Egypt’s message to Nigeria is a simple one: Endure the short-term pain from implementing bold economic reforms and reap the benefits in the long haul.
One of the more recent benefits that Egypt has derived from its bold economic reforms is the boom in capital raising activity by local companies, which adds to gains the country has made in reducing inflation, attracting foreign investment and boosting economic growth.
Egyptian companies are on track to raise the most capital in eight years by the end of 2019 when big ticket share sales by Cairo-based lender, Banque du Caire SAE, and petrochemical company, Carbon Holdings Ltd, happen this year, as Cairo caps a good 2018 that saw four companies raise $315 million from Initial Public Offerings (IPOs) – a 76 percent increase over the $179 million raised in 2017.
The flurry of capital raising activities in Egypt is a sign of growing confidence in the country’s economic policies introduced since the currency float in 2016, analysts say.
“Egypt is generating buzz around its pipeline of IPOs with some speculating this could be the busiest year for listings in Cairo since the uprising in 2011,” said Wildu du Plessis, head of capital markets at Johannesburg-based consulting firm Baker McKenzie.
“Growing confidence in economic policies introduced since the currency float has boosted the Egyptian Stock Exchange (EGX) and is prompting companies to consider share sales,” du Plessis said in an email to BusinessDay.
Thanks to the reforms, Egypt’s economic growth accelerated from 4.2 percent in 2017 to 5.3 percent in 2018, and is expected to reach 5.9 percent in 2019, according to the International Monetary Fund (IMF).
The improving economic fortunes have boosted the Egyptian exchange and are prompting companies to consider share sales.
Some 3,048 kilometres away in Nigeria, critics of the government’s economic policies have long called on Abuja to borrow a leaf from Egypt’s playbook.
“You can argue that Egypt’s authoritarian political system makes it easier for its leaders to implement tough reforms not caring so much about political capital, unlike in Nigeria,” an economist at one of the big foreign banks with a Nigerian unit told BusinessDay.
“But some reforms are simply long overdue, from deregulation of the downstream petrol sector to the passage of the Petroleum Industry Bill and review of electricity prices. Without these, it will be tough to sell Nigeria to investors,” the person said on condition of anonymity as she wasn’t authorised to speak on politically-sensitive matters on behalf of her firm.
The performance of key macro-economic indicators lends credence to the assessment of President Muhammadu Buhari’s administration by his critics.
When it wasn’t contracting for five straight quarters between 2016 and 2017, the Nigerian economy hasn’t grown more than 2.5 percent since 2015.
Despite showing signs of recovery, the economy has retained a fragile outlook and confidence has yet to be buoyed despite the re-election of President Buhari.
The result of the weak confidence in the economy has caused Foreign Direct Investment (FDI) to slump by more than a third since 2014 and the stock market to plummet. Financially-sound companies from the big banks to consumer goods firms are grossly undervalued.
Some firms have either delayed share sales or shelved them entirely, worried that they may be poorly priced at time when investor sentiment is downbeat.
MTN Group, as part of negotiations for a regulatory fine in 2015, did a listing by introduction for its Nigerian unit on the stock exchange in May.
Some analysts say the telco steered clear of an IPO due to the negative sentiments in the market. The market is down some 4 percent year to date, even after Africa’s largest wireless carrier listing.
Airtel, Nigeria’s second biggest wireless carrier by number of subscribers, also announced plans for a dual listing in Nigeria and London this year.
“Political instability was also to blame for a big collapse in capital raising in Nigeria in recent years, but the country looks to be recovering and, according to Baker McKenzie’s recent Global Transactions Forecast, there is a predicted return of IPOs in Nigeria in the next three years,” said du Plessis.
“A case in point, Airtel Africa announced recently that it is seeking to raise as much as USD750 million in London and Nigeria, but the company has yet to release more information about when it plans to go public this year. Hopefully this is the start of a long upswing in capital raising activity in the country,” du Plessis said.
Capital raised by African issuers declined by 28 percent year on year to USD341 million in the first half of 2019 (H1 2019), compared with USD472 million in H1 2018. The decline is attributed to the 80 percent drop in domestic capital raising in Africa – standing at only USD85 million from four IPOs, compared with USD419 million from the same number of IPOs in H1 2018, according to Baker McKenzie’s latest Cross-Border IPO Index for H1 2019, using data sourced from Refinitiv.
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