African markets

African markets are building their resilience in a challenging environment

African countries have responded positively to the need to develop domestic financial markets to protect economies from external shocks, reveals the OMFIF’s Absa Africa Financial Markets Index 2022.

Although difficult market conditions weighed on the index’s performance, 19 of the 26 countries improved their scores compared to last year. This is largely due to widespread progress in developing sustainable financial markets, which are becoming increasingly important to global investors.

Namibia, Uganda and Kenya are among the countries with the highest increase in scores. They have strengthened their environmental, social and governance market frameworks and, in Kenya, climate risks have been mainstreamed into financial stability regulations. Greater product diversity also boosted scores for most countries, including Angola and Lesotho, which both launched their initial public offerings in the past year.

The Absa Africa Financial Markets Index, now in its sixth year, provides an overview of financial market developments. This year, coverage has expanded to 26 countries with the addition of the Democratic Republic of Congo, Madagascar and Zimbabwe.

The index also recognizes the contribution of digital initiatives and innovations to the development of the African financial market. While not directly impacting the scores, the report highlights countries’ progress in modernizing market infrastructure, transparency and regulation using new technologies. It highlights various financial inclusion initiatives that help broaden the domestic investor base. Continued progress in sustainability, digitalization and financial inclusion will be crucial to improving Africa’s attractiveness and access for investors, allowing the continent to build resilience to any future external shocks.

Main conclusions

  • South Africa, Mauritius and Nigeria maintain their positions in the top three this year as they continue to score high on measures of market depth, transparency and enforceability of legal agreements.
  • Uganda moves up two places to fourth, while Namibia and Kenya improve their rankings in the top 10. The scores of these three countries have mainly increased due to progress in adopting ESG policies and frameworks .
  • Seventeen countries in the index now have sustainability-focused policies, five more than last year.
  • The adequacy of foreign reserves has generally weakened compared to the previous year. Ten AFMI countries received funding from the International Monetary Fund in 2022, with a cumulative value of $1.6 billion, to cushion the blow of external shocks.
  • Several countries are using digital technologies to improve market access, information and inclusion, as initiatives to integrate financial markets across Africa gain momentum.

David Marsh, Chairman of OMFIF, commented: “Africa appears to be an attractive investment destination based on capital market structures that actively guide adequate pricing of risk. There are many areas to build on. Relentless efforts by the private sector – in collaboration with the International Monetary Fund, multilateral development institutions and our network of partner institutions across Africa – are needed to scale up these positive changes.

Charles Russon, managing director of Absa Corporate and Investment Banking, said the index had had a positive impact on the development of financial market infrastructure, product development and policy on the African continent. “Now in its sixth year, this index has boosted market transparency, improved policymaking and enabled the development of Africa-focused alternative investment products that will impact generations to come. We look forward to continuing to help build stronger markets and attract investment capital.

The index has also been well received by influential global policymakers. Antonio Pedro, Acting Executive Secretary of the United Nations Economic Commission for Africa, said: “The Absa Africa Financial Markets Index 2022, with enhanced geographical coverage and thematic scope, is an important tool for policymakers. policies and regulators in the development of financial markets. markets on the African continent. It provides in-depth comparative analysis to support the formulation of long-term financial market development policies.

About the index

The Absa Africa Financial Markets Index assesses the financial development of countries based on measures of market accessibility, openness and transparency. The aim is to show how economies can reduce barriers to investment, which can, in turn, spur sustainable growth.

Scores are determined by the relative, rather than absolute, performance of each country across six key pillars: market depth; access to foreign currency; market transparency, tax and regulatory environment; capacity of local investors; macroeconomic environment and transparency; and legal standards and enforceability.

In addition to quantitative data analysis, OMFIF conducted surveys of over 50 organizations across Africa to produce the index. This includes responses from central banks, stock exchanges, regulators, market participants, accounting firms and international development organizations.

The index has become a benchmark for the investment community to assess the market infrastructure of African countries and is used by policy makers to learn from developments across the continent.