The Nigerian Exchange Group (NGX) wants to launch a Nasdaq-style board where technology companies are the focus, but this may be a hard sell for investors who are not patient with early-stage companies.
Earlier this month, Temi Popoola, managing director, NGX, said the NGX will launch a technology board this year that will attract technology companies.
“We believe that listing more tech companies should attract more capital into Nigeria, including Nigerians in the diaspora, foreign investors and local investors as well. It would also help them achieve the fundamental responsibility of improving the economy by driving capital from surplus places to sectors that need it,” Popoola said.
The Nasdaq platform is an American stock exchange based in New York City. It has a high concentration of companies in the technology sector and is often considered to be a good barometer of how well the tech market is performing.
The tech-heavy company consists of 3,097 listed securities as of April 2021, including the likes of Apple, Microsoft, Alphabet, Amazon, Facebook and Tesla.
Analysts have commended the move but with a few reservations.
According to Omotola Abimbola, assistant vice president and senior portfolio manager at Chapel Hill Denham, the move by the NGX is a good one, however, a lot more has to be done to ensure that more tech companies are encouraged to list on the board.
“This is a good development, however, they need to ensure there are Buy-side investors who are ready to buy these companies when they get listed on the NGX,” he says.
“Tech companies trade on a very high valuation, which is not appealing to traditional investors that dominate the stock exchange. Also, many of them are early-stage companies that are either making little money or loss-making, so they may struggle to get investor participation,” he states.
For example, Tesla, an electronic car-making company listed on the Nasdaq since it was founded in 2003, continued to report a loss for 16 years, until 2020 when it made a profit of $721 million. It has a market capitalisation of $888.82 billion.
Collins Onuegbu, founder at Signal Alliance, points out that most foreign investors are discouraged from investing locally because of the difficulty in pulling out their funds when needed.
Asides from this, tech companies listed in Nigeria might also struggle to attract foreign investors considering the huge decline in foreign investments in the country’s stock exchange due to the inability to easily access dollars.
Foreigners invested N434.50 billion in stocks in the whole of 2021, according to data by the NGX, the lowest since 2011 when N422 billion was invested. The amount is also 40 percent less than the N729 billion invested in 2020, a year ravaged by the COVID-19 pandemic.
Nigerian stocks posted a 6.07 percent return in 2021, an amount that is much lower for foreign investors when the naira devaluation is factored in. This is a factor discouraging many investors from investing in the stock exchange.
Commending the efforts of NGX to seek out ways to make the board more attractive for tech companies, Ayodeji Ebo, head of retail, Chapel Hill Denham, says, “There has to be an investor education for both investors and potential investors to understand how tech works and a review of the regulations to be able to fit into the tech space.”
Due to the unfavourable factors on the Nigerian stock exchange, tech companies would rather list on the stock exchange abroad.
For example, Jumia, a Nigerian e-commerce firm, got listed on the New York Stock Exchange (NYSE) in 2019. They chose to list outside Nigeria because they believed they could not get the long-term investors needed.
Read also: Revisiting NGX 2021 market recap, outlook for 2022
Juliet Anammah, CEO of Jumia Nigeria in May 2019, addressed journalists in Lagos, saying, “When you list, especially when you are growing at a stage where we are, of course, you want the money to grow but you also want people that will invest for a long time.
“Not just take funds and buy their shares and invest for x months and sell their shares when something else attracts them. Another person comes and does the same. It increases volatility in price and as much as possible we try to avoid that.
“So, we need a good combination of people who are financial investors to a few people who want to lean out to keep your stock, your security, liquid but at the same, we want people who want to invest for a long time.”
Gbolahan Ologunro, a senior research analyst at Cordros Securities, says there is a lack of depth in the Nigerian market as the ones in the advanced countries have access to a wide range of investors who can invest significant funds needed.
“When you look at the state of the Nigerian stock market, the participation of foreign investors has significantly reduced in the past few years. So, tech companies, given the size of funds required, would most likely judge that listing on the Nigerian stock market would not be beneficial to them,” he notes.
In order to create incentives for more tech companies to get listed on the NGX, Ologunro suggests a reduction in listing fees and more friendly regulations.
Despite its over N20 trillion worth, with about 170 companies listed on the NGX, only about six firms from the tech sector including Computer Warehouse Group (CWG), eTranzact, Chams, Courteville Business Solutions, have their shares on the local bourse.
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