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Kenya drops to position seven in Absa Africa financial index

The East African economy, however, led the continent in market transparency, tax and regulatory environment.

In Summary
  • Kenya scoreD 58 out of 100 points behind South Africa, Mauritius, Nigeria, Namibia, Ghana and Botswana 

  • The index that measures the capacity of countries to attract both local and foreign investments
An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE
An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE

Kenya slipped four places rank position seven in the latest Absa Africa Financial Markets Index 2020 report, largely on poor forex reserve and poor microeconomic opportunities.

The index that measures the capacity of countries to attract both local and foreign investments shows that Kenya has lost seven points to score 58 out of 100 points.

Ahead of Kenya are South Africa and Mauritius with 89 and 79 points respectively followed by Nigeria, Botswana, Namibia and Ghana.

 

The report rates countries based on market depth, access to foreign exchange and market transparency, tax and regulatory environment, the capacity of local investors, macroeconomic opportunity and legality and enforceability of standard financial markets master agreements.

The report shows Kenya dropped from 65 points in 2019 to 58 points this year in the foreign exchange pillar, exhibiting possible volatility to the local currency and the general economy.

According to Absa, the ratio of net portfolio investment to foreign exchange reserves went up to 14.4 per cent from 9.5 per cent.

The stronger reserve position relative to portfolio investment flows will help Kenya’s performance in the pillar. The country’s foreign reserves at end of 2019 stood at $9.1 billion.

According to the latest CBK’s weekly bulletin, usable foreign exchange reserves stood at $8.2 billion (4.99 months of import cover) as of October 22 compared to $8.3 billion last week or (5.04 months of import cover).

Dwindling forex cover amid shrinking diaspora remittances, the biggest foreign exchange earner for the country is likely to further expose the shilling to further volatility, putting the country's economy in limbo. 

On Monday, the shilling dropped to a new low of 109.16 against the dollar.

 

The Foreign exchange pillar evaluates a country’s openness to foreign investment based on the ease of moving capital, the flexibility of foreign exchange regimes and the availability of reliable foreign exchange data.

The report also questioned the true value of the shilling, pointing to previous comments by the International Monetary Fund (IMF) that the Kenyan shilling is largely managed hence overvalued by over 17 per cent.

CBK has since refuted the claims, saying the currency’s value is market-determined.

Kenya also performed poorly in the macroeconomic opportunity pillar where it ranked a distance position 11 in the continent.

According to the report, Kenya’s GDP per capita is $1,998 lower than the index average of $3,480.

It adds that Kenya’s economic growth forecast, averaging 1.8 per cent this year is subdued compared to its five–year historical average of 5.7 per cent.

The high growth in recent years was disrupted by the Covid-19 pandemic.

The country also lagged behind peers in the pillar measuring local investors' capacity based on the amount of pension fund assets available relative to the population and market capitalisation. 

According to the report, Kenya is still behind on pension assets per capita which is at $257, ranking position eight in the continent behind Namibia, Mauritius, South Africa, Seychelles, Morocco and Eswatini.

However, the East African economy led the continent in market transparency, tax and regulatory environment. 

According to the report, the country scored highly in transparency, specifically for requiring adherence to International Financial Reporting Standards for domestic and foreign companies. 

It said the country has the highest score for the protection of minority investors, as measured by the World Bank's annual Doing Business report. 

The report is geared to triggering cross-country comparisons, opening policy discussions between regulators, capital markets, investors and corporates on how to build markets that can promote investment.