Move financial markets ahead

Tuesday January 12 2021
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The Absa Index pinpoints areas that policymakers need to focus on to reform markets at a faster pace than has been done. PHOTO/courtesy

Africa needs critical mass to push it towards a state where growth, prosperity and security are the norms. The global health and economic crisis triggered by Covid-19 has brought into sharp focus the need for continuous investment into the economies that make up this incredible continent and provided many lessons that cannot be discounted for the future.

Some of the critical lessons relate to the need to create an enabling environment for financial market participants and make it easier for financial markets to mobilise resources to power Africa’s growth and facilitate trade.

Africa will be on the wrong path if we think we can progress as individual countries without the need to work together. The reality is the continent can do a lot more from a scalability perspective and through leveraging the different strengths of respective countries through cooperation.

From a capital markets perspective, the starting point for working together will be the harmonisation of market infrastructure, legal frameworks, regulations and market practices, with a purely African lens, to accelerate the road to scale. This is probably the best way to position the financial markets to drive initiatives like Africa Continental Free Trade Agreement.

Financial Markets

Harmonising the financial markets landscape requires a detailed diagnostic tool to understand the underlying factors that have, so far, kept this continent from reaching her potential in terms of attracting its fair share of investments from both local and foreign investors alike by answering the critical question of ‘What is it that is holding us back’? Armed with this data, the continent can move faster to reform in a way that helps us shape our future.

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The Absa Africa Financial Markets Index Now in its fourth year, produced by the Official Monetary and Financial Institutions Forum, has become a benchmark for policymakers to gauge countries’ performance across a range of indicators important for financial market development.

The research is a development index focused on the financial markets and works as a benchmarking tool that tracks the maturity of respective financial markets, as well as the openness and ease of accessibility of financial market products to suppliers of capital or investors, as well as people who consume capital.

In 2020, the impact of Covid-19 had a dire impact on markets, the economy, as well as the health of citizenry. That can be seen in the declining liquidity across financial markets.

At the start and during the height of the pandemic, global investors pulled back from the continent, which reduced the amount of liquidity available in different securities. At the same time, we saw local investors move out of certain type of products into more cash, as they looked to preserve liquidity and cash in the short term, given the volatilities and vulnerabilities that the pandemic was drawing.

The Index’s key take-outs allow for better planning from a regulatory and policy making point of view, as well as crucial insights that will aid countries to rebuild economies faster. The Index pulls together all the sub-markets into one benchmark, allowing governments to see a holistic view of where they are in terms of being able to attract domestic and international investments.

Africa’s strengthened financial markets bode well for the continent’s ability to withstand stress tests, as we can pull together to attract both domestic and international capital.

The author is the head of Absa global markets.

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