Wednesday, October 13, 2021

From the Official Monetary and Financial Institutions Forum (OMFIF): "The Absa-OMFIF Africa Financial Markets Index" ("Future-proofing Africa’s financial markets")


The Official Monetary and Financial Institutions Forum (OMFIF) is now circulating its quite interesting 2021 Absa-OMFIF Africa Financial Markets Index (the "2021 Index"). "The index measures financial market development in 23 countries from across the African continent, highlighting economies with the most supportive environment for effective markets. The aim of the index is to show how economies can improve the market framework to bolster investor access and sustainable growth, and act as a benchmark for investors and policy-makers." (Press Release).

The posted Press Releasealso explained in more detail that:

Financial Markets Index finds that African markets are still innovating amid liquidity struggles. African markets endured a second difficult year, with illiquid markets continuing to dampen index scores amid the Covid-19 pandemic. Innovations in sustainable finance and digital transformation could be key to reinvigorating markets and important initiatives are underway across markets in these areas.
--Out of 23 countries in the index, 19 score lower than last year. This decline reflects more difficult market conditions, methodological changes and the inclusion of environmental, social and governance indicators in the index. Despite the fall in scores, few examples reveal an underlying deterioration in the policy, regulatory or developmental environment in any of the index countries.
--The inclusion of ESG initiatives in the formal scoring highlights important developments and opportunities in this area, though at the cost of impacting the scores of those countries for which work is at an early stage. Only 13 countries in the index have ESG-focused policies in financial markets and nine countries have introduced sustainable finance products.
--South Africa, Mauritius and Nigeria maintain their lead in the index, though with scores slipping in 2021 for all three.
--Ghana and Uganda enter the top five for the first time, both earning points for progress in Pillar 6: Enforceability of standard master agreements. (2021 Index, p.2).

Noted as well was that the "Absa Africa Financial Markets Index was produced by OMFIF in association with Absa Group Limited. The scores on p.7 and elsewhere record the total result (max = 100) of assessments across Pillars 1-6. For methodology, see individual Pillar assessments and p.42-43." (Ibid).

The thrust, then, is quite clear: continuing to foster economic globalization grounded in the core principles of markets driven development within a broadly understood liberal democratic framework designed to align economic, human rights, and sustainability principles within an integrated interlinked network the synergies of which are expected to comprehensively raise the welfare of populations subject to management under its regimes.  Like other indexes of this kind the object is both to help guide the parameters within which capacity building measures are developed, and to deepen a commitment to the normative framework within which quantitative measures may be advanced in the service of implementing a coordinated approach to the development policies of states. In that sense the 2021 Index continues to serve a quasi-regulatory role, as well as one grounded in accountability aimed at remedying deficiencies in capacity and programmatic choices among the states observed.  

Those principles are then made concrete through the  Indexes' Pillars. These six Pillars, frame the discursive universe within which the customs, expectations and values around the construction of ideal financial markets are built.

Pillar 1: Market depth (Examines size, liquidity and depth of markets and diversity of products in each market, including the availability of sustainable finance products.

Pillar 2: Access to foreign exchange (Assesses the ease with which foreign investors can deploy and repatriate capital in the region. 

Pillar 3: Market transparency, tax and regulatory environment (Evaluates the tax and regulatory frameworks in each jurisdiction, including measures to support sustainable financial markets, as well as the level of financial stability and transparency of financial information

Pillar 4: Capacity of local investors (Examines the size of local investors, assessing the level of local demand against supply of assets available in each market).

Pillar 5: Macroeconomic opportunity (Assesses countries’ economic prospects using metrics on growth, debt, export competitiveness, banking sector risk and availability of macro data). 

Pillar 6: Enforceability of standard master agreements (Tracks the commitment to international financial master agreements, enforcement of netting and collateral positions and the strength of insolvency frameworks). (2021 Index, p. 3).
To understand the conceptual structures within which values are constructed and assessment is possible, it is useful to better engage wth the values and premises built into these six pillars. In that respect they serve a function very similar that that at the core of the three Pillars of the UN Guiding Principles for Business and Human Rights (state duty, corporate responsibility, and remedial pillars respecting human rights effects of economic activity) or the OECD's Guidelines for corporations, Multinational Enterprises and State Owned  Enterprises (framing the expectations of the conduct and norms of economic operations within the sensibilities of globalization), or the Santiago Principles (framing the principles through which states may project public financial power outward through private markets). The ability to coordinate he conceptual ecologies revealed in each of these framing documents will determine the extent to which a successful system of rationalized polycentric governance may be created that bind political territories and the more abstracted territories of global production chains.

OMFIF "is an independent think tank for central banking, economic policy and public investment – a non-lobbying network for best practice in worldwide public-private sector exchanges. At its heart are Global Public Investors – central banks, sovereign funds and public pension funds – with investable assets of $42tn, equivalent to 43% of world GDP. With offices in both London and Singapore, OMFIF focuses on global policy and investment themes – particularly in asset management, capital markets and financial supervision/regulation – relating to central banks, sovereign funds, pension funds, regulators and treasuries. OMFIF promotes higher standards, invigorating exchanges between the public and private sectors and a better understanding of the world economy, in an atmosphere of mutual trust." (2021 Index, p.2).

The Executive Summary follows. The Report may be downoaded from OMFIF HERE: 

2021 Index, supra, at p. 8

 Executive Summary

Innovation in Financial Markets

The Absa Africa Financial Markets Index evaluates financial market development in 23 countries, and highlights economies with the most supportive environment for effective markets. The aim is to 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 transparency, tax and regulatory environment; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts. 

In its fifth year, the index is expanding with the introduction of new indicators. The availability of sustainable finance products, such as green bonds and equities, contributes to the score for market depth. Policies that encourage the issuance and trading of these products, as well as those that intend to mitigate against climate-related financial risks, form part of the score for regulatory environment. 

OMFIF conducted extensive research using data from central banks, securities exchanges and international financial institutions. OMFIF surveyed over 50 policy-makers, regulators and executives from financial institutions operating across the 23 countries, including banks, securities exchanges, central banks, regulators, audit and accounting firms, and international financial and development.

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