Future proofing of Africa's financial markets

African economies are currently facing complex challenges in revitalizing their financial markets while also enhancing market infrastructure through technological advancements and investment-friendly policies. According to the latest UBSA market index, there has been a decline in the performance of most, if not all, of the 23 countries surveyed. In a recent interview on CNBC Africa, David Wandera, the Executive Director and Head of Markets at Absa Bank Uganda, discussed the implications of this index and the potential for improvement in African financial markets. The UBSA Africa financial markets index evaluates the performance of financial markets across various pillars, including market depth, access to foreign exchange, macroeconomic opportunity, market transparency, capacity of local investors, and the enforceability of standard master agreements. The latest edition of the index introduced new measures focusing on ESG sustainability, leading to a general drop in scores across the board. Countries like Kenya, which introduced green bonds, scored slightly better in market depth, highlighting the importance of sustainable finance products. Despite the challenges highlighted in the index, Wandera remains optimistic about the future of African financial markets. He pointed out that there is a growing emphasis on improving performance across the continent, with Uganda notably rising in the rankings due to advancements in the enforceability of standard master agreements. This, coupled with the macroeconomic opportunities present in countries like Egypt, which recorded significant GDP growth, indicates resilience in African economies. One of the key areas of focus for market improvement is liquidity, which Wandera highlighted as a crucial factor in attracting investors. Uganda has made significant strides in enhancing market liquidity through measures such as the introduction of longer-tenured bonds and tax reforms to incentivize investment. The implementation of a primary dealership system has further boosted liquidity in the market, leading to increased participation from offshore investors. Policy and regulation also play a vital role in shaping the performance of financial markets. Wandera emphasized the need for supporting policies to drive the adoption of sustainable finance products, citing examples from countries like Kenya and South Africa. Enhancing investor education and accessibility to government securities through platforms like the stock exchange can help drive retail investor participation in the market. In terms of trading rules and attracting foreign direct investment, Wandera underscored the importance of creating a conducive environment for investors. Measures such as efficient settlement of transactions, insolvency laws, and tax treaties can make African markets more attractive to foreign capital. Lower tax rates on dividends and a transparent regulatory environment can further incentivize investors to participate in these markets. Despite the challenges faced by African financial markets, there are clear opportunities for growth and improvement. By focusing on enhancing market liquidity, improving policy and regulation, and attracting foreign investment, African economies can build more resilient and sustainable financial markets. As the continent moves towards greater economic integration through initiatives like the African Continental Free Trade Area (AfCFTA), the potential for growth and development in African financial markets remains promising.