At a time when the ability to attract foreign investment is becoming increasingly important to Africa’s growth prospects, the need to focus on the status of the continent’s financial markets infrastructure has become more important.
Barclays Africa Group Financial Markets Index, which is a quantitative and qualitative assessment of the anatomy of Africa’s financial markets, is an important initiative geared towards supporting financial market development.
The Index, which will be produced yearly, intends to drive conversations among policy-makers, market participants and other partners to track progress and address gaps on an on-going basis.
Data is EVERYTHING! And investors, stakeholders, regulators and governments in general will really benefit from the @Barclays_Kenya #AFMIndex discussion and findings ~ Geoffrey Odundo @NSEKenya
— Kenyan Collective 🇰 (@KenCollective) January 17, 2018
It is also focused on the six critical fundamental pillars of financial market development including market depth, access to foreign exchange, market transparency and regulation, capacity of local investors, macroeconomic opportunity and enforceability of international financial agreements.
Barclays Bank Managing Director, Jeremy Awori said: “The Index provides countries with valuable insights and tools to improve the state of their financial markets. By broadening and deepening their understanding of the requirements of local and international investors, Africa’s leaders can develop robust markets – a prime condition for sustainable, inclusive growth.”
On the Index, Kenya outpaced its East African peers in the market depth pillar, which focused on areas such as the range of financial products, currencies & hedging options available and capacity of local investors’ parameters.
Kenya’s financial markets were the most advanced in the East African region and 5th with a score of 59% in the continent ahead of economic giants like Nigeria (53 %) Ghana (49%) and Egypt (39%). South Africa with a score of 92% was ranked first.
Kenya scored the highest ranking in East Africa attributed to its strong contract enforcement policies, market depth as well as the capacity of local investors, ahead of Uganda, Tanzania, Rwanda and Ethiopia.
It also emerged top in East Africa and 3rd on the continent with a score of 81% behind South Africa (100%) and Mauritius (93%)
The importance of increasing small and medium-sized enterprises’ access to financial markets cannot be emphasized enough. In order to continue deepening our markets, SMEs need dedicated market segments for them to thrive ~ @Me_GeorgeAsante @Barclays_Kenya#AFMIndex
— Kenyan Collective 🇰 (@KenCollective) January 17, 2018
So what exactly does the Index measure?
• Market depth
• Access to foreign exchange
• Market transparency and regulation
• Capacity of local investors
• Macroeconomic opportunity
• Enforceability of international financial agreements
Details of Kenya’s Ranking on the Index
• Under the market depth pillar focussing on parameters including the range of financial products, currencies and hedging options available across national exchanges,, Kenya emerged fourth with a score of 49%, ahead of Uganda (10th with a score of 42%,) Tanzania (11th with a score of 41%), Rwanda (15th with a score of 21% and Ethiopia, with a score of 10%.
• Kenya also tops the East African region in Pillar 4 focussing on the capacity of local investors. The country was ranked 5th with a score of 31%, ahead of Tanzania (31%), Rwanda (14%), Uganda (13%) and Ethiopia (10%). The key areas of strength for Kenya under this pillar were high regulatory bank capital ratios, high reporting and accounting standards, an active bond market and foreign exchange liquidity.
• Kenya again topped the region on Pillar 6 focusing on legality and enforceability of standard financial markets master agreements, emerging position three in the continent with a score of 81%, only below South Africa (100%) and Mauritius (93%). East African peer Rwanda also registered a commendable rating under this pillar, and was ranked number 4 in the continent with a score of 76%. Tanzania was ranked number 9 with a score of 37% while Uganda emerged position 13 with an index of 28 and Ethiopia number 16 with an index of 18.
Key Objectives of the Index
• Under the Stewardship value, the Index wants to accelerate market reform and improve Africa’s competitiveness to price and attract local and International capital
• It also seeks to improve the Openness and accessibility of the market to both Local and International Investors
• Provide a platform for all stakeholders to continuously discuss the way best to accelerate reforms and develop a more inclusive risk reduced market
• Essentially reduce the borrowers cost and investors risk associated with capital supply and demand.
• It is the start of unifying data and perceived integrity or risks to the markets
• Countries can see how they rank relative to each other, learn from each other’s reforms and understand how they can prioritize and achieve global standards that lead to fair and effective capital markets
“While many African countries are implementing a growing number of national policy frameworks for market development, there are still several challenges such as limitations on the range of assets available for local investors,” said Jeremy Awori, the Barclays Kenya managing director.
