Ethiopia is on the course to establish Ethiopian Stock Exchange (ESX), expected to be operational within 18 months, as the realization of ecosystem normally takes time.
Establishing, qualifying and critical ecosystem like rating agencies, intermediaries, broker firms, investment arms, real-time data generating systems, international corporate governance and financial reporting in IPOs, and training of manpower is on the way.
What we are sure of, from the legislative frameworks passed in July 2021, is the fact that ESX will provide a market platform for issuance and trading of securities. It will be a Private Public Partnership, a share company, with 25 percent government stake and the rest for private sector. The legislative frameworks also added Ethiopian Capital Market Authority with a power to license and regulate ESX.
In this context and based on particulars of the tripartite ESX establishment partnership signed between FSD Ethiopia, Ethiopia Investment Holdings (EIH) and Ministry of Finance, on May 18th, the following arrangements is on lane:
- From the day of signing, May 18, FSD Ethiopia and EIH entered into a commitment to take the task of establishing and realizing ESX, in a design of becoming a source of finance for the private sector.
- The government body in hold of the 25% stake of the government, paid either in cash or kind upon establishment of ESX, will be Ethiopian Investment Holdings (EIH). That is to say, EIH will establish ESX, with private partners, and shall file a license from the Authority.
- The EIH will be in a task of registering the ESX with the Ministry of Trade, developing business plan, selling shares, acquiring technology platform and market infrastructure and launching the exchange.
- FSD Ethiopia, subsidiary of FSD Africa, financed by FSDO and Bill and Melinda Gates foundation, has committed itself to cover every expense needed for the project team to establish the Ethiopian stock market which will either be refundable or changed into share upon establishment, only in shares of businesses or sectors that are allowed for foreigners. However, to avoid a very volatile market, in the upcoming regulation, foreign investors may either be prohibited not to sell shares before some period of months of acquiring the share. The expenses to be covered by FSD are the cost of legal processes to register and get license for the stock exchange, for expert’s recruitment, costs of stakeholder engagement, promotional expenses)
- FSD Ethiopia is expected to design a very viable business model (that ultimately determines the size of ESX). In addition, it will serve as promoter and bring in foreign investor or/and international firm that had experience of establishing stock exchange in the international market, if possible, as its partner.
Once operational, ESX is expected to list banks, insurance firms, SOEs, international hotel brands in Ethiopia as IPOs and provide alternative source of finance for entrepreneurs, start-ups, fintechs, corporate as well as the government. Most importantly, with privatization commitment, state owned enterprises ownership or stake is expected to gradually shift towards private sector upon commencement of share trading in ESX.