Legality and enforceability of standard financial markets master agreements, Mauritius and Kenya overtake South Africa
Kenya has retained its third position for having a progressive financial market in the African continent, with Mauritius being ranked second most improved with market depth following a substantial listing of bonds by the central bank.
The ranking has been reached due to product diversity and an enhanced legal and enforced of standard financial markets master agreements which have boosted its performance, as opposed to the 2018 ratings.
“The value of bonds listed on the Nairobi exchange doubled to $17.5bn from $8.8bn over the year, due entirely to sovereign issues. One survey respondent said the country’s large government bond issuance in recent years has crowded out investor demand for private-sector securities.”
However, the report notes that Kenya’s interest rate cap, introduced in 2016, continues to hamper credit creation, weakening companies’ financial bottom line and hindering their expansion plans, negatively impacting their capital issuance.
Kenya scores well for its insolvency law that encourages rehabilitation through the administration of companies facing financial difficulty. Enacted in 2015, the law has since been amended to give more flexibility for the continuation of business while undergoing insolvency procedures.
The third iteration of the Absa Africa Financial Markets Index showed that 13 of 20 countries evaluated across the continent now score more than 50 out of 100 overall, compared to just three out of 20 in 2017.
Jeff Gable, head of research at pan-African bank Absa, says the index was beginning to foster a collaborative approach by policymakers across listed countries. “We are starting to see those countries use it as a tool to have discussions within the country – the regulators, discussions with the index fund managers, politicians and so on — and between countries,” Gable said.
George Asante, head of global markets for Absa’s regional operations, notes that “The index is becoming a powerful barometer for policymakers and playing a role in building an Africa which is able to fund itself.”
According to the report, South Africa tops the index largely due to its sizeable lead in ‘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.”
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In terms of the ease of access to foreign trading where Kenya was top in 2018, South Africa reclaimed the top spot.
“High interbank foreign exchange turnover, with annual turnover reaching $1.7tn in 2018, considerably higher than other index countries, regular exchange rate reporting and a favourable reserve level relative to net portfolio flows all contribute to South Africa’s high position. Kenya, meanwhile, drops in ranking after the International Monetary Fund reclassified its exchange rate regime to ‘other managed arrangement’ from ‘floating’, a move the central bank contests,” part of the report reads.
The index grades countries on six principles of financial markets specifically; market depth, access to foreign exchange, market transparency, the capacity of local investors, macroeconomic opportunity, and the legality and enforceability of standard financial markets master agreements.