Inflation, FX Scarcity Weighed Down Nigeria’s Ranking in Africa Financial Markets Index 2024
Dike Onwuamaeze
Nigeria dropped a point to earn an overall score of 64 that placed it on third position behind South Africa and Mauritius in the Absa Africa Financial Markets Index (AFMI) 2024: “Exploring the Opportunities Africa has to Offer.”
South Africa and Mauritius scored 87 and 77 points respectively, the same points they earned in 2023, to take the first and second positions in the index while Nigeria lost a point this year having scored 65 points in 2023.
The report stated that Nigeria’s score was affected by high inflation and foreign exchange (FX) shortages.
Now in its eighth year, the 2024 Absa Africa Financial Markets Index covered 29 countries and evaluated their financial development based on measures of market accessibility, openness and transparency.
The index, which was produce with the support of the United Nations Economic Commission for Africa, would provide the investment community with a benchmark of market infrastructure across the continent, while enabling policy-makers to learn from developments throughout Africa.
The index, which encompassed approximately 80 per cent of the population and gross domestic product of Africa, was organized in six pillars, namely market depth, access to foreign exchange, market transparency, tax and regulatory environment.
Other pillars are pension fund development, macroeconomic environment and transparency and lastly legal standards and enforceability.
Nigeria scored 57 per cent under Pillar One that evaluated the size and liquidity of domestic equity and bond markets, along with the diversity of listed assets and the existence of standard features that enhance market depth.
The 57 points is the country’s average score in the following sub headings: size of market, 24; liquidity, 46; product diversity, 76; depth 70 and primary dealer system, 69.
The report said, “in Nigeria, the FMDQ securities exchange launched its exchange traded derivatives market with two pioneer products: the Federal Government of Nigeria’s Bond Futures and the Naira-Settled Exchange- Traded Foreign Exchange Futures in July 2023.”
Pillar Two, which is Access to FX, evaluated the ease of access and transparency of foreign exchange systems. It considered indicators for the flexibility and reporting of exchange rates, the breadth of capital restrictions and for interbank FX liquidity.
This pillar also measured the adequacy of FX reserves to gauge central banks’ ability to manage the potential volatility from international capital flows.
However, Nigeria lost three points from its showing in 2023 to score 52 points in 2024, which was determined by its performance in the following sub headings: reserve adequacy, 73; FX liquidity, 13; FX arrangements and control, 31 and reporting standards, 90.
Nigeria was 4th in Pillar Three, Market Transparency, Tax and Regulatory Environment, which evaluated the transparency of financial markets, focusing on tax systems, regulatory frameworks and the integration of environmental, social and governance criteria.
Nigeria scored 86 points from the following sub headings: financial stability regulation, 55; corporate reporting standards and governance, 100; tax environment, 60; financial information transparency, 100; ESG initiatives and standards, 100 and existence of credit ratings, 100.
Pillar Four, which is Pension Fund Development, evaluated the potential for institutional investors to drive capital market growth based on the size of pension fund markets, both in per capita terms and relative to local listed securities.
However, Nigeria saw its pension assets fall by 39 per cent in dollar terms from year end 2022 to year end 2023, which again is almost entirely due to the devaluation of the Naira against the dollar during the same period.
Nigeria moved down one position to 9th after scoring 28 points while Namibia, South Africa and Mauritius scored 100, 66, and 64 respectively to earn first, second and third positions.
According to the pillar’s sub headings, Nigeria scored 13 for pension fund size and 44 for pension fund assets to domestically listed assets.
Nigeria came 12th in Pillar 5, Macroeconomic Environment and Transparency with 74 points after dropping 4.0 points. This pillar considered countries’ macroeconomic environments and the transparency of economic data and policy decisions.
Nigeria’s performance under the following sub headings were GDP growth, 39; inflation, 10; NPL ratio 85; external debt, 98; macro data standards, 93; MPC transparency, 91 and budget releases, 100.
The Pillar Six, Legal Standards and Enforceability, considered countries’ alignment with international legal and contractual standards for financial markets, centered around the enforceability of standard master agreements.
Nigeria shared the 4th position with Ghana under this pillar. Both countries scored 60 points. Nigeria was scored 100 for netting enforceability; 100 for collateral enforcement and 70 for international standard.
