NASDAQ-style ambitions

Nigeria’s Shortchanged Stock Exchange Turns To Tech Startups For Local IPOs

By  |  February 9, 2022

Notwithstanding the economic tumult occasioned by the overly unforgiving pandemic, the Nigerian stock market outperformed its global counterparts back in 2020. The local bourse, situated in Lagos, closed with a 50 percent year-to-date gain, its most in over ten years (precisely since December 2007). 

But, despite overtopping international stock growth in what was definitely the most uncertain time in modern history, Nigerian stocks did not have another historic year in 2021. 

As a result of the country’s unstable economic environment, one dominated by inflation, things ended with a lower return of 6.07 percent. In addition, uncertainty in the local business market is taking a massive toll on the stock market cap, putting Nigerian stocks behind its African peers. 

South Africa, Egypt, Morocco, and Kenya [in that order] have Africa’s four largest stock exchanges by market cap, with each far ahead of Nigeria, the continent’s economic capital. 

For example, in 2020, the market cap of the Johannesburg Stock Exchange (JSE) swelled to USD 1.05 Tn, equivalent to 235 percent of the country’s USD 301 B GDP. 

In October 2021, the Egyptian Stock Exchange (EGX) had a market cap of USD 731 B, comparable to 12 percent of the North African country’s GDP. The market cap of Morocco’s bourse hit USD 58.9 B in October 2020, which corresponds with 53.7 percent of the nation’s GDP. In 2021, the Nairobi Securities Exchange capped USD 21.4 B, which equals 21.6 percent of Kenya’s USD 98.8 B GDP. 

The market cap of Nigeria’s stock exchange market, hardly tagging along, stands at USD 56.6 B, just 13.1 percent in equivalence to the nation’s enormous USD 432.3 B GDP.

In the years between 2010 and 2019, the stock exchanges situated in Africa cumulatively floated 202 Initial Public Offerings (IPOs), amounting to as much as USD 88 B. Of the USD 12.3 B total raised by listings in Sub-Saharan Africa, South Africa accounted for an unarguably dominating 71 percent. 

Meanwhile, Kenyan IPOs raised 13 percent [USD 1.5 B], and Egyptian listings realized USD 2.2 B with 23 offerings. However, during the span of that decade, Nigerian firms accrued just USD 687 M from IPOs, all of which took place in pre-pandemic 2019. 

Currently, the bourse lists 177 companies. But, the Nigerian capital markets do not accurately reflect the country’s resident economic potential. 

Perhaps in a multi-edged strategy to turn things around, the Nigeria Exchange Limited has informed the nation’s Securities and Exchange Commission (SEC) of its intentions to create a board designed to facilitate tech startup IPOs. 

“In that board, there are lots of what you might call structural challenges, that will preclude tech companies from listing, which we look to address–things around the rules, the barriers, the entry for traditional companies, the governance requirements and the like,” CEO Temi Popoola told CNBC Africa this week. 

“If you look around you, there is a technology capital formation, perhaps every other week. So one question we have to ask naturally is how we can make a lot of that capital formation happen on the exchange,” Temi added.

Basically, the bourse is setting up a NASDAQ-style board to consolidate on the fast-growing economy created by local tech firms. WeeTracker’s venture investment report for 2021 shows that of the USD 4.08 B invested in African tech startups in the said year, Nigeria absorbed a hefty USD 1.42 B to remain the top destination for venture funding in the rapidly-metamorphosing African internet ecosystem. 

Nigeria is also Africa’s tech unicorn capital, with startups such as Flutterwave, Interswitch, Andela, OPay, and JUMIA being the only companies to have reached [and surpassed] USD 1 B in valuation. 

While JUMIA went public on the New York Stock Exchange (NYSE) in 2019, Interswitch is in the middle of a long-overdue dual listing back home and on the London Stock Exchange (LSE). When Interswitch goes public, it will mark Nigeria’s first-ever tech startup IPO. 

In view of wooing tech investors, the Nigerian government is in the process of implementing the Nigerian Startup Bill (NSE).

Per reports regarding the draft, the bill will create a new regulatory framework, one that would allow innovation-driven businesses to thrive. The bill also intends to address prevalent shortcomings such as insufficient digital infrastructure, tax holidays, and capital access.

According to Umar Danbatta, the Executive Vice Chairman of the Nigerian Communications Commission (NCC), Nigeria accounts for up to 82 percent of the information and communications technology (ICT) market in Africa. Indeed, for the past decade, ICT has been consistently contributing an equivalent of 10 percent to the GDP of Nigeria.

Will Nigerian tech startups fancy listing on a local exchange over international bourses?

It is high time the local capital markets rebooted. Three East African countries electronically merged their stock exchanges last year, and Francophone (West) African countries have a similarly unified capital market, all in an effort to consolidate their emerging-but-fast-growing economies. 

Nevertheless, it will take lots of time and groundwork to create anything as desirable and impactful as NASDAQ, even in Africa’s said tech capital.

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