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Absa Africa Financial Markets Index 2020 Africa’s possibility is in the detail Pictured: The iridescent feathers of the African peafowl Absa Africa Financial Markets Index 2020 | 1
The Absa Africa Financial Markets Index Absa Group Limited (‘Absa Group’) is listed on the Johannesburg Stock was produced by OMFIF in association Exchange and is one of Africa’s largest diversified financial services groups. with Absa Group Limited. The scores on p.7 and elsewhere record the Absa Group offers an integrated set of products and services across total result (max=100) of assessments personal and business banking, corporate and investment banking, wealth across Pillars 1-6. For methodology, and investment management and insurance. see individual Pillar assessments and Absa Group has a presence in 12 countries in Africa, with approximately p.38-39. 42,000 employees. OMFIF conducted extensive The Group’s registered head office is in Johannesburg, South Africa, and quantitative research and data analysis. it owns majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Qualitative survey data were collected Mozambique, Seychelles, South Africa, Tanzania (Absa Bank Tanzania and and analysed by OMFIF. National Bank of Commerce), Uganda and Zambia. The Group also has representative offices in Namibia and Nigeria, as well as insurance operations © 2020 The Absa Group Limited and in Botswana, Kenya, Mozambique, South Africa, Tanzania and Zambia. OMFIF Ltd. All Rights Reserved. For further information about Absa Group Limited, please visit www.absa.africa Absa Marketing and Events team The Official Monetary and Financial Institutions Forum is an independent think tank for central banking, economic policy and public investment – a Fiona Kigen, Vice-President, Marketing: Investment Banking, Erica Bopape, non-lobbying network for best practice in worldwide public-private sector Head of Marketing: Investment Banking, exchanges. At its heart are Global Public Investors – central banks, sovereign funds and public pension funds – with investable assets of $39.4tn, Andile Makholwa, Acting Head of Communications: CIB, Fiona equivalent to 43% of world GDP. With offices in both London and Singapore, Mbalula, Business Partner, External OMFIF focuses on global policy and investment themes – particularly in Communications: CIB, Varini Chetty, asset management, capital markets and financial supervision/regulation Digital Lead: CIB, Gerald Katsenga, – relating to central banks, sovereign funds, pension funds, regulators Head of Corporate Sales: Absa Regional and treasuries. OMFIF promotes higher standards, invigorating exchanges Operations, Fabian Govender, Chief of between the public and private sectors and a better understanding of the Staff: CIB, Tiisetso Mosoane, Deputy world economy, in an atmosphere of mutual trust. Chief of Staff: Office of the Group Chief Executive, Kirsty Van Der Nest, Vice- For further information about OMFIF, please visit www.omfif.org President: Group Stakeholder Relations, Phumza Macanda, Head of Media Relations OMFIF Editorial, Meetings and Marketing team Simon Hadley, Director, Production, William Coningsby-Brown, Assistant Production Editor, Julie Levy- Abegnoli, Subeditor, Stefan Berci, Communications Manager, James Fitzgerald, Marketing Manager, Ben Rands, Head of Logistics, Jamie Bulgin, Lead Relationship Director, Macro-economic coverage, Henry Wynter, Head of Strategic Partnerships, Katie-Ann Wilson, Programmes Manager Emerging Markets. 2 | Absa Africa Financial Markets Index 2020
Contents Forewords4-5 Pillar 4: Capacity of local investors Introduction6-7 Examines the size of local Executive summary 8-11 investors, assessing the level of local demand against supply of Contains country comparisons and highlights assets available in each market. opportunities and challenges for the region’s financial markets. Acknowledgments10 26-29 Pillar 1: Market depth Pillar 5: Examines size, liquidity and Macroeconomic depth of markets and diversity of opportunity products in each market. Assesses countries’ economic prospects using metrics on growth, debt, export competitiveness, banking sector risk and availability of macro data. 14-17 30-33 Pillar 2: Access to foreign exchange Pillar 6: Legality and Assesses the ease with which enforceability of standard foreign investors can deploy and financial markets repatriate capital in the region. master agreements Tracks the commitment to international financial master agreements, enforcement of netting and collateral positions 18-21 and the strength of insolvency frameworks. Pillar 3: Market transparency, tax 34-37 and regulatory environment Evaluates the tax and regulatory Indicators and Methodology 38-39 frameworks in each jurisdiction, as well as the level of financial stability and of transparency of financial information. 22-25 Absa Africa Financial Markets Index 2020 | 3
FOREWORDS Building the foundation for tomorrow’s successes Daniel Mminele Group Chief Executive Absa Group Aim of index The Absa Africa Financial Markets Index is being released at a time when many African countries are grappling with the African economies are profound economic and health challenges posed by Covid-19. The outlook remains highly uncertain in most markets, as undergoing a significant downside risks continue to persist. With the global economy forecasted to contract in 2020, our continent is expected to period of transition and experience the first severe recession since 1992, placing pressure on public finances, and eroding the progress that many countries appraisal, with growing had made towards poverty alleviation and the Sustainable foreign investment Development Goals. Volatility, uncertainty, and risk are likely to remain at elevated levels, making medium-term planning difficult interest and much until such time as effective vaccines are successfully developed, comprehensively tested, and globally distributed. examination of the These unpredictable operating conditions foretell challenging continent’s potential for times for financial markets for the foreseeable future, requiring continued effort from stakeholders, and even more regional mobilising local resources. economic collaboration than ever before, in order to maintain stability and regain market confidence. Now in its fourth year, In this landmark year, we are proud to partner once again the index has become with OMFIF in releasing the fourth edition of the Afmi. We are particularly pleased that this 2020 edition adds a further three a benchmark for the markets, taking the total to 23 countries evaluated, further investment community expanding our coverage of Africa’s financial markets. Since its launch in 2017, the Afmi has become a key reference and Africa generally tool used by policymakers and market participants to guide to gauge countries’ their efforts in developing robust financial markets in Africa. By establishing a common fact-base that allows cross country performance across comparisons, the index helps anchor policy discussions between regulators, exchanges, investors and corporates on how to a host of indicators promote the open, accessible and transparent markets, that are best placed to mobilise capital, and promote investment on the important for financial continent. market development. Africa’s path through and beyond the Covid-19 crisis will be determined largely by the decisions that governments, the private sector, and development partners take over the next few months; bold and urgent decisions are required for us to successfully navigate this turbulent time, but such decisions must also be informed, collaborative and responsible. The Absa Group is one of Africa’s largest diversified financial services institutions and, as a proudly pan-African business, we are committed to playing our part in co-creating solutions that will support this continent to not only survive these challenging times, but help ensure an even stronger foundation on which tomorrow’s successes can be built. 4 | Absa Africa Financial Markets Index 2020
Harnessing the power of Reasons to be capital markets optimistic Jingdong Hua Hippolyte Fofack Vice-President and Chief Economist and Treasurer, World Bank Director of Research and International Co-operation, African Export-Import Bank The fourth annual Absa Africa Financial Markets Index Africa is heading for its first recession in more than 25 comes at an unprecedented time in history when the years. However, there are reasons to be optimistic about region, and the world, face complex Covid-induced the continent’s growth prospects. The near-term outlook challenges. The pandemic has generated a wide range of points to increased resilience of African economies, with spillover effects in Africa, including direct health impacts output expanding above trend growth rates in 2021. of the disease, severe economic shocks from a sudden Fiscal and monetary stimulus programmes are supporting stop in trade and tourism, and lockdowns that slowed local debt markets, helping prevent bankruptcies, and domestic demand. International financial flows seized up, spurring global demand and trade. The countercyclical and many domestic markets did not have the depth to liquidity support of multilateral development banks, support the sharp increase in fiscal needs. including the African Export-Import Bank’s pandemic Governments across Africa have responded quickly to trade impact mitigation facility, is helping countries adjust the virus outbreak, particularly in terms of monetary to the virus-induced macroeconomic fall-out and deal and prudential actions. Efforts are underway to reprofile with pressures on liquidity. sovereign debt across the region through the debt service Recovery will rely on Africa’s commitment to suspension initiative, and there is renewed focus on macroeconomic stability. Decreasing inflationary building local markets. pressures and expectations have enabled central banks The World Bank acted rapidly to approve projects that to extend monetary stimulus and other policy responses addressed emergency needs of member countries – to support small- and medium-sized enterprises, including those in Africa. The International Development helping them avert payment defaults. This shift from Association accessed international capital markets to a single monetary policy objective (inflation targeting) provide concessional, low-cost loans to countries in towards the dual objectives of price stability and growth need. Over a period of 15 months, the World Bank Group represents a profound change in the region’s policy- committed to deploy up to $160bn to help more than 100 making landscape. It denotes the deepening integration countries protect poor and vulnerable people, support of Africa into the world economy. businesses, and bolster economic recovery. Funding from Another key driver of Africa’s improved resilience the World Bank Group includes up to $50bn for African is the African Continental Free Trade Agreement. countries, of which $847m will be spent on 32 health Companies are capitalising on economies of scale and projects. A further $2.9bn will be dedicated to 17 economic productivity gains associated with the defragmentation policy loans. of African economies to spread the risk of investing in As we look ahead, it is clear how the power of capital smaller markets across the region. Expanding growth markets can be harnessed to build back better. Therefore, opportunities and returns on investment are sustaining it is exciting that the index now includes a focus on investment flows and shifting their composition away sustainable finance. from natural resources towards labour-intensive manufacturing industries. Sustainable financing, insuring against natural disasters and pandemics, hedging against commodity volatility, and This structural transformation will increase domestic securing local currency financing are ways governments resource mobilisation and deepen capital markets. This can support the next generation of growth in Africa. will set Africa on a path to fiscal and debt sustainability. The World Bank Treasury is engaged across these areas Expected rising returns on investment will expand throughout the continent, including building sustainable the pool of investors to include those who are pricing capital markets and helping governments consider the full in sustainability preferences to enable Africa’s range of financial solutions for managing risks. industrialisation latecomers to leapfrog into climate- resilient growth models. As the Africa Financial Markets Index 2020 so neatly illustrates, opportunities abound in this diverse and propitious region. Absa Africa Financial Markets Index 2020 | 5
INTRODUCTION Testing resilience During a difficult year, African countries are facing enormous challenges from Covid-19. As the health crisis persists, the resilience of financial systems in every economy is being tested. Financial markets have been disrupted, but expansion and innovation in recent years will benefit the rebound and recovery process. On its fourth year, the Absa Africa Financial Markets Index presents a wide-ranging view of progress across the region. Coverage of this year’s edition has expanded to include three new countries: Eswatini, Lesotho and Malawi. The addition of these countries reflects mounting interest in the region’s potential as a source of growth and opportunity. When the index was first released in 2017, only three out of 17 countries scored above 50, with many performing poorly on more than 40 indicators considered. This year, 11 out of 23 countries scored above 50, indicating improvements across the board. Stronger legal frameworks and growing local investor capacity contributed to better scores overall. The countries whose standing improved the most from last year are Ghana, Morocco and Seychelles. Firmer rules enforcing close-out netting boosted Ghana’s standing. Improving business environments in Morocco and Seychelles earned them points. The initial impact of the pandemic was felt by countries with high levels of external debt as global investors pulled back investments. The withdrawal of international capital impacted the region’s stock markets as liquidity dropped in the first half of 2020. The sudden drop in foreign activity showed the value of having deep and liquid local markets that can withstand external shocks. Central banks and financial policy-makers have responded by supporting local debt markets with a variety of tools, earning praise from individuals and institutions that participated in this year’s survey. While the longer-term outlook largely relies on the extent to which activity could resume in the local and global economy, recent progress in financial market development will only serve to improve Africa’s chances of having a rapid and sustainable recovery. 6 | Absa Africa Financial Markets Index 2020
Rank Score 2020 2019 2020 2019 Comments 1 1 South Africa 89 88 Foreign exchange controls eased but ratings downgrade hits liquidity 2 2 Mauritius 79 75 Market infrastructure and tax environment favourable to foreign investment 3 6 Nigeria 65 63 Firmer close-out netting rules set to boost repo and derivatives markets 4 5 Botswana 63 64 T-bill issuance reform expected to deepen bond market 5 4 Namibia 61 65 Large pension fund assets under management, but illiquid markets 6 13 Ghana 59 50 Active foreign exchange market and stronger legal framework 7 3 Kenya 58 65 Improving corporate action governance structure 8 12 Morocco 56 51 Improving market and business environment 9 8 Zambia 53 55 Stronger framework for resolving insolvency 10 10 Uganda 52 52 New primary dealer system set to spur bond market activity 11 14 Seychelles 51 47 Rapid growth in market capitalisation and number of equity listings 12 7 Tanzania 50 55 High transparency in stock market and low tax on dividend income 13 9 Rwanda 50 53 Strong macroeconomic outlook and healthy banking assets 14 11 Egypt 50 51 Liquid equity and foreign exchange markets 15 - Eswatini 49 - Large pool of domestic assets and growing stock exchange 16 16 Ivory Coast 43 41 Expanding bond market and positive macroeconomic outlook 17 15 Mozambique 43 44 Growing stock exchange and attractive tax environment for listed securities 18 - Malawi 37 - Improving transparency and financial stability after IFRS and Basel III adoption 19 18 Senegal 37 35 Promising regional market growth but lacking local institutional investors 20 - Lesotho 33 - Securities exchange still awaiting inaugural listings 21 19 Cameroon 32 35 Bond and equity markets lifted by regional merger of exchanges 22 17 Angola 30 36 Debt crisis overshadows positive tax reforms 23 20 Ethiopia 27 27 Development of market infrastructure in progress Score across all pillars, max = 100. The fourth edition of the index adds three new countries, Eswatini, Lesotho and Malawi. Absa Africa Financial Markets Index 2020 | 7
EXECUTIVE SUMMARY Building Africa’s financial markets The Absa Africa Financial Markets Index evaluates financial market Pillar 1: Pillar 2: development in 23 countries, and highlights economies with the Market Access to foreign most supportive environment for effective markets. The aim is to depth exchange show present positions, as well as how economies can improve market frameworks to bolster investor access and sustainable growth. The index assesses countries according to six pillars: market depth; access to foreign exchange; market South Africa 100 South Africa 80 transparency, tax and regulatory environment; capacity of local Nigeria 70 Uganda 67 investors; macroeconomic opportunity; and enforceability Mauritius 70 Rwanda 66 of financial contracts, collateral positions and insolvency Botswana 55 Seychelles 65 frameworks. Kenya 52 Egypt 64 Ghana 48 Botswana 60 OMFIF conducted extensive quantitative research using data Namibia 48 Zambia 60 from central banks, securities exchanges and international financial institutions. In addition, OMFIF surveyed over 30 Egypt 45 Tanzania 59 policy-makers and top executives from financial institutions Uganda 42 Lesotho 58 operating across the 23 countries, including banks, securities Zambia 41 Kenya 57 exchanges, central banks, regulators, audit and accounting Mozambique 41 Namibia 54 firms and international financial and development institutions. Senegal 38 Ghana 54 Morocco 37 Mauritius 54 As the index grows, the network of institutions providing data Ivory Coast 36 Morocco 49 and lending expertise to OMFIF’s research is also expanding. Tanzania 35 Ivory Coast 47 Changes to scoring on certain indicators using more granular data impacted scores of some countries, but these all contribute Angola 34 Senegal 46 to the overall reliability of the index as a benchmark of progress. Seychelles 34 Eswatini 45 Rwanda 30 Mozambique 45 Continued on p.10 >> Cameroon 28 Cameroon 36 Eswatini 24 Malawi 32 Malawi 23 Angola 30 Angola (30) Botswana (63) Cameroon (32) Ethiopia 11 Ethiopia 30 Lesotho 11 Nigeria 22 34 55 28 30 60 36 51 82 40 16 61 14 41 72 54 10 46 21 Egypt (50) Eswatini (49) Ethiopia (27) Ghana (59) Ivory Coast (43) Kenya (58) 45 24 11 48 36 52 64 45 30 54 47 57 66 58 37 83 66 74 26 64 10 27 14 41 78 68 55 65 58 67 23 33 19 78 35 57 Mozambique (43) Namibia (61) Nigeria (65) Rwanda (50) Senegal (37) Seychelles (51) 41 48 70 30 38 34 45 54 22 66 46 65 59 71 89 80 54 62 20 92 54 14 12 48 51 70 67 62 49 66 40 31 87 50 24 32 8 | Absa Africa Financial Markets Index 2020
Overall pillar scores max = 100 Pillar 3: Pillar 4: Pillar 5: Pillar 6: Market transparency, Capacity of Macroeconomic Legality and enforceability of tax and regulatory local investors opportunity standard financial markets environment master agreements South Africa 94 Namibia 92 South Africa 78 Mauritius 98 Nigeria 89 Mauritius 90 Egypt 78 South Africa 94 Mauritius 88 South Africa 86 Botswana 72 Nigeria 87 Ghana 83 Morocco 67 Mauritius 72 Zambia 83 Botswana 82 Eswatini 64 Morocco 72 Ghana 78 Uganda 80 Botswana 61 Uganda 70 Kenya 57 Rwanda 80 Nigeria 54 Namibia 70 Rwanda 50 Zambia 75 Seychelles 48 Eswatini 68 Botswana 46 Kenya 74 Kenya 41 Malawi 67 Tanzania 43 Morocco 74 Tanzania 34 Nigeria 67 Mozambique 40 Tanzania 73 Ghana 27 Kenya 67 Uganda 39 Namibia 71 Egypt 26 Seychelles 66 Morocco 36 Ivory Coast 66 Mozambique 20 Lesotho 65 Ivory Coast 35 Egypt 66 Malawi 20 Ghana 65 Eswatini 33 Seychelles 62 Angola 16 Rwanda 62 Seychelles 32 Malawi 62 Uganda 15 Tanzania 59 Namibia 31 Mozambique 59 Cameroon 14 Ivory Coast 58 Senegal 24 Eswatini 58 Rwanda 14 Ethiopia 55 Egypt 23 Senegal 54 Ivory Coast 14 Cameroon 54 Lesotho 21 Angola 51 Senegal 12 Mozambique 51 Cameroon 21 Cameroon 40 Lesotho 12 Senegal 49 Malawi 21 Ethiopia 37 Zambia 12 Zambia 47 Ethiopia 19 Lesotho 33 Ethiopia 10 Angola 41 Angola 10 11 Lesotho (33) 23 Malawi (37) 70 Mauritius (79) 37 Morocco (56) KEY 58 32 54 49 33 62 88 74 Pillar 1 Market depth 12 20 90 67 Pillar 2 Access to foreign exchange 65 67 72 72 21 21 98 36 Pillar 3 Market transparency, tax and regulatory environment Pillar 4 Capacity of local investors South Africa (89) Tanzania (50) Uganda (52) Zambia (53) Pillar 5 Macroeconomic opportunity 100 35 42 41 Pillar 6 Legality and enforceability of 80 59 67 60 standard financial markets 94 73 80 75 master agreements 86 34 15 12 (xx) = overall score 78 59 70 47 94 43 39 83 Absa Africa Financial Markets Index 2020 | 9
Acknowledgements The report finds that: The team consulted more than 30 policy-makers, regulators and South Africa and Mauritius retain market practitioners across African financial markets in writing this the top spots in the index, scoring report, whom we thank for their views and opinions. Although some 89 and 79, respectively. Although requested anonymity, we thank the following: both perform well in most pillars, South Africa maintains a sizeable Sheila Abrahams, Senior Consultant, Johannesburg Stock Exchange lead because of its much deeper George Asante, Head of Global Markets, Absa Regional Operations capital and foreign exchange Omobolanle Adekoya, Partner and Head, Capital Market Accounting and markets. Nigeria, Botswana and Consulting Services, PwC Nigeria Namibia round off the top five. All three score above 50 in nearly all Arnold Bagubwagye, Deputy Director, Bank of Uganda pillars. Namibia loses points from Sunil Benimadhu, Chief Executive, Stock Exchange of Mauritius its failure to align with international José Miguel Cerdeira, Economist, Banco de Fomento Angola contractual standards, while Jeff Gable, Chief Economist, Absa Group Limited Nigeria’s lack of a unified exchange rate system pulls down its score. Ingrid Hagen, Vice-President of Strategic Projects, Frontclear Jacqueline Irving, Senior Sector Economist, Sector Economics and Overall performance in Pillar Development Impact Department, International Finance Corporation, 1: Market depth deteriorated, World Bank Group partly because of the impact of Garth Klintworth, Head of Global Markets, Absa Group Limited Covid-19 on market capitalisation and activity. On average, countries’ George Kwatia, Tax Partner, PWC Ghana scores dropped by 0.6 from last Vipin Mahabirsingh, Managing Director, Central Depository year. Despite this, certain countries & Settlement Co. Ltd., Mauritius showed improvement. Seychelles’ Moremi Marwa, Chief Executive, Dar es Salaam Stock Exchange P–lc Merj exchange attracted additional Prosscovia Nambatya, Corporate Finance Lawyer listings, leading it to be only one Birgit Reuter, Financial Officer, Global Macro and Market Research of three countries where market Department, International Finance Corporation, World Bank Group capitalisation increased over the year. The Stock Exchange of Peter Werner, Senior Counsel, International Securities and Derivatives Association Mauritius amended its trading rules to open its market to international central securities depositories. We also thank individuals from the following institutions: Bank of Mauritius, Bank of Namibia Financial Markets Department, Mauritius Uganda launched its new primary Commercial Bank, and Merj Exchange. dealer system designed to encourage secondary market activity Report authors Kat Usita, Deputy Head of Research, OMFIF Chris Papadopoullos, Economist, OMFIF With support from Danae Kyriakopoulou, Chief Economist and Director of Research, OMFIF Brendan Kiy, Research Assistant, OMFIF Natalia Ospina, Research Assistant, OMFIF 10 | Absa Africa Financial Markets Index 2020
and price discovery. highest level of pension assets per to its insolvency laws, making capita in the index. Eswatini, a new allowances for close-out netting. Ghana rises the most in Pillar addition to the index, has the largest Uganda has adopted the GMRA and 2: Access to foreign exchange pension funds relative to the size of is reviewing insolvency laws to make with its foreign exchange liquidity its local market, which shows the close out netting enforceable. increasing, as measured by interbank foreign exchange turnover. Angola potential available for local investors Although the pandemic disrupted implemented rules to route to propel market development. markets, it presented opportunities more foreign currency through Survey respondents highlighted for capital market development. its commercial banks. Survey a number of successful financial The African Development Bank respondents said efforts in Nigeria inclusion initiatives such as Angola’s issued coronabonds in March to help to unify its multiple exchange rates Kwenda project and Mauritius finance Covid-19 response measures. and South Africa’s easing of capital and Nigeria’s embrace of fintech Other sustainability initiatives are controls for the broader economy companies. gaining momentum, especially in would increase international Ivory Coast rises one place in Pillar green finance. Nigeria, Kenya and participation in the market. 5: Macroeconomic opportunity. The Egypt are among countries that have West African nation has one of the issued sovereign green bonds in the Collectively, countries perform best brightest growth outlooks and is one past year. Rwanda is establishing in Pillar 3: Market transparency, of five countries where economic a green investment bank, while tax and regulatory environment growth has averaged above 5% over Uganda plans to develop a fund where the average score is 67. the last five years. South Africa for post-disaster environmental Morocco gained additional corporate restoration. ratings from international ratings reclaims the top spot. Despite its agencies and a higher score for worsening growth outlook, it has a protection of minority shareholders. low non-performing loans ratio and Kenya‘s Capital Markets Authority relatively low external debt to GDP introduced rules for share buybacks, ratio. potentially encouraging market Ghana climbs five places in Pillar activity. Angola’s first tax treaty, 6: Legality and enforceability which it signed with Portugal, came of standard financial markets into force. master agreements. Ghana has Namibia leads Pillar 4: Capacity of made the Global Master Repurchase local investors. Its pension funds Agreement mandatory for repos and have shown rapid growth in recent introduced rules to enforce close- years and the country now has the out netting. Nigeria made changes Absa Africa Financial Markets Index 2020 | 11
Highlights 2019-20 Sustainable financial markets The Banco Nacional de Angola adopted a foreign exchange electronic Nigeria and Kenya innovate with sovereign green bonds trading system to bring Nigeria is set to launch its third sovereign green bond. Kenya issued its first green bond in 2019, with proceeds used to finance sustainable greater efficiency and student housing in Nairobi. The government has introduced financial transparency to its foreign incentives to invest in such bonds, with investors exempt from paying exchange market. withholding tax on interest earned. Egypt issued a green bond in September, the first in the Middle East and North Africa. Coronabonds made in Africa The African Development Bank sold the world’s largest social bond 120%: in March, a set of $3bn three-year bonds to help finance the fight against Covid-19. The AfDB also joined the Nasdaq Sustainable Bond Oversubscription Network in June. of Cameroon’s Sustainable stock exchanges Cfa25bn issue of The Johannesburg Stock Exchange is expanding its green bond segment to a sustainability division which will include green, social its first 10-year and sustainability bonds. In October 2019, the stock exchanges of T-bond on the Nigeria and Luxembourg signed a memorandum of understanding to allow cross listing and trading, to help expand the green bond Bank of Central market. African States Private sector takes action South Africa’s Standard Bank sold a $200m green bond, the country’s market. largest sale. Meanwhile, Absa was the first African corporate to issue a social bond. Nedbank, in partnership with AfDB, introduced a sustainable development goals-linked tier 2 bond. Last year, Nedbank The Eswatini Stock became the first bank in South Africa on the JSE to launch a specific Exchange launched an renewable energy bond. automated trading system New vehicles for green growth in east and southern Africa that includes mobile Rwanda and the Coalition for Green Capital are establishing the trading for retail investors. Rwanda Catalytic Green Investment Bank. Uganda plans to create a $200m fund to help finance environmental restoration from natural disasters. The Trade and Development Bank of Eastern and Southern The Namibian Stock Africa has signed a partnership with the French development agency for a $150m line of credit to fund sustainable infrastructure Exchange listed its first in East Africa. The Development Bank of Southern Africa and the bond exchange-traded fund. Green Climate Fund have launched a specialised climate finance facility for South Africa, Namibia, Lesotho and Eswatini. Namibia’s Environmental Investment Fund, designed to counter drought Uganda reformed its effects, secured $8.4m from the UN’s green climate fund. primary dealer system to spur secondary market activity. 12 | Absa Africa Financial Markets Index 2020
Market developments and policy changes boost growth of financial markets across the continent $3bn: New ceiling The Dar es Salaam Stock Exchange The World Bank issued the first of Botswana’s expanding is developing a government bond mobile trading ever Rwandan issuance programme. platform. franc bond. €1bn: Sovereign bonds sold by Morocco, evenly split in $594m: Amount raised two tranches of 5.5-year and 10-year bonds. by Ivory Coast from social bonds sold on the West African Economic The Nairobi Securities $5bn: and Monetary Union securities market. Eurobonds sold in Exchange Egypt’s largest- The Nigerian Stock released a ever international Exchange is preparing revamped mobile issuance. to introduce derivatives application for trading. retail investors. Zambia formed a Ethiopia drafted capital markets legislation to create a Senegal is forming a stock market authority state-backed €100m tribunal to that will regulate its stock private equity fund. enhance dispute exchange when it opens. resolution and Lesotho enacted settlement. South Africa is legislation that removing currency requires pension exchange controls. Seychelles established the funds to invest Securities, Commodities and a portion of Derivatives Exchange, listing Ghana adopted their portfolio in both traditional and digital legislation to enforce domestic assets. assets. close-out netting. The Stock Exchange of Mauritius’ new trading The Reserve Bank of Malawi rules enable links with international central implemented an automated trading securities depositories like Euroclear. system for the Malawi Stock Exchange. Absa Africa Financial Markets Index 2020 | 13
Pictured: A brilliant round-cut Namibian diamond Pillar 1: Market depth 14 | Absa Africa Financial Markets Index 2020
Stunted progress Countries made strides in growing their markets, boosting international activity and linking exchanges, but some initiatives were put on hold due to the pandemic. Figure 1.1: Figure 1.1: Greater market capitalisation improves Seychelles’ performance Scores for Pillar 1 categories, max=500; harmonised score, max=100 (RHS) Scores for Pillar 1 categories, max=500; harmonised score, max=100 (RHS) 500 100 450 90 400 80 350 70 300 60 250 50 200 40 150 30 100 20 50 10 0 0 Rwanda Malawi South Africa Nigeria Mauritius Kenya Ghana Egypt Mozambique Senegal Morocco Ivory Coast Tanzania Cameroon Eswatini Ethiopia Botswana Namibia Zambia Uganda Angola Seychelles Lesotho Product diversity Size of markets Liquidity Depth Primary dealer system Pillar 1 harmonised score (RHS) Sources: National securities exchanges, national central banks, World Federation of Exchanges, Association of African Sources: Exchanges,National securities OMFIF analysis. exchanges, Note: Category national scores (LHS) central provide the averagebanks, World of indicator Federation scores of within each category. The Exchanges, Association harmonised score of African (RHS) represents Exchanges, the average OMFIF analysis. of all Pillar 1 indicators and is usedNote: Category to compile the total scores scores for Pillars 1-6. More information on p.38-39. (LHS) provide the average of indicator scores within each category. The harmonised score (RHS) represents the average of all Pillar 1 indicators and is used to compile the total scores for Pillars 1-6. More information on p.38-39. Absa Africa Financial Markets Index 2020 | 15
Pillar 1 considers the size and liquidity de Cahora Bassa, Arko Seguros and panic that struck in March and April, of local financial markets, as well as Revimo. Mozambique has one of the and markets have mostly calmed since. the diversity of products available. On smallest markets measured against In South Africa, however, the start of average, countries’ scores dropped by GDP at 3%, but lands in the middle of the pandemic coincided with credit 0.6 from last year. This partly reflects the index for liquidity. ratings downgrades and the country’s the decline in local equity indices as consequent removal from the World Mauritius maintained third place. In markets reacted to Covid-19. Liquidity Government Bond Index. One survey early 2020, the Stock Exchange of was more mixed, as a fall in foreign respondent said the downgrade had hit investor activity in equities was partly Mauritius announced it had amended liquidity in the secondary bond market. offset by central banks and local trading rules to open its market up to international central securities Sell-offs can increase liquidity, but investors in bond markets. depositories such as Euroclear and with many markets depending on Market capitalisation decreased Clearstream. This allows foreign foreign participation for a large across most markets in the index, but investors who invest in debt securities, proportion of their liquidity, less exchanges have remained operational Eurobonds and exchange-traded funds international participation has with staff working remotely during the on the exchange to transfer these hindered market liquidity. To promote virus disruption. In many countries, securities directly via the ICSD to other the functioning of domestic financial initial public offerings were put on investors. The initiative is aimed at markets, some central banks made hold because of the pandemic. This making the market more attractive to use of the unconventional monetary included Lesotho, where the Maseru policy tools developed over the past international investors. Mauritius and Securities Market was set to become decade. The South African Reserve South Africa are the only markets in fully operational with its first two IPOs. Bank implemented a programme of the index with such links to ICSD. Seychelles climbs two places in Pillar purchasing government securities in 1. The country’s Merj Exchange has Money markets the secondary market. The central been successful in lifting the size of its banks of Botswana, Egypt and Ghana Central banks in the region provided also conducted asset purchases. equity market since it was rebranded emergency liquidity to quell market The Bank of Central African States, from Trop-x in 2019. Following a number of listings, equity market which serves Cameroon, undertook capitalisation rose to 89% of GDP purchases in a restricted way to ensure from 21% to give Seychelles the third consistency with rules against direct monetary financing. largest stock market relative to the ‘Some survey size of its economy in the index. It remains behind South Africa at 275% respondents said Authorities across the countries featured in the index were proactive of GDP and Botswana at 176% of GDP. that while policy in supporting money market liquidity. As of mid-2020, the Merj Exchange action had supported They did so in different ways, but hosts 41 listed companies, up from finance and liquidity common policies included reducing 25 in the same period last year, with more broadly, it had repo rates, widening collateral accepted for central bank lending financial instruments available in less of an impact dollars and euros. Earlier this year, the facilities, and reducing liquidity and exchange launched a direct access on equity markets capital requirements for banks. Survey model, which it says limits the need where liquidity was respondents said authorities had for brokers and has incorporated dependent on foreign overall successively managed the distributed ledger technology into investors.’ early stages of the crisis. However, its trading infrastructure. Survey some said that while policy action had respondents highlighted several supported finance and liquidity more factors that could further lift broadly, it had less of an impact on liquidity and international activity equity markets where liquidity was in Seychelles’ capital market, such dependent on foreign investors. as regulatory co-operation in the Central banks continue with efforts International Organisation of Securities to build yield curves in domestic Commissions. government securities that can be Bolsa de Valores de Mocambique is used as the basis for pricing for other another smaller exchange that has assets. The South African Reserve Bank been expanding. It has 11 listed proposed in June replacing the South equities, up from eight last year and African benchmark overnight rate with six in the 2018 edition of the index. the South African rand overnight index New listings include Hidroeléctrica average, known as Zaronia, which is an 16 | Absa Africa Financial Markets Index 2020
unsecured overnight rate. Figure 1.2: Market size and liquidity Botswana is doubling its T-bill auctions to eight per year from quarterly to Equities Bonds assist market price discovery. In combination, it will issue standardised Turnover of Total sovereign Total turnover in Market three- and six-month T-bills. The capitalisation, equities, % and corporate bond market, % Bank of Botswana has extended the of market bonds listed on of listed bonds % of GDP capitalisation exchanges, $bn outstanding collateral pool for its lending facilities to corporate bonds listed on the South Africa 275.4 33.4 209.2 301.3 Botswana 178.4 0.3 1.6 16.4 Botswana Stock Exchange. Seychelles 88.6 1.2 0.3 46.0 Uganda is nearing completion of its Morocco 45.2 10.7 0.5 6.3 Mauritius 42.4 6.6 1.2 2.3 primary dealer reforms. In September, Rwanda 35.6 0.1 0.6 4.7 the central bank appointed seven Senegal 29.1 2.1 8.8 0.6 commercial banks that will be able to Malawi 27.9 1.7 0.4 0 take part in competitive bids above Kenya 20.0 7.8 20.4 27.5 a certain size in the primary market. Namibia 17.6 1.7 4.0 3.1 Other commercial banks will still be Uganda 16.4 0.1 3.1 0.0 Ivory Coast 15.7 2.1 8.8 0.6 able to access the primary market, but Zambia 14.6 0.8 3.8 4.5 only for smaller bids. Ghana 13.7 0.7 19.6 90.6 Egypt 12.1 35.4 76.1 31.4 Linking exchanges Tanzania 10.3 4.6 5.2 15.2 Nigeria 7.7 8.2 65.7 94.3 The Africa Exchange Linkages Project Eswatini 4.7 1.3 0.4 0 offers new opportunity to link Mozambique 3.0 1.9 0 0 African exchanges and boost cross- Cameroon 1.1 0.5 1.3 0 border activity. In April, it began Ethiopia - - 0 0 procurement for an order-routing Angola - - 7.5 31.8 technology platform to enable a Lesotho - - 0 0 broker on one exchange to channel a Source: Refinitiv, national stock exchanges, national central banks, World Federation of Exchanges, the Association of African Exchange, OMFIF analysis client’s buy or sell order to a broker on a second exchange where a target security is listed. The AELP is a joint initiative by the African Securities Exchanges Association and the African Figure 1.3: Seychelles, Malawi and Cameroon trump decline in equity Development Bank to encourage market capitalisations pan-African investment flows. It is Market capitalisation, % of GDP funded by the Korea-Africa Economic Co-operation Trust Fund through the 350 African Development Bank. 300 Pilot exchanges that are participating 250 in the project include: Bourse Régionale des Valeurs Mobilières, 200 Casablanca Stock Exchange, the Egyptian Exchange, Johannesburg 150 Stock Exchange, Nairobi Securities 100 Exchange, the Nigerian Stock Exchange, and Stock Exchange of 50 Mauritius. 0 Mozambique South Africa Ivory Coast Cameroon Seychelles Botswana Morocco Mauri�us Tanzania Namibia Rwanda Senegal Eswa�ni Malawi Uganda Zambia Nigeria Angola Ghana Kenya Egypt Cameroon’s Douala Stock Exchange merged with the regional Bourse des Valeurs Mobilières de l’Afrique Centrale last year, raising its equity market capitalisation to 1.1% of GDP. Mid-2019 Mid-2020 This earns Cameroon extra points for Sources: National securities exchanges, national central banks, World Federation of Exchanges, market size, though it loses roughly Association of African Exchanges, OMFIF analysis the same amount for market liquidity. Absa Africa Financial Markets Index 2020 | 17
Pictured: Dewdrops on a South African sunflower Pillar 2: Access to foreign exchange 18 | Absa Africa Financial Markets Index 2020
Easing restrictions Loosening capital controls has improved liquidity in some foreign exchange markets, but further easing is needed to encourage greater activity. Figure 2.1: Active foreign exchange market improves Ghana’s standing Figure 2.1: Active foreign exchange market improves Ghana’s standing Scores for Pillar 2 indicators, max=400; harmonised score, max=100 (RHS) Scores for Pillar 2 indicators, max=400; harmonised score, max=100 (RHS) 400 100 90 350 80 300 70 250 60 200 50 40 150 30 100 20 50 10 0 0 Eswatini Tanzania Mauritius Ethiopia South Africa Rwanda Nigeria Egypt Botswana Zambia Kenya Namibia Angola Uganda Seychelles Ghana Mozambique Cameroon Malawi Lesotho Morocco Ivory Coast Senegal Net portfolio investment to reserves Interbank foreign exchange turnover Foreign exchange capital controls Official exchange rate reporting standard Pillar 2 harmonised score (RHS) Sources: International Monetary Fund, national central banks, OMFIF analysis. Note: The harmonised score (RHS) represents the average of all Pillar 2 indicators and is used to compile the total scores for Pillars 1-6. MoreSources: International information on p.38-39. Monetary Fund, national central banks, OMFIF analysis. Note: The harmonised score (RHS) represents the average of all Pillar 2 indicators and is used to compile the total scores for Pillars 1-6. More information on p.38-39. Absa Africa Financial Markets Index 2020 | 19
Pillar 2 evaluates African markets’ local assets spurred market activity. interbank market. Angola introduced openness to foreign investment based Egypt’s interbank exchange turnover new rules at the beginning of the on the ease of moving capital, liquidity spiked in March to $15.3bn, five year that encouraged oil companies of foreign exchange markets, rigidity times higher than its average monthly to sell foreign exchange directly to of foreign exchange regimes and turnover of $3bn in 2019. commercial banks. availability of reliable foreign exchange South Africa has the highest interbank These companies will become data. It considers countries’ resilience foreign exchange turnover by a large another source of foreign currency to volatility by measuring portfolio margin, despite the fact it has been for commercial banks and reduce flows against foreign exchange on a steady decline for the last several the market’s reliance on the Banco reserves. Since the first edition of years. Turnover was $929.3bn in 2019, Nacional de Angola. This has been the index in 2017, several countries helping the country maintain top place undertaken alongside the introduction have loosened capital controls and of Bloomberg trading infrastructure to moved towards more flexible exchange in Pillar 2. automate transaction processes on the regimes. Nearly half the countries in the index foreign exchange market. The reforms On average, scores in this pillar were have markets with negligible interbank should encourage greater trading in largely unchanged. Generally, countries foreign exchange turnover, with the interbank foreign exchange market. maintained strong reserve positions, central banks playing a large role in although there was more variability in allocating foreign currencies. Some Portfolio flows and reserves foreign exchange activity. are taking measures to promote the Fluctuations in the ratio of portfolio An increase in foreign exchange flows to foreign exchange reserves led liquidity and a lower ratio of portfolio to several ranking changes. A higher flows to reserves lift Ghana five ratio indicates potential difficulty for central banks in meeting foreign places in Pillar 2. The country’s ‘Nearly half the currency demand from investors. interbank foreign exchange turnover has been climbing steadily since it countries in the index A fall in net portfolio flows in Namibia loosened surrender and repatriation have markets with reduced the ratio to reserves to 3.4% requirements for exporters in 2016. negligible interbank from 8.9%, boosting the country’s The reforms direct more foreign foreign exchange ranking in this pillar by three places. currency through the commercial banking system rather than through turnover, with central Rwanda ranks third, climbing one place due to a 61% increase in its reserves to the central bank. Total interbank banks playing a large $1.4bn, which reduced its ratio to 0.9% turnover reached $25.5bn in the 12 role in allocating from 2%. months to March, the third highest in foreign currencies.’ Angola moves up one place following the index. Interbank turnover excluding central bank transactions gives a gauge an improvement in its reserve position. of local foreign exchange liquidity in In 2019, its foreign exchange reserves the two-way market. Active interbank climbed to $16.3bn from $15.4bn. markets are an important enabler and Its net portfolio investment came down as greater acquisition of foreign source of pricing for broader derivative assets increased. After being hit badly products whose prices are linked to by the 2014 oil price decline, Angola market exchange rates. had readjusted and been running Banks based in Morocco traded current account surpluses since 2018. $18.6bn of foreign currency in the A halving in the value of the kwanza 12 months to June, double from the against the dollar over the last three previous year. This was despite a drop years helped in this regard. in liquidity between March and April This year’s oil price shock has not as a seize-up in general trade led to been kind to Angola or its exchange lower demand for foreign currency. The rate. The Angolan kwanza dropped country’s ranking remains constant 25% between January and September. as its boost from foreign exchange One respondent from Angola said turnover offset a decline in score for that the Covid-19 crisis and oil price its ratio of portfolio flows to reserves. crises ‘put immense pressure on the Covid-19 had a mixed impact on exchange rate and prevent both the foreign exchange turnover. While it authorities and international players declined in Morocco, it increased in from undertaking any risky or complex markets such as Egypt as sell-offs of transactions’. The largest depreciation 20 | Absa Africa Financial Markets Index 2020
Figure 2.2: Ghana, Zambia and Angola went into crisis with stronger FX positions Figure Net 2.2:investment portfolio Ghana, Zambia and%Angola went into crisis with to reserves, ‘The largest stronger FX positions relative to net portfolio investments depreciation has been Net portfolio investment to reserves, % in Zambia, where the 150 87 kwacha has fallen 40% 60 against the dollar amid a shortage of dollars 50 resulting from lower 40 copper exports.’ 30 20 10 0 Mauritius Eswatini Rwanda Tanzania Egypt Nigeria Zambia Botswana South Africa Kenya Namibia Ghana Cameroon Malawi Angola Uganda Lesotho Ivory Coast Morocco Seychelles Mozambique Senegal 2018 2019 Sources: International Monetary Fund, national central banks, OMFIF analysis Sources: International Monetary Fund, national central banks, OMFIF analysis has been in Zambia, where the kwacha countries in the index grew foreign rates would be key to unlocking greater has fallen 40% against the dollar amid exchange reserves by 5% to $256.6bn international activity in the market. a shortage of dollars resulting from in 2019. In February, South Africa’s finance lower copper exports. Ratings agencies Mauritius has high net portfolio ministry announced changes to its expect both countries will need to investment but is less vulnerable foreign exchange system that will ease renegotiate external liabilities. to foreign exchange fluctuations approval processes for foreign currency Most index currencies have depreciated despite the high ratio to reserves. The transactions. While prudential limits against the dollar, with an average significant inward flow is due to its on domestic banks and institutional depreciation of 8% across the index position as a favourable domicile for investors remain, these caps will be between January and September. The investment funds, often comprised of reviewed periodically. exceptions have been countries with international money invested globally. In September, the WAEMU delayed the pegs to the euro: Ivory Coast, Senegal planned launch of its new currency, and Cameroon, where currencies have Capital controls and currency the eco. The eco will keep many of strengthened. regimes the characteristics of the CFA franc, Since the onset of the pandemic, Both Nigeria and South Africa took including its peg to the euro and free foreign exchange reserves have important steps over the last 12 convertibility guaranteed by France. largely held up for those countries months to make their market more However, there will be less French with timely data available. Prior to accessible to international investors. oversight. the virus outbreak, large annual The governor of the Central Bank of increases in reserves were recorded Nigeria said in June that the country in a number of index countries. Ghana will continue to pursue unification and Mozambique raised reserves by of its various exchange rates. One 20%, while the West African Economic survey respondent in Nigeria said and Monetary Union increased by 18% foreign exchange stability through the and Mauritius by 15%. Collectively, convergence of different exchange Absa Africa Financial Markets Index 2020 | 21
Pictured: Coils of Copper wire from a Zambian mine Pillar 3: Market transparency, tax and regulatory environment 22 | Absa Africa Financial Markets Index 2020
Supportive regulatory environment Most index countries have tax systems that promote capital market development. Many have adopted the International Financial Reporting Standards, though some lack audit capacity and transparency. Figure 3.1: Figure 3.1:Nigeria Nigeriaimproves ranking improves with greater ranking number of with greater corporates number rated of corporates rated Scores for Pillar 3 categories, Scores categories, max=800; max=800;harmonised harmonisedscore, score,max=100 max=100(RHS) (RHS) 700 100 90 600 80 500 70 400 60 50 300 40 200 30 20 100 10 0 0 Mauritius Eswatini South Africa Rwanda Zambia Namibia Botswana Tanzania Angola Ethiopia Nigeria Kenya Egypt Ghana Mozambique Seychelles Cameroon Uganda Morocco Ivory Coast Malawi Senegal Lesotho Financial stability regulation Reporting and accounting standards Tax environment Financial information availability Market development Corporate action governance structure Protection of minority of shareholders Existence of credit rating Pillar 3 harmonised score (RHS) Source: Bank for International Settlements, International Financial Reporting Standards, Deloitte International Accounting Standard Plus, World Bank, Standard & Poor’s, Moody’s, Fitch, GCR Ratings, OMFIF analysis. Note: Category scores (LHS) provide the average of indicator scores within each category. The harmonised score (RHS) represents the average of all Pillar 3Source: Bank indicators and isfor International used to compile theSettlements, International total scores for Pillars Financial Reporting 1-6. More information on p.38-39. Standards, Deloitte International Accounting Standard Plus, World Bank Doing Business, Standard & Poor’s, Moody’s, Fitch, GCR Ratings, OMFIF analysis. Note: Category scores (LHS) provide the average of indicator scores within each category. The harmonised score (RHS) represents the average of all Pillar 3 indicators and is used to compile the total scores for Pillars 1-6. More information on p.38-39. Absa Africa Financial Markets Index 2020 | 23
A healthy market environment is 3, but may be nearing an inflection key to attracting capital. Pillar 3 Figure 3.2: Ghana offers point. One survey respondent said the scores countries based on regulatory investors generous tax rates country’s capital market development frameworks, tax systems and market Witholding tax rates, % initiatives were beginning to bear fruit transparency. Overall, countries perform in the form of a friendlier and simpler Interest Dividends best in this pillar, scoring 67 out of 100 tax system. Along with Ivory Coast, Ghana 8 8 on average. This is unchanged from last Ivory Coast 10 10 Angola has tax discounts on income year, but has improved from 63 in the Ethiopia 10 10 from longer-term government bonds, inaugural 2017 edition of the index. Morocco 10 15 which could help bond market activity Namibia 10 20 and foster the formation of a yield Morocco rises six places, gaining points Nigeria 10 10 curve against which other assets can be for additional corporate ratings from Tanzania 10 5 priced. Angola’s first tax treaty, which international ratings agencies as well as Eswatini 10 12.5 Botswana it signed with Portugal, came into force for a higher score for the protection of 15 7.5 Kenya 15 15 in late 2019. It is no longer the only minority shareholders. As of September, Mauritius 15 0 country in the index without a double there were nine corporate ratings, a Rwanda 15 10 taxation agreement. new high for Morocco since the index Seychelles 15 15 began. The World Bank has highlighted South Africa 15 20 Accounting standards Morocco’s progress in strengthening Uganda 15 15 minority investor protection through Angola 15 10 There is wide adoption of International ‘expanding shareholders’ role in major Senegal 16 10 Financial Reporting Standards across Cameroon 16.5 16.5 the index countries, with most requiring transactions, promoting independent Egypt 20 10 directors, increasing transparency listed firms to report according to Mozambique 20 10 on directors’ employment in other Zambia 20 20 IFRS. The lowest-scoring countries for companies, and making it easier to Malawi 20 10 accounting standards are Ethiopia and request general meetings’. Lesotho 20 25 Seychelles, but it is an area of focus among business leaders and policy- Kenya climbs two places after scoring Source: Deloitte, OMFIF analysis. makers in both. Larger corporates in Note: WHT may be reduced under applicable tax better in corporate governance treaties. Where applicable, the rate shown is for Seychelles are gradually taking up the non-residents structure. The Kenyan Capital Markets IFRS, and major banks and insurers have Authority issued guidance allowing already adopted these standards. In listed firms to purchase their own 2018, Ethiopia gave banks three years shares. These share buybacks, which Both have low levels of withholding to transition to IFRS from Generally can help encourage stock market taxes and a high number of double Accepted Accounting Principles. Wider activity, boost the country’s score in taxation treaties with other countries. roll-out is planned for non-financial this indicator. Mauritius generally has no withholding firms and small- and medium-sized tax on dividends, but some are specified enterprises. Tax environment in tax treaties. Covid-19 is making it challenging to Tanzania and Ethiopia score highly for Survey respondents in Ghana said its meet financial reporting requirements. their low rates of withholding tax on tax system was ‘broadly supportive’ of IFRS 9, which came into effect in 2018, income from interest and dividends, capital market development. Ghanaian requires banks to estimate expected with Tanzania improving its score by regulators are using tax breaks to credit losses based on historic, current levying a lower rate of withholding tax develop new market segments. From and forecasted economic conditions. for dividends paid out by listed firms. this year, the fees charged by a local The uncertain environment makes In Tanzania, the rate of withholding tax fund manager for the management of this more difficult and may exacerbate falls to 5% for dividends from listed a licensed private equity fund, venture problems in fulfilling capital adequacy firms compared with 10% for unlisted capital fund or mutual fund are exempt requirements. firms. Mozambique has taken a similar approach. Dividends from listed firms from value-added tax and the country’s Even with higher standards in place, are subject to a 10% withholding tax health and education levies. Private survey respondents often cited a rather than the unlisted rate of 20%. equity is increasingly being viewed as lack of audit capacity as a barrier to Ethiopia has a low withholding tax rate a means to provide capital to smaller improvements in financial transparency. of 10% on dividends and has the sixth- firms and create a pipeline of companies Other respondents noted that their highest number of tax treaties in the that can list on stock exchanges. Gains markets do not tend to have a culture of index with 18. from the realisation of securities listed transparency. on the Ghana Stock Exchange are On the measures used in this survey, Across the index countries, survey exempt from tax until next year. Morocco and Mauritius offer the most respondents said that major financial attractive tax environments overall. Angola maintains a low ranking in Pillar institutions, often subject to additional 24 | Absa Africa Financial Markets Index 2020
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