Africa’s financial markets continue to progress and have demonstrated growing financial resilience in 2023, despite a challenging environment. Below we interview Jeff Gable, Absa Group’s Chief Economist, about whether the Absa African Financial Markets Index (AFMI) has an impact on financial markets development.

Key findings of the 7th annual AFMI (download your free copy here) include more efficiency in post-trade and improvements to central securities depositories (CSDs) in 9 of the 28 countries that make up the index. In September 2022 the Botswana Stock Exchange launched a new CSD system alongside an automated trading system. A local survey respondent mentioned this has “improved settlement efficiency and compliance with the  International Organization of Securities Commission’s Principles for Financial Markets Infrastructures”.

The Namibian Stock Exchange is in the final stages of setting up a CSD that is expected in the first quarter of 2024. Survey respondents in Malawi, Seychelles and Zambia all mentioned initiatives to upgrade their CSDs to improve information transparency and technological efficiency.

Here are other findings of AFMI 2023:

• Biggest improvements in overall score in 2023 go to Zimbabwe and Rwanda, for their progress in building sustainable financial market frameworks.
• Some form of environmental, social, and governance (ESG) initiatives are being implemented in 71% of AFMI countries, up from 57% in 2021. This helps mobilize new investment as sustainability becomes increasingly important to global investors.
• Survey respondents in nine AFMI countries mentioned measures for improving central security depositories.
• New assets are becoming available on domestic exchanges, including the first sukuk bonds. Tanzania’s ethical Sharia-compliant sukuk bond, known as the KCB Fursa Sukuk, was oversubscribed by 110%. Another sukuk bond was issued in South Africa. Tanzania’s CRDB Bank has launched Kijani, a first green bond. NMB Bank in Tanzania (read here) and Barloworld in South Africa (read here) have issued gender bonds.
• Survey participants mentioned various financial inclusion policies to boost local investor capacity.
• Namibia retains top position for “Capacity of Local Investors”, with average pension assets per capita of $4,644 (in USD), compared to declines in most other other countries, including South Africa, as local currencies fell against the dollar. Even for many of the continent’s largest economies, pension assets are very low, for example under $100 per capita in Ethiopia, Angola and Egypt.
• The section of the survey that covers Legal Standards and Enforceability includes information from the International Swaps and Derivatives Association (ISDA), Frontclear and the International Organization of Securities Commissions (IOSCO). The three main contracts considered are the International Swaps and Derivatives Association Master Agreement, the Global Master Repurchase Agreement and Global Master Securities Lending Agreement which govern over-the-counter derivatives, repurchase agreements and securities lending transactions. South Africa and Mauritius won clean legal opinions from three major international bodies – ISDA, the International Capital Markets Association and the International Securities Lending Association.

About the Absa/OMFIF index

Absa Group, a leading bank, and think-tank Official Monetary and Financial Institutions Forum (OMFIF) decided in 2016 to produce a joint scorecard of capital market development across Africa. According to the report “The inspiration came from many angles, but we had one principal aim. We wished to improve the means for African countries to learn from best practice across the continent. The first edition was 2017.

“It remains Absa’s belief that open, transparent and accessible financial markets remain the best way to ensure that the continent is best placed to use its domestic capital and in the strongest position to access global capital. Improved scores are not by chance, but rather reflect a continued focus by countries to foster a financial market ecosystem that is better placed to meet Africa’s financing needs.”

OMFIF collects and compiles the data for the index by working with a large network of central banks, regulators, market practitioners and others.

Interview with Jeff Gable, Absa Group Chief Economist

ACMN: Do policy-makers pay attention to the FMDI?

JG: Starting next week, myself and Anthony Kirui (Managing Director, Head of Global Markets, Africa Regional Operations) will be taking the index to a number of countries. In those in-country sessions you will have markets people, regulators, policy-makers, some pension funds, some big corporates. We are trying to generate discussion.

We often get requests from the official sector to sit down a day before our in-country launch to understand what kind of what things we should be focusing on next. We suggest what some low hanging fruit might be to each country and on each pillar.

The purpose of the index is to generate discussion and the audiences were receptive. To generate discussion, we looked around to countries that we thought were otherwise reasonably similar in one part of the index or another and we give an example of where your peers are doing things that we think might be interesting to you.

ACMN: How does the FMDI impact development?

JG: Why are we doing this project? Our view when we started is ‘well, the continent’s huge need for capital isn’t going away anytime soon, let’s try to find the right ways to open Africa to be best positioned to get that capital’. It’s one thing to be going to the multilaterals and asking for funding, but that leaves so many other potential pools of money aside.

Amidst all of the exciting progress Africa has been making as a continent in terms of financial market development, on area of particular note is in enabling sustainable finance. Sustainable finance is important because sustainability is important, but it’s also important because globally there are huge and growing pools of capital being put to work under mandates that are sustainability focused. We need to put in place the rules, the regulatory framework, the clarity so that African countries can make themselves available to those global pools.

ACMN: How does financial markets development impact ordinary people, and why should voters care about their politicians’ track record on this?

JG: The person on the street should know that the more financial markets are developed, everything else equal, the more access to financing households and businesses should have, and the better priced financing should be available.

For better access to longer-term financing, for example, think about development of local pension fund markets. That’s long term patient capital, exactly the sort of thing that often African economies find themselves very scarce of. Development of local pension fund assets is really important, and the Absa AFMI report helps to shine a light on that.

ACMN: How do countries make progress from one year to the next?

JG: Any individual year can sometimes be a little bit noisy. For example, if the value of your equity market falls, you lose points. Maybe your equity market fell because you did some very strange thing; but it’s more likely that your equity market fell because last year equity markets have fallen everywhere in emerging markets and it just reflects a tough time in terms of global risk appetite.

But over the seven years of the index, Seychelles has improved its score by more than half, from a very low starting point. Uganda and Morocco, have improved their scores by more than a third each. That’s pushed Uganda into the top five. For each of these three examples, and for the majority of countries in the index, improving scores over time is not by chance. They are countries that, over a number of years, gained the learning, did the hard legwork, and are now showing signs of real progress and momentum.

ACMN: Are African markets moving forward

JG: In every country we can find at least one thing that has moved forward. Progress on market openness and transparency and accessibility, it’s really important. How much of this progress in FMD is generated by the index discussion itself and how much would happen naturally is impossible to know. But I’m confident that by helping to encourage an active and regular discussion on FMD, by providing easily accessible and comparable data, and by showcasing where other African countries have gone through similar things, that’s got to be a positive contribution to the continent’s financial market development.