Despite choppy waters in international markets, Africa positions itself for global recovery

War, inflation, and ripples from the pandemic have gripped the global economy for the past few years, and Africa has not been immune from these shocks. Global capital markets have dwindled, as higher borrowing costs and lower valuations lead to more frugal investments. But riding out this storm is not just a waiting game: countries that lay the foundations now will be best placed to flourish once the economy bounces back.

Africa has been making steady progress in preparing itself for smoother sailing once the global market begins to settle. While the purse strings may remain tight on the global financial markets for some time, what steps are African countries taking to position themselves as a top destination for capital investment?

To explore how African countries can boost sustainable growth and financial resilience, 7 years ago we developed the Absa Africa Financial Markets Index for 2023. The annual report produced in partnership with the Official Monetary and Financial Institutions Forum (OMFIF) scores 28 African countries’ financial development, based on measures of market accessibility, openness, and transparency. The results this year give evidence that the continent is creating an enabling environment for investment through innovative frameworks and policies, laying the groundwork for future investment to ensure that Africa’s financial markets are primed for success.

Sustainability on the agenda
Environmental, social, and governance (ESG) issues have been climbing up the agenda for several years, with strong sustainability credentials becoming increasingly important to global investors. African countries are taking the opportunity to mobilise new investment and future-proof their markets by prioritising transparent financial reporting standards and ESG-linked policies. This year’s Index shows that 71 per cent of the African countries covered in AFMI now implement some form of ESG initiative, up from 57 per cent in the 2021 report. For instance, South Africa, Kenya, and Mauritius are flying the flag for ESG-linked policies, where a high number of credit ratings and widespread sustainability initiatives – such as climate stress-testing frameworks – are helping to drive interest with international investors.

Rwanda is another good example of the progress being made across Africa to boost sustainability-related financial policies. The Rwandan government is working with a range of multilateral organisations to bolster climate-related financing, and is the first sub-Saharan African country to access the IMF’s Resilience and Sustainability Facility (RSF) arrangement last year. The RSF provides affordable long-term financing to countries undertaking reforms, helping to strengthen economic resilience and sustainability – and therefore create an enabling environment for potential investors. The Development Bank of Rwanda has also positioned itself as a strong destination for green investment by introducing a new investment facility, Ireme Invest, to support Rwandan firms to access green finance and boost the country’s response to climate change. 

Boosting investor confidence with legal frameworks
An ineffective regulatory environment can hinder economic activity and discourage investors from channelling funds into certain regions, so building sustainable financial market frameworks is a key ingredient in improving market standards. There has long been disparity in legal frameworks in Africa, as domestic laws can often conflict with international standards.

However, we are seeing positive action across the African continent in closing the gaps in existing legislation, helping to prepare these countries to become a top destination for global investment as the international market slowly recovers. Many African countries including South Africa, Mauritius, and Uganda are taking huge steps in aligning their legal frameworks with international standards, which is boosting Africa’s reputation as a legitimate investment destination. This is helping to mobilise new investment as macroeconomic conditions stabilise following shocks from the pandemic and the Russia-Ukraine conflict.  

Improving market infrastructure
Market size and liquidity have also been hit hard across Africa due to the challenging global conditions. And for many AFMI countries, there is a clear scope to improve financial market infrastructure – particularly for those markets in relatively early stages of development that are yet to establish a securities exchange. But developing market infrastructure in Africa is gaining traction, and this is bolstering financial resilience across the continent.

For instance, the Ethiopian government has established a Capital Markets Authority and the Ethiopian Securities Exchange Project Office, helping efforts to launch its first ever securities exchange in 2024. This will help to accelerate the development of capital markets infrastructure in Ethiopia and foster a robust financial ecosystem that is ripe for investment. Other AFMI countries are also taking steps to upgrade their central securities depositories to enhance transparency, efficiency, and regulatory oversight – enabling them to encourage investment in the continent and ensure that their market will get off on the front foot when the global economy finds its footing and global capital flows begin to flow towards frontier markets more readily.

Tapping into Africa’s potential
Against a backdrop of challenging economic conditions, Africa has been working away in the background to future-proof the market. By innovating and collaborating to bolster Africa’s financial resilience, improve market infrastructure, build legal frameworks, and drive ESG progress, Africa is cementing itself as a destination for global investment for smoother sailing when the market recovers.

Investors must continue monitoring the attractiveness of African capital markets as we continue to see huge strides taken in easing the turbulent economic headwinds that have gripped AFMI nations in recent years. While we do not know when global recovery might come around, one thing is certain – Africa is focusing on the long-term, and its structural reform of financial markets is putting it in a healthy position for when global capital markets gain strength.


Jeff Gable: Head of Research: Fixed Income Currencies and Commodities (FICC) and chief economist for Absa. Voted Best Research House at the JSE/Spire Awards last October (for the fourth time in the last five years). Jeff brings 25 years of experience covering emerging markets to his role, having joined Absa in early 2007 from Barclays in London and with his earlier career spanning Deutsche Bank (London), the IMF (US) and the Bank of Canada (Canada). His Johannesburg-based team covers macroeconomics, foreign exchange, interest rates and credit for South Africa and more than a dozen markets across the continent.

Anthony Kirui: Managing Director, Head of Global Markets, Africa Regional Operations. Anthony is the Head of Global Markets with responsibility for derivatives, equities, rates, fixed income and Foreign Exchange Sales and Trading for the bank and is a member of the Country Management Committee at Absa Kenya. He holds over 20 years extensive banking experience within the East African region and over 16 years within the Treasury and Markets Business. Anthony holds a Bsc (Econ) in Business Studies from the University of Wales, Aberystwyth.

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