Index shows improved resilience in Africa’s financial markets

15th October 2020 By: Simone Liedtke - Writer

Index shows improved resilience in Africa’s financial markets

Despite disruption from the Covid-19 pandemic, financial markets in Africa are proving to be robust, with countries like South Africa and Mauritius leading the way, newly released data out of the 2020 edition of the Absa Financial Markets Index shows.

The index, which was launched in 2017, has expanded to include three new countries (eSwatini, Lesotho and Malawi), raising the total country count to 23.

Independently produced by the Official Monetary and Financial Institutions Forum (OMFIF), the index serves as a guide for governments to put the necessary infrastructure in place to deepen and improve markets in order for Africa to attract its share of global investments.

Speaking during a virtual press briefing on October 15, Absa global market head for regional operations George Asante reflected on the current state of global markets, noting that “for the greater part of this year, Africa has been preoccupied by the Covid-19 pandemic and its impact on health and the economic outlook”.

However, he warned that, going forward, “the importance of continuing to develop its financial markets is going to be greater as the continent looks to attract investment to re-accelerate economic growth”.

At the index’s inaugural launch, only three countries scored above the index’s halfway point of 50, and this has since increased to 11, which Asante said “reflects the solid gains made across the continent in building efficient financial markets”.

South Africa and Mauritius retain the top spots and perform well on most of the six pillars in the index.

Pillar one considers the size and liquidity of financial markets, as well as the diversity of the available products, and was the pillar most impacted by the pandemic (with countries’ scores dropping by an average of 0.6 index points). Pillar two evaluates African markets’ openness to foreign investors.

Pillar three focuses market transparency, as well as the tax and regulatory environment; while pillar four measures the local investor capacity based on the amount of pension fund assets available in the country relative to population and market capitalisation.

The fifth pillar assesses macroeconomic opportunities, as well as export competitiveness and the health of the banking sector; while the sixth and last pillar assesses the legality and enforceability of standard financial markets master agreements.

South Africa is in the top spot for pillar one, two, three and five, and maintains a sizeable lead because of its deep financial markets, while Mauritius has been growing its capacity of local investors that has kept it near the top.

Nigeria, Botswana and Namibia round off the overall top five of the index.

The countries whose scores improved the most from last year are Ghana, Nigeria, Morocco and Seychelles, with firmer rules enforcing close-out netting boosting Ghana and Nigeria’s standing, while improving business environments in Morocco and Seychelles earned them points.

In a separate statement issued by Absa on October 15, Absa corporate and investment banking CE Charles Russon noted that the index “is an important contributor toward providing transparency and encouraging investment to support Africa’s growth”.

He added that, since its inception, the index has “played a crucial role” in informing the decisions of policy-makers, investors and regulators across the continent by identifying areas for improvement and development on the region’s financial markets.

“As an organisation with deep pan-African ties, we are passionate about driving progress in order to build the strongest possible financial markets that can aid the recovery across Africa from the impact of the global pandemic,” he commented.