Ethiopia prepares to launch securities exchange with Ethio Telecom rumoured as first offering

By Marco Cacciati March 12, 2024

Ethiopia, long absent from the roster of African nations with a securities exchange, is poised to make a significant leap forward as it prepares to unveil its capital markets platform in the third quarter of 2024, marking a pivotal moment for the 120mn people country whose economy is estimated to worth $156bn.

In an interview with Kenyan outlet The East African, Ethiopia Capital Markets Authority (ECMA)Director-General Brook Taye shared insights into the country's burgeoning capital markets and the opportunities they present.

"Ethiopia finds itself in a unique position, benefitting from the lessons learned by other jurisdictions as we embark on this journey towards establishing a robust regulatory framework," Taye explained.

The ECMA, operational for 14 months, has been diligently crafting regulations, engaging experts, and fostering dialogue with potential market participants to ensure a smooth transition to the exchange.

The foundation for the exchange has been laid, with the establishment of the Ethiopia Securities Exchange (ESX) as a legal entity. The exchange, set to be a public-private partnership, has garnered widespread support, with major banks investing in the initiative.

As preparations accelerate, Taye emphasised the importance of procuring essential infrastructure, including a Central Securities Depository platform and an Automated Trading System, to facilitate seamless trading operations.

However, Ethiopia's foray into capital markets comes amidst a broader trend of declining initial public offerings (IPOs) across Africa, raising questions about the appeal of going public. Taye underscored the importance of fostering a conducive regulatory environment and highlighting the advantages of capital markets as a financing avenue.

Among the notable listings expected in the early stages of the exchange's operation is the offering of a 10% stake in state-owned telco provider Ethio Telecom. Additionally, discussions are underway with state-owned enterprises – such as flag carrier Ethiopian Airlines – and private companies expressing interest in listing.

“There are five other state-owned enterprises for which we have done an IPO readiness assessment, and it’s very encouraging. We are in discussions with the Ethiopia Investment Holdings to see if it has any interest of listing some of its assets,” he added, speaking of other actors mulling a potential listing.

“There are also privately held companies that have expressed interest in coming into the market. We have 30 banks and 18 insurance companies that are in this country, all owned by 400,000 domestic retail investors.”

While the debut listing may initially focus on fixed-income offerings, equity issuances, particularly by Ethio Telecom, are anticipated to follow suit.

Regarding debt issuance, Taye pointed out the role of market dynamics in determining pricing, suggesting that companies could benefit from lower borrowing costs compared to traditional bank loans.

Addressing concerns about Ethiopia's debt landscape, Taye outlined broader economic reforms aimed at fostering market-based solutions and addressing macroeconomic challenges, with support from international partners like the International Monetary Fund (IMF).

Looking ahead, Taye expressed optimism about the potential collaboration with intermediaries from East Africa, particularly Kenya, leveraging their expertise and experience to propel Ethiopia's capital markets forward.

“Whenever we look at policies, whenever we look at new initiatives the first place that we look at is the Kenyan market. One reason, of course, is proximity and the fact that it is easy for us to understand what worked and what didn’t,” he concluded.

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