Nigerian tech founders are shunning their own stock exchange, and the reason might shock you: they simply don't understand how it works. A recent report from Lagos-based law firm TLP Advisory reveals a critical disconnect between the Nigerian Stock Exchange (NGX) and the country's burgeoning tech scene. The report paints a concerning picture, highlighting that not a single tech company has listed on the NGX to date. This begs the question: Why are these innovative companies turning their backs on local investment opportunities?
The TLP Advisory report dives deep into this issue, discovering that a staggering 53% of Nigerian tech founders admit they lack sufficient understanding of the NGX listing process. Only a mere 21% would even consider listing locally, with a significant portion preferring to list on foreign exchanges. Even more telling, nearly half (46%) would rather exit their investment through an acquisition – a clear indication of a preference for alternative pathways.
"While some view NGX listing as theoretically viable, they lack clarity on practical requirements, timelines, or pathways to get there," the report states. And this is the part most people miss: the report emphasizes the lack of proactive engagement from the NGX itself. The report shockingly found that none of the interviewed founders reported any direct outreach, educational sessions, or proactive communication about listing opportunities from the NGX. It seems the exchange isn't actively courting these potentially lucrative listings.
The report identifies a crucial "awareness gap" between startups, investors, and the NGX, suggesting that consistent outreach and engagement are essential. The prescribed solution involves a multi-pronged approach: roadshows, workshops, easy-to-understand playbooks, and dedicated advisory support. The core message is clear: educate founders on the benefits and processes of listing, and equip advisors and investors to effectively engage with venture-backed companies. Think of it like teaching someone to fish – you don't just tell them where the fish are, you show them how to catch them.
But here's where it gets controversial... A significant hurdle preventing Nigerian tech companies from embracing the NGX listing is the issue of currency and foreign exchange mismatches. More than two-thirds of the surveyed startups cited this as a major deterrent. Why? Because most international investors back startups with US dollars, making the dollar their accounting currency. Naturally, they'd prefer to list in the same currency. The instability of the Nigerian Naira, which has lost considerable value since being freely floated in 2023, adds another layer of risk. Listing in Naira exposes companies to significant exchange rate fluctuations.
To mitigate this, the report recommends strengthening local capital sources to reduce dependence on the dollar and minimize exposure to exchange rate risks. As the report highlights, "early-stage venture investors deploying dollars expect dollar denominator exists to avoid devaluation risks. When 76.5% of Nigeria-funded startups hold dollar capital, exchange rate instability makes listing an exercise in foreign exchange risk management.” This reliance on dollar-denominated capital creates a significant challenge for local listings.
Another concern for founders is the relatively limited liquidity of the NGX. With a market capitalization of approximately $62 billion, it pales in comparison to the New York Stock Exchange (NYSE), which boasts a market capitalization of around $28.3 trillion. This disparity raises concerns about the ability to attract sufficient investor interest and achieve desired valuations. To address this, the report suggests exploring dual or cross-listing partnerships with exchanges like NASDAQ, AIM (London), and JSE (Johannesburg Stock Exchange) to attract foreign liquidity while maintaining a local presence. This is a strategy that could potentially bridge the gap and make the NGX a more attractive option.
Furthermore, 26% of founders expressed concerns about market frictions such as compliance costs and potential undervaluations, while 16% explicitly highlighted the exchange's liquidity as a deterrent. These factors underscore the need for the NGX to streamline its processes, reduce costs, and create a more attractive environment for tech companies.
This reluctance to list locally creates an opening for foreign competitors, particularly the London Stock Exchange (LSE), which is actively courting African firms. Abi Ajayi, primary markets head for Africa at the LSE, emphasized the greater liquidity available in London's $56 billion market, stating that it provides African investors with the tools they need to exit. She also noted the LSE's proactive engagement with venture capital and private equity firms, positioning capital markets as a viable exit platform.
While a significant 42% of founders surveyed by TLP expressed openness to listing on the NGX if the right reforms were implemented, it's clear that Nigerian authorities have significant work to do. They must address the awareness gap, streamline processes, mitigate currency risks, and enhance liquidity to attract more listings and prevent capital from flowing overseas. The future of Nigeria's tech ecosystem may depend on it.
What do you think? Is the NGX doing enough to attract tech listings? Should the government intervene to address the currency mismatch issue? Share your thoughts in the comments below!
