in the Absa Africa Financial Markets Index 2019, produced by OMFIF. Now in its third year, the index evaluates the financial market development in 20 countries across the continent.

South Africa retains the top position due to its sizeable lead in Pillar 1, ‘market depth’. While it is likely to remain an outlier in this pillar, the creation of new bourses and key mergers between existing ones will improve the standing of other countries in the coming years. This year, Botswana, Kenya and Namibia join the ranks of countries that score more than 50 in Pillar 1, indicating a deepening of individual markets.
Other countries are catching up in the rest of the index. Egypt has the highest score in ‘macroeconomic opportunity’, while Mauritius and Kenya claim the two top spots in ‘legality and enforceability of standard financial markets master agreements’. Ethiopia, although lagging, has significant potential for improvement in the coming year. It has announced plans to establish a stock exchange in 2020.

‘The steady improvement across African countries is partly a testament to the impact of our index across the continent,’ says George Asante, head of global markets for Absa regional operations.

‘There has been a concerted effort among African policy-makers to react to the findings. This can be seen in the vast improvements in Pillar 6, ‘legality and enforceability of standard financial markets master agreements’, where countries have responded to past findings to align with best practice. The index is becoming a powerful barometer for policy-makers and playing a role in building an Africa which can fund itself.’

‘As a business with strong pan-African aspirations, we are constantly trying to find ways to facilitate and encourage progress in the region. We are excited about the impact the index is having on African financial markets. We believe in the power of thought leadership and insights to help strengthen the region and build stronger and more robust financial markets,’ says Charles Russon, chief executive officer at Absa Corporate and Investment Banking.

The improvements outlined in the third Absa Africa Financial Markets Index underline significant progress across Africa’s financial markets. The first edition in 2017 shed light on the disadvantages of rigid foreign exchange regimes, which handicapped investors and constrained countries’ ability to deal with global developments. Subsequently, many countries have moved to more flexible exchange rates, improving their policy responsiveness and shock absorption capability. Similar positive changes can be seen in the growing consciousness of the importance of local investors and improvements in the transparency and availability of market data.

‘We welcome these vital signs of improvement in several African countries,’ says David Marsh, chairman of OMFIF. ‘New products like the world’s first sovereign blue bond issued by Seychelles, or regulatory improvements in Mauritius and Ghana, prove that the African continent is moving in the right direction. The index is now a piece of important evidence for tracking progress in the region.'

‘The Africa Financial Markets Index has helped our country design its reform plans to promote macroeconomic stability,’ says Akiules Neto, executive director and board member at the Angola Securities Exchange.

The 20 countries covered by the index are Angola, Botswana, Cameroon, Egypt, Ethiopia, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Rwanda, Senegal, Seychelles, South Africa, Tanzania, Uganda and Zambia.

The index evaluates countries across six pillars: market depth; access to foreign exchange; market transparency tax and regulatory environment and market transparency; capacity of local investors; macroeconomic opportunity; and legality and enforceability of standard financial markets master agreements.

In addition to quantitative analysis, OMFIF gained further insights by surveying more than 40 policymakers and top executives from financial institutions operating across the 20 countries, including banks, investors, securities exchanges, central banks, regulators, audit and accounting firms and international financial and development institutions.

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