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Nigerian stock exchange wants to attract tech IPOs


By Seth Onyango, Bird Stories Agency

Nigeria has set in motion what could herald a new dawn for African tech start-ups as it considers adopting new listing rules to encourage tech companies to go public.

The Nigerian Exchange Group (NXG) is launching a charm offensive to attract tech unicorns to the stock exchange, in part to resuscitate the market after a lull in new listings.

Its pivot to fintech companies underpins the maturing of Africa’s tech ecosystem – now a prime destination for foreign direct investment.

NXG is building a NASDAQ-style board of directors to cement itself on the fast-growing internet economy being created by local tech companies.

Olumide Bolumole, Division Head of Listing Business at NXG, revealed that the exchange will make sweeping changes to make listing attractive for tech companies.

He singled out the “break-even point,” one of the current prerequisites for listing a company on the stock exchange, saying the requirement hinders the growth potential of tech companies.

NGX demutualized in 2021, taking the company private in a move it hopes will attract greater flows of foreign and domestic investment to the Nigerian stock exchange, with a renewed focus on corporate governance and the ability to expand into other markets and sectors.

NGX consists of a holding company and three subsidiaries which cover the operations of the Nigerian Stock Exchange (NSE), its regulation and its real estate. This structure is similar to those of other international exchange groups such as the London, New York and Johannesburg exchange groups.

Nigeria and a few other African states have unicorns – start-ups that have reached a market valuation of over US$1 billion – including: Jumia Technologies, Interswitch, Flutterwave, Andela, Wave, OPay and Chipper Cash.

Five of them have become unicorns in 2021, including two in September alone, indicating unprecedented levels of interest in Africa’s start-up market.

But despite being Africa’s fourth-largest stock market, none of the top Nigerian start-ups to date have listed on the Lagos-based NSE. The proposed reforms should help tech companies access broader capital markets, starting at home.

According to little trackerthe Nigerian government is in the process of implementing the Nigerian Startup Bill (NSE).

It will create a new regulatory framework that should allow innovation-driven businesses to thrive.

“The bill also aims to address common shortcomings such as insufficient digital infrastructure, tax exemptions and access to capital,” little tracker noted.

Listings of African tech companies have many benefits, including raising funds and providing an exit route for investors, supervising and monitoring securities transactions, and fair pricing for securities.

Timely disclosure of company information and better business practices are also some of the benefits of a company going public. Studies have shown that consumers are often more willing to support listed companies.

For Nigeria, listing start-ups could help revive the country’s stock market after a three-year drought. Over the past few decades, Nigeria’s market capitalization has fallen far below its potential.

“In 2020, the market capitalization of the Johannesburg Stock Exchange (JSE) reached $1,050 billion, or 235% of the country’s GDP, which stands at $301 billion,” according to little tracker.

While the NSE has outperformed in 2020, growing as much as 50% with $4.5 billion in new listings, its market capitalization of $56.6 billion – just 13.1% of the relatively huge GDP of $432.3 billion – shows that there is considerable room for growth.

/bird story agency