Ghana’s financial market has low local participation compared to its peers in some African countries, the maiden Africa Financial Markets Index launched in Washington D.C has revealed.
The finding was after a research by independent think tank OMFIF and Barclays Africa Group.
What is Africa Financial Markets Index?
The index tracked performances of financial markets in 17 African countries on six main pillars; Market depth, Access to foreign exchange, Market transparency and regulation, Capacity of local investors, Macroeconomic opportunity and Enforceability of international financial agreements.
The markets surveyed are; Botswana, Egypt, Ethiopia, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Rwanda, Seychelles, South Africa, Tanzania, Uganda and Zambia.
The Index tracked progress over a period, by supplying a toolkit for countries wishing to build financial infrastructure. South Africa topped the 2017 list, despite its recent poor Macroeconomic performance to the two institutions that put the report together.
According to Barclays, South Africa came on top based on the strength of its financial markets as well as its relative openness and transparency for transactions.
Mauritius and Botswana followed because of its strength in tax and regulation and access to foreign exchange. Kenya and Ghana provide signs of progress.
Ivory Coast, with a low overall score, is home to a growing regional bourse, pointing to future improvement. Ethiopia showed the highest GDP growth prospects of the 17 countries – even though it comes bottom of the list in terms of financial market prowess.
The index is a comparison of a country’s financial market against the selected sample, a country can reach the maximum score of 100, in such scenario the country must achieve the maximum score of 100 in all the six pillars.
The index showed that Ghana performed poorly when it came to the capacity of local investors or level of “interest” or ‘holding” that they in securities, stocks, and bonds on the capital markets.
On this pillar, Ghana scored 12 out of 100, the lowest mark recorded in all the six pillars the country was reviewed.
It was also ranked 15 out of the 17 countries that were reviewed in the Index that most local investors have not got the right level of savings or call it disposable incomes to hold most of these assets on the local market.
This meant that most assets on Ghana’s markets were held by foreigners opening the country’s financial markets to some shocks. In essence, capital flight any time any of investors decide to repatriate all their investments at a go could bring serious pressure on the cedi. It could also lead to some depreciation of the local currency.
Ghana’s performance in other areas
Despite the challenging result on local investor participation, the country made some strong gains in regulation, transparency, and tax, as it was ranked 8 out of the 17 markets assessed.
Ghana was also ranked 7 out of 15 countries that were reviewed on this pillar of legality and enforceability of standard financial markets master agreement, beating other top countries like Namibia Nigeria, Egypt, and Morocco.
In all the country was praised for having a strong potential for growth and possible market leader in the region. South Africa came up top as the best market in the region for having a highly developed market.
Response from government and Barclays
Speaking at the launch of the Index in Washington D.C, Finance Minister Ken Ofori- Atta said government would look at how to use some of the pension funds to stimulate local participation in the capital markets.
He added that “government is committed to developing the capital market and encourage local investor interest”.
Speaking in an interview with JOYBUSINESS, Managing Director of Barclays Africa, George Asante said they want the report to be seen as the reference point for the financial markets in Africa.
On Ghana, he said the country had made a lot of progress in terms of market development and openness, however, there are still some areas that need to be worked on to position Ghana as the best market in the region.
Barclays Africa Chief Executive, Maria Ramos said, “the Index provides countries with valuable insights and tools to improve the state of their financial markets.
She believes this they can do "by broadening and deepening their understanding of the requirements of local and international investors, Africa’s leaders can develop robust markets – a prime condition for sustainable, inclusive growth."