ABSA AFRICA FINANCIAL MARKETS INDEX 2021

 

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AFRICA FINANCIAL MARKETS INDEX 2021

THE AMALGAMATED BANKS OF SOUTH AFRICA [ABSA] PUBLISHED ITS FIFTH EDITION OF THE AFRICA FINANCIAL MARKETS INDEX, THIS TIME FOR 2021. THE INDEX IS BASED ON SIX PILLARS, NAMELY:

1] MARKET DEPTH,

2] ACCESS TO FOREIGN EXCHANGE,

3] MARKET TRANSPARENCY, TAX AND REGULATORY ENVIRONMENT,

4] CAPACITY OF LOCAL INVESTORS,

5] MACROECONOMIC OPPORTUNITY, AND

6] ENFORCEABILITY OF STANDARD MASTER AGREEMENTS.

IN THIS BRIEF ARTICLE, I WILL CONCENTRATE ON THE PERFORMANCE OF THE FINANCIAL MARKETS IN GHANA. AS USUAL, YOU CAN DOWNLOAD THE COMPLETE REPORT FROM THE TOP OF THIS ARTICLE.

SOME PASSAGES OF THIS ARTICLE MIGHT BE DIFFICULT TO READ FOR SOME READERS. IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT ME UNDER WHATSAPP NUMBER +233200523362.

LET’S START WITH THE COMPLETE RESULT: OVER ALL, GHANA GAINED TWO PLACES IN THE RANKINGS OF 23 OBSERVED COUNTRIES. GHANA IS NOW RANKED 4TH AFTER BEING 6TH IN 2020. ONLY SOUTH AFRICA, MAURITIUS, AND NIGERIA ARE POSITIONED BEFORE GHANA. IT GAINED 3 POINTS, AND HAS NOW AN IMPRESSIVE 62 POINTS AVERAGE THROUGH THE SIX PILLARS. LET’S NOW LOOK AT THE PERFORMANCE IN EACH PILLAR.

1] MARKET DEPTH

Pillar 1 evaluates the size and liquidity of domestic capital markets, along with the diversity of listed asset classes and the existence of standard features that enhance market depth. [INDEX, P. 16]

HERE, GHANA IS ONE OF ONLY 5 COUNTRIES THAT REACHED 50 OUT OF 100 POSSIBLE POINTS. GHANA HAS A MARKET CAPITALISATION OF 15.6 PERCENT OF GDP. IT HAS A TURNOVER OF EQUITIES [STOCKS] IN PERCENT OF MARKET CAPITALISATION OF 1.1 PERCENT. THIS IS RATHER LOW COMPARED WITH OTHER AFRICAN COUNTRIES. EVEN MALAWI AND ESPECIALLY NAMIBIA HAVE A HIGHER TURNONER.

GHANA GAINED ITS POINTS MAINLY THROUGH THE BOND MARKET. SOVEREIGN AND CORPORATE BONDS AMOUNT TO 26.9 BILLION US-DOLLARS, WITH A TURNOVER OF 109.9 PERCENT OF THE LISTED BONFS OUTSTANDING. THAT DOES NOT SEEM TO BE A MIRACLE. IN GHANA, THE YIELDS OF BONDS ARE USUALLY HIGHER THAN THE YIELDS OF STOCKS. CONSEQUENTLY, GHANA INTRODUCED BOND SPECIALISTS AS A SUB-CATEGORY OF PRIMARY DEALERS.

GHANA IS ALSO ONE OF 9 COUNTRIES IN THE INDEX THAT ESTABLISHED MEASURES TO GET TO SUSTAINABLE CAPITAL MARKETS. IT DID SO BY INTRODUCING THE POSSIBILITY OF A SUSTAINABLE BOND OTHER THAN A GREEN BOND. FURTHERMORE, IT INTRODUCED THE POSSIBILITY OF A SUSTAINABLE ETF [EXCHANGE TRADED FUND].

THE GHANA STOCK EXCHANGE [GSE] ALSO DIGITALISED ITS OPERATIONS BY ESTABLISHING ONLINE TRADING. BUT, WE CANNOT FIND A MOBILE APPLICATION IN THESE EFFORTS YET.

 

2] ACCESS TO FOREIGN EXCHANGE

Pillar 2 examines factors that impact markets’ accessibility to international investors. These include the existence and severity of capital controls, exchange rate reporting standards and the level of foreign exchange liquidity. This pillar also assesses countries’ ability to manage volatility resulting from openness. [ INDEX, P. 24]

THE ABSA REPORT RECOGNISES THAT USUALLY, THE FOREX ILLIQUIDITY AFFECTS THE COUNTRIES IN THE INDEX NEGATIVELY. THIS IS DUE TO WEAKER RESERVE POSITIONS. BUT GHANA IS STILL IN A RELATIVELY GOOD POSITION, MAINLY THANKS TO AN IMPRESSIVE FOREIGN RESERVE  FIGURE. CONSEQUENTLY, GHANA OCCUPIES A 5TH PLACE IN THIS PILLAR, TOGETHER WITH TANZANIA AND ESWATINI [FORMERLY SWAZILAND].

 

3] MARKET TRANSPARENCY, TAX, AND REGULATORY ENVIRONMENT

Pillar 3 scores countries on the conduciveness of the regulatory environment for local and foreign investment, gauged through tax incentives, reporting standards and market transparency. [INDEX, P. 28]

IN AVERAGE, THE COUNTRIES IN THE INDEX LOST 8.2 POINTS COMPARED WITH 2020. BUT GHANA IS ONE OF THE FEW COUNTRIES THAT GAINED POINTS COMPARED WITH 2020. IT SCORED 75 POINTS, TEN MORE THAN 2020. CONSEQUENTLY, GHANA MOVED UP FROM POSITION 14 IN 2020 TO POSITION 6 IN 2021. THIS IS MAINLY DUE TO A FAVOURABLE TAX WAIVER FOR CAPITAL GAINS ON SECURITIES.

ANOTHER MAJOR ISSUE IN THE VALUATION OF THIS PILLAR IS THE EXISTENCE OF SUSTAINABILITY-FOCUSED POLICIES. GHANA OFFERS INCENTIVES FOR ISSUING ESG ASSETS AND INITIALISED INTEGRATING ESG INTO FINANCIAL MARKET STANDARDS. THAT PUT GHANA – TOGETHER WITH OTHER COUNTRIES – AT THE FOREFRONT IN MODERNISING THE FINANCIAL MARKETS IN AFRICA.

 

4] CAPACITY OF LOCAL INVESTORS

Pillar 4 evaluates local investor capacity based on the size of the pension fund market and its potential to drive market activity. [INDEX, P. 31]

IN THIS PILLAR, GHANA LOST 6 POINTS COMPARED WITH 2020 AND BELONGS TO THE 17 COUNTRIES LOSING GROUND. AS IN MANY OTHER COUNTRIES, THE CAPACITY OF LOCAL INVESTORS DOES NOT RELY ON RETAIL INVESTORS, BUT ON PENSION FUNDS. AND THESE PENSION FUNDS IN GHANA ARE NOT WIDE SPREAD. THERE IS ONLY ONE MAJOR FUND – SSNIT – AND THAT IS NOT ENOUGH TO PUSH THE PERFORMANCE OF GHANA FORWARD IN THIS PILLAR. THE ONLY RECIPE FOR A GREATER SUCCESS IN THIS PILLAR IS THE ESTABLISHMENT OF WELL CAPITALISED PENSION FUNDS TO INVEST IN THE LOCAL FINANCIAL MARKETS.

 

5] MACROECONOMIC OPPORTUNITY

Pillar 5 assesses countries’ potential for growth by looking at both macroeconomic performance and quality of governance. [INDEX, P. 36]

IN THIS PILLAR, GHANA PERFORMED SOMEWHAT BETTER THAN IN PILLAR 4. ALTHOUGH THE POINT AVERAGE REMAINED THE SAME [65], GHANA GAINED 6 POSITIONS FROM 14TH TO 8TH. THIS I BECAUSE MANY OTHER COUNTRIES LOST POINTS IN THIS SEGMENT. THESE ARE FOR EXAMPLE KENYA AND THE SEYCHELLES. ON THE OTHER HAND, ONE MUST ADMIT THAT IN THIS PILLAR, THE SCORER POINTS ARE NOT VERY FAR AWAY FROM ONE ANOTHER. OF THE 23 COUNTRIES EXAMINED IN THIS INDEX, 21 ARE WITHIN A RANGE OF 30 POINTS. THAT INDICATES THAT IN THE NEXT INDEX 2022 THE RESULT MIGHT BE COMPLETELY DIFFERENT FROM THIS YEAR.

GHANA KEPT ITS POINTS AND RISED IN THIS PILLAR’S CONSTELLATION DESPITE  THE RISING DEBT LEVEL. ABSA POINTED OUT THAT GHANA IS AMONG THE COUNTRIES CLASSIFIED BY THE IMF AS IN HIGH RISK OF DEBT DISTRESS. BUT GHANA INCREASED ITS POSITION AS OTHER COUNTRIES ARE OBVIOUSLY WORSE OFF. GHANA ALSO BENEFITTED FROM THE FACT THAT ABSA ONLY EVALUATED THE POSITION IN REGARD TO THE EXTERNAL DEBT. HERE, GHANA HAS BECOME BETTER IN COMPARISON WITH DOMESTIC DEBTS.

 

6] ENFORCEABILITY OF STANDARD MASTER AGREEMENTS

Regulatory frameworks need to be in place to ensure the enforceability of contracts and continuity of transaction in the face of uncertainty. Pillar 6 evaluates countries based on the enforceability of close-out netting rules and use of standard financial markets master  agreements. [INDEX, P.40]

AS IT MUST BE THE ATTRIBUTE OF THIS COUNTRY, PILLAR 6 IS THE STAR IN THE PERFORMANCE OF GHANA. THE COUNTRY GAINED 22 POINTS TO CLIMB FROM POSITION 5 TO THE TOP POSITION IN THIS PILLAR. GHANA HOLDS THIS POSITION TOGETHER WITH NIGERIA AND SOUTH AFRICA.

GHANA IS CURRENTLY REVIEWING THE LEGAL AND REGULATORY FRAMEWORK FOR REPURCHASING AGREEMENTS AND DERIVATIVES. FURTHERMORE, THE COUNTRY IS WORKING ON COMMISSIONING OPINIONS OF THE INTERNATIONAL SWAPS AND DERIVATIVES ASSOCIATION [ISDA]. THE PURPOSE IS TO INTEGRATE THEM INTO THE INSOLVENCY REGIMES. THEREFORE, GHANA IS ONE OF THREE COUNTRIES OBSERVED THAT INTEGRATE BOTH THE CLOSE OUT NETTING ENFORCEABILITY AND THE ISDA NETTING OPINION. THE OTHER ONES ARE MAURITIUS AND SOUTH AFRICA. THIS IS HOW GHANA OBTAINED MAXIMUM POINTS IN THIS PILLAR.

 

CONCLUSION

THE ABSA AFRICA FINANCIAL MARKETS INDEX 2021 SHOWS THAT THE FUTURE SEEMS TO BE ROSY FOR THE FINANCIAL MARKETS IN GHANA. SINCE 2019, THERE IS AN UPWARD TREND IN GHANA’S PERFORMANCE IN THE INDEX. ONLY FROM 2018 TO 2019, THERE WAS A CRASH IN THE POSITIONS. WE HAVE TO COMBINE THIS WITH THE EXTRAORDINARY PERFORMANCE OF THE FINANCIAL MARKETS IN GHANA THIS YEAR. THEN WE REALISE THAT THE FINANCIAL MARKETS IN GHANA ARE ON THE RIGHT TRACK. AND BELIEVE ME, THE WHOLE ECONOMY WILL FOLLOW SOON.

 

 

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