Nigeria Ranked Sixth in Barclays Africa’s Financial Markets Index
Nigeria has been ranked sixth in the Barclays Africa Group Financial Markets Index 2017.
The 34-page report obtained by THISDAY ahead of its official launch in Bali, Indonesia, during the World Bank/International Monetary Fund (IMF) meetings next month, shows that South Africa led on the index.
The report was produced by the Official Monetary and Financial Institutions Forum, an independent think-tank for central banking, economic policy and public investment.
It showed that South Africa was closely followed by Mauritius, Botswana, Namibia and Kenya that were placed second, third, fourth and fifth respectively on the index.
The Barclays Africa Group Financial Markets Index evaluated financial market development in 17 countries, as well as highlighting economies with clearest growth prospects.
The aim was to show not
just present positions, but also how economies can improve market frameworks to meet yardsticks for investor access and sustainable growth.
The Index assessed countries according to six pillars: market depth; access to foreign exchange; tax and regulatory environment and market transparency; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts, collateral positions and insolvency frameworks.
In terms of market depth, which was the first pillar, out of a maximum score of 100, Nigeria recorded 47 points. South Africa, with a score of 99 led under this category and was closely followed by Mauritius (60) and Egypt (54).
Also, in the second pillar – Access to foreign exchange – Nigeria scored 56 points. South Africa led once more with a score of 87 and was followed closely by Botswana (82), Uganda (79) and Ivory Coast (74).
However, in the third pillar – market transparency, tax and regulatory environment- Nigeria performed better with a score of 94. But South Africa still led with 95 points.
Under pillar four – Capacity of local investors – Nigeria performed poorly with 16 points. This pillar also had South Africa as the leading country at 100 points. Namibia (94) and Botswana (49), also followed closely.
In terms of pillar 5- macro economic opportunityNigeria was ranked 67, with South Africa still retaining the leading position.
In pillar six- legality and enforceability of standard financial markets master agreements – Nigeria scored 35, while South Africa held on to the leading position with a score of 100. Mauritius came in second with 93 points and Kenya 81.
African financial markets have traditionally suffered from a lack of depth relative to other regions.
This had been a key factor holding back the ability of firms and investors within and beyond the continent to exploit expansion opportunities.
According to the report, investors need to access suitable assets in the required sizes and with the desired financial characteristics, while African firms require growth finance from abroad that is often not available from domestic or regional sources.
More than 20 per cent of African businesses view access to finance as the biggest obstacle to growth, according to the World Bank Enterprise Survey, against around 13 per cent on average for the rest of the world (excluding Africa).
“This highlights the need to increase financing options via the development of financial markets. The issue is particularly pronounced for small and medium-sized enterprises, which form the backbone of the economy as the largest job creators and as the largest combined share of output, and which experience severe challenges in accessing bank financing.
“This is partly the result of high concentration across the banking sector in Africa, which contributes to high interest rate spreads. The high cost of loans in turn challenges the private sector’s access to credit.
“Owing to information asymmetries, a high degree of informality and other factors, banks have focused their lending on large enterprises and government entities as a way to minimise their risk exposure. “These difficulties have been compounded by regulatory issues such as the type of assets that are acceptable as collateral for bank loans,” the report added.
The World Bank estimates that African businesses’ assets are composed, on average, of 75 per cent ‘movable assets’ (including inventory, equipment, farm products, accounts receivable and intangibles) and just 25 per cent real estate.
Yet, collateral requirements are on average 80 per cent real estate and 20 per cent movables.
These factors mean many African companies are unable to secure bank financing, resulting in a significant gap in access to finance across the continent.
Analysis from the International Monetary Fund had also shown that relaxing these borrowing constraints could increase Gross Domestic Product levels by between eight per cent (in Nigeria) and 20 per cent (in the West African Economic and Monetary Union) through a substantial improvement in total factor productivity over the long term.
“Pillar 1 of the Barclays Group Africa Financial Markets Index measures market depth using five categories made up of 14 indicators.
“These include the range of financial products, currencies and hedging options available across national exchanges, as well as the size of financial assets relative to GDP.
According to the report, concerns over capital openness, official foreign exchange data reporting and foreign exchange liquidity are highly relevant in the competition to attract foreign investors.
It stated that since a lot of African economies are relatively small, capital markets must be developed by attracting international investors to Africa’.
“Africa has one of the youngest populations, with a median age of just 15 years old, against a global average of 30 and a European average of more than 40.
“This contributes to Africa’s high dependency ratio (the ratio of dependents to working-age population), but as these children move into working age, the African continent could experience a demographic dividend leading to higher GDP growth figures.
“Although remaining relatively small on a per capita basis, the aggregate demand for consumer goods and services is expected to increase significantly, creating new investment and trade opportunities.
“This could support an increase in domestic consumer spending to $2.2 trillion in 2030 according to some estimates, up from $680 billion in 2008,” it added.