Africa’s Miffed Market Maturity Measures

African official and private sector sponsors including Barclays, the OMFIF think tank and the African Development Bank joined to unveil a planned annual Financial Markets Index covering seventeen countries initially, with qualitative and quantitative assessments across half a dozen categories. They probe market depth, foreign exchange access, regulation and taxation, local investor capacity and economic strength for a total possible 100 score. South Africa far outstrips the pack with a 92, followed by Botswana, Mauritius, Kenya and Nigeria in the 50s and 60s, with nascent exchanges in Ethiopia, Mozambique and Seychelles in the rear 25-35 range. For subjective results over fifty bank, brokerage, accounting and multilateral agency executives were surveyed with the aim of establishing a “useful” new foreign investment tool that can be presented during the IMF-World Bank yearly gatherings. Domestic institution scope was a glaring poor performer, with a 22 average outside South Africa and Namibia with big pension and insurance sectors. Transparency in terms of rule adoption in contrast was high, although enforcement lags. Egypt and Kenya did well on liquidity as stock market capitalization was 60 percent of GDP among the group, but turnover outside those two was just 2.5 percent and bond trading is scarcely above that figure. Capital controls are heavy and increased in recent years in Rwanda, Tanzania and Zambia with commodity export price retrenchment and currency intervention siphoning international reserves. Portfolio inflows are only 5 % of GDP, with Kenya and Mauritius in the lead with a net $9 billion compared with $450 million for the rest. Fragmentation prevails despite regional integration efforts, notably through Cote D’Ivoire’s West African CFA Franc zone bourse, and the report urged further cross-border policy and transaction steps.

Depth looks at securities and hedging products, internationalization, and secondary dealing and only rand- denominated bonds are listed on Euroclear and market-makers formally exist in a dozen countries but are relatively inactive. Small and midsize company access is meager and large state enterprises tend to dominate and officials often shun capital market innovations that may create volatility. Wide exchange rate fluctuations and multiple quotations act as deterrents, and outside South Africa’s $1 trillion market hard currency volume is negligible. Namibia has adopted economic empowerment legislation mandating 25% black and disadvantaged population company ownership to inhibit foreign capital. Regulation is “improving but uneven” with limited tax treaty networks and frequently stiff capital gains and withholding levies. Morocco, Uganda and Mozambique have thin minority investor protection, while Nigeria crafted a good exchange information and broker oversight system after previous complaints. Less than half the list is working on Basel III banking standards, but most follow international financial reporting ones. Half the index members have no corporate ratings for credibility and visibility, and capital markets authorities often lack political and professional independence. Pension and insurance assets increased $150 billion on the continent the past decade and funds are typically too big for local markets while operating under allocation guidelines confining them there. Seychelles’ pools are offshore-based for tax reasons, and cross-border preferences when allowed are surfacing as for Kenyan funds in Mauritius. With little derivatives and securities borrowing activity, countries do not subscribe yet to the relevant master global agreements urged in a future index haul, according to the last distinct evaluation snapshot.

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