African financial markets are showing signs of progress, with most countries posting stronger results as economic conditions stabilize and regulatory reforms take hold. Yet limited trading activity continues to restrict their ability to attract investment, mobilize domestic savings and offer businesses alternatives to traditional bank financing.
Botswana’s two-place drop in the 2026 Africa Financial Markets Index, even as the continent’s overall performance improved, illustrates the difficulty of building deeper and more resilient capital markets.
The index, compiled by Absa Bank in partnership with the Official Monetary and Financial Institutions Forum, found that 21 of the 29 countries assessed had improved their scores. Easing inflation, stronger foreign-exchange reserves and regulatory reforms helped drive the gains. The average score rose to 56, its highest level in a decade.
Still, the report warned that international uncertainty could threaten Africa’s economic and financial stability. Trade tensions, the wars in Ukraine and the Middle East, and high energy costs remain significant risks, especially for countries with limited fiscal room and heavy reliance on commodity exports.
Kenny Fihla, chief executive of Absa Group, said the global economy remained difficult and that African countries needed stronger economic foundations to withstand external shocks. He also pointed to the possibility of a severe El Niño weather pattern, which could add pressure to economies already vulnerable to climate-related disruptions.
South Africa retained the top position in the index, followed by Mauritius and Namibia. Cape Verde recorded the largest improvement, rising six places to 13th as stronger foreign-exchange reserves and efforts to expand sustainable finance lifted its score. Ghana climbed four places to sixth, helped by falling inflation, increased stock-market activity and improving conditions after its debt crisis.
Botswana and Nigeria each fell two places, to seventh and eighth, respectively. Nigeria’s performance was weakened by poorer access to foreign exchange and lower levels of transparency. Botswana’s decline was linked to rising inflation. The results show that countries can lose ground even when the broader regional picture is improving.
The index measures the development and accessibility of financial markets by examining stock and bond markets, access to foreign exchange, pension savings, economic conditions and the regulatory framework. Its broader purpose is to assess how effectively countries can raise, transfer and deploy capital to support economic activity.
Deeper financial markets give companies more options than conventional bank loans. Through shares and bonds, businesses can raise money directly from investors, while savers gain ways to invest in infrastructure, manufacturing and other long-term projects.
But the report identified a persistent gap between the creation of new financial products and actual market participation. Several countries have introduced new instruments and upgraded their trading systems without generating a corresponding increase in activity. That matters because a market with little liquidity can make it difficult for investors to buy or sell securities without sharply affecting their prices.
The need for deeper capital markets is becoming clearer as companies seek to raise larger sums. In Nigeria, the planned initial public offering of billionaire Aliko Dangote’s refinery is one of the most prominent attempts to attract billions of dollars from retail and institutional investors. Transactions of that scale demonstrate the potential for domestic capital mobilization, but they also depend on investor confidence, clear regulation and enough buyers and sellers.
Now in its 10th year, the index uses a revised methodology that evaluates countries against fixed standards of good practice rather than ranking them solely against one another. Earlier scores were recalculated under the new framework, allowing for more consistent comparisons. The latest results therefore provide a more standardized assessment of market development, but they should not be read as a complete measure of real-world market activity.
Botswana’s seventh-place ranking puts it among the stronger markets assessed. Its decline, and the report’s identification of inflation as a contributing factor, also expose the limits of that progress.
A favorable ranking does not mean that Botswana’s capital markets are fully developed or that businesses can easily obtain affordable financing. A country can rank well relative to its peers while still facing a narrow domestic investor base, limited trading volumes and heavy dependence on commercial banks.
The more important question is whether Botswana’s financial system is becoming better at directing savings toward productive investment, expanding financing for private companies and supporting economic diversification.
Inflation is central to that question. Persistent price increases erode household savings, raise business costs and make investment decisions more difficult. Investors may demand higher returns to compensate for lost purchasing power, increasing the cost of raising capital. Companies considering bond offerings or other forms of market financing may then find it more expensive to attract investors.
But inflation alone does not determine the depth of a capital market. Liquidity also depends on the number of listed companies, the availability of securities, the participation of pension funds and other institutional investors, the ease of trading and confidence in regulatory institutions. Botswana’s response must therefore extend beyond price stability to address the practical obstacles that keep businesses from using capital markets.
Introducing financial products does not automatically create an active market. An exchange can list securities and install modern trading systems, but investors will remain cautious if there are few investment opportunities, limited information about companies or too few buyers and sellers.
Thin trading makes securities harder to sell and discourages investors who need flexibility and reliable exit options. That can create a self-reinforcing cycle: low participation reduces liquidity, and low liquidity makes the market less appealing to new participants.
Breaking that cycle will require more credible issuers, stronger disclosure standards, accessible investment products and sustained participation from domestic and international investors.
For Botswana, pension savings and institutional investment could help deepen the market if capital is allocated prudently and within clear regulatory safeguards. Encouraging more companies to raise funds through the Botswana Stock Exchange, while improving access to corporate bonds and other suitable instruments, could give businesses alternatives to bank lending.
But policymakers should not judge success by the number of listed products or the amount of money held in pension funds. More revealing measures include trading volumes, the diversity of issuers, the cost of capital, the ability of smaller businesses to obtain financing and the extent to which investment supports productive economic activity.
Reforms must also protect investors from inadequate disclosure, conflicts of interest and excessive concentration of market power.
The index’s overall improvement is encouraging, but the average score of 56 requires careful interpretation. A decade-high average signals progress under the revised framework. It does not show that African financial markets have achieved the depth, liquidity or resilience needed to finance the continent’s development.
The revised methodology also makes it important to distinguish higher scores from better conditions on the ground. Recalculated historical results improve comparisons, but policymakers and investors still need evidence on trading activity, capital raised, participation rates and financing costs to determine whether reforms are delivering measurable economic benefits.
Botswana’s decline should be treated as a warning against complacency, not as a dismissal of the country’s existing strengths. Sustained progress will require coordinated efforts to contain inflation, improve regulatory transparency, expand the supply of investable assets and encourage more companies to seek financing through capital markets.
The government and regulators must also ensure that market development benefits businesses beyond the largest and most established firms. If Botswana can turn its institutional savings and regulatory foundations into more active channels for investment and financing, its capital markets could play a larger role in diversification and growth.
Without broader participation and more consistent trading, though, improvements in market infrastructure may produce less economic value than the headline rankings suggest.
