GARTH KLINTWORTH: African financial markets index shows continent is improving

Are African financial markets in a better place than a year ago? This is a key question we consistently interrogate across our operations.

While it is difficult to model for outlying events such as the Covid-19 pandemic or events in Russia and Ukraine, it is important to have a metric in place to accurately track the development of African financial markets. To that end we believe the African financial markets index (AFMI) has been key in enhancing financial market infrastructure on the continent.

Now into its sixth year, this index 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. With 19 out of 26 countries scoring higher than in 2021, we can say with certainty that we are heading in the right direction.

Regarding the founding principles of the index, it was designed to compare where different countries were at in terms of their market infrastructure and foster discussions about enhancing their financial systems. Importantly, we did not want it to be dominated by a handful of more advanced markets and as a bank we have been particularly pleased to see the index expanding to 26 countries with the inclusion of the Democratic Republic of the Congo, Madagascar and Zimbabwe.

As we expand the index we can start to track longer-term trends that are playing out. Ghana had a strong focus on its solvency framework and how it could take local policies and master agreements and enable them to align with global best practices. In 2021 it entered the top five for the first time and once again performed well in 2022. Ghana can thus expand other markets including futures, secured lending and equity components.

The more credibility your local market infrastructure achieves, the more you can deepen your local savings pools, develop local investment markets, attract much-needed foreign capital and ultimately access finance at significantly cheaper rates.

Enhance ratings

The index has not stayed static but has continued to evolve and innovate. With the recent introduction of a pillar focused on environmental, social and governance (ESG) factors the number of countries with sustainability-linked policies have risen from nine to 17. Uganda, Namibia and Kenya all rose in the top 10 due to their focus and this could potentially unlock significant new forms of capital to fund infrastructure projects.

With sustainability-linked, “green” and “blue” bonds becoming increasingly popular, countries that are able to enhance their ESG ratings measurably will put new markets on radars of investors who have traditionally only looked at more established emerging markets.

It is unlikely to end there. With digital currencies and assets coupled with a fintech ecosystem that is attracting billions of dollars in foreign investment, there is likely to be 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 we have faced, we believe it will continue to be a key tool for decisionmakers.

We have lived through interesting times lately, but this tool allows us to rise about the short-term noise and get a true sense of the progress that is being made. We look forward to sharing data that will not only enhance the credibility of African financial markets but also unlock transformative capital, which will benefit some of the world’s most exciting emerging markets.

• Klintworth is head of global markets at Absa Corporate & Investment Banking.