Unlocking opportunities for sub-Saharan African markets
CAPE TOWN – In terms of architecture, enabling legislation, products and depth, Sub-Saharan Africa (SSA) capital markets are, at best, âa work in progressâ.
In an era of post-Covid-19 recovery, governments across Africa, hard hit by the impact of the pandemic, are unable to fund much-needed infrastructure, let alone other socio-economic demands from people. national budgets.
Hence a dependence on the rare inflows of FDI and efforts to mobilize domestic savings, in particular pension funds, towards investment in productive assets.
Jeff Gable, Chief Economist and Head of Fixed Income Research at Absa Group, strongly believes that âopen and transparent financial markets across Africa are the best way to ensure that the continent can attract capital. foreigners or nationals. This could translate into governments offering better opportunities for all Africans. “
Capital market development, he adds, can play a vital role in increasing Africa’s resilience to future shocks and improving the continent’s chances of having a sustainable recovery.
Gable is at the heart of the Absa Financial Markets Index (AFMI) report, which has become an essential toolkit for countries in sub-Saharan Africa seeking to strengthen their financial market infrastructure.
The report is produced annually in cooperation with London-based OMFIF, an independent think tank for central banking, economic policy and public investment.
Now in its fifth year, the index monitors countries’ openness to FDI and is an objective indicator of the attractiveness of African capital markets.
It has also become a benchmark for the investment community and Africa in general to assess the performance of 23 countries in sub-Saharan Africa through a multitude of important indicators for the development of financial markets.
âAs we navigate today’s continuing socio-economic uncertainty, quality data on African markets is essential to unlock the opportunities and constraints that impact local investments. This index provides a portal to get things done. It shows that Africa is open for business and full of exciting business opportunities, âhe adds.
AFMI 2021 launched in London in October allows for a sober reading. The negative impact of the pandemic and the volatility of commodity prices have slowed the economic recovery in SSA.
The inclusion of sustainability, green finance and ESG measures in the index, however, shows encouraging progress in market development.
âSustainable finance and green finance,â says Gable, âis currently a global theme. This is very relevant for our economies, but it is a penalizing area for African economies. Only nine countries in sub-Saharan Africa have green or sustainable bonds and stocks listed on their markets. Kenya and Morocco are the most advanced in green and sustainable emissions. It is not about the number and size of transactions concluded. It’s about whether you have a framework and infrastructure for issuing products.
South Africa has by far the most developed financial market in the SSA region, maintaining its first place in the index, followed by Mauritius and Nigeria, while Ghana and Uganda enter for the first time. in the top five.
South Africa’s continued strong performance across all pillars “is hampered by weak economic growth”.
Gable welcomes the proactive navigation of the pandemic-affected economy by the Ramaphosa government, which has been largely resilient.
âThe government had to balance keeping the economy running while respecting and protecting public health. In an African context, the country had a fairly successful vaccination program, which was rewarded by the United Kingdom which removed South Africa from its “Red List”, he explains.
The resilience of the South African economy since the third quarter of 2020 is largely due to sustained consumer spending and better exports.
Robust economic performance and higher than expected budget revenues in recent months mean that South Africa’s budget deficit for the fiscal year ending March 2022 will be lower than the government’s February 2021 projections. in the second quarter of 2021 was stronger than expected at 1.2% quarter on quarter.
However, underlying issues persist.
âYou find it hard to see business confidence generating the investments needed to provide a higher growth path for the economy. Civil unrest in KwaZulu-Natal and parts of Gauteng has done the country no service as a long-term investment destination for new projects and projects, âhe said.
Gable remains confident in the country’s recovery from the pandemic, but the challenge South Africa faces lies in the ‘What Next’.
âWe did not do well in the half decade leading up to the pandemic. We need to do things differently in the half decade following the pandemic if we are to be more successful. There has been progress on structural reforms, but we need an acceleration. “
He predicts that the South African economy will grow 5.5% this year, the strongest growth in 15 years and considering that it contracted by 7% last year. âIt doesn’t feel like that on the pitch. The growth rates are probably a little misleading, âhe adds.
Are financial markets, banks and insurance companies doing enough to raise capital and invest in the economy? âI can’t speak for the banks,â Gable says. âRisk is a systemic problem in the economy. Regarding our investment strategy for the economy, we need to talk to someone else in the bank.
It is appropriate that the debate on the referrals of the pension reform is much less aggressive than before. The government must find ways to promote and encourage, not force pension funds to invest in long-term infrastructure assets.
In sub-Saharan Africa, pension funds constitute the largest pool of national funds. The total stock of African pension funds is around 400 billion dollars (6.66 billion rand). Namibia leads with pension funds accounting for 40% of national investment.
The premium payment holidays linked to the pandemic and the early partial repayment of pension assets had an impact on fundraising.
Namibia and South Africa lead in per capita pension assets of $ 4,500 and $ 3,500, respectively. But what is worrying is that in the rest of sub-Saharan Africa, pension assets per person are woefully low, between $ 250 and $ 100.
Parker is a London-based economist and writer
Cape Town Hours