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SA has fallen in the Absa Africa Financial Markets Index for 2018 and no longer tops the index across all six pillars as it did in 2017.
The country has been overtaken by Kenya on the 'access to foreign exchange' metric, and by Nigeria in the 'market transparency, tax and regulatory environment' pillar.
South Africa did, however, retain the top position overall "supported by strong financial market infrastructure," according to the report.
It is followed by Botswana, which rose to second place from third last year; Kenya, which climbed two places on improved access to foreign exchange; Mauritius, which moved down to the fourth place from second last year; and Nigeria, which improved its administrative efficiency and tax incentives.
The index, now in its second year, ranks the attractiveness of Africa's financial markets for use by investors, policy makers and asset managers. It is compiled the Official Monetary and Financial Institutions Forum (OMFIF), a thinktank.
The launch of the 2018 report was held on Wednesday evening in Johannesburg.
In assessing 20 economies across the continent, the report considered market depth, access to foreign exchange, tax and regulatory environment, the capacity of local investors, macro-economic environments and the enforcement of property rights.
Absa Group CEO Maria Ramos wrote in a foreword to the report that "emerging market economies are under intense pressure with currencies depreciating, growth slowing and interest rates rising". This, she said, had highlighted the importance of strong domestic financial markets in improving countries’ resilience to withstand shocks.
"Volatile capital flows cost SA its top spot," according to Chief Economist at OMFIF, Danae Kyriakopoulou. The rand is one of the most traded currencies in the world, and the report said that while South Africa had deep and liquid financial markets, there had been a weakening in its macro-economic outlook.
The local currency, after firming in the first quarter of 2018, was down 17% in October against the US dollar, amid fears of contagion from other emerging markets in distress, a stronger greenback, troubles in Turkey and higher US interest rates.
Head of Markets - Rest of Africa George Asante, praised Treasury’s move in April to raise the threshold for domestic pension funds to invest in foreign markets to 30% and African markets to 10% which means they can potentially place 40% offshore, which he says will boost returns and diversification.
* Update: This article's headline was changed on October 22 to clarify that while SA was found to no longer top all indices across the index , it had not lost its overall top position.
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