Ghana has moved into the top-five ranking of the Absa Africa Financial Market Index report, placing fourth with an overall score of 62 out of the maximum 100 score – a recognition of the positive strides in development of the Ghanaian market. This is an improvement on last years’ sixth position with a score of 59.
Remarkably, Ghana scored 50 and above in 5 out of the 6 pillars measured. The policies and initiatives that contributed to Ghana’s improved performance include: adoption of and enforceability of standard master agreements; improved access to foreign exchange through forward FX auctions by the Bank of Ghana; and market transparency works through daily publication of financial asset prices. Ghana’s weakest link, however, is the Capacity of Local Investors, where it recorded a score of 21.
The Absa Africa Financial Markets Index is produced annually by the Official Monetary and Financial Institutions Forum (OMFIF) – an independent think-tank for central banking, economic policy and public investment through extensive quantitative research and data analysis in association with Absa Group Limited.
The index, now in its fifth year, throws light on Financial Markets across Africa and benefits from continued engagement with policymakers, regulators, market participants and industry experts – providing the latest information about developments in the region.
The Absa Africa Financial Market Index (AFMI) evaluates and ranks Financial Market development in 23 countries, highlighting the opportunities and challenges within their economies.
The aim is to show present positions, as well as how economies can improve market frameworks to bolster investor access and drive 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.
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South Africa, Mauritius and Nigeria maintained their lead on the index despite recording lower overall scores compared to the previous year, mainly due to the impact of COVID-19. Ghana and Uganda entered the top-five for the first time, both earning points especially for their progress in the enforceability of standard master agreements.
Commenting on the report, Absa Ghana’s Managing Director, Abena Osei-Poku said: “Expanding and deepening Ghana’s financial markets is vital to our economic development, and it’s great to note that Ghana is moving in the right direction with recognisable progress. Ghana’s strong performance across pillars, with scores above 50 in 5 out of the 6 pillars, shows that stakeholders led by the Ministry of Finance and Bank of Ghana have sustained development initiatives through the Covid period.”
The Director and Head of Global Markets for Absa Ghana and Nigeria, Kobla Nyaletey, noted that: “To score full marks of 100 on the pillar of Enforceability of Financial Contracts signifies the quantum and speed of work by stakeholders over the last few years in adopting ISDA, GMRA to underpin financial market transactions and the formal recognition of netting in the new Corporate Restructuring and Insolvency Act 2020 (Act 1015).
“Market participants now need to appropriately reflect this in pricing via a risk-adjusted pricing framework. I look forward to similar speedy reforms in other areas, especially in enhancing the capacity of local investors to sustain Ghana’s upward climb on the index in the coming years.”
Ghana’s performance
Ghana’s Market Depth recorded a 50 score. Ghana was also recognised for further refinement in its Primary Dealer system with the Bond Market Specialist group, as well as the framework for issuance of green or sustainable bonds in future. The availability of sustainability-focused products in the domestic markets is a new indicator forming part of Market Depth (Pillar 1) scores.
In May, Ghana’s Securities and Exchange Commission (SEC) launched its Capital Market Master Plan to implement product diversification and widen its investor base over the next 10 years. The Ghana Stock Exchange (GSE) has also partnered with the London Stock Exchange to support Ghana’s capital market development.
This partnership will focus on executing several initiatives which will lead to upgrading Ghana’s classification from a Frontier to an Emerging Market, and supporting cross-listings between both exchanges. The GSE, working with other exchanges from ECOWAS, is also developing a system that enables brokers to trade across different markets of the sub-region.
To accelerate digitisation of the financial market, the Bank of Ghana (BoG) launched a payments-focused sandbox in February 2021. The BoG also established the Fintech and Innovation Office to drive cash-lite, e-payments and digitalisation. The BoG is further exploring the possibility of issuing a digital currency. All these efforts were duly recognised and contributed to the improvement in Ghana’s score on Market Depth.
Ghana scored 59 out of 100 on the Access to Foreign Exchange pillar, a 2.8-point decline from the prior year – partly due to weaker reserve positions relative to net portfolio flows. Despite a decline in its interbank FX market turnover, Ghana climbed five positions on the ranking in this pillar, driven by more frequent official exchange rate reporting and wider adoption of the FX Global Code – important work toward market transparency and adoption of global best standards. In 2020, the Ghana cedi remained relatively stable against the US dollar on account of reduced FX demand and structural changes such as the increased use of forward FX auctions.
On Pillar 3 – Market Transparency, Tax and Regulatory Environment – Ghana scored 75 points. Earlier this year, parliament passed legislation to waive tax on capital gains for listed securities, making permanent the incentive established in 2020 – thus making Ghana one of the generous tax regimes for investors.
On encouraging sustainable markets, the National Pensions Regulatory Authority (NPRA) released guidelines for incorporating Environmental, Social and Governance (ESG) factors in investment decisions, with up to 5% of a pension scheme’s assets under management invested in green bonds not counting toward its maximum allocation for securities. Ghana is working with the Global Reporting Initiative to introduce sustainability reporting in its market by end of the year.
Pillar 4 evaluates Local Investor Capacity based on size of the pension fund market and its potential to drive market activity. Across the 23 countries on the index, scores dropped by 6.3 points; with 17 countries falling down the rankings. Aggregate pension fund assets in the index declined by 1.9%.
With a low score of 21, the report concluded that in Ghana many pension funds and asset managers tend to have a short-term view of investments, making them more risk-averse and unlikely to invest in unfamiliar sectors. Pension funds in Ghana are encouraged to invest in sustainable financial products. More funds will move in this direction if trustees and investment managers have the confidence to evaluate new kinds of investment opportunities.
The Macroeconomic opportunity (Pillar 5) assesses countries’ economic prospects using metrics on growth, debt, export competitiveness, banking sector risk and availability of macro data. Countries collectively performed best in this pillar, scoring an average of 62. Despite constrained growth and deteriorating credit quality in a number of countries in 2020, improvements in financial and fiscal transparency kept scores steady.
The International Monetary Fund (IMF) identified Ghana as one of the index countries at risk of debt distress as of end-June 2021. Ghana among other African countries issued Eurobonds in the first half of 2021, funding from the Eurobond helped the country to finance maturing debt obligations, infrastructure projects and support the budget. Ghana recorded 65 points under this pillar.
Pillar 6 evaluates countries based on the enforceability of close-out netting rules and use of standard financial markets master agreements. Ghana, alongside Nigeria and South Africa, earned the full 100 points for their commitment to Financial Master agreements and enforcement of netting and collateral positions; which is a primary means of credit risk mitigation, especially for Over the Counter (OTC) derivatives. Earlier this year, the Bank of Ghana issued notice recognising netting arrangements for transactions using global standard documentation.
