[TOP STORY] African institutions, regulators actively seeking to develop financial markets

SIMON BROWN: I’m chatting now with Anthony Kirui. He is head of global markets, Africa Regional Operations, at Absa. We’re talking around the Absa Africa Financial Markets Index. Anthony, I appreciate the early morning time this morning. Give us a bit of understanding of what this index is looking at. As I understand it, it’s looking at financial markets and looking at liquidity, at infrastructure across some 26 African countries.

ANTHONY KIRUI: Good morning, and correct. The Africa Financial Markets index uses a variety of qualitative and quantitative data to assess the openness, the …. index of financial markets in 26 of our African countries. Countries are all scored on a scale of 10 to 100, based on six pillars that [comprise] over 40 indicators that really assess the level of openness, the development of financial market infrastructure that will support the participation of both local and international investors in the various markets.

SIMON BROWN: There are a couple of key findings, and perhaps the one that really stood out to me, one of the few, was that notwithstanding it being another tough period, the majority of countries [have been] improving their scores relative to the previous years.

ANTHONY KIRUI: That’s correct. Nineteen out of the 26 countries actually saw their scores improved.This was largely on the back of progress in developing sustainable financial markets, [and the] introduction of ESG products and frameworks across these countries, which is becoming increasingly important for global investors.

SIMON BROWN: A big part of that, of course, is digital technologies. I’m thinking back to markets of the eighties and nineties, when they were completely un-digital, and it is that move to digital which gives better access to markets, to information broadly, inclusion. It is a critical part of that growth.

ANTHONY KIRUI: That’s absolutely right. And we have actually seen various markets beginning to adopt various digital trading platforms and capabilities in Uganda. We saw that sovereign bonds are now priced on Bloomberg’s Evaluated Pricing service, BVAL, and in Botswana as well, the rolling out of Bloomberg’s E-Bond platform for secondary market trading, which will further improve transparency and liquidity.

But also we’ve seen a lot of digital finance regulation. In Kenya the Capital Markets Authority has also introduced policy framework on crypto assets and tokenised securities. In Nigeria we’ve seen rules on the regulation of digital assets, such as cryptocurrencies and initial coin offerings. And really we will see this in time feed through into the performance across various pillars, market depths and perhaps the macroeconomic environment – and transparency and opportunity in these different markets. But there are key frameworks and foundations that would further support the development of these financial markets.

SIMON BROWN: How much is it driven by government? You talk around sort of regulation and the like there. Is a lot of it happening from government’s side, or is it the sort of broader industries, the exchanges perhaps – or the brokers, the participants who really drive the improvements?

ANTHONY KIRUI: Yes. Certainly we’ve seen that, both from government regulations and the efforts that governments are making. So there are various projects, for example, around the adoption of international standards and frameworks for transactions that are done between financial institutions, such as the adoption and recognition of ISDA (International Swaps and Derivatives Association) and GMRA (Global Master Repurchase Agreement) in different markets, regulation to support close-out netting in countries like Uganda and Nigeria. But there are also efforts that are being made by various exchanges, such as the Africa Exchanges Linkage Project, which has been sort of spearheaded by the Africa Securities Exchanges Association and the African Development Bank … facilitating inter-regional securities trading. We’ve seen a number of exchanges, brokers, join this platform, which will allow for connection via a common order-routing system, and there are numerous stock brokers that have confirmed their product participation.

So it is a combination of both institutions and regulators that are actively seeking ways to develop their financial markets.

SIMON BROWN: A last question. One area where we did see some slippage – foreign exchange reserve adequacy weakened compared to the previous year. What struck me is that you make the point, 10 countries have got IMF financing during the period, but it was only US$1.6 billion. That’s a big number; $1.6 billion is no small number, but in the big picture across 10 countries coming out of a pandemic, I thought that wasn’t so bad.

ANTHONY KIRUI: I think you’re right. But perhaps there’s still more to come. Recently we do know that Ghana is in discussions around an IMF package and support of helping the country to restructure and boost its reserves. And I think a number of other countries will be engaging the IMF, as they take on the strains and the impact of both Covid-19, but [also] the conflict in the Ukraine and Russia that has further had an impact on commodity prices – which has negatively impacted the different countries as we see inflation generally across the board drive and reserves deteriorate.

SIMON BROWN: We’ll leave that there. That is Anthony Kirui on the line from Kenya. Here’s of course, head of global markets, Africa Regional Operations at Absa.

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