SA still has by far the most developed financial markets in Africa but countries across the continent have made progress, making markets more open and accessible over the past year, with 23 countries increasing their scores on Absa’s latest Africa financial markets index.
While SA tops the index overall, Mauritius, Namibia and Botswana lead the continent in some of the indicators of market development, putting them in a good position to attract capital from international and local investors.
SA topped the rankings on market depth and access to foreign exchange. But Mauritius was top on market transparency, tax and the regulatory environment, as well as on legal standards and enforceability, while Namibia scored best on pension fund development and Botswana on the macroeconomic environment.
The eight-year-old index measures the accessibility, transparency and openness of financial markets across 29 African countries, accounting for 83% of the continent’s GDP.
Ecosystem
“Having a financial market ecosystem in place that makes it as easy as possible to put money into African countries has never been more important,” Absa chief economist Jeff Gable said at the launch of the 2024 index in Washington DC on Thursday.
Developing their financial markets enables countries to attract foreign capital into the continent. “But the right financial market ecosystem can mobilise money that’s already in the continent and ensure it can find a productive use,” Gable added.
The proportion of countries that increased their score over the past year is the highest since the index began. More favourable global financial conditions helped, as did reforms countries implemented to their market infrastructure, such as easing foreign exchange controls, making monetary policy more transparent and advancing legal frameworks.
Environment, social and governance (ESG) initiatives were an emerging trend during the year. Cabo Verde, Mauritius and Zambia listed new green bonds on the market, and Botswana and Rwanda issued sustainability-linked bonds, with 23 countries introducing ESG into their market frameworks to broaden their investment appeal.
Islamic, sukuk finance is also a theme. And 19 countries are introducing mobile apps or online access to financial markets to encourage retail investors and boost local investment into assets that will support growth.
After a year in which no African countries went to the international eurobond market to raise capital, four countries tapped international capital markets in 2024 — though the deputy director of the IMF’s Africa department, Catherine Patillo, said this was very expensive financing at yields of 9%-10%, which were much higher than the 6%-7% before the Covid-19 pandemic.
Patillo said the macro context for Africa was still quite difficult but countries which were working to implement difficult but much-needed reforms were seeing improvements to their macroeconomic imbalances.
One hurdle the continent faced was that growth overall remained subdued and uneven, with Sub-Saharan Africa forecast to grow by just 3.6% this year, rising to 4% next year. This was nowhere near the level needed to improve living standards or converge income levels with the rest of the world, Patillo said.
‘Big funding squeeze’
A second hurdle is that the “big funding squeeze” continues even though global financial conditions have improved, with both domestic and external financing very expensive.
A third hurdle is the social and political conditions for reform are becoming increasingly challenging in some countries because of the complex interplay of poverty, corruption and other factors. However, the IMF remained positive on the potential for the region, Patillo said.
Africa will account for more than half the entrants to the global labour market in the next seven years and accounts for a substantial share of the world’s critical minerals. It is also a leader in digital money. “There is potential for the continent to be a technology leader in digital finance,” said Patillo.
The IMF will release its Sub-Saharan Africa update on Friday.
“There are significant possibilities when politicians open the doors for African businesses to reach global markets,” said Absa’s interim CEO, Charles Russon, who pointed to the innovation and entrepreneurship across the continent.
Small and medium enterprises account for more than 90% of registered businesses and more than 50% of GDP in Sub-Saharan Africa. They can play a pivotal role in inclusive development and growth but need support.
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