*Absa Africa Financial Markets Index shows improving market infrastructure in majority of countries in the region
BY DIRAMAKINI
AFRICAN countries have responded positively to the need to develop domestic financial markets to protect economies from external shocks, OMFIF’s 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 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 recognizes 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, digitalization 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.
Mr. Obedi Laiser, Acting Managing Director of Absa Bank Tanzania and host for the event, in his opening remarks commented that: "The purpose of this report is to provide an overview of the state of financial markets in Africa, identify the main impediments to their development and give further recommendations for African governments and the international community on how to reconcile the need for increased flexibility with the necessary safeguard measures."
During the event,Mr. Jeff Gable, Head of Research for Absa Group mentioned some key outcomes of the 2022 report, that is.
>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 reserves adequacy has generally weakened relative to the previous year. Ten AFMI countries have received International Monetary Fund financing in 2022, worth a cumulative $1.6bn, 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 (max = 100)
Esther Cecil Maruma, Director for Global Markets for Absa bank Tanzania during the report presentations said that while well-regulated financial systems are essential for macro-economic stability, as demonstrated by the current crisis, vibrant financial markets also play a critical role in channeling resources into productive investment and fostering growth.It is evident that the Tanzania financial markets development agenda remained top priority despite challenges, with Tanzania’s overall Absa Africa Financial Markets Index score increased by 1 point to 55 this year, keeping the country in 11th place.
One of the biggest improvements came in Pillar 3: Market transparency, tax and regulatory environment largely driven by the introduction of environmental, social and governance market standards. One survey respondent noted that the Dar es Salaam Stock Exchange ‘has enacted guidelines for issuance of sustainable bonds in its rules’ Related to this, NMB Bank Tanzania listed sub-Saharan Africa’s first gender bond in April.
This improvement in product diversity lifted Tanzania’s score in Pillar 1: Market depth to 46, and the country moved up to eighth in this pillar from ninth in 2021. Tanzania was also ranked in the top ten in Pillar 5: Macroeconomic environment and transparency, due to its transparent fiscal budget and macroeconomic data, as well as its low inflation.
While inflation rose to 4.4% in June, this was well below the AFMI average of 18.4%. Although FX reserves have been impacted across the continent, in Pillar 2: Access to foreign we scored a higher relative score on foreign exchange reserves adequacy.
While reserves fell to 4.9 months of imports in 2021, this was higher than the AFMI average of 4.4. The International Monetary Fund board has since approved a 40-month financing deal with Tanzania worth over $1bn which should help to bolster reserves in the coming years.
There are however some areas of improvement as stated by the Guest of honor is in Pillar 4: Capacity of local investors, where it ranked 14th, due to the size and liquidity of Tanzania’s domestic equity and fixed income markets is smaller than others in Africa, which weighs on its score in Pillar 1.
The report further proposes a focus on Pillar 6: Legal standards and enforceability, where the country would benefit from increasing the adoption of standard master agreements.
Introducing close-out netting legislation would also help to provide greater assurance to investors over the legal framework.
These improvements seem to be in the pipeline. Policymakers in Tanzania are currently working with the United Nations Economic Commission for Africa and Front clear to enhance the use of master agreements and the enforceability of these contracts.
Mr. Lawrence Mafuru, the Deputy PS -Economic Management Policies, Ministry of Finance and Planning commented that, "Tanzania is committed to ensuring stability, continuity, and predictability of the environment in which economic decisions are made to foster a conducive environment for sustainable investments.
"The priority actions include ensuring the existence of a robust electronic information infrastructure for individual and business profiles, credit history and collateral; ensuring that customers are informed and protected; and encouraging the design and development of demand-based solutions".
About the index
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 the absolute, 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; and legal standards and enforceability.
In addition to quantitative data analysis, OMFIF conducted surveys of over 50 organizations across Africa to produce the index.
This includes responses from central banks, securities exchanges, regulators, market participants, accounting firms and international development organizations. 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.
About Absa Bank Tanzania
Absa Bank Tanzania Limited is one of Tanzania’s leading financial institutions offering an integrated set of products and services across Corporate and Investment Banking, Business Banking with solutions for SMEs, and Retail Banking.
Backed by its 21-year legacy in Tanzania and inspired by the people it serves, Absa is committed to finding local solutions to uniquely local challenges and everything we do is focused on bringing possibility to life.
Absa Bank Tanzania is part of Absa Group Limited, one of Africa’s largest diversified financial services groups. Absa Group employees approximately 40, 000 professionals operating in South Africa, Zambia, Botswana, Mozambique, Seychelles, Mauritius, Kenya, Tanzania, Uganda, Ghana.
The Group has representative offices in Nigeria, Namibia, London and New York, as well as insurance operations in Botswana, Kenya, Mozambique, South Africa, Tanzania and Zambia.
Absa is a truly African brand, inspired by the people we serve and determined to be the financial services Group Africa can be proud of.
About OMFIF
OMFIF is an independent think tank for central banking, economic policy and public investment, providing a neutral platform for public and private sector engagement worldwide.
With teams in London and the US, OMFIF focuses on global policy and investment themes relating to central banks, sovereign funds, pension funds, regulators and treasuries. Global public investors with investable assets of $43tn are at the heart of this network.