Africa’s financial markets have remained resilient and innovative in the face of global growth challenges. However, they remain fragmented and shallow compared to their equivalents in Latin America and Asia. The African Development Bank’s own African Financial Markets Initiative was launched in 2008 to build and develop local currency bond markets across the continent. The initiative is organized around two pillars, namely the African Financial Markets Database and the African Domestic Bond Fund Project.
It should be noted that Africa’s capital markets have grown significantly over the past three decades to around 30 from just five stock exchanges in the 1980s. The total amount of issued sovereign bond markets has increased significantly to more than $200bn in 2016 from $28bn in 2000. This includes 94% of bonds with less than one year in 2000 to about 76% in 2016. Moreover, the African Financial Market Database has grown to 43 countries in 2015 from 22 countries in 2012.
Resilient, broader and deeper financial markets are essential to Africa’s transformation. The achievement of the African Development Bank’s ‘High 5’ operational objectives for accelerating Africa’s economic transformation (light up and power, feed, integrate, industrialise and improve the quality of life for the people of Africa) depends critically on financial markets playing a greater role in financing the continent’s real economy.
The Bank’s goal is to support 20 capital markets across Africa over the next decade through a broad-based approach, addressing market development challenges, including those identified in the various indicators of the six pillars of the Barclays Africa Group Financial Markets Index which OMFIF has produced. That is why the African
Development Bank actively works with the public and private sector to support market reform programs such as policy modernisation and new frameworks governing capital markets. Flexibility in accessing capital markets is key to unlocking domestic savings and attracting foreign investment.
Africa’s transformation requires significant resources. To achieve universal energy access by 2025, for example, requires innovative mechanisms to mobilise $30bn-$55bn annually in domestic and international capital. This calls for a shift of resource mobilisation, deploying robust and resilient financial systems and capital markets. The private sector will need to bear much of the load.
Through expert analysis of the African financial markets, the Barclays Africa Group Financial Markets Index draws global attention to the considerable investment opportunities and uncovers the untapped market potential. This inaugural report from OMFIF, covering 17 growth markets across the continent, provides an excellent basis for the acceleration of the delivery of the Bank’s ‘High 5’ strategy.
Akinwumi Adesina is President of the African Development Bank.