BEST PLACE FOR BUSINESS: ESWATINI IN TOP 20

MBABANE – Eswatini has maintained in its 15th place in the ABSA Africa Financial Markets Index.

The index, produced by the Official Monetary and Financial Institutions Forum (OMFIF) and sponsored by ABSA, records the openness and attractiveness of 23 countries across the continent to foreign investment based on six pillars. These are market depth; access to foreign exchange; market transparency, tax and regulatory environment; capacity of local investors; macroeconomic opportunity; and legality and enforceability of standard financial markets master agreements.
While the overall average score for the country has dropped from 49 to 39; the 15th place has been maintained due to what has been dubbed growth in foreign exchange reserves.

“Out of 23 countries in the index, 19 score lower than last year. This decline reflects more difficult market conditions, methodological changes and the inclusion of environmental, social and governance indicators in the index. Despite the fall in scores, few examples reveal an underlying deterioration in the policy, regulatory or developmental environment in any of the index countries,” highlighted the report shared by ABSA. South Africa, Mauritius and Nigeria maintain their lead in the index, though with scores slipping in 2021 for all three.

Ghana and Uganda enter the top five for the first time, both earning points for progress in enforceability of standard master agreements. Average scores declined to 46.4 from 50.8 last year, with only seven countries earning above 50. Malawi, Egypt and Uganda are among the countries that improved their ranking the most. Advancements in establishing the enforceability of global contractual frameworks lift Malawi’s and Uganda’s scores. Reforms in Egypt continue to boost its macroeconomic prospects, and its management of reserves has ensured its ability to meet foreign currency demand.

Challenging

While challenging market conditions affected country scores, most drops are attributed to methodological changes adopted to better reflect country performance and evolving trends in financial markets. The index, now in its fifth year, benefits from continued engagement with policy-makers, regulators, market participants and industry experts providing the latest information about developments in the region. As part of its aim to encourage progress, this year’s index introduces new indicators that acknowledge the role of sustainable finance in expanding capital markets and achieving broader socio-economic goals.

The introduction of sustainability-focused indicators weighs down scores, especially for countries at a much earlier stage of market development. However, as with all indicators used across the index, the new measures serve as targets for countries to work towards. In addition to a stronger, forward-looking focus on sustainability and green finance, the index recognises the role of digital technology and innovation in future-proofing Africa’s financial markets. The report highlights countries’ efforts to upgrade market infrastructure and regulatory support for the development of technology-based tools.

While these initiatives do not directly impact scores, they demonstrate how countries can use innovation to boost local markets and build a broader investor base.
Sought for his reaction, Minister of Commerce, Industry and Trade Manqoba Khumalo expressed his delight on maintaining the ranking in the middle of a very difficult environment for business.

“Unfortunately we have not been able to advance many of the initiatives we had started two years ago due to COVID-19 restrictions but we have also improved on a number of aspects, which I’m confident resulted in us not sliding down. We continue to see a strong pipeline of potential investors and as COVID-19 subsides, we believe these prospects will be converted to projects on the ground,” said the minister.

Meanwhile, African markets are said to have endured a second difficult year, with illiquid markets continuing to dampen index scores amid the COVID-19 pandemic. “Innovations in sustainable finance and digital transformation could be key to reinvigorating markets and important initiatives are underway across markets in these areas,” shared the report.

Since its launch in 2017, the Absa Africa Financial Markets Index has shone a crucial light on the opportunities for investment in region. As Africa looks to build back better after the COVID-19 crisis, the fifth edition of the index, compiled by OMFIF, is more important than ever. It is a vital part of policy-makers’ and market participants’ toolkit in this process and a benchmark for international investors looking to commit to the region.

Markets

Recent progress in building robust financial markets in the region helped many countries withstand the economic shock, but it also revealed that there is still a lot more room for improvement. Countries’ immediate need for resources to support fiscal policies during the crisis and the rapid withdrawal of international capital emphasised the importance of building local markets with sufficient depth and liquidity to withstand external shocks. The events of the past two years also heightened awareness of climate change, and the power of capital markets can be harnessed to achieve efforts to combat it. As a result, this year’s pillars incorporate indicators that gauge how financial markets in the region are incorporating sustainability considerations.

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