Strong financial markets key to sustainable development in Africa – UNECA chief

Financial Management

Africa needs strong financial markets to unlock much-needed capital to drive sustainable development on the continent, Antonio Pedro, acting executive secretary of the United Nations Economic Commission for Africa (UNECA), has said.

“Strengthening financial markets and diversifying the investor base would not only enable governments to mobilize more funding for economic recovery, sustainable development but also enhance financial resilience to future shocks,” a UNECA statement issued late Thursday quoted Pedro as saying at the launch of the Absa Africa Financial Markets Index 2023.

Noting that effective financial markets are key to Africa’s development prospects, Pedro said Africa risked realizing the Sustainable Development Goals and the African Union (AU) Agenda 2063 owing to heightened financial and social challenges triggered by a combination of the COVID-19 pandemic, growing inflation and geopolitical turbulence.

He said that to foster the development of their financial markets, countries require a comprehensive approach, encompassing capacity building, robust infrastructure, essential reference tools, benchmarks and opportunities for peer learning.

Pedro said Africa has huge investment needs to achieve sustainable development.

According to data from the UNECA, Africa is estimated to require up to 86 billion U.S. dollars annually to implement adequate adaptation measures by 2030 while the cost of transport and service infrastructure required to enable the implementation of the African Continental Free Trade Area (AfCFTA) agreement is at about 500 billion U.S. dollars.

“To close the financing gap African countries need to make better use of their domestic capital and gain greater access to global capital,” Pedro said. “For example, African pension funds should be incentivized to invest locally; special purpose vehicles should be created accordingly.”

Financial markets, which include bond markets, commodities markets and foreign exchange markets trade in capital and credit, are vital for the economic development of countries, Pedro said.

The UNECA commanded the Absa Africa Financial Markets Index for offering highly valuable insights to countries that aid policy and guide the prioritization of financial market development initiatives.

The 2023 edition of the index covers 28 countries, a significant milestone including more than half of the countries on the continent. The index assesses markets across six pillars — market depth, access to foreign exchange, transparency, tax and regulatory environment, the capacity of local investors, market economic environment and transparency and legal standards and enforceability.

The Absa Africa Financial Markets Index 2023 said that there has been continued progress in developing financial markets across Africa in the past year despite global shocks.

According to the report, most countries scored higher as macroeconomic conditions have generally stabilized following shocks from the COVID-19 pandemic and the Russia-Ukraine conflict.

Progress in the index, however, has not been uniform, the report noted, saying that each country experienced a lower score in at least one of the six pillars that make up the report.

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