Absa’s index a critical tool in developing African markets

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 Absa interrogates across operations.

While it is difficult to model for outlier events such as the Covid-19 pandemic or the conflict between Russia and Ukraine, it is important to have a metric in place to track the development of African financial markets. Absa's African Financial Markets Index (AFMI) has been key in enhancing financial market infrastructure on the continent. 

Now into its sixth year, the AFMI 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 the continent is heading in the right direction. 

The index was designed to compare where countries were in terms of their market infrastructure, and foster discussions on how to enhance their financial systems.

Absa did not want it to be dominated by a handful of advanced markets and as a result the bank is pleased to see the index expanding to 26 countries with the inclusion of Democratic Republic of the Congo, Madagascar and Zimbabwe. As Absa expands the index, the bank can start to track longer-term trends that are playing out. 

Ghana is a good example of this. The country had a strong focus on its solvency framework and how it could take local policies and master agreements — aligning with global best practices.

In 2021, they entered the top five for the first time and performed well in 2022. Ghana can now expand other markets including futures, secured lending and equity components. 

The credibility one's local market infrastructure achieves can: deepen local savings pools; develop local investment markets; attract much-needed foreign capital; and access finance at significantly cheaper rates. 

The index has not stayed static but has also continued to evolve and innovate. With the recent introduction of a pillar focused on environmental, social and governance (ESG) factors, Absa has seen the number of countries with sustainability-linked policies grow from nine to 17. 

Uganda, Namibia and Kenya all rose in the top 10 and this has the potential to unlock significant new forms of capital to fund infrastructure projects. With sustainability-linked, green and blue bonds becoming increasingly popular, countries which are able to enhance their ESG ratings in a measurable manner will put new markets on the radar of investors who have traditionally looked only 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, it will continue to be a key tool for decision-makers. 

We have lived through interesting times but this tool allows us to rise above the short-term noise and get a sense of the progress being made. 

Absa looks 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. 

Click here to download the 2022 Absa Africa Financial Markets Index. 

This article was paid for by Absa.