Kenya’s financial market attractiveness in Africa fell in rankings to 11th position in 2021 compared to position 7 in 2020 and 3rd position in 2019, this is according to data from the Absa Africa Financial Markets Index (AFMI) 2021.
South Africa, Mauritius and Nigeria retained the 1st, 2nd and 3rd positions respectively in the index despite having lower overall scores than last year’s. This Index is produced by Official Monetary and Financial Institutions Forum (OMFIF) in association with Absa Group.
The least attractive financial market in Africa is Ethiopia which was ranked at position 23 same as 2020. Ghana and Uganda enter the top five for the first time, both earning points for progress in the enforceability of standard master agreements.
Seychelles had a challenging year, experiencing severe exchange rate volatility. It falls five places in the index, the only country with scores falling in all six pillars.
Kenya scored 46 points out of 100 on Market Depth Pillar, 45 points on Access to Foreign Exchange Pillar, 70 points on Market Transparency, Tax and Regulatory Environment, 24 points on Capacity of Local Investors Pillar-Kenya’s lowest score in all the Pillars, 62points out of 100 on Macroeconomic Opportunity Pillar and 28 points out of 100 for Enforceability of Standard Master Agreements Pillar.
New Products in African Markets
Nine countries have introduced products that can be classified as green or sustainable. Green bonds are the most popular instrument, available in seven countries either in exchanges or over the counter.
Kenya and Morocco scored highest in Market Depth Pillar for having green or sustainable bonds, equities and mutual funds in their markets. Additionally, Kenya has issued ethical securities to fund socially responsible investment opportunities.
Developments in Kenya’s Capital Markets
In the 2020/21 period, Kenya raised U$740 Million through the issuance of a 21-year infrastructure bond. Kenya is also expected to soon start the user-testing phase for its upgraded central securities depository, which is expected to go live in April 2021.
The revised CSD will address challenges around horizontal repurchase agreements, and it will also allow repos of government securities to go through a fully automated process, contributing significantly to deepening the secondary market in these sovereign asset classes.
In line with Kenya’s efforts around financial inclusion, the CSD technology is being tailored to give access to all market participants, including retail investors.
According to the AFMI Survey 2021, Central banks are exploring the possibility of issuing central bank digital currencies. Several index countries have initiated research and development projects.
The central banks of Ghana, Kenya and Rwanda are researching the potential benefits of Central Bank Digital Currencies (CBDC) in promoting payments system efficiency and stability, fostering competition in the financial sector and boosting economic growth.
CBDC projects are further advanced in Nigeria, Mauritius and South Africa. The Central Bank of Nigeria announced the engagement of a technical partner for the introduction of its digital currency, called eNaira, later this year.
South Africa recently announced the testing of CBDCs for cross-border payments. In 2020, Mauritius amended its legislation to make the CBDC a legal tender and is now developing legislation to govern virtual assets. Its central bank also developed a licensing structure for custodians and standards for issuing security tokens.