Financial market posture and performance for Africa’s second largest copper producer, Zambia, was ranked 2 notches higher to 7th place on the ABSA Africa Financial Market Index 2021 (AFMIndex21). This was an improvement from 9th place. The red metal producers overall performance score out of a 100 ebbed 2 points to 51 (from 53) weighed by fiscal management concerns and governance impacting access to foreign exchange, capacity of local investors and to some extent macroeconomic opportunity. Some compensating positives were nonetheless observed in the fixed income government securities market following increased investor confidence and the positive strides taken by the capital markets regulator, the Securities and Exchange Commission (SEC) in incorporating Environmental Social & Governance and climate sensitive inclusions in capital market regulations, to ready Zambia for green innovation finance.
Ahead of Zambia on the index were South Africa (86), Mauritius (70), Nigeria (63), Ghana (62), Uganda (57) and Botswana (51). It remains vivid that despite the COVID19 pandemic, technology as an enabler remained key for markets through product innovation and digital inclusions through Fintech integrations ranging from sandboxes to upgrades in trading systems to efficient trading means and sustainable product offerings.
“Broadly speaking, 13 of the 23 countries on the index were scored above the bare minimum in sustainability,” ABSA Africa Head of Macro and Fixed Income Research Jeff Gable said. Gable highlighted the drivers of market transparency, tax and regulatory environment as basel, climate stress testing, accounting standards, sustainable market standards and incentives for green issuances.
One very outstanding feature was that the copper producer has seen subsiding political risks following the outcome of the August polls which has given the market a confidence boost from a governance perspective. This coupled with a liquidity flush global environment seeking a home in higher yielding assets as one the Zambia is offering gave revival to the bond market which had been for last few years suppressed. The Southern African nations capital markets has seen some development in the regulatory space which includes a framework for green bonds worked on in conjunction with the MinFin but led by the Securities and Exchange Commission (SEC) as Zambia gears to run a more climate risk sensitive capital markets.
“Trading was interesting and exciting in trading era as ways of work did have an impact with people working from home but we did adapt. Zambia had its fair share of challenges on the fiscal side with less FX supply and excess demand which brought us closer to the central bank to enable trading to support the productive sectors. With an election on the horizon made it a mixed bag yet we have sailed through, ABSA Zambia Head of Global Markets Stanley Tamele commented on the trading environment in pandemic era.
Across the 6 pillars Zambia scored 69 on market transparency, tax and regulatory frameworks, which access to foreign exchange ebbed 2 points to 50 as capacity of local investors was dismal at 18 reflecting very minimal participation by institutional players. Zambia was rated 37 under the market depth pillar, an area with immense potential if the regulatory authorities could allow for innovation in the faculty. Macroeconomic opportunity was further weighed by fiscal management and governance concerns.
“I would like to see political risk as a pillar included especially that in the context of Africa governance is fundamental as it spells policy predictability and the attractiveness of the environment around an economy to attract investment. A simple case is look at how a mere shift in government changed the policy predictability and consistency for Zambia post August,” Premier Consult Managing Partner Professor Oliver Saasa said.
Some key developments in the Zambian market space include the introduction of a capital markets tribunal to address capital markets disputes, rollout of a 10 year capital markets master plan and fintech integrations through sandbox regulatory inclusions in the market. The central bank is yet to implement trading of government securities on apps and mobile money platforms a move that would include the retail market in bonds trading.
The Kwacha Arbitrageur