The Rebirth Of Africa’s Capital Markets

Published 8 years ago

The performance of African markets was strong last year, with money raised by companies doubling to $10.9 billion. Buoyed by a 40% jump in terms of volume of offers, 2014 saw the highest level of activity in African equity capital markets (ECM) over the previous five years, according to a PricewaterhouseCoopers (PwC) report: IPO Watch Africa 2014.

The report showed a total of 90 initial public offerings (IPOs) which raised $6.3 billion between 2010 and 2014. Secondary offers, on the other hand, raised a total of $31.1 billion, representing 83% of the total capital raised and 27% of the transaction volume in the same period. The resurging interest tops a five-year high, recorded in 2010, when African exchanges raised $7.6 billion in fresh equity capital.

Growth in the size of the capital markets highlighted the shift from commodity-based to a broader range of sectors, most notably financial services. During the 2010-2014 period, financials accounted for almost half of the companies raising new capital. Last year, this figure stood at 57%. Within the same year, four out of the top 10 IPOs by proceeds were financial stocks, according to Dealogic, an international financial services information provider.


The report also revealed a new trend – the growth of regional stock exchanges. The research indicated a greater share of capital was raised in markets outside of South Africa, which itself accounted for only 32% and 44% of total IPO capital raised in 2013 and 2014 respectively, a departure from its more prominent position in previous years. Last year, money raised by companies on other African exchanges increased by 66% to $1 billion compared to the previous year. However these stock exchanges still have a long way to go. In the five-year period under review, the Johannesburg Stock Exchange (JSE) accounted for 78% and 64% of capital raised and transaction volume respectively. Ranked first in the world by the World Economic Forum’s 2014-2015 Global Competitiveness Report for its regulatory framework, it is easy to see why the JSE continues to dominate the Africa’s capital raising landscape.

Most notably, a number of the top 10 IPOs in the past two years had an international component, either foreign companies raising capital directly on African exchanges, or African companies marketing shares to international investors through dual listings or sales to qualified institutional buyers abroad. Since 2010, nine African companies have listed outside the continent, raising a total of $370 million while only one non-African company listed in the continent, raising $107 million. This trend highlights an increasing global integration of businesses in the region and the interest of international investors in Africa.

Regional exchanges need to continue building on the strong momentum of last year. Already, 2015 is shaping up to be a positive year for equity capital market activity in Africa. Nigeria has recorded two capital raisings in January alone; an IPO and a secondary offer. Ongoing harmonization of regional exchanges and liberalization of capital markets through legislation are necessary to keep the momentum going. This is essential to uphold investor confidence and attract new players, such as the private equity funds. To date, the most common means of exiting these funds has been through a sale to corporates, which accounts for about two-fifths of exits, according to the African Private Equity & Venture Capital Association.

Furthermore, improving social conditions, rising urbanization and the adoption of new technological advances are important factors in driving regional exchanges forward. These transformations must be matched with political stability and more effective economic and fiscal policies in order to deliver stable regional exchanges. In addition, improving liquidity and quality of information is crucial. The latter has been blamed for international public companies being hesitant to list on African stock exchanges and foreign investors investing in domestic listed companies.


No doubt, as these measures are steadily implemented, Africa’s rise in the international capital markets is assured.