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SA, Mauritius and Nigeria top African markets for depth and transparency – index

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JIMMY MOYAHA: We’re chatting now with Garth Klintworth. He’s the head of global markets at Absa Corporate and Investment Banking [CIB]. Garth, thanks very much for making the time this evening. Looking at the latest Absa Financial Markets Index report that was released, do you want to give us a better idea of what this report is, and how exactly it benefits our consumers?

GARTH KLINTWORTH: Absolutely. Good evening, to your listeners as well. The index is critical to assisting policy makers and investors in assessing the state of financial market infrastructure, and to deploy capital in and out of these countries.

Despite a very difficult year where we’ve just come out of Covid, we’ve seen huge constraints around supply chains, we’ve seen issues around the Ukraine/Russian war. Despite that, the African countries have continued to progress their market infrastructure and improve it.

We’ve also seen quite a few countries actually reach in and want to participate in this index, because it’s such an incredible platform to benchmark yourself and to learn from and, as a result, improve your financial system.

We’ve had new entrants – for example, Zimbabwe, Democratic Republic of Congo and Madagascar have all entered the index. Now, they scored relatively low compared to our other entrants in prior years. That’s not a bad thing; that’s very positive because, for those countries, they will benefit from the measurement of the index and improve their infrastructure through time.

JIMMY MOYAHA: Which were the biggest movers on the index? Which were the biggest gainers, and which were the biggest losers along that index?

GARTH KLINTWORTH: A large gainer that we saw from the prior year was Kenya, which really progressed further in its sustainable finance. Despite the fiscal headwinds that Ghana is seeing, they also progressed from 2021, because they actually improved on some other development areas in their markets.

Eswatini, one of our neighbours, improved liquidity and improved on the ESG (environmental, social and governance) guidelines.

I think something to point out, which is very beneficial, is that last year, in 2021, we had I think only five countries which had sustainable policies. This year we’ve 17 countries that have improved on the sustainability side. So Eswatini, our neighbour, for example, spent a lot of better work on that. Another area that also improved is Botswana. It improved on transparency and some of its macro fundamentals.

So there was generally a broad-based increase across the different countries. All 26 countries really worked hard in progressing their market infrastructure to a point of improvement.

JIMMY MOYAHA: Absolutely. You mentioned earlier that there were countries that improved certain things, and the sustainability aspect was a big focus. We know that that’s been a big focus, not just from the financial space or the market space but globally – regardless of the companies, regardless of the sectors. A lot has been emphasised around sustainability and all of that.

But did we see any other trends from the index, trends that may have been more specific to certain regions, sort of East Africa versus West Africa – or was it just in general a situation where the countries that are listed on the index all had improvements in the same general direction, in line with global goals.

GARTH KLINTWORTH: Different countries are at different stages of their market infrastructure development. For example, Ethiopia has some very basic things that they need to do relative to a more sophisticated market like South Africa.

So, depending on the sophistication of the market infrastructure, we’ve seen progress in different areas by different countries. It wouldn’t [do] to try and compare whether they all targeted specific areas and achieved equivalents.

Given the different state of development of these countries’ financial markets, we’ve seen them focus on improving transparency, reporting, and some of them have moved on specific infrastructure, for example access to market.

There’s been a huge development in some countries, for example, in digital currencies and policies around how we would use distributed ledger technology.

So every country needs to be looked at on its own merits as to where they specifically improved, or focused their resource resources to improve that infrastructure.

JIMMY MOYAHA: I hear you. From the digital infrastructure one, while all countries around the world are looking towards the digital infrastructure aspect of things, do you think that we’d probably end up seeing a lot more significant improvements from Africa, given that there’s such a huge focus towards digital assets, towards things like central bank digital currencies and working on blockchain networks – particularly in the context of the fact that Africa has the need for alternative banks, alternative financial structures to support some of the financial structures on the continent?

GARTH KLINTWORTH: Yes, absolutely. It’s quite a unique position for Africa in that [its countries] can somewhat leapfrog the more analogue or physical types of banking infrastructure. We are seeing quite a lot of focus on taking advantage of that leapfrog opportunity.

At the end of the day, focusing on digital developments in finance will absolutely boost competitiveness and efficiency.

And across a huge spectrum of different types of market infrastructure, whether it’s related to the debt capital markets or the equity capital markets in the different countries, we’ve seen a lot of innovation take place. We have seen partnering take place with fintechs. So we are seeing this improvement. Regulation is also being promulgated to provide ways for us to do that.

For example, the Kenya Capital Markets Authority developed a policy framework on crypto assets and tokenised securities. We’ve seen progress on the Nigeria Security and Exchange Commission, where they’ve issued rules on the regulation of digital assets.

We know that South Africa itself is working on a digital currency strategy and has already some prototypes in place. Mauritius has released the framework regulating virtual assets.

So a lot of work over the 2022 year [has been] spent focusing on developing the digital tools to enable the man in the street [on] financing small enterprises to really enable them to tap the financial sector more efficiently than before.

JIMMY MOYAHA: Absolutely. I can’t let you go without a little bit of a brag. We know that on this particular index, South Africa has defended its position at the very, very top, [having been] ranked first last year and this year.

Do you think that the recent collaboration that was announced by our Reserve Bank governor or by the central bank and the JSE, between the JSE and the New York Stock Exchange, will go a long way in sort of boosting the attractiveness and the accessibility of South African and, in turn, African markets in the long run?

GARTH KLINTWORTH: South Africa will always be a prominent player on Africa and the disbursement in raising of capital.

South Africa did lead, as you said; so well done to South Africa.

However, it did slip slightly off its 2021 score, and that was really because of growth.

The JSE unfortunately had seen some delistings take place on its exchange, but that’s actually a theme that we’ve seen around the world.

Therefore I think further consolidation partnershipping with players like the New York Stock Exchange will just add to efficiency where exchange-raised capital is required, and it will absolutely benefit the African continent and provide an example for others to catch up to, or mimic, or collaborate for the benefit of the continent.

JIMMY MOYAHA: That’s very right. We won’t let delistings deter us. Thanks very much, Garth.

That was Garth Klintworth, head of global markets at Absa Corporate and Investment Banking, chatting to us about Absa’s Financial Markets Index that was released earlier.

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