Strengthening capital markets will improve resilience to shocks

African capital markets must be strengthened to improve the continent’s resilience to exogenous shocks, speakers said at this week’s event in Dakar, Innovative Capital Market Financing for Africa’s Recovery

In order to strengthen these markets, innovative tools are needed, the panelists said. Despite the disruption to economies caused by the Covid-19 pandemic, it is clear that financial markets remain a priority for Africa.

Although some countries needed debt restructuring, Africa did not have to go through a full-scale financial crisis.

The performance of African stock markets was reviewed by Jeff Gable, head of macro and fixed income research at South African banking group Absa and Kat Usita, director Managiwillng of the independent think tank, the Official Institutions Forum monetary and financial institutions based in London.

They presented the findings of the Absa Africa Financial Markets Index 2021, which analyzed developments in 23 African markets.

The main results were:

  • Africa is more attentive than ever to adapting market norms to meet the needs of international investors seeking to diversify risk.
  • Deepening local financial markets is now universally seen as an optimal way to hedge against international economic fluctuations.
  • African countries are embracing sustainable finance, integrating international investment standards and, in some cases, adopting pioneering methods.

According to the report, as the global economy struggles to recover from the worst health crisis in a century, African economies face the dual challenge of reinvigorating financial markets while strengthening market infrastructure.

The pandemic has reinforced the importance of deepening domestic markets to guard against foreign capital outflows and help the region realize its full potential.

Malawi, Egypt and Uganda are among the countries that improved their ranking the most in the index, which measures six pillars: market depth, access to foreign exchange, market transparency, environment fiscal and regulatory, capacity of local investors, macroeconomic opportunities and enforceability of financial contracts.

Progress in establishing the applicability of global contractual frameworks improved the scores of Malawi and Uganda, while reforms in Egypt continued to improve its macroeconomic outlook.

While tough market conditions affected country scores, most of the declines were attributed to methodological changes adopted to better reflect country performance and changing financial market trends, according to the report.

As part of its aim to drive progress, this year’s index, the fifth in the series, introduces new indicators that recognize the role of sustainable finance in expanding capital markets and achieving broader socio-economic goals. The introduction of sustainability-focused indicators weighs down the scores, especially for countries at a much earlier stage of market development. However, the new measures serve as targets for countries to achieve.

Other speakers at the session were Amadou Hott, Minister in charge of Economy, Planning and International Cooperation, Senegal; Edoh Kossi Amenounve, President of the African Association of Stock Exchanges; Babacar Gning, Managing Director of the Sovereign Fund for Strategic Investments; Yeo Dossina, Head of Economic Policy and Research, AUC; Pape Ndiaye, CEO, AFIG Fund; Patric Oromo Ndzana, Economist, African Union Commission; and Grace Obat, PSDFD Director at ECA.