markets because they are still developing and it does not help that
a lot of private equity fund managers do not have a background in
capital markets. Information about African markets is scarce. Fund
managers, investors are persuaded by the information available that
they cannot get liquidity on these markets. However, invariably they
are approaching the African market from an angle that may not give
them the true picture: they look at the liquidity post listing. In general
By and large, the private equity community
have some preconceived ideas about the ability
and potential of African capital markets and
therefore they are contented to return to what
they understand, their old exit routes, their access
to easier asset routes, of say, selling the business
to another investor, or selling the business back
to the owner.
most companies listed on Africa stock exchanges do not trade as often
as their counterparts on the more developed stock exchanges. However,
one gets a different picture when one looks at liquidity at the time of
the IPO, which is actually quite large in the sense that most IPOs are
oversubscribed. There is more demand at the time of the IPO. And the
opportunity at the African stock exchanges lies here – the opportunity
to set up pre-IPO private equity fund that will invest in fast-growing
African companies with the potential to list on the African stock
exchange within 2 or 3 years; because that is where the profits lie.
By and large, the private equity community have some
preconceived ideas about the ability and potential of African capital
markets and therefore they are contented to return to what they
understand, their old exit routes, their access to easier asset routes, of
say, selling the business to another investor, or selling the business back
to the owner. This means that they are not employing IPOs as readily
as they could which in effect, means that they are not maximising
their potential profit and furthermore, this type of exit strategy does
not help to stimulate the growth of the African capital markets.
On the other hand, as discussed earlier, more needs to be done
in terms of communications to ensure that more people are aware of
the opportunity that exists within the stock markets and the fact that
there are investors who are looking for investment opportunities. And
12 | The African Business Review
in terms of access to information, a lot needs to be done, certainly
in some of the exchanges to encourage more disclosure or access to
information about the companies once they are listed. It is difficult
for foreign investors outside the continent to get a sense of what the
company is doing because they’re not reporting with the same frequency
as they would in more advanced markets.
Cyrille Nkontchou concluded our interview by stressing that
the first key area, where fund managers like Enko Capital position
themselves, is on the supply side, there has to be a more proactive
approach to getting more companies to the market and setting up a
fund that is dedicated to that is one way of doing that. Secondly, the
entrepreneurs need information through education and communication
to help them to understand the value they can get from the markets.
As for the governments, they have to lead by example: it is important
that governments list some of their shares in blue chip companies; to
create awareness and the appetite that would encourage entrepreneurs to
go to the market. It is important for the public, for the entrepreneur to
see that there have been successful examples. And lastly, governments
can also create tax incentives or at least an environment that is more
conducive for companies that list, to avoid a situation where companies
that list are disadvantaged in comparison with companies that do
not list.
Cyrille Nkontchou is the founder and managing partner of Enko
Capital Management LLP, an Africa-focused asset management firm
with offices in Johannesburg and London. He is also the founder and
executive chairman of LiquidAfrica Holdings Limited. He started
his career as a consultant with Andersen Consulting (now Accenture)
in France, and worked as a banker with Merill Lynch in London. He
holds a degree in Economics from Institu d’Études Politiques de Paris
and an MBS from the Harvard Business School.
Enko Capital Management LLP is an Africa-focused asset
management firm with offices in London and Johannesburg. It
manages two funds, an open-ended fund investing in listed securities
across Africa and a closed-end, pre-IPO private equity fund that will
invest in fast-growing African companies wishing to list on an African
stock exchange.
[1] Additional materials from Enko Capital
[2] African Stock Markets Lemma Senbet & Isaac Otchere