Last week, Jumia became the first Africa-focused technology company to list on the New York Stock Exchange (NYSE). It’s a good pitch for doing business in Africa but a wake-up call for Nigeria, the e-commerce company’s largest market.
Market expectation, market behaviour and investment climate are the three pillars on which investment decisions stand. And it is why investors and businesses flock to stock markets in New York, London, Hong Kong and Shanghai.
In seven years, Jumia rose to become Africa’s largest e-commerce platform and the continent’s first unicorn i.e. a start-up with a value of $1 billion and above. Though active in 14 African countries, 70 percent of its business is from Nigeria.
Jumia is riding on the surge of mobile phones and broadband networks across Africa – the mobile economy in West Africa generated $50 billion in 2018, according to the latest GSM Association (GSMA) report on the region. It’s contributing to economic growth and job creation. By 2045, mobile phone subscribers in West Africa are expected to top 248 million, more than half region’s population.
Last February, active mobile phone subscribers in Nigeria hit 173 million. There are now more mobile phones than Nigerians. Nigeria is at the forefront of the mobile economy as many Africans’ first encounter with the internet is through a mobile phone. Smartphones are said to be the new means of production as we increasingly search, advertise, buy and sell goods and services online. Where could Jumia get the capital needed to take advantage of this growth and expand its business?
The NYSE was the logical choice for Jumia because it offers size, depth, liquidity and sophistication. Investors and businesses all around the world are looking for markets that can help them achieve their investment objectives. But they won’t risk investing if an extra naira that could be invested is considered especially valuable. In other words, an investment isn’t worth it if a naira in hand is better than two in a stock market.
This is why the NSE has lost its mojo. From being the third-best market in the world in 2017, its returns (except for a few stocks) was among the most disappointing in the first quarter of 2019. In 2015, total market capitalisation was N17 trillion, it is N11 trillion today.
Investors gauge risk on the possibility of bad outcomes. They worry that the challenges Nigeria faced in 2018 will be carried over into 2019. With such expectations it’s difficult to mobilise local or foreign capital. Those who invest at all prefer to buy government debt; it’s risk free. Even if most of it is spent on salaries and serving previous debt.
Nigeria could produce more companies like Jumia; there are many promising start-ups in fintech, education, power and agriculture. Many are funded by international investors who, and rightly so, expect and prefer to make a return on their investment through an Initial Public Offer (IPO) in say New York, London, Hong Kong or Shanghai. Insisting that they list their shares in Nigeria is out of the question. Capital is mobile and at the tinniest whiff of undue regulation it will move elsewhere.
Other markets will capitalise on the IPO prospects of these bidding companies. What’s happening on the NSE is a snapshot, albeit an incomplete picture, of the larger Nigerian economy. No IPOs in three years and disappointing returns mean investors expect more of the same in the next four years.
It’ll be foolhardy to expect or insist that companies list their shares in Nigeria. Rather the way forward is reforms, if there is a genuine interest in seeing more Nigeria-based or –owned start-ups grow into pan-African businesses from capital raised in Nigeria and from Nigerians.
Sound fiscal and monetary policies coupled with structural reforms will boost productivity, encourage savings and attract investments into both blue chip Nigerian companies and SMEs. Uncertainty about negative developments affects investors’ confidence and suffocates the capital needed to breathe life into businesses.