Why was it listed on the NYSE?

by MMC
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When e-commerce company Jumia listed on the New York Stock Exchange (NYSE) last month, it immediately attracted attention. Jumia is the first major Africa-focused, venture capital-backed technology company to list on a major global exchange. On its opening day, the company’s shares jumped. A week later, a report claimed the company was a “massive fraud» caused its stock to fall by 50 percent. Many questions surround the company, from whether it has a viable business model to whether it is “Quite African”, to more immediate questions about its compliance with the reporting requirements of the United States Securities and Exchange Commission (SEC). These questions are important and certainly should not be ignored. However, an arguably more important question is the one that has received the least attention: why is Jumia listed in the United States rather than on an African exchange?

It’s no secret that Jumia Is in difficulty. Jumia is listed in New York, rather than Nairobi or Lagos, because it was by far the smartest business decision in the face of weakness in the continent’s capital markets and stock exchanges. With the exception of the Johannesburg Stock Exchange (JSE), African stock exchanges are small, illiquid and expensive – a consequence of an earlier period when the privatization of public assets was key to the development of African countries.

The result? Ninety-five percent of national registrations on the Uganda Stock Exchange (USE) are government disinvestments. Other exchanges are dominated by large companies like the Dangote Group, which represents a third of the Nigerian market. These large companies also pose problems: family-owned conglomerates or large multinationals can circumvent regulations by listing their subsidiaries on local stock exchanges or otherwise capitalizing on their complex, multi-jurisdictional structures to the detriment of minority shareholders.

Jumia was faced with a decision: go bankrupt or raise on the public markets and continue to finance a loss-making company for the sake of profitability. What the NYSE offered was the shortest path to the most capital from an investor base more interested in its potential than its current economic health. Few African startups have access to such an investor base – certainly not in Africa.

For all the the hubbub around the Africanness of Jumia, Most commentators talked about what would really help African startups succeed: more capital and structures that fuel their growth. Some of this can be ensured by thriving angel and seed investor markets, but real structural change only happens with formal, functioning institutions.

Prosper Africa, the Trump administration’s Africa initiative aimed at catalyzing investment in Africa, is expected to work with African stock exchanges to develop a listing structure suitable for emerging companies. Nairobi is perhaps the most promising. Last month, The Nairobi Stock Exchange (NSE) announced an initiative to incubate small businesses considering listing on the national stock exchange. But one more step is needed to help local investors overcome past negative experiences of investing on domestic stock exchanges. The United States Agency for International Development (USAID) could strengthen the action of the International Finance Corporation. current efforts evaluate which exchange is best equipped and support the reflection to adopt such an exchange. As I have written elsewhere, providing a platform for startups not only provides more opportunities for these companies to raise capital, but also ensures that they align with the governance standards expected of global companies. International tech investors looking for the next step GoJek Or Careem It would also be comforting to know that liquidity options for the African portfolio exist beyond strategic buyouts.

Whether an African “startup exchange” will be built (or even work) is debatable, but we must agree that it is imperative to create better, more agile and more liquid capital markets on which the next Jumia might consider signing up.

Eliot Pence is a nonresident senior associate in the Africa Program at the Center for Strategic and International Studies in Washington, DC.

Comment is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution that focuses on international public policy issues. Its research is non-partisan and non-exclusive. CSIS does not take a specific political position. Accordingly, all views, positions and conclusions expressed in this publication should be considered solely those of the author(s).

© 2019 by the Center for Strategic and International Studies. All rights reserved.

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