- Neighbouring Uganda ranked highest in the East African region at fourth place, up from sixth place last year
- At least 17 countries in the index now have sustainability-focused policies – five more than last year.
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Kenya has climbed two spots in its financial markets ranking on the continent in the just published 2022 Absa Financial Markets Index.
The higher ranking has been achieved on the backdrop of progress made in sustainable finance with the country incorporating climate risks into financial stability regulation.
During the past year, for instance, the Central Bank of Kenya (CBK) issued guidance for banks to incorporate climate-related factors into their risk management framework.
The incorporation has seen Kenya earn 88 points out of 100 in market transparency, tax and regulatory environment.
Kenya was among four countries to make the connection between climate risk and financial stability alongside South Africa, Egypt and Mauritius.
The country has nevertheless scored poorly in the capacity for local investors with 20 out of 100 points given the limited scope of investments made by pension assets.
“Most countries have limited pension assets. They are often constrained to investing in government securities, reducing the possible gains from diversification,” noted the index report.
Kenya also scores low in market depth at 43 points while all other scores are above the 50 points mark including access to foreign exchange (82 points), macroeconomic environment & transparency (74 points) and legal standards and enforceability (55 points).
The country’s planned introduction of a higher rate of capital gains tax (CGT) at 15 per cent in January 2023 is nevertheless seen as a dampener to its investment climate.
The index ranks 26 countries primarily on measures of market accessibility, openness and transparency.
Neighbouring Uganda ranked highest in the East African region at fourth place, up from sixth place last year, due to strides in stabilising foreign exchange rates as well as making long-term plans to transform the capital markets and economy by adopting international standards.
South Africa, Mauritius and Nigeria have maintained the first three spots on the index this year with overall scores of 88, 76 and 69 against Kenya’s 61 points.
Other countries making the top 10 in the index by the order are Uganda, Botswana, Namibia, Ghana, Morocco and Egypt.
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.
Greater product diversity lifted scores for most countries too, including Angola and Lesotho, which both issued their first initial public offerings over the past year.
The index also recognises the contribution of digital initiatives and innovations to African financial market development.
While not directly influencing scores, the report highlights countries’ progress in upgrading market infrastructure, transparency, and regulation using new technologies.
It sheds light on various financial inclusion initiatives that help to build a broader domestic investor base.
According to the report, continued progress on sustainability, digitalization, 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.
At least 17 countries in the index now have sustainability-focused policies – five more than last year.
Foreign exchange reserve 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.
David Marsh, chairman of the Official Monetary and Financial Institutions Forum (OMFIF) said Africa looks like an attractive investment destination based on capital market structures that actively guide adequate risk pricing.
Charles Russon, chief executive 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.
‘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,'' he said.