An impartial, evidence-based take on how to boost African domestic exchanges

Last week, the UK Department for Business and Trade Africa (DBT) participated in the AFSIC 2024 conference, where I joined the panel “African Public Equity Markets – Navigating Market Opportunities.”

The discussions direct us to a more holistic and global approach to IPO markets, the role of local investors, and the broader macroeconomic climate across the African continent. These points are expanded below.

Think globally. Act and service locally

Most African exchanges (except for the Johannesburg Stock Exchange (JSE)) characteristically have lower trading volumes and fewer listed equities. However, these exchanges are home to operationally robust companies that contribute fundamentally to their local economies, making them highly profitable in local currency.

Despite impressive dividend yields, many have low P/E ratios (for various reasons), which makes them susceptible to de-listing by savvy private investors searching for undervalued assets. Indeed, JSE currently has around 18 excellent companies at risk of precisely that. In conversations with a US investor, they are steadily eyeing and seeking to acquire these "diamonds" on the JSE.

In support of local exchanges, DBT Africa actively encourages local listings to empower institutional investors (notably pension funds and similar vehicles) to invest more in local economies. Dual or reverse listings can safeguard against opportunistic foreign takeovers or delisting, offering local companies access to global capital while maintaining a presence in their home market.

In my previous post , we discussed the merits of dual listings, particularly for Nigeria, though the concept is broadly applicable across major African exchanges. The LSE is a natural partner for these initiatives, given its track record with Africa and its deep understanding of the region’s markets. The legal ‘plumbing’ exists to undertake dual listings with most African exchanges.

At AFSIC, it was heartening to hear an audience member point out Airtel Africa’s success, a dual NGX-LSE listed stock, and illustrate the potential of dual listings. Thanks to the LSE's most significant deregulation in a decade, dual listing is now much easier and more cost-effective. Please reach out to Abi Ajayi at the LSE for more on this.

The role of local institutional investors

A key takeaway from the panel discussion, and something I continue to emphasise, is the importance of local investors. Whether talking about public or private markets, foreign investors want to see local investors—often considered the "buyers of last resort"—actively participating.

Local investors play a critical role in risk mitigation, especially in the face of currency depreciation and credit risk premiums. Their presence assures foreign investors that local resilience can step in during market downturns and exert influence more effectively, as seen during the recent Ghanaian default crisis.

Local investors also can step up should a fire-sale scenario be inevitable. Like it or not, this is often how emerging markets are perceived. While I, amongst many others, work to create a more accurate narrative, foreign capital flows in the interim remain contingent on local investor participation.

With the “great thaw” of IPO markets globally, it's worth looking at the largest transactions, often valued in the billions of US dollars, for insights. Despite their size, the fundamentals remain the same for companies going public: they need to generate real revenue, be profitable or have a clear path to profitability, and demonstrate durable business models.

For African exchanges, proving profitability is even more crucial, especially to convince local institutional investors to choose local equities over government-backed bonds. The question remains: how can we shift this dynamic?

Green shoots in the African macro-economic climate

I felt particularly optimistic when fellow panellists (capital allocators) spoke of green shoots and reaching an inflexion point in African macroeconomics, particularly regarding African currency.

The hope is that stabilising currency depreciation will lead to more predictability, increased deal flow, and a renewed interest in African investment opportunities. However, much work remains, especially in debt restructuring, capacity building in local markets, and global investor engagement.

For me, one of the most exciting opportunities is in sub-asset classes like digital infrastructure (where Africa lacks data centres crucial for the AI journey) and logistics infrastructure (needed for green hydrogen solutions and broader climate-related projects).

This optimism aligns with Africa’s broader economic outlook . While growth slowed to 3.1% in 2023, it is expected to rebound to 3.7% in 2024 and 4.3% in 2025, presenting a significant opportunity for high-growth sectors like digital infrastructure and logistics, which are critical to Africa’s future economic transformation. However, structural challenges and financing gaps remain, requiring strategic investments to unlock the full potential of these sectors in key markets such as South Africa and Kenya.

Engage with us to drive change

David Gate and I are working closely and steadily with UK and global institutional investors to build interest in high-yield African alternative investment opportunities that align with the supply of capital’s expectations, particularly regarding risk-adjusted returns. Please contact David for more information as we continue compiling the best-in-class data and investment opportunities.

At DBT, I am spearheading two initiatives to link African business to the UK/global supply of capital,

• Public markets initiative: Collaborating with the London Stock Exchange (LSE) to drive IPOs and balance dual/reverse listings in partnership with African exchanges.
• Private capital initiative: Focusing on risk-adjusted returns from the perspective of the “supply-of-capital” through a pilot called the Investor Interchange Hub (The Hub), which connects high-yield African investments with the supply of capital.

Both streams are run simultaneously, working with major UK intermediaries and financial services companies.

Please feel free to contact me for more information on either initiative.

Finally, I want to thank the AFSIC team, my fellow panellists (Simone Baur , Ayo Salami , and Thea Jamison ), and the wider DBT network for their collaborative efforts in advancing African corporate listings and supporting local exchanges.

Keep an eye out for the upcoming DBT-convened Working Group report, due in Spring 2025: Why an IPO, Why London, and Why a Dual Listing. This report will also explore late-stage tech investing opportunities.

#Africaninvestment #riskadjustedreturns #dual-listing #UKderegulation #LSEG

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