Positive policy and the need to embrace capital mobilisation

Last Tuesday, the UK Department for Business and Trade Africa (DBT) hosted its "Why choose London and its ecosystem for your growing venture?" event, highlighting the UK's potential contribution to African companies seeking to grow.

Tunisia now accounts for about 3% (virtually zero five years ago) of tech activity on the African continent. The country is ripe for investment and is working hard to position itself for growth. The Tunisian Government has proactively embarked on policy changes to diversify its economy and to focus on youth employment via its National Digital Strategy and Start-up Act, a legal framework to promote the dynamic local start-up ecosystem.

However, despite this forward-thinking action, the National Digital Strategy currently has no provision for mobilising international capital (especially for fluid AI-based tech start-ups). And 10,000 mathematics, informatics, science, and engineering graduates have yet to be fully utilised across the ecosystem. These factors, among others, indicate a considerable challenge to unlocking international capital and driving growth.

International investment

There have been some exciting successes in the region, especially in areas where international investment has been made. For instance, Tunisian-born and London-headquartered AI start-up, InstaDeep has become one of the most successful African exits to date. In January 2023, it was acquired by Germany's largest vaccine maker, BioNTech .

At the event, InstaDeep's co-founder, Karim Beguir, cited English law, EIS, the SEIS tax incentive, and other factors as reasons why the UK makes sense for founders to scale and raise capital.

Despite InstaDeep's profile, the available mechanisms for companies like this are often little known. Our event aimed to further educate the Tunisian market about capital mobilisation from the UK and how it works best. Importantly, we highlighted the need for capital mobilisation as part of key policy initiatives and the need for internationally linked IPOs - I refer to these as the missing links.

The first missing link – international capital mobilisation linked to policy

The first missing link can be bridged by connecting the local exchange liberalisation with the National Digital Strategy and the Start-up Act. This is necessary because, particularly with Tunisia's foreign exchange control regime, it is unlikely that international investors will invest in Tunisia directly, and international VC fund coverage for the market is limited.

This approach will make the dual listing offer the only way to build a bridge to international capital, including when considering local currency depreciation (not unlike in the rest of Africa).

It is the only way to scale and grow well beyond Series B capital raising. Indeed, Bilel Sahnoun, CEO at Bourse de Tunis (up 12.69% YTD, hosting 75 listed entities and trading 16.3 million TND (~GBP4 million) volume daily) , confirmed positive sentiment touting upcoming deregulation aimed at growing the exchange and helping with local capital raising. Interestingly, the Bourse de Tunis indicated a precedent exists for dual listing, albeit it with the Bourse de Casablanca , and has LSE sharing views on recent UK deregulation.

The second missing link – the need for IPOs of all sizes

There are very few IPOs in Africa, and even fewer accessing international capital. Maintaining valuations on the right exchange is also a key factor. Africa needs international exchanges and, notably, the one best suited and aligned to African businesses is the LSE. If in doubt, there are just eight legacy unicorns profiled by The Big Deal (Max Cuvellier Giacomelli ) looking at the history and future potential unicorns.

The inefficient liquidity of equity capital markets underpinning African investment keeps pressure on the supply of capital. This includes private equity funds (currently battling returns dragged down by recent poor local currency performance) and even VCs, who need to rely on trade sales as exits. The efficiency of periodic market access does not exist, and little new capital is entering the ecosystem; thus, there is limited capability to recycle capital efficiently.

As Aziza Inoubli of Briter Bridges quantified, over $23 billion in funding has been raised since 2014, which needs to be returned – and then some, if the promised returns are factored in.

Will there be sufficient trade sales/Series B/C/D investor cheques to cover this volume of investment and returns? How will we get the African ecosystem to acknowledge that there needs to be another way?

IPOs (and, in Africa's case, dual listings) are necessary. IPOs allow access periodically, creating liquidity and even blending the best of public-type placements via new, innovative solutions, which should also be considered. Offerings like the Floww platform (LSE is a major shareholder) or the soon-to-launch PICES (Private Intermittent Securities and Capital Exchange System) are great examples. PICES incorporates elements from public markets, such as those that offer multilateral trading, and elements from private markets that provide greater discretion on what company disclosures should be made public—the best of both worlds.

Finally, the matter of size has been debunked – not reaching billions isn't a reason to prevent an IPO. The LSE has at least four different trading venues capable of accommodating various-sized IPOs while ensuring quality coverage post-IPO.

As our work with the companies and investors active between the UK and Africa reaches a pinnacle, I'd encourage you to reach out to share your thoughts on how we might address these gaps and take this forward next year – as the work is far from complete.

Join us for our last DBT Africa event focused on mobilising capital in Cape Town in December on the fringes of SuperReturn Africa.