Economy / 23 October 2019, 11:00am / Siphelele Dludla
JOHANNESBURG - Despite slipping five index points, South Africa has claimed top position among 20 African countries in terms of financial markets development for the third year running.
The Absa Africa Financial Markets Index released yesterday showed that South Africa scored 88 index points, down from 93 out of 100 last year, to retain its top spot.
Absa said that this was mainly because of the country's sizeable lead in market depth and deep market liquidity anchored by strong domestic investors, compared to other countries.
The index evaluates financial market development in 20 countries and highlights economies with the clearest growth prospects.
Now in its third year, the index was produced by the Official Monetary and Financial Institutions Forum, an independent research think tank for central banking, economic policy and public investment.
The index assesses countries according to six pillars: market depth, access to foreign exchange, tax and regulatory environment and market transparency, capacity of local investors, macroeconomic opportunity, and enforceability of financial contracts, collateral positions and insolvency frameworks.
South Africa was ranked top in access to foreign exchange; market transparency, tax and regulatory environment; and capacity of local investors.
Absa’s regional operations head of global markets, George Asante, said South Africa's top ranking across four pillars was not surprising, given the development and sophistication of its financial markets.
“South Africa tops the index largely due to its sizeable lead in market depth,” Asante said.
“While it is likely to remain an outlier in this pillar, the creation of new bourses and key mergers between existing ones will improve the standing of other countries in the coming years.”
However, other countries ranked in the index are fast catching up with South Africa, because of ongoing regulatory and policy reforms in those markets.
Egypt has the highest score in macroeconomic opportunity, while Mauritius and Kenya claimed the two top spots in legality and enforceability of standard financial markets master agreements.
Ethiopia, although lagging, was said to have significant potential for improvement in the coming year.
The country has announced its plans to establish a stock exchange in 2020.
Ethiopia's local banks and other financial service firms are also in the process of adopting international financial reporting standards.
Absa said it believed the insights in the index would inspire active engagement among policy-makers and market participants.
Asante said the impact of the index was demonstrated by the progress financial regulatory authorities were making to further reform their financial markets across African markets.
“There has been a concerted effort among African policy-makers to react to the findings," he said.
"This can be seen in the vast improvements in Pillar 6, ‘legality and enforceability of standard financial markets master agreements’, where countries have responded to past findings in order to align with best practice."
“The index is therefore becoming a powerful barometer for policy-makers and playing a role in building an Africa which is able to fund itself.”