Rwanda registered a slight improvement in financial markets development in 2023 despite a difficult environment in which higher interest rates exerted pressure on markets, according to the recent study by Absa.
The country scored 44 points out of 100. This is a slight improvement from 2022 when it scored 43 points. However, the country declined slightly in rankings from the 16th position in 2022 to 17th in 2023 in Africa.
Despite having a relatively weak market size and liquidity, Rwanda’s financial market saw improvement in bond market turnover to 10.5 per cent of bonds outstanding compared to 5.1 per cent a year before.
"What we saw in 2023 is that it was a difficult global environment. Still, 15 out of 28 countries managed to improve. Even in difficult environment it wasn’t impossible,” said Jeff Gable, Head of Research, Absa Group.
Still, Gable added, last year’s complex macroeconomic challenges were reflected in markets performance as global interest rates put pressure on valuations.
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Out of the six pillars upon which Absa based on to rank countries, Rwanda particularly performed well on two pillars: access to foreign exchange, as well as market transparency, tax and regulatory environment
Rwanda was ranked 10th in Africa on access to foreign exchange with the study showing that the country scored high for forex reporting, flexible currency and relatively few capital restrictions.
According to the Absa Africa Financial Markets Index (AFMI) study, Rwanda showed strength in developing new environmental, social and governance (ESG) initiatives and standards, including the Ireme Invest programme aimed at scaling up private sector green investments.
It also displayed strength in good financial information transparency and accounting standards, rising by 10 points and ranking 10th in Africa in the year under review.
Rwanda also performed better on having a strong economic growth outlook with gross domestic product (GDP) forecast to be above 6 per cent in 2024.
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Areas of improvement
Rwanda’s performance has fluctuated since its inclusion in the index. Its highest ranking was 8th in 2017 with a score of 48.
There’s been a general downward trend in its score and ranking since 2019. But Absa said there are significant opportunities for improvement in market depth, local investor capacity, and legal standards.
The study suggests that Rwanda should develop its the corporate bond market and introduce primary dealers. In addition, the equity market needs to grow from the current capitalisation of 25 per cent of GDP to above the average 28%.
The study also suggested that regulators should ensure greater forex liquidity in the banking system, as well as encourage the adoption of the FX Global Code, a set of global principles of good practice in the foreign exchange market.
That is because the financial market has limited interbank forex turnover. The study highlighted that "transactions on the FX interbank market are very few or none for sometimes.”
Implementing climate stress testing in financial stability regulations, and ncreasing the number of corporate credit ratings are other areas of improvement that the study points out.
According to Absa, pension fund assets per capita edged down to $91 from $93, which is small relative to the study’s median of $107. This means that there is room to grow pension fund assets.