Strengthening our financial markets the key to growth

The just-released second edition of the Absa Africa Financial Markets Index comes at a time when emerging market economies are under intense pressure with currencies depreciating, growth slowing and interest rates rising.

The impact has been driven in part by economic developments in advanced economies such as the US as well as local factors across the various African countries including internal economic challenges, political instability and faltering commodity prices. These developments have highlighted, more than ever, the importance of strong domestic financial markets and how they can be used to cushion the economy from strong headwinds. If one is to delve into the history of countries that have achieved transformative economic growth, a common denominator emerges: in nearly every case, they relied on sound financial architecture to effectively build and connect savings to investments.

Likewise, Africa’s potential, if it harnesses the power of resilient financial architecture, is enormous.Deep and liquid capital markets are instrumental to supporting economic growth, creating domestic investment opportunities and attracting foreign and local capital.

A vibrant, well-functioning, sound, efficient and stable financial system is a catalyst for broad-based sustainable economic growth and development. Financial market development offers additional growth and funding opportunities for local firms. It also offers opportunities for international and domestic investors to access the markets of fast-growing African countries.

It further mobilizes savings and investors to support a country’s development aspirations. Policy-makers must therefore recognise that capital markets are as important as social and physical infrastructure. The good news is that a new generation of African leaders are embracing the long-term view, acknowledging the development paradigm has changed, and prioritising the private sector.

Still, Africa’s corporate bond market is markedly small, and many countries face financial, security or humanitarian challenges, and an urgent need to diversity their economies. But as the AFMI Index reveals, important steps are being taken across Africa to develop financial systems that are robust and large enough to support development. Here in Kenya, we note with excitement the continuous effort to improve our financial markets and as a result, our ranking has moved up two positions from 5th to 3rd, placing us among the most advanced markets on the continent. Notably, Kenya emerged at the top position in the access to foreign exchange pillar up from 6th place last year, outpacing continental giants, South Africa.

This was attributed to the relaxation of capital controls as well as improvement of the country’s net portfolio flows to reserves ratio. We also emerged 3rd in the 6th pillar which addresses the legality and enforcement of financial markets master agreements.

As is clear from this report, Kenya is on track towards achieving its aspiration of becoming a regional financial hub.

Working with both the CMA and the NSE, Barclays Bank of Kenya has delivered ground breaking initiatives that continue to transform our capital markets space. For instance, BBK was the first financial institution in the region to list an Exchange Traded Fund, the NewGold ETF after the NSE and the Capital Markets Authority enacted regulations allowing these new instruments.

JEREMY AWORI, MD, Barclays Bank of Kenya, part of the Absa Group family.