Africa’s recovery and sustainable development is hinged on effective financial markets, emphasized Amb Claver Gatete, the Executive Secretary of the Economic Commission for Africa (ECA), at the launch of the Absa Africa Financial Markets Index 2024.

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 an earlier study by Absa. The country scored 44 points out of 100, a slight improvement from 2022 when it scored 43 points. It declined slightly in rankings from the 16th position in 2022 to 17th in 2023 in Africa.

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Gatete highlighted that African countries are challenged by high debt which was straining economic growth and hindering recovery. Rising external debt has crippled the ability of countries to mobilize critical financial resources for sustainable development, limiting their ability to issue sovereign bonds on international markets. As a result, many governments were relying increasingly on domestic credit markets to finance budget deficits.

Gatete said: "The development of robust financial markets is therefore integral to our efforts to mobilize domestic resources and drive Africa’s recovery and sustainable development.

"Strengthening local capital markets and diversifying the investor base will not only help governments mobilize more funding for economic recovery and ‘building back better’ but will also build financial resilience to future shocks.”

With Africa&039;s sovereign debt exceeding $1 trillion and over a third of its countries at high risk of debt distress, Gatete said high debt has African countries reformed their foreign exchange systems to stabilize their economies in response to the challenges. Ethiopia, for example, introduced a more flexible exchange rate system to boost export competitiveness and solve persistent foreign exchange shortages while aiming to attract foreign direct investment.

Gatete further highlighted that well-functioning financial markets are essential for directing resources to areas that can spur economic prosperity. To achieve this, significant investments in capacity building, infrastructure, and benchmarking tools are required. Additionally, peer-learning mechanisms can help countries identify gaps and set priorities for financial market development.

The 2024 index, produced by the Official Monetary and Financial Institutions Forum (OMFIF), with the support of the ECA, evaluates 29 countries’ financial markets based on six pillars: market depth, access to foreign exchange, market transparency, tax and regulatory environments, local investor capacity, macroeconomic stability, and legal enforceability. The index integrates data from more than 50 organizations, including central banks, stock exchanges, regulators, and international development agencies.

The 2024 edition of the Index reflects new and emerging trends, including financial technology and the growing importance of Environmental, Social and Governance (ESG) policies. The proportion of AFMI countries implementing ESG initiatives has increased to 71% from 57% in 2021. Listing of new ESG bonds has been done in Botswana, Cabo Verde, Mauritius, and Zambia.

Rwanda and Zambia implemented new climate-related financial regulations.

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In an effort to foster domestic resource mobilization, the ECA is assisting member states to develop their local financial markets, including local currency bond markets, while investing special efforts in inclusive and sustainable finance.

Gatete noted that there can be no sustainable development without the participation of the private sector, highlighting the launch of the African Continental Free Trade Area (AfCFTA) as a significant opportunity to create viable industry value chains.

Jeff Gable, the Head of Macro and Fixed Income Research at Absa Group, reiterated that the Index aims to strengthen financial markets, positioning countries to attract capital. He emphasized the need to draw foreign capital into Africa while creating financial ecosystems that can also unlock domestic savings, channelling money "from under mattresses" into productive use across the continent.

David Marsh, the Chairman and CEO of OMFIF, underscored that well-developed capital markets have made a notable difference in Africa's resilience to global shocks over the last decade.

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However, he noted that Africa still "punches below its weight" in financial markets and called for a more in-depth analysis of how Africa can contribute to global sustainability efforts, particularly through the development of its critical minerals.