Juliet Anammah, CEO, Jumia Nigeria.

…company’s decision to list in New York highlights NSE weakness – experts

Jumia, African e-commerce giant’s listing on the New York Stock Exchange (NYSE), becoming the first African enterprise to register a presence on Wall Street, has been hailed as a big step up which would pave the way for other start-ups.

But in addition to everything else, the flotation, analysts say, highlights the growing weakness of the Nigerian Stock Exchange (NSE).

“That’s true to some extent, and that’s the extent that the Nigerian Stock exchange mirrors the realities of the Nigerian economy. We can’t put the blame on the Stock Exchange because it’s a general Nigerian problem, not that of the Stock Exchange because the Stock Exchange is a small aspect of the economy,” says Dr. Vincent Nwani, business and investment consultant.

“Having said that, there is no law as far as I know, that prohibits Nigerian registered companies from listing anywhere it wants to list in the world. Jumia has not broken any law. The company’s directors must have done their numbers to know what it is in for them to list on the NYSE.”

Jumia was founded in Lagos, Nigeria, in 2012 by two French entrepreneurs: Jeremy Hodara and Sacha Poignonnec, ex-Meckinsey consultants – alongside two African partners, Nigeria’s Tunde Kehinde and Ghana’s Kofi Afaedor, two of whom have been paid off.

The firm is now offering services in 14 African countries, including South Africa, Tanzania, Egypt, Ivory Coast, Kenya, Ghana, Algeria, Angola, Senegal etc, but with only 4million customers, has had a challenge operating in a continent where only one percnt retail sales are done online.

Although the company’s sales jumped by almost 40 percent last year to $147.3 million, it was not yet profitable, having accumulated losses of nearly $1bn since it was founded and continues to face competition, even as it is weighed down by operating costs. Indeed, its initial public offering at the NYSE had coincided with the launch of a competing app from global logistics provider DHL allowing consumers in 11 African countries to buy directly from global retailers.

Jumia has a total of 5,128 staff, including 1,213 in Nigeria, 572 in Egypt, 686 in East Africa and 183 in South Africa, which perhaps, accounts for its humongous operating cost.

Although the company had a revenue of €130 million in 2018, the chunk of which came from North Africa, followed by West Africa and South Africa in that order, it spent a whooping €94 million on administrative expenses, including €48 million on staff, €50 million logistics, €47 million on selling and advertising, and €22 million on IT expenses. The goods they sold cost €84 million.

These expenses ensured that it lost €169 million for the year, a significant increase from €153 million loss it accumulated in 2017. As at December 2018, the company had cash of €100 million and accumulated losses of €862 million – a strange scenario. Yet its IPO was massively successful.

Analysts say given the ideal situation, the company would have listed on the NSE. This is even as a top promoter of Konga, another Nigerian based e-commerce platform, and Jumia’s competitor told Business Hallmark that although the start-up was not looking to list in the immediately, it would also list on the NYSE when it eventually decides to do so. This is is perhaps a clear indication of growing lack of confidence in the domestic stock market.

But there is nonetheless, the untold side of Jumia story. One that makes the loss figures look like something of magic. The company’s revenue has continued to grow in leaps and bounds, yet it is not making profit. In 2015, the company generated $234 million, a 265 percent growth from 2014. And in 2016, it became Africa’s first unicorn being valued at $1 billion.

When it listed 17.6 percent of the company’s authorised shares on the NYSE few days ago, it became an instant hit, raising $196 million in net proceeds. The share price, initially offered at $14.50 rose more 200 percent in the first three trading sessions. This suggests, perhaps that there are other figures the investors see that may not necessarily be in the balance sheet. Perhaps it’s the prospect as Africa’s potential ‘Amazon.’

But analysts say, Nigeria was always going to be a better place to list. “Jumia is more of a regional than global giants. I think Nigeria Stock Exchange will be the right place for them to start to capture investors in this part of the market,” says Professor Leo Ukpong, professor of financial economics and Dean, Faculty of Business Administration, University of Uyo.

Prof. Ukpong dismissed Konga’s idea of following Jumia, when it is ready, as a tall dream. “I think Konga is exaggerating their popularity (by wanting to list on NYSE). I think New York is a market that they won’t survive because you have Amazon, Alibaba, UPS and other big delivery platforms in that place. They will just finish off Konga.”

The NSE, no doubt, has faced troubled times. For the past one year, no company has listed on the Exchange, and those such as Coca-Cola (Nigeria Bottling Company), 7UP among others, which delisted have been unable to return. Instructively too, Nigeria’s and indeed, Africa’s flagship telecom provider MTN, has also thus far failed to list on the exchange despite scheduling to do so.

“Right now, we still have less than 200 active listed companies,” Dr. Nwani notes. “Some years ago, it was about 240. And this is a country where we have over 500,000 growing concerns. If you talk about SMEs, according to the numbers we have been using for some years now, there are over 17.5 million SMEs. But companies that you can look around and see and feel are well over 500,000. Yet, we are talking about just 200. For me, it’s a joke.

“Even the Telecom giants that operate in Nigeria are not listed. MTN has been in this conversation for the past three years. Globalcom is an indigenous company. From January 1 to March 30, Nigerians spent almost N800billion on Telecom services. Plus and minus, Telecom is one of the most viable sectors in the country. Yet it is not in the NSE.

“It goes to tell us that it is not the NSE problem, it is the Nigerian problem. I remember that about three years ago, the Minister of Communication and some members of the National Assembly wanted to pass a law that would make it compulsory for a company that has gotten to a particular threshold of turnover. The bill was eventually dropped.”

The NSE-All Share decreased 1099 points or 3.54 percent since the beginning of 2019, according to trading on a contract for difference (CFD) that tracks this benchmark index from Nigeria. Professor Ukpong attributes the challenge to both the economy and leadership of the NSE.

“I think the stock exchange is seeing troubling signs. There are two reasons: one is poor management, two is economic,” Ukpong says. “If we start with the second on: Anytime the economy is weak anywhere in the world, it will affect the stock exchange. In terms of listing, most people will rather move from stock to cash. Or sometimes, if they have an active bond market, there might be substitution from stock to bond. But in Nigeria Stock Exchange, we don’t have a very big active bond market.

“We have somehow OK bond market, government bond market where there is high return because the government is borrowing a lot so they are willing to pay more. So, people might be moving into the bond market hoping that whenever the stock market is good they will return. But the bad economy is pushing people away.”

The second factor, he says is, poor management. “(Oscar) Onyema, I’m kind of surprised because he came in with a lot of enthusiasm. But it seems like he is becoming weak. Stock market is something you manage to be active in terms of trading and raising funds. The rule is, when the market is doing well, you don’t have to do much. People will come into the stock and invest.

“But when the market is doing poorly, you have to come up with new products and different pricing strategies and a lot of advertisement to encourage people to even raise new capital in the market because it is cheaper, especially from the bond market. What we are seeing is that the only one product we are dealing with in the NSE is the stocks. When interest rates are going down, most companies will switch from raising money through stocks to bonds.

“But the corporate bond market is almost nonexistent and the people who go to government bonds are going to preserve their money, they are not going to raise money there. Private companies that want to raise money don’t have that avenue in the Nigerian stock exchange. So, the lack of strategic management of the stock exchange plus weak economy is dragging the stock market down. It is very expensive to maintain listing if you list and if there is no return to the investors they will tell you they will go and say delist. That’s what is going on.”

BusinessHallmark contacted Mr. Joe Kadiri, NSE Corporate Communications Officer to provide insights into the challenges the NSE is facing, but he declined to comment, insisting he had nothing to say at this point.

Dr. Nwani, however, insists the NSE management has little or nothing to do with the challenges, as according to him, it is a consequence of the overall situation of the economy.

“It’s not something that NSE can do on its own. Capital importation and foreign exchange issues, CBN controls that. The NSE can’t do anything about them.

“Ease of importation and exportation is Nigerian Customs. Incentive to invest, you have to look at the Ministry of Trade and Commerce under the Nigerian Investment Promotion Council. These are the issues, so it’s not just NSE.”

Dr. Nwani calls for more to be done by the relevant stakeholders to encourage more companies to list.

“We need to do something to encourage companies to list. And mind you, listing on the NSE comes with a lot of responsibilities and a lot of cost. Today it’s still voluntary. So, a lot of companies don’t want to subject themselves to such scrutiny. What we have to do is to compel them, either by law or by incentives.

Juliet Anammah, CEO, Jumia Nigeria.
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