Africa’s IPO market continues to be weak. This is troubling, as stock markets only thrive when new candidates are found. There is, however, an exception to this rule: Casablanca. What can other bourses learn from it?
Capital News Africa: From the Trading Floor – Week 15-2022
Africa’s IPO market continued to show signs of weakness in 2021, with only eight companies opting for a stock exchange listing. This was one listing more than in 2020 but still one less than in 2019. Indeed, the combined number of IPOs in the last three years, 25, was still below the figure for 2017 (30) and 2015 (32). Very discouraging.
In terms of capital, the amount raised by the eight IPOs in Africa last year totalled USD 921 million. This marked an increase of more than 70% over the particularly weak 2020 (volume: USD 644 million) but was still far below the figure for 2017 (volume: USD 3.1 billion). The biggest IPO in 2021 was that of Digital & Financial Investments SAE, which raised USD 371.6 million on the Egyptian Exchange. That equalled 40% of the total volume for the year. That’s great, but one big IPO is not enough.
It would be too easy to just attribute the weakness of Africa’s IPO market in the last three years to the Covid-19 pandemic. Consider that in 2021, the New York Stock Exchange (NYSE) had one of its biggest years ever for IPOs. No - the weakness in Africa runs deeper, for it is not just linked to the dearth of candidates but also to the fact that many companies are leaving African stock exchanges.
The situation on the Johannesburg Stock Exchange (JSE), Africa’s largest bourse, is particularly worrying. In a new report, the business consultancy PwC says that not a single IPO was recorded on the JSE last year. Instead, “the JSE continued to record a large number of delistings; 24 companies delisted from the JSE in 2021 against 20 that delisted in 2020,” PwC says. Here is another event that concerns us: In a written submission to parliament in 2021, representatives from the JSE said South Africa’s macro environment has deteriorated over the past five years - and not just during the pandemic.
Other bourses in sub-Saharan Africa also did not record a single IPO. This includes those in Kenya, Nigeria, Ghana and the BVRM in West Africa. PwC sums up our concern best by stating in the report: “The reduction of IPOs and capital raising in 2021 indicates that Africa may be falling behind the international market’s ability to leverage the private sector in order to create investment and wealth.”
Unfortunately, JSE executives have not yet understood how serious the situation is. For example, JSE CEO Leila Fourie played down the market’s weakness in a recent television interview. Commenting on the many delistings, she said: “Most of them have been in small-and-mid-cap companies and largely off the back of corporate actions and schemes of arrangements.”
Encouragingly, exchange officials elsewhere in Africa are very aware of how important IPOs are to their financial centres. One prime example is an initiative on behalf of Bourse de Casablanca to encourage more entrepreneurs in that country to list. We reported on this and feel strongly that other African exchanges would do well to learn from Casablanca on how to increase the number of IPOs in their markets.
Indeed, IPOs done by small-to-midsize enterprises (SMEs) are essential for any stock exchange. They provide fresh new blood for the exchange in that they stand for new business models and ideas. A strong stock exchange, in turn, benefits the economy in several ways, including securing pension for investors. IPOs also bestow financial freedom to companies like SMEs.