What are the most developed financial markets in Africa?

RANKING. According to the latest edition of the Absa Africa Financial Markets Index, the attractiveness of African financial markets is a response to future shocks.





By Africa Point

Uganda is one of the most attractive African countries for investors.
© PETER BUSOMOKE / AFP

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As the global economy struggles to recover from the successive shocks of the Covid-19 pandemic and the effects of the eight-month war in Ukraine, African economies face the dual challenge of reinvigorating their financial markets while strengthening infrastructure through technological innovation and strategic investments. But the pandemic has also marked an important turning point. Indeed, African financial centers are now aiming to deepen domestic markets to guard against exogenous shocks and capital outflows. Long term goal? Enable the continent to reach its full potential.

Despite this complex context, nineteen financial markets have improved their performance to be among the most developed on the African continent, according to a report published on October 13 by the South African financial services group Absa Group and the Official Forum of Monetary and Financial Institutions. Finances (OMFIF), a think tank specializing in finance and public investment.

The first lesson is that Africa is more attentive than ever to adapting standards to meet the needs of international markets, especially at a time when investors are seeking to diversify risks. Second, deepening local financial markets is now seen as an optimal way to hedge against international economic fluctuation risks. Finally, the third lesson, African countries have adopted sustainable and green finance. The objective of this ranking is also to show how economies can reduce barriers to investment, and thus promote more sustainable growth.

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An indicator of the attractiveness of African markets

The Absa Africa Financial Markets Index 2022 ranking is based on more than 40 indicators grouped into six categories: market depth, access to foreign apparatus, tax and regulatory environment and market transparency, capacity of local investors, the macroeconomic environment; and legal standards and their enforceability.

While South Africa, Mauritius and Nigeria are still in the lead, other countries have recorded good scores such as Malawi, Egypt and Uganda, on their way to dislodging Nairobi as a financial capital. of East Africa. While Seychelles has faced immense challenges, including a strong benefit from exchange rates. The country is the only one to have lost points in all six pillars. And nine countries have introduced products that can be classified as green or sustainable. Kenya and Morocco obtain the best scores in this indicator.

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South Africa, Mauritius and Nigeria on top

The South African financial market scores 88 points in this ranking, which rates 26 African financial markets on a scale of 0 to 100 points. This market “benefits from its solid performance, despite the massive outflows of foreign capital and the deterioration of macroeconomic indicators” of the rainbow nation. The index has become a benchmark for investors and policy makers to learn from developments across the continent. Mauritius comes second in the general classification, with a score of 76 points, ahead of Nigeria (69 points). These two countries maintain their rank compared to the previous edition. “The number of countries scoring above 50 in the index has doubled since our first edition in 2017, and the gap between the top three and the middle of the pack has narrowed. Impressively, 19 countries improved their performance in 2022 in a difficult environment,” analyzed Absa Group Chief Executive Arrie Rautenbach.

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The rise of Uganda

Uganda tops the financial markets in the East African region this year, ahead of the Kenya which fell partly due to economic uncertainties reduced the general elections which took place in August. Uganda’s rise in the financial sector is explained by “significant pension fund assets under management”, one of the pillars of the Absa ranking rating. It also ranks high in other “pillars” such as tax and regulatory transparency, market depth and transparency in the enforcement of legal contracts, but is beaten by Kenya and Tanzania in capacity of local investors. Another strong measure: a new law – the Foreign Exchange Regulation Act 2022 – has allowed more foreign players to invest in the local debt market while inviting investors from the African Development Community Australia to buy government bonds.

It must be said that the Ugandan economy has shrunk 4.6% in 2022 according to the World Bank, citing a resumption of business activity after the economy reopened last January after a two-year shutdown due to the Covid-19 pandemic. “On the supply side, services and industry have been the main drivers of economic growth. There has also been a strong recovery in wholesale and retail trade, real estate and education, with industry rebounding thanks to construction and manufacturing,” the World Bank says. The economic growth rate could reach more than 6% in the medium term.

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