Baker McKenzie’s latest Cross-Border IPO Index shows that there were no cross-border IPOs from African companies in the first six months of 2017, the first time in five years this has happened.

The Index also shows that five companies in Africa have raised a total of USD 512 million so far in 2017 from domestic listings, up from the eight companies that raised USD 492 million in H1 2016, but down from the USD 596 million raised from seven domestic deals in H1 2015. Three of five the companies that went public in H1 2017 are South African, while the remaining two are Egyptian and Tanzanian.

The fact that there were no cross-border IPOs in Africa in H1 2017 clearly shows that political and economic instability in Africa has affected the volume of cross-border IPOs on the continent. Businesses simply do not carry out IPOs if they are unsure of the investment environment.

Globally, IPO activity rebounded in H1 2017 compared to the same period last year as economic fundamentals in major developed markets such as the EU and US stabilized and some political uncertainties settled—the value of issuance rose by 76% to USD 89 billion and volume increased to 728 deals, up 53% from the first half of last year.

There is a correlation between global IPO predictions and African IPOs, and so the current global recovery is expected to influence a recovery in Africa as well. However, Africa tends to lag behind the rest of the world so it might be some time before we an improvement the volume and value of IPOs on the continent.

Capital raising for development in Africa

In the meantime, how do we address Africa’s capital raising challenges? One idea is that governments and legislators in African nations should act as enablers of the basic principles of capitalism as an economic system, such as free market competition, private ownership and investment of capital to make a return. Capitalism, notwithstanding its imperfections, had lifted billions of people out of subsistence poverty in the past three decades alone. It delivers good things when allowed to function as it should.

Treat capitalism as a system that has been proven to work and everyone will benefit through the emergence of a large and more affluent middle class. However, if it is twisted it into so-called “crony capitalism”, only the elite will benefit and the very concept of capitalism becomes misunderstood and vilified.

The majority of today’s African leaders want the best for their people. Investors want to invest but need legal certainty to take commercial risks. This is essential for drawing in the capital Africa desperately needs to develop the infrastructure necessary to deliver on its growth potential. The question is how to do this.

To address these issues, growth and capitalism needs to be facilitated by many things. The three essentials are:

  • Strengthening the rule of law. Foreign investors will only ramp up their investments if they are confident no government can simply take away their assets on a whim.
  • Cooperation. The emergence of nascent trading blocs such as the East African Union for example. As parts of the world seem to be fragmenting (for example, Brexit and the EU) or turning inward (the US), there is an opportunity for African nations to collaborate. Speaking with one voice means a strong hand in trade negotiations.
  • Energy and infrastructure in Africa and for Africa. It is the same old issue but it is an unavoidable fact that Africa cannot reach its potential without more and better energy and infrastructure.

To fully leverage the continent’s wealth potential, legal structures need to be put in place to guide Africa’s development agenda from within by enabling entrepreneurship, cutting red tape and bureaucracy, supporting success and selling opportunities to the wider world of foreign investors.

The world is moving increasingly towards mixed models of capitalism and what is certain is that Africa needs a model that both caters for its unique advantages and addresses its equally unique challenges. As Africans, we must be open to new ideas and redirect the positive energy of capitalism to meet the genuine development needs of Africans, while understanding we cannot do this alone. Foreign expertise and capital will be a necessity whatever the approach. Local and foreign investors in Africa must work together to ensure that raising capital in Africa works for every African. Hopefully, future editions of the Cross-Border IPO Index will reflect a move towards this approach.