Project

Finance in Africa 2024 - Chapter 1: Financial markets and financing conditions

European Investment Bank

DOI: 10.26303/1ekd-k149

What is it about?

The first part of this chapter reviews financial markets in Africa. This includes market depth and market performance metrics for equity markets, bond markets, sustainable debt markets and private capital markets across the continent.

African stock markets faced a more pronounced decline compared with those of emerging markets and developing economies, reflecting the greater risk aversion of global investors toward Africa. Government bond issuance also stagnated as yields rose significantly for risky sovereigns in 2022 and 2023. While bond market conditions have improved in 2024, with lower yields and improved market access, riskier countries continue to face higher yields and liquidity challenges.

The second part of the chapter provides two cyclical indicators of financing conditions, which aim to capture the ease with which the private sector can obtain financing – a financial conditions index and a severity of crowding out index (crowding out is the extent to which bank lending to governments is restricting the availability of bank funds to the private sector). Both indicators show that while financing conditions were adverse in 2023, the was some cyclical improvement in 2024.

Why is it important?

Financing is critical if Africa is to reach sustainable development goals and achieve climate targets. The banking sector is the main source of private sector funding, but capital markets have an important role to play. The chapter reviews the development of the main public and private capital markets and the nascent sustainable finance market, identifying the strengths and weaknesses of capital markets, particularly in relation to their support for development. Analysing cyclical financing conditions via the two cyclical indicators of financing conditions mentioned above helps to understand if financing conditions are tighter or looser than average, giving an indication of the support needed from multilateral development banks like the European Investment Bank, which often have a countercyclical role, providing more credit to the private sector when local financing conditions are tough.

Perspectives

Financial market development in Africa lags other regions, and its markets were particularly affected by the increased global risk aversion caused by the pandemic and war in Ukraine. But we have seen some cyclical improvement in financing conditions in 2024.

Resources9 total

Who is involved?