Capital markets in Africa recover after a challenging 2016

12 March 2018 4 min. read
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Having fluctuated through a turbulent few years, capital markets in Africa appear to be on the road to recovery, especially as commodity-dependent markets such as Nigeria and Cote d’Ivoire display signs of recovery. A new study from global professional services firm PwC reveals that Initial Public Offerings (IPOs) in Africa saw a 17% increase last year, in contrast with a four-year low the previous year.

Africa’s contemporary economic scenario appears to be in juxtaposition with that of the world. As the median age of the global population rises, Africa has a substantial young population; set to enter the working age over the next decade. While the global banking sector has been reeling from the financial crisis a decade ago, Africa’s banking sector has held strong and steady.

On the contrary, while importers of oil across the world benefitted from the dip in commodity prices over the last few years, Africa’s cluster of oil-dependent economies were plunged into economic strife. Since the fall of commodity prices, Nigeria, which is the largest economy in Africa, saw five successive quarters of decline in GDP.

However, one area in which the continent appears to be in tandem with the global economy is that of capital market performance. Capital Markets across the globe have been on a roller-coaster ride over the last few years, in light of unprecedented levels of political upheaval and radical shifts in policy. The global capital market saw significant dips in 2014 and 2016, and spikes of similar magnitude in 2015 and 2017.

IPO trends by year 2013 - 2017

A new report from Big Four professional services firm PwC demonstrates how African capital markets have followed an identical trend. The African economy saw 134 IPOs and 385 further offers (FOs) between 2013 and 2017. During the four-year period, the most IPOs came in 2015, at 32, followed by 2017 with 28. Both years also saw the highest FO activity, at 93 FOs each.

A large portion of the growth was driven by the Johannesburg Stock Exchange (JSE), which saw a number of large Special Purpose Acquisition Corporation (SPAC) listings, as well as a number of spin-offs, which specifically boosted the equity capital market (ECM) segment.

The biggest spin-off listing was that of retail giant Steinhoff’s African retail division (STAR), which raised $1.2 billion on the JSE, back in September when the firm was not embroiled in an accounting scandal. The major SPAC listing was the IPO of African Rainbow Capital Investments, which was the second largest overall listing on the JSE in 2017.

ECM activity by year

In correspondence with deal activity, the value generated from ECM transactions also saw spikes in 2015 and 2017, separated by a major dip in 2016. Of the $52.7 billion raised from 519 transactions since 2013, just over $11 billion was raised in 2015, and just over $10.5 billion was raised in 2017. 2016, meanwhile, saw only $7.4 billion generated from ECM transactions.

Nevertheless, while the African economies are clubbed together to gain a regional perspective, economic performance is far from equitable across the continent, as the numerous markets are highly nuanced and variant. More than 10 countries, for instance, have no exchange whatsoever, as per the report.

As is evident from the major deals mentioned above, South Africa had the most active capital market in 2017. The second largest country by GDP on the continent is the only country to have registered a market capitalisation in excess of $100 billion at the end of 2017.

Overview of African Stock Exchanges

Other major economies fell between the $30 billion and $100 billion market capitalisation bracket, including Nigeria, Egypt and Morocco, all of which also feature in the ten richest countries on the continent. Meanwhile, the developing economies of Kenya, Tanzania, Ghana and Tunisia fell between the $6 billion and $30 billion in terms of closing values for 2017.

Commenting on the report, Partner at PwC Capital Markets, Andrew Del Boccio said, “Capital markets in Africa saw a recovery in 2017 with the positive impact of commodity stabilisation on economies such as Cote d’Ivoire and Nigeria, which emerged from five successive quarters of GDP declines, and resilience in the face of economic and political uncertainty in South Africa.”