Absa Africa Financial Markets Index shows improving market infrastructure in majority of countries in the region

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

Even as challenging market conditions weighed on performance in the index, 19 of the 26 countries improved their scores relative to last year. This was largely due to broad-based progress in developing sustainable financial markets, which is becoming increasingly important to global investors.

Namibia, Uganda and Kenya are among the countries with the greatest 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 lifted scores for most countries too, including Angola and Lesotho, which both issued their first initial public offerings over the past year.

The Absa Africa Financial Markets Index, now in its sixth year, 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.

The index also recognises the contribution of digital initiatives and innovations to African financial market development. While not directly impacting scores, the report highlights countries’ progress in upgrading market infrastructure, transparency, and regulation using new technologies. 

It also sheds light on various financial inclusion initiatives which help to build a broader domestic investor base. Continued progress on sustainability, digitalisation, and financial inclusion will be crucial to improve Africa’s appeal and access for investors, enabling the continent to develop its resilience to any future external shocks.

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 rises 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) reserves 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.

Overall AFMI scores, 2022 vs 2021

AFMI scores

Note: 2021 scores account for newly available data and methodological changes, so may not reflect those published in AFMI last year.

David Marsh, chairman of OMFIF, said, “Africa looks an attractive investment destination based on capital market structures that actively guide adequate risk pricing. 

“There are many areas on which to build. Unstinting efforts by the private sector––together with the International Monetary Fund, multilateral development institutions and our network of partner institutions around Africa––are required to extend these positive changes.”

Charles Russon, chief executive of Absa Corporate and Investment Banking said the index has had a positive impact on the development of financial market infrastructure, product development, and policy on the African continent. 

Russon added, “Now into its 6th year, this index has stimulated transparency in markets, enhanced policy-making and allowed for the development of Africa-focused alternative investment products that will have an impact for generations to come.” 

The index was also welcomed by influential global policy-makers. Antonio Pedro, acting executive secretary of the United Nations Economic Commission for Africa, said, “The 2022 Absa Africa Financial Markets Index, with strengthened geographic coverage and thematic scope, serves as an important tool for policy-makers and regulators in the development of financial markets on the African continent. 

“It provides in-depth comparative analysis to support the formulation of policies for long-term financial market development.’

How does the index work?

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

Scores are determined by the relative, rather than absolute, performance of each country across six key pillars: market depth; access to FX; 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 organisations across Africa to produce the index. This includes responses from central banks, securities exchanges, regulators, market participants, accounting firms and international development organisations.

The index has become a benchmark for the investment community to gauge African countries’ market infrastructure and is used by policymakers to learn from developments across the continent.