Financing Africa's future champions

Commentary by Oscar N. Onyema OON, 
President of the African Securities Exchanges Association and CEO of The Nigerian Stock Exchange

Firms that are helping to create jobs and drive sustainable development throughout Africa require and deserve proper financing. I salute the LSEG for the Companies to Inspire Africa initiative. Showcasing these impressive businesses in this publication should inspire more ‘African champions’ to rise to their potential.

The success of Africa’s small and medium-sized enterprises (SMEs), the largest providers of jobs on the continent, is vital to Africa’s economic growth. For the vast majority of these enterprises, fulfilling the potential to stimulate job creation and sustainable development largely depends on their ability to access finance at various stages of their growth.

“There is need for a concerted effort towards improving the ease of doing business and the investment climate throughout africa”

In Nigeria, there are more than 70,000 SMEs, according to the National Bureau of Statistics (NBS), which defines SMEs as businesses with between ten and 199 employees and assets of around $800,000. Due to high credit risk perceptions, bank financing for SMEs is characterised by short tenures and high financing costs.

Alternative finance options such as crowdfunding, venture capital and private equity are still in their infancy in Africa. The capital market is virtually untapped for SMEs, accounting for less than 1% of The Nigerian Stock Exchange (NSE) market capitalisation, a trend that extends across the continent.

Recognising the crucial role of Africa’s capital markets in providing sustainable long-term finance, the African Securities Exchanges Association (ASEA) has instituted a taskforce on new market-based options to support SMEs. This is part of several joint initiatives with the African Development Bank to fuel economic growth by developing African capital markets. Another such initiative is ASEA’s African Exchanges Linkage Project (AELP), which aims to create linkages across African markets to drive cross-border trade and provide issuers with access to deeper pools of liquidity.

Furthermore, African exchanges are looking at various ways to reduce the time and cost of issuance without jeopardising prudential concerns. For example, the NSE maintains the Alternative Securities Market (ASeM) – a tailored market segment providing SMEs with access to equity financing at lower listing costs and requirements, while supporting their growth aspirations.

“Crowdfunding, venture capital and private equity are still in their infancy”

Accordingly, CEOs of African SMEs must look inwards, adhering to good corporate governance and financial disclosure principles in an effort to fast-track listing efforts, to increase their ability to attract funding.

Notwithstanding the foregoing, the political landscape plays a critical role in the sustainability of SMEs.

  • 70,000+ SMEs are currently operating in Nigeria

There is need for a concerted effort towards improving the ease of doing business and the investment climate throughout Africa (i.e. infrastructure, power, roads, etc.). Greater access to critical public resources will help to reduce the high operational costs that many SMEs are burdened with, and ultimately assist in formulating the next generation of Companies to Inspire Africa.