By: Garth Klintworth, Head of Global Markets, Absa Corporate and Investment Banking
Are African financial markets in a better place than a year ago? As the leading banking group on the continent, this is a key question we consistently interrogate across our operations.
While it is very difficult to model for outlying events such as the COVID-19 pandemic or events in Russia and the Ukraine, it is important to have a metric in place to truly track the development of African financial markets and to that end, we believe that the African Financial Markets Index (AFMI) has been key in enhancing financial market infrastructure on the continent.
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. With 19 out of 26 countries scoring higher than in 2021, it is clear that we say with certainty that we are heading in the right direction.
If one thinks back to the original founding principles of the index, it was designed to compare where different countries were at in terms of their market infrastructure and foster discussions around how to enhance their financial systems. Importantly, we did not want it to be dominated by a handful of more advanced markets and as a bank we have been particularly pleased to see the index expanding to 26 countries with the inclusion of Democratic Republic of Congo, Madagascar and Zimbabwe.
As we expand the index, we can start to track longer-term trends that are playing out.
Ghana is a very good example of this. The country had a strong focus on their solvency framework and how it could take local policies and master agreements and enable them to align with global best practices. In 2021, they entered the top 5 for the first time and once again performed well in 2022. Off the back of this, Ghana can expand other markets including futures, secured lending and equity components.
The more credibility that your local market infrastructure achieves, you can deepen your local savings pools, develop local investment markets, attract much-needed foreign capital and ultimately access finance at significantly cheaper rates.
Of equal importance is that the index has not stayed static but has also continued to evolve and innovate. With the recent introduction of a pillar focused on the Environmental, Social and Governance (ESG) factors we have seen the number of countries with sustainability-linked policies from 9 to 17. Uganda, Namibia and Kenya all rose in the top 10 due to their focus and this could potentially unlock significant new forms of capital to fund infrastructure projects. With sustainability-linked, “Green” and “Blue” bonds becoming increasingly popular, countries who are able to enhance their ESG ratings in a measurable manner will put new markets on radars of investors who have traditionally only looked at more established emerging markets.
It is unlikely to end there. With digital currencies and assets coupled with a fintech ecosystem which is attracting billions of dollars in foreign investment, we are likely to see further development as these tools move into the mainstream.
The AFMI has been a critical tool in developing African markets and despite some of the challenges that we have faced, we believe it will continue to be a key tool for decision-makers.
Without question, we have lived through interesting times but this tool allows us to rise about the short-term noise and get a true sense of the progress that is being made.
We look forward to sharing data which will not only enhance the credibility of African financial markets but also unlock transformative capital which will benefit some of the most exciting emerging markets in the world.
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