The pandemic has made the underlying structure and resilience of African financial markets a more important matter for domestic and international investors, as the continent grapples with returning to sustainable growth, according to the Absa Africa Financial Markets Index
In its fourth year, the index, which is produced by OMFIF, has expanded to 23 countries, up from 17 in the inaugural publication. The latest additions, Eswatini, Lesotho and Malawi, reflect mounting interest in the region’s potential as a source of growth and opportunity.
South Africa again tops the index by a wide margin, thanks to its deep capital and foreign exchange markets. Mauritius secures the runner-up position for the second year in a row, partly because of its alignment with internationally recognised legal frameworks. Nigeria, Botswana and Namibia round off the top five. Nigeria has relatively liquid markets, while Namibia and Botswana enjoy a high concentration of domestic assets from pension funds.
On average, countries’ scores in ‘market depth’ dropped by 0.6 from last year. The withdrawal of international capital impacted the region’s stock markets as liquidity dropped in the first half of the year, hampering countries’ performance in this pillar. This decline demonstrates the importance of deepening financial markets and encouraging local participation.
The scores in ‘legality and enforceability of standard financial markets master agreements’ deteriorated by an average of 8.1, reflecting a change in the basis for assessment introduced in this year’s edition.
Scoring for the enforcement on close-out netting rules is based on data and legal opinions from the International Securities and Derivatives Association, leading to significant changes in the marks of some countries, including Kenya, Tanzania, Namibia, Angola and Botswana.
Although the pandemic disrupted markets, it has presented opportunities for capital market development. The African Development Bank issued coronabonds in March to help finance COVID-19 response measures.
Other sustainability initiatives are gaining momentum, especially in green finance. Nigeria, Kenya and Egypt are among countries that have issued sovereign green bonds in the past year. Rwanda is establishing a green investment bank, while Uganda plans to develop a fund for post-disaster environmental restoration.
‘Worldwide, investors are urging African countries to step up efforts to improve their financial market structures as a crucial means of returning to sustainable growth. The index tracks these developments and provides clear benchmarks for progress,’ said David Marsh, chairman of OMFIF. 'African counties can help each other by learning best practice from each other – and then implementing it.’
