South Africa has a sophisticated financial market compared to other African countries, but Absa’s 2019 Africa financial market index shows that others are catching up — in some cases, quite rapidly.
South Africa scored 88 out of a possible 100 points. The index covers 20 African countries. Mauritius came second with 75, followed by Kenya and Namibia which both scored 65, with Botswana rounding off the top five at 64. South Africa’s lead over the second-placed contender narrowed from 28 points last year to 13 points this year, partly as the result of an overall lower score.
Ethiopia came last, scoring just 27, because it still lacks financial market infrastructure. But Absa’s Africa financial market index report said the outlook for Ethiopia will improve as it plans to launch a stock exchange in 2020 to list the shares of its privatised companies.
Mauritius, Tanzania, Namibia, Egypt and Mozambique have improved the most since last year.
Financial markets play a big role in fostering countries’ economic growth, said economist Danae Kyriakopoulou. She added that no economy has managed to develop and progress to beyond middle-income level without the existence of successful financial markets. “That is why the index was created,” she noted
The Absa Africa financial market index compares financial market development by looking at various criteria including market depth; access to foreign exchange; market transparency, tax and regulatory environment; and capacity of local investors.
The comparison aims to showcase economies with the clearest growth prospects. When the index was launched in 2017, the average score for the 17 countries included was 49.6, with only three countries scoring above the average. Three years later, the average is 52.7, with nine countries above the average.
Absa’s index showed that despite the disparities, financial market development in the countries covered show progression towards a more robust, investment-supporting environment.
South Africa has been at the top of the index for the third year running — the country’s current leading status is attributed to its market depth and deep liquidity, supported by strong domestic investors.
The country also did well on access to foreign exchange; market transparency, tax and regulatory environment; and capacity of local investors.
In the economic growth category, South Africa was surpassed by Egypt, which claimed the first position. This is due to South Africa’s “sluggish” growth. “South Africa has a higher GDP [gross domestic product] per capita than Egypt, but the sluggish growth it registered in 2018 has continued in 2019, worsened by power outages caused by problems plaguing its state-run electric utility,” the index noted.
The South African economy expanded 0.8% in 2018 and, according to a World Bank report on the economic outlook for Africa, the economy is expected to grow by the same amount this year.
South Africa obtained third position in the legality and enforceability of standard financial markets agreements after Mauritius and Kenya. Mauritius came out on top because of a slightly stronger insolvency regime than South Africa.
Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian