African countries have responded positively to the need to develop domestic financial markets to protect economies from external shocks, according to the OMFIF’s 2022 Absa Africa Financial Markets Index.

Even as challenging market conditions weighed on performance in the index, 19 of the 26 countries improved their scores relative to last year. This was largely due to broad-based progress in developing sustainable financial markets, which is becoming increasingly important to global investors.

Namibia, Uganda and Kenya are among the countries with the greatest increase in scores. They have bolstered their environmental, social and governance market frameworks and, in Kenya, climate risks have been incorporated into financial stability regulation. Greater product diversity has lifted scores for most countries too, including Angola and Lesotho which both issued their first initial public offerings over the past year.

David Marsh, chairman of OMFIF, said: "Africa looks an attractive investment destination based on capital market structures that actively guide adequate risk pricing. There are many areas on which to build. Unstinting efforts by the private sector – together with the International Monetary Fund, multilateral development institutions and our network of partner institutions around Africa – are required to extend these positive changes."

According to the findings, South Africa, Mauritius and Nigeria maintain their positions in the top three this year, as they continue to score highly on measures of market depth, transparency and enforceability of legal agreements.

Meanwhile, Uganda rises two places to fourth, while Namibia and Kenya improved their ranking within the top 10. Scores for these three countries primarily rose due to progress on adopting ESG policies and frameworks.

According to the findings, 17 countries in the index now have sustainability-focused policies – five more than last year.

Foreign exchange reserves adequacy has generally weakened relative to the previous year. Ten AFMI countries have received International Monetary Fund financing in 2022, worth a cumulative $1.6bn, to cushion the blow from external shocks.

Several countries are using digital technologies to improve market access, information and inclusion, while initiatives to integrate financial markets across Africa are gathering momentum.

The Absa Africa Financial Markets Index, now in its sixth year, presents a broad view of financial market progress. The index continued to evolve this year. Coverage has expanded to 26 countries with the addition of the Democratic Republic of the Congo, Madagascar and Zimbabwe.

The index also recognises the contribution of digital initiatives and innovations to African financial market development. While not directly impacting scores, the report highlights countries’ progress in upgrading market infrastructure, transparency and regulation using new technologies. It also sheds light on various financial inclusion initiatives which help to build a broader domestic investor base. Continued progress on sustainability, digitalisation and financial inclusion will be crucial to improve Africa’s appeal and access for investors, enabling the continent to develop its resilience to any future external shocks.

Charles Russon, CEO of Absa Corporate and Investment Banking, said the index has had a positive impact on the development of financial market infrastructure, product development and policy on the African continent.

"Now into its 6^th 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 to come. We look forward to continuing to contribute to the building of more robust markets and attracting investment capital." 

The index was also welcomed by influential global policy-makers.

Antonio Pedro, Acting Executive Secretary of the United Nations Economic Commission for Africa, said: "The 2022 Absa Africa Financial Markets Index, with strengthened geographic coverage and thematic scope, serves as an important tool for policy-makers and regulators in the development of financial markets on the African continent. It provides in-depth comparative analysis to support the formulation of policies for long-term financial market development."

Note: 2021 scores account for newly available data and methodological changes, so may not reflect those published in AFMI last year.