Why won't more companies access the stock market for funding?

Sep 09, 2022|Yomi Ajayi

Nigeria’s most valuable unicorn, Flutterwave, recently reiterated its plans to take the company public via an Initial Public Offering (IPO) on the Nasdaq stock exchange in the US.

Also, earlier in the year, another Nigerian company—BUA Foods, was listed on the Nigerian Exchange (NGX).

The capital market can be extremely attractive for most companies (be it a startup or a more traditional companies).

Key takeaways:
  1. Since 2019, only nine Nigerian companies have listed on stock exchanges (both local and foreign), compared to ten on South Africa’s exchange since 2019 and 70 on the Nasdaq in the US, in Q1 2022 alone.

  2. Capital markets enable business owners to raise money to bring their ideas to fruition or to expand. Without this option, business owners would have to save up their profits (which would take an absurd amount of time) and some very expensive bank loans that could impact profitability in the future.

  3. However, stringent rules from the Securities and Exchange Commission (SEC), like compulsory annual reportings and third-party auditing, often discourage business owners from accessing the capital market. Most business owners are also uncomfortable with relinquishing a stake in their business to the public and having to consult the new investors before making decisions.

According to the Central Bank of Nigeria (CBN), the capital market is the long-term (meaning the instruments traded mature between three years to infinity)* end of the financial market. It is where long-term funding instruments such as stocks (shares of companies), debt instruments (like bonds and debentures), currencies, etc., trade between investors, business institutions, governments, and individuals.

The most important feature of the capital market is that it is a public market. This means that companies utilising this market have access to a wider array of investors and, by extension, more capital.


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