SA has Africa’s best potential

Modern, robust and transparent financial markets are essential to attract investors to the African continent and fund economic growth, according to a research report by the Official Monetary and Financial Institutions Forum (OMFIF) as part of its annual study into the development of financial markets in African countries.

The research, in collaboration with Absa, again puts SA first in its ranking of African countries in respect of different aspects
to measure the state of financial markets on the continent.

Absa and OMFIF have just announced the latest Absa Africa Financial Markets Index ratings, described as a key reference tool for policymakers and investors to guide their efforts in developing robust financial markets.

It comes as no surprise that SA is found to have the best regulation, largest and most liquid markets, robust legal frameworks
and best access to investment capital and foreign exchange.

The rest of Africa is far behind, and deteriorating.

The report and a presentation by the researchers seem to focus on the improvements countries have achieved since the previous year’s survey, but from the figures investors will (unfortunately) probably think the financial markets in most African countries have become less attractive and welcoming.

Overall score is down

The overall score for the continent declined, with more than half of the 20 countries’ measures in both years registering a disappointing worsening in the state of their financial markets.

Ethiopia scored 27 out of 100 points, Angola 30 and Malawi 37. SA scored 89, with Mauritius second with 79.

The report notes that financial markets improved in Mauritius and Seychelles (11), narrowing the gap between them and SA.

The index measures the state and development of financial markets by way of six categories, each gauging a few important aspects the researchers believe investors would deem critical.

Improvement

The research shows there has been improvement, despite the lower average scores.

“When the index was first released in 2017, only three out of 17 countries scored above 50, with many performing poorly on more than 40 indicators,” say the researchers.

“This year, 11 of 23 countries scored above 50, indicating improvements…Stronger legal frameworks and growing local investor capacity contributed to better scores overall.”

Unfortunately, economic growth and investment opportunities are often prerequisites for the development of healthy financial markets.

With this in mind, the report dispatches more bad news than good: “The initial impact of the pandemic was felt by countries
with high levels of external debt as global investors pulled back investments.

“The withdrawal of international capital impacted the region’s stock markets as liquidity dropped in the first half of 2020.”

In simple terms, Africa needs more chickens, which is only possible by getting more eggs, for which we need more chickens.

This article first appeared on Moneyweb and was republished with permission.

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