A report released at the fourth edition of Absa Africa Financial Markets Index 2020, shows a significant drop in Kenya’s capacity to attract local and foreign investment, placing it at the seventh position from last year’s third.
Based on the report, Kenya lost seven points to score 58 out of 100 points, placing Nigeria, Botswana, Namibia and Ghana ahead of Kenya to join South Africa and Mauritius who retained top two positions with 89 and 79 points respectively. Uganda retained its 10th position while Tanzania slipped from seventh to rank 12 as Rwanda also dropped from the ninth position to 13.
Charles Russon, Chief Executive of Absa Corporate and Investment Banking believes that the Index is an important factor in providing transparency and encouraging investment to support Africa’s growth.
The Absa index creates a means for cross country comparisons, opening policy discussions between regulators, capital markets, investors and corporates on how to build markets that can mobilise capital and promote investment.
Countries are rated based on six pillars, which includes market depth, access to foreign exchange, market transparency, tax and regulatory environment, capacity of local investors, macroeconomic opportunity as well as legality and enforceability of standard financial markets master agreements.
The foreign exchange rating is based on a country’s openness to foreign investment in regards to the ease of moving capital, flexibility of foreign exchange regimes and availability of reliable foreign exchange data. In this category, Kenya dropped positions in five out of the six pillars, with its foreign exchange regime coming into focus again. It had 57 points on foreign exchange pillars in comparison to 65 scored last year, condemning it to tenth position in this pillar.
Looking at the market depth category, Kenya lost three points as a result of the impact of Covid-19 on Nairobi Securities Exchange market capitalisation and activity while it slipped from second to sixth after losing 39 points in the legality and enforceability of standard financial markets pillar.
In the tax and regulatory environment, Kenya climbs two places after scoring better in corporate governance structure. The Kenyan Capital Markets Authority issued guidance allowing listed firms to purchase their own shares. These share buybacks, which can help encourage stock market activity, boosting the country’s score.
Analyzing the capacity of local investors, Kenya’s pension investment practices were improving, but conflicts between pension fund trustees and external managers tend to hamper longer-term approaches to investment.
Nevertheless, Kenya jumped two positions to rank ninth on market transparency, meaning that it has made significant improvement in the tax and regulatory environment.