AFMI 2020 shows African financial markets resilience

The findings of the 2020 African Financial Markets Index (AFMI) report were highlighted in Nairobi today for a year in which countries face economic and medical challenges from COVID-19.

The fourth edition of the AFMI report by the Absa Group and the Official Monetary and Financial Institutions Forum (OMFIF) now measures 23 countries that encompass two-thirds of the continent’s population and 80% of its GDP. The countries are ranked by six assessments of investment attractiveness and this year, Eswatini, Lesotho and Malawi were added to the Index. 

South Africa remained on top, followed by Mauritius, and surprisingly Nigeria, which, along with Morocco, Ghana and Seychelles, made great strides to improve. Kenya, which was number three in 2019, dropped to number seven this year. Overall, 14 of the 23 countries scored above the median mark, a great improvement from the first index when only 6 of the 17 countries achieved this.

COVID-19 has had different impacts on African countries, but as Jeremy Awori Absa Kenya CEO said, even with the slowed-growth in the first half of the year, much was still expected from the continent that has a rising middle-class, and rising urban population. He added that growth would come from developing open, transparent and well-regulated financial markets.

Absa Economist, Jeff Gable said Africa cited some developments on the continent towards financial inclusion and making exchanges accessible to retail investors. These included Eswaitni’s automated trading platform and the Nairobi Securities Exchange’s revamped mobile app for retail investors with Dar es Salaam also working on a similar one. He spoke of moves to encouraging more funds to invest within the continent that saw Lesotho require its pension fund managers to invest locally (currently just 3% of assets are in the country), the launch of a derivatives market in Nigeria, and Ethiopia drafting legislation for a stock exchange.

In terms of sustainable finance, Kenya had its first green bond, Egypt had the first one in the MENA region, and Nigeria is working on its third green bond. Also, the African Development Bank was one of the first institutions to issue a financial instrument to fight the COVID-19 pandemic as it issued a $3 billion social-bond tranche. 

Danae Kyriakopoulou of OMFIF spoke of Kenya’s drop which was mainly in the “access to foreign exchange” measure where which it was ranked tenth after having topped the pillar just two years ago. This was partly due to the perception of the currency exchange rate. And on market transparency, she said that Kenya has few firms that have global credit ratings, compared to Nigeria, South Africa, and Mauritius.

She added that a strong local investor base was a source of long-term capital and a financial markets shock absorber of volatility, and that Namibia has the highest pension assets under management per capita on the index.  In terms of protection of minority shareholders, Kenya does well on that but it also needs to adopt enforcement of international financial master agreements (ISDA) as a key area of improvement. Kenya is also part of a pilot Africa Exchange Linkages Project to promote intra-African investment flows between the stock exchanges of Nairobi, Johannesburg, Casablanca, Egypt, Nigeria, Mauritius and the BRVM in West Africa.

George Asante, Head of Global Markets at Absa, said that the impact of COVID-19 was not as drastic on African financial markets as they had developed more resilience through having regulators work in uniform. This was in comparison to the 2008 global financial crisis which had a big disruption on African markets resulting in bond yields shooting up 30%. But he cautioned that African governments should work hard to remove the uncertainties that are still in the prices of their bonds, to attain lower borrowing costs in future.

The 2020 AFMI report by Absa Group and OMFIF can be downloaded here.

Leave a Reply

Your email address will not be published. Required fields are marked *