DRY HUMOUR ALERT: A well-to-do Johannesburg trader visits Nairobi. During his stay, he sees a young man sleeping every day and doing nothing outside his house. So he decides to persuade him to change his life and goes on to talk to him.
Trader: Hello young man, looks like you have nothing to do. I suggest you come with me to Johannesburg.
Trader: I’ll make you a stock trader and you’ll earn lots of money.
Man: What happens then?
Trader: With that new wealth, you can buy a new house, a new car, a yacht or anything you want.
Man: What happens then?
Trader: You don’t have to worry about your future and have a relaxing life.
Man: What does it look like I am doing right now?
The moral of the story is that there is none. But the tale points to a specific event in 2012 when the Johannesburg Stock Exchange (JSE) launched the Africa One project, to facilitate cross-border capital raising and initial public offers (IPOs) but was snubbed by the region. Looking back, all I see are missed opportunities.
As noted in PwC’s Global IPO Watch 2021, initial public offering (IPO) proceeds in 2021 were the largest ever recorded globally on the backdrop of renewed global economic activities.
A total of 2,682 IPOs were recorded globally, raising about Sh60 trillion within the year. Europe, Middle East and Africa (EMEA) region accounted for 16 percent of global IPO activity with 459 IPOs raising about Sh9.9 trillion.
But while global capital market activity continued to see an uptick with the highest IPO proceeds ever recorded in 2021, African equity market transactions continued on a downward trend. The year 2021 saw the lowest activity in the last five years with a decline in value and volume by 28 percent and 23 percent, respectively, compared to 2020.
No IPO was recorded in South Africa as the largest bourse in the continent – JSE continued to record a large number of delistings with 24 companies delisting from the JSE in 2021 against 20 that delisted in 2020.
Nairobi Securities Exchange (NSE) has had no new listings since 2015 and three have delisted in the same period.
This trend reflects another bigger and worrying trend. Leading African financial centres have continued to slip from world ranking. According to the latest Global Financial Centres Index (GFCI 31), the ratings of most of the leading centres in the region fell in the rankings - Nairobi stood at position 101, down from 98.
Corruption and lack of rule of law are some of the challenges bedevilling African financial hubs. In sum, 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. Companies pulling away from the equity markets is not a good sign.
Will the Africa Exchanges Linkages Project (AELP) save the day? No one knows but it's one of the best solutions we have. It’s Africa One in a different fashion. There are currently seven African exchanges participating in the project with the aim of promoting cross-border capital raising and IPOs.
Jointly, these markets account for over 90 percent of Africa’s market capitalisation. That said, the project backers, the African Securities Exchanges Association (ASEA), are notoriously slow on joint initiatives. Nonetheless, this time we hope the project goes all the way to finishing line.
The writer is managing director Canaan Capital
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