According to the Official Monetary and Financial Institutions Forum’s (OMFIF) 2022 Absa Africa Financial Markets Index, development in African financial markets have improved.
The index showed that 19 out of 26 countries improved their scores relative to 2021, primarily due to broad-based progress in developing sustainable financial markets, which is becoming increasingly important to global investors.
For instance, Namibia, Uganda and Kenya are among the countries with the most significant increase in scores. They have bolstered their environmental, social, and governance (ESG) market frameworks, and, in Kenya, climate risks have been incorporated into financial stability regulation.
Greater product diversity has also lifted scores for most countries, including Angola and Lesotho, which both issued their first initial public offerings in 2021.
Now in its sixth year, The Absa Africa Financial Markets Index presents a broad view of financial market progress. The index continued to evolve this year. Coverage has expanded to 26 countries with the addition of the Democratic Republic of the Congo, Madagascar, and Zimbabwe.
Scores are determined by the relative performance of each country across six key pillars:
- Market depth
- Access to foreign exchange
- Market transparency, tax and regulatory environment
- Capacity of local investors
- Macroeconomic environment and transparency
- Legal standards and enforceability
“Those improvements are not by chance, but rather reflect a continued focus by countries to foster a financial market ecosystem better to meet Africa’s financing needs,” said Absa CEO Arrie Rautenbach.
Key findings include:
- South Africa, Mauritius and Nigeria maintain their positions in the top three this year, as they continue to score highly on measures of market depth, transparency, and enforceability of legal agreements.
- Uganda rose two places to fourth, while Namibia and Kenya improve their ranking within the top 10. Scores for these three countries primarily rose due to progress in adopting ESG policies and frameworks.
- Seventeen countries in the index now have sustainability-focused policies––five more than last year.
- Foreign exchange (FX) reserve adequacy has generally weakened relative to the previous year.
- Ten African Finance Markets Initiative (AFMI) countries have received International Monetary Fund (IMF) financing in 2022, worth a cumulative $1.6 billion, to cushion the blow from external shocks.
Several countries are using digital technologies to improve market access, information and inclusion, while initiatives to integrate financial markets across Africa are gathering momentum.
“Despite macroeconomic headwinds, advances in sophistication, depth and transparency of African capital markets represent a considerable plus,” said David Marsh, chair at the Official Monetary and Financial Institutions Forum (OMFIF).
“A range of African countries now leads the field in key spheres. In one prime example, Africa has forged ahead in meeting requirements from investors targeting economic sustainability. There are many areas on which to build.”
“Continued progress on sustainability, digitalisation and financial inclusion will be crucial to improve Africa’s appeal and access to investors,” the report read. “This will enable the continent to develop its resilience to any future external shocks.”
“The 2022 index, with strengthened geographic coverage and thematic scope, serves as an important tool for policymakers and regulators in the development of financial markets on the African continent,” said Antonio Pedro, acting executive secretary UN Economic Commission for Africa.
“It provides in-depth comparative analysis to support the formulation of policies for long-term financial market development.”
