Ethiopia is getting ready to introduce its local currency securities exchange platform the following year, therefore it intends to loosen its regulations limiting foreign participation in its domestic financial markets.
Over the past two years, the nation has allowed foreign companies to participate in its banking and telecommunications sectors, enabling Kenyan banks KCB and Safaricom to establish operations.
The only people permitted to invest in or run enterprises in other areas are locals and members of the Ethiopian diaspora. This restriction has significantly reduced the amount of foreign engagement in the nation’s financial markets.
Following the opening of the banking and telecommunications sectors, Ethiopia is currently working on liberalizing “many other different sectors,” according to Brook Taye, Director-General of the Ethiopian Capital Markets Authority (ECMA), who was speaking to journalists.
“The entire economic policy of the country has been governed in the past five years with a very progressive and forward-looking approach, which has resulted in very significant improvements,” Dr. Taye stated on Wednesday during a press conference held on the sidelines of the Africa Financial Industry Summit in Lome, Togo.
The forthcoming Ethiopia Securities Exchange (ESX), which is scheduled to launch next year in an effort to “increase access to local currency finance” for the government and enterprises in the country, is anticipated to welcome foreign participation as a result of the deregulation.
Despite having one of the biggest economies in Africa, Ethiopia still lacks a stock exchange platform, and the majority of equity and stock transactions take place directly between investors and companies.
Despite the absence of an exchange, there are currently 350,000 equity investors in Ethiopia’s 30 banks and 18 insurance firms, which suggests that the time is right for a bourse, according to Dr. Taye.
Dr. Taye claims that the Ethiopia Securities Exchange, which is being established in collaboration with the International Finance Corporation (IFC), will greatly increase the government’s and Ethiopia’s small- and medium-sized businesses (mostly domestic) access to financing.
“A local currency bond market with a strong participation from domestic institutional and retail investors has a significant impact on government finance and serves as an alternative source of finance for corporate entities,” Dr Taye said.
Under the terms of the agreement, IFC would act as an anchor investor in the IPOs at the soon-to-be ESX, where state-owned enterprises in Ethiopia and a few private companies whose IPO readiness is still being assessed will be the first to list.
The new exchange will “help allocate investment more efficiently and allow for better risk sharing while providing an alternative funding source to complement bank financing,” according to Aliou Maiga, Regional Director for the financial institutions group at IFC’s Africa office.
During the news conference on Wednesday in Lome, Mr. Maiga stated, “Liquid, diverse, and well-regulated capital markets are an essential source of local-currency financing for the government, financial sector participants, and for end users such as small businesses.”