Africa’s financial markets stride forward with reforms, as capital dabbles in emerging markets

‘Volatility’ is the word to define global financial markets in 2025. We have witnessed seismic shifts in trade policies of the world’s largest economies, alongside geopolitical tensions, a rollback of climate finance, currency instability, and interest rate hikes.

However, Africa remains resilient in the face of adversity, laying a solid foundation of reforms to its financial systems and prioritising long-term sustainable development.

The Absa African Financial Markets Index (AFMI), now in its ninth year, provides vital data that shines a light on Africa’s financial market development. Absa produces this annual report in partnership with the Official Monetary and Financial Institutions Forum (OMFIF), scoring 29 African countries’ financial development to provide a benchmark for market infrastructure.

Progress on financial market development continues to be made across the continent, with standout examples in foreign exchange reforms, improved product diversity, and climate change action. But the tough global environment has also taken its toll.

Country performance has been mixed this year, with a roughly equal mix of those countries seeing their scores improve, stay the same, or deteriorate.  One challenge witnessed over the measurement period has been tighter global financial conditions that have created significant challenges for the depth of African capital markets.

But while wider market conditions may present a hurdle, there is also plenty of evidence that African markets are stepping up to the challenge. Across the continent, countries are actively reforming and modernising their financial systems to make it easier to put money to work.

Diversification is taking centre stage

Many positive developments have been made to diversify African markets. This not only helps to attract a broader range of investors, but diversification is also a critical mechanism for resilience, reducing dependence on a limited array of financial instruments. After all, a varied and differentiated product market is more resistant to external shocks.

Despite the tough macroeconomic backdrop, African countries are actively expanding and diversifying their financial product offerings to attract both domestic and foreign investment. Instruments such as Islamic and climate-related finance are helping to meet shifting investor preferences and align with global trends in ethical finance.

Recent product launches have reflected this momentum, particularly in infrastructure financing. Tanzania has made headway by issuing its first sovereign sukuk bond in February 2025, designed to fund infrastructure and social development projects. This is a real milestone in accessing Shariah-compliant capital. Similarly, Kenya approved its first asset-backed security to help finance a new sports complex, while also introducing Islamic financial products for the first time this year.

Today, 18 of the 29 countries captured in the AFMI Index offer environmental, social, and governance (ESG) or Islamic financial products, which is a testament to growing diversification across the continent. This is critical for enhancing market liquidity and encouraging secondary trading as investors rebalance portfolios across asset classes.

Optimism in FX reforms

Beyond product innovation, African countries are also strengthening their financial market fundamentals through bold foreign exchange (FX) reforms. While many economies faced a decline in reserve adequacy over the past year, those that addressed inefficient FX regimes have made notable progress in improving investor confidence and market credibility.

Nigeria and Uganda stand out as leaders in this area. The Central Bank of Nigeria announced major reforms, including unifying various FX windows, clearing a $7 billion FX backlog, and gradually phasing out fiscal-style interventions that had previously disrupted market operations. The Bank of Uganda also rolled out extensive reforms that liberalised the FX market, raised reporting standards, and improved interbank liquidity. Ultimately, while challenges around volatility and liquidity are still prominent across several markets, reforms like these are pivotal in bolstering market credibility, lowering transaction costs, and facilitating smoother cross-border trade.

The continent is showing leadership on climate finance

In some parts of the globe, the momentum behind ESG has taken something of a knock of late, led by the political changes in the United States that have seen a rollback of climate policies and regulations there. Africa is charting a different path, showing leadership and resilience: standing strong and flying the flag for ESG measures within its financial market infrastructure.

Many African economies remain focused on introducing policies and products that create action on the climate crisis. Four AFMI countries have issued green bonds for the first time this year, raising the number that have issued in this space to 14. Green bonds raise capital for projects that deliver environmental benefits, such as renewable energy, energy efficiency, and clean water. Renewable energy is a huge economic opportunity for many African countries; according to the International Energy Agency, the continent holds 60% of the world’s best solar resources, alongside large reserves of critical minerals and vast wind potential. It is positive to see green investments and financial products being prioritised to diversify the energy mix and promote sustainability.

What’s more, significant strides have been made in the introduction of climate stress testing. Ghana, for example, introduced climate stress testing to its financial market frameworks in November last year, becoming the ninth AFMI country to apply this approach. The Bank of Ghana issued the Climate-Related Financial Risk Directive, requiring all regulated financial institutions to integrate climate-related risks into their governance frameworks, internal controls and risk management plans. This focus on sustainability has helped to increase Ghana’s scores around the transparency and regulation of its financial markets, building resilience against future climate concerns.

South Africa is continuing to lead in many aspects of the continent’s climate policies, and in the last year, the South African Reserve Bank conducted its first climate risk stress test on six systemically important banks. It used long-term scenarios to assess both physical and transition risks, with the findings showing that the banking sector is increasingly aware of climate exposures and is broadly resilient.

As the climate crisis challenges deepen, the continent is doubling down on its efforts to strengthen ESG frameworks – even as the rest of the world slows.

The next era of emerging market growth

African countries are using financial market development as one way of managing a tough global outlook.

Challenges undoubtedly remain: liquidity constraints and external economic pressures continue to weigh heavily on international markets. But as global capital increasingly seeks diversification and growth opportunities beyond traditional markets, Africa’s financial market development shows that it is not waiting for global conditions to improve, but actively building the foundations for sustainable progress.