
A teller counts dollars in a bank. South Africa saw the largest nominal decrease in pension fund assets per capita, falling from $2,399 at the end of 2022 to $2,218 at the end of 2023. PHOTO BY EDGAR R. BATTER
With various initiatives by the financial regulators and government to develop the country’s financial sector, Uganda has maintained its fourth position in the Absa Africa Financial Market Index, which is currently being executed in 29 countries.
The Absa Africa Financial Markets Index offers a standard measure for accessibility, transparency and openness of financial markets across 29 African countries.
The top five performers included South Africa, Mauritius, Nigeria, Uganda and Namibia. Laggards were Ethiopia, DRC, Lesotho, Madagascar and Angola. South Africa remained a leader with an overall score of 87 owing to the unrivaled deep, liquid and sophisticated and diversified advanced financial markets.
In addition to Angola and Nigeria, Kenya and Zimbabwe also saw a drop in their overall scores. Kenya ranked 8th among the 23 countries under review with a score of 57 – a percentage lower from 2023. This was primarily driven by weaker forex reserves during the review period, however boosted by the issuance of the first domestic Sukuk bond in July.
Five key findings emerge in this year’s report. Clear and widespread progress is that overall scores increased in 23 countries this year, equivalent to 82 percent of the index. This represents the highest proportion over the past seven years. The widespread improvement is also reflected at the pillar level. In each of the six pillars, scores improved for more countries than fell.
More favourable global financial conditions are an important tailwind to these improvements. For example, this has supported activity in securities markets (pillar one), the value of pension fund assets (pillar 4) and foreign exchange reserve adequacy (pillar two). Macroeconomic conditions have improved too, with inflation falling across the continent in the past year – excluding Angola and Nigeria (pillar five).
Importantly, there have also been structural improvements to market infrastructure this year. There is better transparency regarding FX markets (Pillar 2), monetary policy decisions (Pillar 5) and the creditworthiness of corporates (Pillar 3).
During the panel discussion, the deputy governor Bank of Uganda, Dr Michael Atingi-Ego said: Uganda maintained the fourth spot in the Africa Financial Markets Index 2024, launched in Washington, DC in October. This ranking reflects our collective effort at what we do to deliver on our mandate, as we were recognised for maintaining a solid macroeconomic environment - ranking second in this category.”
Global practices
During a panel discussion, Dr Atingi-Ego discussed how adopting global best practices like the Global Master Repurchase Agreement (GMRA) and the International Swaps & Derivatives Association (ISDA) agreements helped ensure the economy’s resilience against global financial challenges.
Mr Claver Gatete executive secretary, United Nations Economic Commission for Africa wrote in his portion on Capital market growth and transformation; that African capital markets have experienced remarkable development in 2024, indicating the continent’s dynamic economic landscape and favourable global financial conditions.
“The initiatives aimed at broadening access to financial services have also enhanced the capacity of local investors, empowered millions and improved financial inclusion. In 2023, Egypt, Morocco and Tunisia implemented financial literacy and education campaigns to address the gaps in knowledge and access. Uganda also implemented an investor education programme to enhance knowledge and understanding of capital market products and services among individuals and communities,” he said.
“Uganda Trade Clear was launched in Uganda in June 2024 allowing repurchase transactions under local Global Master Repurchase Agreements and various derivative products under the International Swaps and Derivatives Association.”
Under pillar one, which evaluates the size and liquidity of domestic equity and bond markets, along with the diversity of listed assets and the existence of standard features that enhance market depth, there has been a clear divergence in the performance of AFMI countries on financial market size and liquidity, with scores improving in 19 countries this year and decreasing in seven.
The diversity of financial products has grown with new environmental, social and governance bonds, sukuk bonds and derivative products issued across AFMI countries. Progress on market infrastructure has continued for a handful of countries, particularly in upgrading central securities depositories.
The African Financial Markets Index shows that several countries are making progress in financial market development, including Uganda. Uganda has made notable improvements in its central securities depository (CSD), which is a specialised financial market infrastructure organisation that holds securities.
“The Bank of Uganda has made progress in its project to connect the central bank’s CSD with the Uganda Securities Exchange’s central depository,” the Absa AFMI states.
This initiative aims to facilitate the trading of government securities on the Securities Exchange, which will broaden the retail customer base for these securities and enhance overall market participation,” stated a survey respondent from the country.
Pillar two evaluates the ease of access and transparency of foreign exchange systems. Specific to Market infrastructure and regulation, the Index states that a regulatory framework is being developed in Uganda to support the provision of sukuk bonds and Shariah-compliant collective investment schemes.
In pillar two still, the Absa AFMI states: “It considers indicators for the flexibility and reporting of exchange rates, the breadth of capital restrictions and for interbank FX liquidity. This pillar also measures the adequacy of FX reserves to gauge central banks’ ability to manage the potential volatility from international capital flows.”
Pillar three evaluates the transparency of financial markets, focusing on tax systems, regulatory frameworks and the integration of environmental, social and governance criteria. Across Africa, the Absa AFMI shows that many other countries hope to enhance their ESG financial market frameworks.
Alongside progress in ESG for some countries, a broad-based rise in the number of credit ratings in the past year has pushed up scores in Pillar 3 for most countries. Credit ratings are important for financial transparency as they provide investors with a detailed analysis of the creditworthiness of sovereigns and corporates.
Corporate credit ratings
In the 12 months to June 2024, 15 countries experienced a rise in corporate credit ratings by international rating agencies such as S&P, Fitch and Moody’s. South Africa climbed above Nigeria on this indicator with 90 ratings in the past year, 20 higher than the year before.
There has been a similar development in Uganda as ICRA Ratings was licenced as the country’s first credit ratings agency. ‘This initiative will provide credit ratings for both corporates and SMEs, improving borrower credibility and facilitating better access to financing’, said a survey participant from Uganda.
Pillar four evaluates the potential for institutional investors to drive capital market growth based on the size of pension fund markets, both in per capita terms and relative to local listed securities.
Key findings indicate that scores have increased for 24 countries this year primarily due to a rise in pension fund assets per capita.
However, Uganda is among the poorest performing countries in this category scoring just 15.