African markets

African markets reject global slowdown

Despite global financial difficulties, Africa’s major financial markets have steadily improved…

Despite the global financial woes, Africa’s major financial markets have steadily improved, according to a new report. However, there is still work to be done if they are to capitalize on their opportunities.

The depth and quality of African financial markets have improved slightly over the past 12 months, despite the impact of global economic difficulties.

The sixth year African Financial Markets Index (AFMI), published Thursday, October 13 by the South African bank Absa and economic advice OMFIFindicated that there has been an improvement in the performance of African markets since the first index in 2017, thanks to better liquidity and sustainable finance, and the willingness of governments to improve their performance.

The economic impact of the Covid-19 pandemic and the disruption of world trade caused by the Russian invasion of Ukraine created difficult conditions, and not all African countries resisted, with some falling back in the index . Overall, however, both the depth and the quality of markets have improved.

The ranking takes into account the state of each country’s capital markets, foreign investment, market transparency and regulation, investor capacity, microeconomic environment and legal standards.

Among those that have improved over the past year are Uganda and Kenya, which moved up to fourth and eighth ranks, respectively, thanks to the adoption of environmental, social and governance (ESG) markets, while that the former continued its program of raising standards, which began last year. Namibia also halted its previous fall, dropping to sixth place thanks to ESG investing and its pensions market.

The top three remain South Africa – which has consistently outperformed its economic difficulties in this ranking due to its historical economic power – Mauritius and Nigeria.

Conversely, Ghana and Rwanda fall to seventh and 17ethe first due to macroeconomic difficulties and a lack of reserves, the second due to high inflation.

Madagascar – new to the index, Lesotho – which is cash-strapped, and Ethiopia are the bottom three, but despite expanding to 26 countries this year, more than half of the continent’s countries are not yet included, due to a lack of clear data or performance. , so that these nations can take comfort that being ranked demonstrates at least a basic level of performance.

REACTION

“The context has been difficult,” OMFIF President David Marsh wrote in the report, citing the aftermath of the 2008 financial crisis, the pandemic, the difficulties with raw materials caused by the war in Ukraine and the “rise and decline” of loans and investments from China.

“Among the downsides, these upheavals have produced a great benefit for Africa,” he explained. “Global investors have refined their appreciation of risk, and whether or not it is fairly represented in market prices. Given the all-too-obvious problems in developed markets, Africa appears to be an attractive investment destination based on capital market structures that actively guide adequate risk pricing.

He added, “Despite macroeconomic headwinds, the progress in sophistication, depth and transparency of African capital markets represents a tremendous asset,” which has created an opportunity for these markets to attract investment.

Antonio Pedro, Acting Executive Secretary of the United Nations Economic Commission for Africa, also wrote: “Due to the contraction of the global economy and unfavorable market conditions, it has become increasingly difficult for African countries to tap into international markets to fund their budgets and programs. These challenges underscore the need and importance of vibrant domestic financial markets to build resilience to external shocks and generate alternative sources of financing.

Last years AFMI identified the lack of liquidity as the main problem facing much of the continent. This year it has improved, in part due to technological improvements in the financial infrastructure. South Africa remains an important leader in liquidity, with Morocco and Mauritius leading the chasing pack.

Regarding foreign investments, AFMI found good liquidity for currencies, in particular for Egypt, South Africa, Morocco, Uganda and Kenya. On market transparency, taxation and regulation, progress on ESG frameworks has led to overall improvement. However, lack of transparency remains a problem, mainly due to a lack of quality accounting and auditing capacity, and improvements in the tax environment are urgently needed.

More worryingly, overall pension fund assets declined by 11.2% in Africa, although the report notes an improvement in financial inclusion initiatives.

Concerns about capital flight remain an issue, particularly with the war in Europe impacting trade flows, while inflation has constrained economic performance.

The report commends efforts by many countries to improve the landscape in terms of legal standards and ability to enforce agreements, with Nigeria leading in this area and Ghana making significant progress.

write for ALB earlier this year, Gable identified ESG improvements and investments in technology as key to improving African economies, and was optimistic that this would happen.



African markets reject global slowdown