By Africa Links 24
Published on 2024-04-03 03:00:00
Ethiopia is poised to make history with the imminent launch of its first fully-fledged stock market, the Ethiopian Securities Exchange (ESX). This development comes after more than two years of groundwork to establish a robust capital markets system in the country. Stakeholders from Ethiopia’s private sector, including major local banks and insurance companies, are bidding to acquire stakes in the new bourse, signaling strong local participation.
ESX aims to raise 625 million birr ($11 million) from the private sector, with significant funding already secured from state-owned enterprises under Ethiopian Investment Holdings (EIH) and FSD Africa, a UK government-funded financial sector deepening operation. The support from the private sector, government, and overseas development partners is crucial for attracting foreign investors to the new stock market. To bolster foreign investor confidence, Ethiopian officials and finance executives are hosting investor roadshows across the continent and beyond.
According to Tewodros Sile, associate director at Africa Practice, the successful launch of ESX could address the challenge of limited capital access faced by many businesses in Ethiopia. The exchange presents an opportunity to increase funding flows from both domestic and international investors, supporting business growth in the country. Additionally, ESX could help reduce Ethiopia’s reliance on foreign debt by enabling the government to issue long-term bonds in local currency.
The launch of ESX is not only about attracting foreign investment but also about giving Ethiopian citizens a direct stake in the country’s economic future. However, encouraging citizen participation in the nascent capital markets will be a gradual process, considering the limited financial inclusion in the country. Efforts to deepen financial literacy and expand access to formal banking services will be crucial to enhance domestic awareness of the benefits of vibrant capital markets.
To ensure the success of ESX, Ethiopia must prioritize investments in technology and innovation to build a competitive capital market. Robust technological infrastructure, including trading platforms, clearing and settlement systems, and information dissemination mechanisms, will be essential to establish credibility and operational efficiency for the exchange.
In its early stages, ESX plans to host listings for at least 50 companies, backed by EIH’s portfolio of state-owned enterprises. The exchange will offer trading in equities, derivatives, debt securities, and foreign exchange contracts. While the shortage of key financial industry players poses a challenge, the operationalization of the exchange is expected to stimulate demand for these services, driving growth in the sector.
Despite macroeconomic challenges, including currency devaluation, foreign currency shortages, and past internal conflicts, Ethiopia remains optimistic about its economic prospects. The country’s demographic dividend and ongoing market-oriented reforms signal a commitment to attract foreign investment and foster economic growth.
As Ethiopia continues on its path of economic transformation and liberalization, including opening up sectors like retail and real estate to foreign investors, the success of ESX will serve as a critical indicator of the government’s dedication to economic reform. The launch of ESX represents a significant milestone in Ethiopia’s journey towards a vibrant and inclusive capital market that will benefit the country’s economy and its citizens.
