IPO activity across Africa declined by more than 40% last year

18 March 2019 Consultancy.africa

A combination of political uncertainty and failures of new entrants is expected to restrain activity on African capital markets over the course of this year, despite predictions of growth from the International Monetary Fund (IMF), according to a new report from global professional services firm PwC.

Capital markets in Africa have been fluctuating rapidly in recent years, corresponding with sudden changes in the economic scenario. Economies in the resource-rich region have been historically dependent on the oil and commodity trade, leaving them subject to collapse in tandem with prices.

A collapse of this sort came about in 2014 when oil and commodity prices across the globe plummeted, sending African capital markets into steady decline. By 2016, the number of Initial Public Offerings (IPOs) in the region had hit a four-year low, although they registered a considerable improvement by 2017.

2018 Africa Capital Markets

The markets plummeted substantially last year, and the absolute levels of activity ended up being considerably low. According to a new report from Big Four accounting and advisory firm PwC, this low yet stable profile is likely to continue over the course of this year as well. 

The IMF has predicted growth of 3.5% for Africa this year, although the continent is currently shrouded in political uncertainty. Some of Africa’s most prominent economies – Nigeria, South Africa, Namibia, Botswana, Malawi, Mozambique, Algeria and Tunisia are expected to have elections this year.

Towards the end of last year, the uncertainty of the year ahead introduced tentativeness in economic activity, causing a number of firms to suspend their plans of listing their firms. Nevertheless, a number of governments in the region have been doing their best to prevent any detrimental impact on the economy.

ECM activity in Africa

For instance, the government in Ethiopia – one of the fastest growing economies on the continent – announced plans to offload a number of state-owned shares in varying sectors, which will be conducted on a new stock exchange that is expected to come into effect as of 2020.

Earlier last year, Egypt declared that it would sell its interest in nearly 25 state-owned enterprises, while Uganda and Tanzania all introduced policies which attached the renewal of operating licenses in the telecommunications sector to the compulsory listing of shares. Zimbabwe is planning similar measures for its mining sector.

In the current scenario, however, the Johannesburg Stock Exchange (JSE) remains the most active capital market across Africa, with the highest number and value in its equity capital market (ECM). As per PwC, its continuing lead can be attributed to the nearly $1 billion listing of Vivo Energy on the HSE and the London Stock Exchange (LSE).

IPO activity in Africa

Egypt’s capital market – The Egyptian Exchange – was the second most active market on the continent, which the report attributed to the further offering (FO) of Orange Egypt, which also raised nearly $1 billion. The deal represented Africa’s largest FO for last year.

The broader region of North Africa represented an area of particular growth in capital markets over the course of last year, with four of the top ten IPOs coming in the region. In numerical terms, however, the decline in IPO activity for last year – 43% lower than that in 2017 – representing the sharpest decline for African capital markets over the last half decade.  

The report concludes that this trend might continue in the near future. We expect partial privatisation plans to continue to emerge across various countries, seeking tangible participation in the funding and advancement of entities that provide key services to citizens, though the execution of these strategies may take time, and the ability of many local markets to absorb these offerings remains a challenge.

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Strategic stock market investments have helped the wealthy in Kenya get richer

14 March 2019 Consultancy.africa

A large portion of the ultra wealthy population in Kenya resides in the capital city of Nairobi, while most of this segment has accumulated its riches through strategic investments at the Kenyan stock exchange, according to new analysis from global real estate consultancy Knight Frank. 

Kenya is among the largest economies in Africa, and has rapidly emerged as a centre for economic growth on the continent. The country’s stable political environment, coupled with its relatively high level of economic diversification have contributed to its position as one of the most lucrative areas for investment in the region.

According to Knight Frank, signs of economic prosperity are emerging in the growth of the wealthy segments of Kenya’s population. The global consulting firm examined the investment portfolios of these individuals, with the objective of determining the sources of this wealth.

Strategic stock market investments have helped the wealthy in Kenya get richer

The analysis revealed that the key to success had been an evolution of investment practices in tandem with market trends. Only 1% of the investments amongst the wealthy individuals surveyed, for instance, were deployed towards gold and other precious commodities, which is in line with the global dip in commodity prices in recent years.

Instead, the sectors that drew the most investment were financial services and technology. As the Kenyan economy has developed, an increasing number of private and public bodies have been in need of advisory and financial services, which has prompted a number of international firms to ramp up their activities in the country.

Similarly, the technology and telecommunications sector in the country is also on a growth streak, which is more or less consistent with trends in markets across Africa and the world. The digital services market in the country is expected to reach a value of more than $5 billion by 2022.

The financial services sector drew 17% of all investments, while technology and telecommunications drew 15%. Other sectors that drew substantial investment include retail, fashion, luxury goods, transport & logistics, fast moving consumer goods, and the  media industry.