The Ethiopian Capital Market: a new chapter to be seen











By- Beakal Anlye

With a rapidly expanding economy and a favorable investment climate, Ethiopia has been working towards establishing a robust capital market to attract domestic and foreign investments. In this article, we will explore the current state of the Ethiopian capital market, its regulatory framework, key players, and the potential it holds for both local and international investors.

The Evolution of the Ethiopian Capital Market

The capital market in Ethiopia was established at the beginning of the Imperial era, although it was disrupted by the military regime. After much effort to establish the capital market since the early 1990s, the current government has shown a strong interest in developing the capital market and looking forward to promoting economic growth.

An early step in the establishment of a capital market in Ethiopia came in the form of the Ethiopian Commodity Exchange (ECX) in 2008, which provided a platform for trading agricultural commodities. Since then, the country has taken significant steps to develop a broader capital market ecosystem.

In 2014, the Ethiopian Securities and Exchange Board was established to oversee the regulation and supervision of the capital market. The board has been instrumental in creating a conducive environment for market participants and ensuring investor protection.

In 2021 Ethiopia approved a Capital Markets Establishment Proclamation to provide the legal foundation for the development of capital markets in the country.

In February of this year, The Ethiopian Capital Market Authority announced that it is undertaking the necessary preparations to issue licenses to capital market service providers over the coming six months.

“Ethiopia’s new ESX, or the stock market, is set to become a reality in 2024-25. In the last five years, there have been continuous efforts by the Ethiopian finance ministry in association with African market specialists to pave the way for its stock market.”

The Ethiopian Capital Market Authority’s official website

The Ethiopian Capital Market in a Nutshell

The Ethiopian capital market primarily consists of the stock exchange and the bond market. The Ethiopian Securities Exchange (ESSE) is the main stock exchange, where publicly traded companies list their shares. As of the knowledge cutoff in September 2021, there were 20 listed companies on the ESSE, representing various sectors such as banking, manufacturing, and telecommunications.

The bond market, on the other hand, provides a platform for issuing and trading government bonds, corporate bonds, and other debt instruments. The Development Bank of Ethiopia and the Commercial Bank of Ethiopia are among the key issuers of bonds in the market.

Regulatory Framework and Investor Protection

The Ethiopian Securities and Exchange Board has implemented a comprehensive regulatory framework to ensure transparency, accountability, and investor protection. The Capital Market Proclamation and various directives guide market operations and govern the conduct of market participants.

To enhance investor confidence, the Ethiopian capital market has implemented measures such as mandatory disclosure requirements, stringent corporate governance standards, and the establishment of an Investor Protection Fund. These initiatives aim to safeguard investors’ interests and foster a fair and efficient market environment.

Investment Opportunities and Challenges

The Ethiopian capital market presents numerous investment opportunities for both domestic and foreign investors. The country’s strong economic growth, vast natural resources, and a young and dynamic population make it an attractive destination for investment.

For local investors, the capital market provides an avenue to participate in the growth of listed companies and diversify their investment portfolios. It also offers an alternative source of financing for businesses through equity and debt instruments.

Foreign investors, too, have shown increasing interest in the Ethiopian capital market. The government has implemented policies to facilitate foreign investment, including allowing foreign investors to participate in the stock exchange and easing restrictions on repatriation of profits.

However, there are still challenges that need to be addressed to unlock the full potential of the Ethiopian capital market. These challenges include limited liquidity, a small number of listed companies, and the need for further market infrastructure development. Efforts are underway to address these issues, including the planned demutualization of the Ethiopian Securities Exchange to enhance its efficiency and attract more listings.

Conclusion

The Ethiopian capital market is steadily evolving and will play a significant role in the country’s economic development. With a supportive regulatory framework, improving market infrastructure, and growing investor interest, the capital market holds immense potential for both local and international investors.

As Ethiopia continues to implement reforms to enhance market efficiency and attract more participants, the capital market is expected to play an increasingly vital role in mobilizing capital, promoting investment, and driving economic growth in the country.