Absa Africa index shows South Africa and Mauritius in lead and Ghana gaining for master agreement enforceability

Now in its seventh year the Absa Africa Financial Markets Index evaluates countries’ financial development based on measures of market accessibility, openness and transparency. The aim is to show how economies can reduce barriers to investment and boost sustainable growth.

With support from the United Nations Economic Commission for Africa, coverage in this year’s report has grown to 28 countries with the addition of Cabo Verde and Tunisia. The index now encompasses approximately 80% of the population and gross domestic product of Africa.

One of the pillars considers countries’ alignment with international legal and contractual standards for financial markets, centered around the enforceability of standard master agreements.

Key findings:

  • Mauritius and South Africa continue to score highest as the only index countries to receive clean legal opinions from three major international bodies.
  • Ghana’s score rose by 8 points as its Securities and Exchanges Commission became a signatory of the International Organization of Securities Commissions’ multilateral memorandum of understanding.
  • Survey participants highlighted superseding domestic laws low awareness and underdeveloped markets as the main barriers to the use of standard master agreements.

The absence of a legal opinion does not necessarily mean that netting legislation is not in place, or that netting and collateral provisions are not enforceable. In Uganda, the Financial Institutions Regulations 2023 bill was passed in April. It seeks to encourage wider adoption of standard master agreements by strengthening the enforceability of close-out netting provisions.

Uganda is now one of the seven economies in the index to have adopted netting legislation according to the International Swaps and Derivatives Association (ISDA), though has yet to receive a clean opinion. Early benefits are already starting to show in repo markets. As observed by one survey participant, in the year to June, transaction volumes of horizontal repos under the GMRA rose by more than a third compared to the previous year, with 44% of this annual sum coming in the three months following the law’s passage.

Source: Absa Africa Financial Markets Index 2023

Survey respondents identified several common challenges in promoting the use of standard master agreements. For those in the earlier stages of financial market development, the most pressing is the nascent state of derivatives and repo markets. As highlighted by a survey participant from Mauritius, ‘the market governs the use of master agreements,’ so low volumes of transactions can be a major constraint in underdeveloped markets.

Read the full report

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