Jeff Gable, Chief Economist, and Anthony Kirui, Head of Global Markets Ex.SA, at Absa CIB explain why recent strong progress in Africa’s financial market development is likely to lead to improved access to financing in future.

• Overall scores are up for 23 of the countries, the highest ever share of improvers
• Many countries are actively developing their financial markets – especially FX markets
• Contributes to deepening local markets, creates more liquidity and makes it more attractive to invest in African markets.

The global economy has faced an uphill battle since 2020, dealing with persistent shocks from geopolitical tensions, the lingering effects of the pandemic, political instability, climate issues, and food insecurity. Despite these hurdles, the commitments of many African countries to developing their financial markets is steadfast, and we see pockets of progress in the midst of a still challenging operating environment.

The results in the Absa African Financial Markets Index (AFMI) 2024 reveal clear and widespread progress being made across the continent, with overall scores rising for 23 of the African countries covered – the highest share of improvers since the index began in 2017. Our view is that deeper financial markets can help mitigate risks such as currency volatility, ease restrictions, and facilitate smoother transactions and the Absa AFMI looks to provide an easily accessible dataset to help promote these developments.

Bold, decisive action

Delving into the performance of countries in this edition of the index, two things stand out. The first is that the broad economic and financial environment is generally more positive in many parts of the continent, and that’s reflected in several parts of the index scoring.

Inflation – which has weighed heavily on many African economies in recent years – is starting to ease. In September (2024), the median inflation rate for AFMI countries fell to 4.6% from 7.9% the year before. This has created room for interest rates to come down, making borrowing more affordable for businesses and governments, and in turn, making it easier for African countries to access and engage with global capital markets.

But it is the second observation – that many countries are actively engaged in developing their financial market ecosystem – that provides an even more satisfying reason to applaud the index improvers.

As one example of where several countries are making a concerted effort to improve their financial market environment, we saw a significant drive to improve transparency in FX markets. For instance, major FX reforms have been implemented in Egypt, Ethiopia and Nigeria over the past year to move towards more market-based regimes, which is likely to bolster transparency and activity in FX markets in the coming years. What’s more, Mozambique has made steps to ease capital controls, giving investors greater access to local markets. This not only makes investing in African markets more attractive, but also contributes to the deepening of local markets and the creation of more liquidity – ensuring that African economies can handle fluctuations in capital flows with resilience.

Big steps in ESG

Adding to these financial reforms is the growing focus on environmental, social and governance (ESG) factors that were centre stage in this year’s Index. In 23 AFMI countries, ESG market principles are now in place, helping to ensure that the many parts of the continent are well-placed to secure interest from the growing class of ESG investors.

One recent development along these lines was the publication of a new green taxonomy in the Western African Economic and Monetary Union (WAEMU) to promote the issuance and investment in ESG assets. More broadly, the last year has witnessed the first listed green bonds being issued in Cabo Verde, Zambia and Mauritius, as well as the first sustainable bond in Botswana and a sustainability-linked bond in Rwanda.

Rwanda and Zambia have also implemented new climate-related financial regulations, joining other leading countries in Africa when it comes to sustainable finance. These ESG initiatives have contributed to Rwanda’s 3-point increase in its AFMI score, bringing it to 47 – the highest riser this year.

The reforms and regulatory changes are underway to bring finance closer to the people in Africa, opening up new opportunities for growth across the continent. Traditionally, many African pension funds have invested a significant proportion of their assets overseas, limiting the amount of capital available for local development. Now, there is a growing movement to channel more of these long-term savings into domestic projects. By retaining long-term savings locally, these funds can provide a stable source of financing for much-needed infrastructure, housing and sustainability projects that drive national growth.

Resilience

As this edition of the Index has seen a record number of countries improving, we believe there is every reason to be optimistic that this positive momentum will continue into next year. The last 12 months have continued to build on the foundations for African growth, supported by a variety of reforms – some enacted, some in progress – as well as a continued recovery in domestic market volumes, improved financial inclusion, and upgrades to market infrastructure.

Africa is well-positioned to advance its financial markets by maintaining a long-term commitment to accessibility, transparency, and openness. This sustained focus on progressive development will further strengthen the continent’s financial landscape.

As the 2025 G20 summit approaches, hosted by South Africa, Africa’s progress in financial market development will be pulled into sharp focus on the global stage. This provides a key moment to take stock of, and celebrate, the strides the continent is making to improve its financial market infrastructure and chart its financial future.

About AFMI Index

The Absa African Financial Markets Index (AFMI) provides a timely set of cross-country data that sheds light on Africa’s financial market development. Now in its eighth year, we produce this annual report in partnership with the Official Monetary and Financial Institutions Forum (OMFIF), this year scoring 29 African countries’ financial development based on measures of market accessibility, openness, and transparency. Download the report via this link.

Photos: Anthony Kirui, Head of Global Markets Ex.SA, and Jeff Gable, Chief Economist, landscape, and article supplied by Absa CIB.