Brexit, the UK’s decision to leave the European Union, is having a global ripple effect as countries prepare to deal with the effects. Many African countries enjoy a close trading relationship with the UK. The United Nation’s Africa Renewal states Brexit will be a difficult time for Africa as the UK will no longer be able to help shape and lead some of its most important initiatives in the continent. Trade agreements usually take a long time to finalize, and the uncertainty of the UK economy could complicate things further for the African continent. Will Brexit affect initial public offerings (IPOs) in Africa?
While Brexit will have an impact on African businesses, the prospects for the continent look bright due to partnerships with other trading partners. For example South Africa is only one example of a country with excellent existing trade agreements with the EU, which will mitigate the effects, according to BusinessTech. Although the City in London is a key source of finance and financial support, there may be more interest to look at European partners in future when launching IPOs within the continent.
Brexit could also have a positive impact on Africa-focused IPOs with the UK pivoting away from the EU and refocusing their trade in Africa. UK Trade Commissioner for Africa Emma Wade-Smith spoke to African Business magazine of how African and UK trade relations are strong, and that Brexit means “[that] this is an exciting time to explore what this means for us [the UK] in Africa.” She noted that one area the UK was focusing on was oil.
Impact of Brexit on Africa-focused oil IPOs
Vivo Energy Investments B.V., a licensee of Royal Dutch Shell PLC in Africa, announced plans to launch an IPO that would increase the value of the company to over $3 billion, and recently confirmed it would be a premium London listing in May. The large investment shows that despite the economic turmoil predicted because of Brexit, there is still a lot of international interest in Africa. The Vivo Energy IPO represented a boost in Africa’s economic growth, a rebounding of the commodity prices, and a growing middle class, which will increase retail and fuel demand.
Africa’s oil industry has continued to grow. Economists agree that an increase in oil demand would also mean an uptrend for the commodity’s stocks. FXCM asserts that the correlation between oil and stocks isn’t always negative, as there are studies that prove that there’s no solid relationship between the inverse price movements of oil and stocks. When oil prices rise, so too do the stocks of companies that export or produce the fossil fuel. With Africa’s middle class increasing, this will have a positive knock-on affect on oil demand. Brexit could mean that the UK will be looking to increase its oil trade with Africa, which in turn will increase the number of oil IPOs being launched in the continent.
Other IPO issuers in Africa
In a previous article at African Capital Markets News, it was reported that African issuers raised approximately $1.4bn in IPOs in 2017.
This shows that Africa has many options apart from the UK if Brexit should have a negative effect on trading. While trade agreements may take a long time to finalize, and disrupt current deals with the UK, African businesses will still thrive through IPOs that are being launched by international companies within the region.
Brexit will have an impact of the African economy, but African-focused IPOs are coming from other trading partners and should not be affected by the UK’s vote to leave the EU.