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Why Ethiopia needs a stock exchange as it liberalizes

2 Mar 2019/Tom Minney – One of Africa’s biggest economies. Ethiopia, is launching a giant privatization campaign that could be lead to transformation, growth and liberalization. It has set a tight timetable for economic reform, including privatization of telecoms by the end of 2019.

To make this work well, it aims to set up a domestic stock exchange by 2020. An Ethiopian securities exchange will help citizens and domestic savings institutions to participate and boost efficiencies and transparency in the economy .

Kaleyesus Bekele of The Reporter newspaper highlighted debates at the third East Africa Finance Summit on 18-19 December 2018, organized by I Capital Institute. Zemedeneh Negatu, Global Chairman of Fairfax Africa Fund, told the summit: “We are going to have a stock market this time. We have been on this path for 18 years. But now it is no more an academic discussion. We do need a capital market. We are part of the global economy,”

He said Ethiopia is by far the largest economy in the world today that does not have a stock market. “We are going to join the global capital market club. We have a bigger GDP than Kenya, there are only two sub-Saharan African countries which have bigger GDP than us — Nigeria and South Africa. I think it is time. We have companies ready to be listed in the stock exchange.”

He says that top priority is to set up a regulatory institution and create a government regulatory framework, and the private sector can incorporate the stock exchange. “We need to have stock brokerage firms and investment banks. Stock traders have to be trained and the local accounting and auditing firms have to build their capacity.. The financial media has to be established or the existing ones should extend their financial news coverage. Financial media is also the key component.”

Zemedeneh says that 50 to 70 local companies can be listed in the stock exchange. “All the banks and insurance companies, which are well regulated, can offer an IPO (initial public offering) the day the Addis Ababa stock market is ready for launch,” Zemedeneh said.
“The bottom line we are ready and it is timely,” he added.

Business community leader and insurance veteran Eyessuswork Zafu said that technical studies for the establishment of the Addis Ababa Stock Exchange were done by Ernst and Young 20 years ago: “Miracle is happening in this country. I can see the twinkling light at the end of the tunnel. Two years ago we were not able to discuss such matters openly.” He called for urgent action to start preparations.

Ethiopia’s so-called “development model” pursued by Meles Zenawi, a previous prime minister, led to annual growth of 10 per cent for more than a decade until 2017, according to official statistics, but ran into capacity constraints and chronic shortages of foreign exchange. Growth was 7% in 2018, but Abiy says that is also due to more accurate measurement,

Both Africa’s telecom giants MTN and Vodacom told Reuters they are interested. MTN says Ethiopia “would be a natural fit for MTN’s existing pan-African footprint.” And Vodacom said “Ethiopia is an attractive market so it follows that there would be interest”.

Establishing the stock exchange will require rapid boosts in capacity and understanding. According to Zemedeneh: “We need to set up the regulatory body and formulate the regulation. All the other things have not yet started except the adoption of the IFRS.” He warns there is a lotof work to be done to prepare. “I hope they would be able to roll out these things quickly. Two years is a very short period of time. It could be at the end of 2020 or slide to 2021. All the infrastructure need to be prepared.”

Privatizations including 49% in Ethio Telecom

Steps highlighted in a recent article in the Financial Times newspaper include completing “a multibillion-dollar privatisation of its telecoms sector by the end of this year, followed by a sell-off of stakes in state energy, shipping and sugar companies”. It says the stock exchange is “part of a gradual but decisive shift towards economic liberalization… alongside other ambitious and transformative programmes.”

“The Government is planning to sell off a 49% stake in Ethio Telecom, according to people familiar with its plans. Ethio Telecom is the biggest telecoms company in Africa in terms of customers in a single country, with more than 60m subscribers.

“But its opaque debt structure and low earnings per customer mean it might fetch less than the government expects, say bankers.

“To promote competition, Ethiopia is also likely to auction off spectrum to two additional telecoms companies, with Vodacom, Orange, MTN and others expected to bid, according to bankers.

“The prime minister said he would proceed cautiously on privatisation in order to avoid any hint of corruption. ‘We do telecom, we learn something, we evaluate seriously, we continue,’ he said.”

Much of Ethiopia’s growth and successes at rolling back poverty are linked to the ambitious road, rail and electricity infrastructure projects by the Government, which pours revenues into this. The ambitious strategy is to transform a nation, which relied on farming, into an industrialized nation where manufacturing provides export earnings.

OPINION – A well run stock exchange is vital in Ethiopia’s successful privatization and transformation

The capital market will bring many benefits to Ethiopians and the economy. A stock exchange enables enterprises to raise capital to create growth, jobs and fight poverty through issuing shares (equity) to long-term investors who are ready to share the business risks. It provides a transparent and efficient market for raising hundreds of millions of long-term debt, including bonds for housing and infrastructure, as in neighbouring Kenya. It would amplify efforts by Ethiopia’s Government and banks to finance the ongoing giant growth potential.

A regulated stock exchange encourages savings and help investors channel these into the most productive enterprises, boosting market size and efficiency. It boosts transparency by requiring companies to publish audited trading information promptly and widely, sharing similar information benefits with smaller investors as the Ethiopian Commodity Exchange (ECX) brings to farmers – any by encouraging professional analysts.

Individual Ethiopians are very keen for additional places to grow their savings, some of which are held in cash or low yielding bank deposits. Like other African countries, Ethiopia has fast growing domestic investment funds at pension and insurance institutions, and these need a much wider choice of productive assets to invest into, offering diversification and growth while seeking to maintain the overall safety of the members’ funds.

There are many Ethiopians both at home and abroad with the skills and character to ensure that any Ethiopian exchange will be one of the best and biggest in Africa. Although speculative trading is expected, it is also a key contributor to market liquidity and efficiency, and ensuring a large and active enough domestic base will counter much of the overall market volatility. Regulation is also needed to protect investors by ensuring that only well run businesses with a good track record and management can offer shares to the public, contrary to many unregulated initial public offers that have happened.

A well run stock exchange is what Ethiopia needs to transform its economy, boost participation, investment and the private sector, and to encourage efficiency and jobs.

DISCLOSURE – The author has worked on proposals on a stock exchange in Ethiopia, including when he worked at EY, and has studied the background and potential of the capital market there.

The Global African Investment Summit

I was honoured to lead a panel on capital markets development at The Global Africa Investment Summit ( on 1 Dec. There is research evidence from around the world that well-run capital markets are the most efficient and effective way of channelling capital from savers into investments. We also looked at how capital markets contribute to development.

The very distinguished panel were:


Tutu Agyare, Founder and MD at Nubuke Investments, a registered asset management firm focused on Africa which he founded eight years ago and has won award as Multi-Strategy Hedge Fund of the Year. Before, he spent 21 years with UBS Investment Bank and was recently voted one of the 100 most influential Africans.

Tiaan Bazuin, is the CEO of the NamibiaN Stock Exchange, an experienced and entrepreneurial business executive who has had senior roles in a bank and a telco. He co-authored the Corporate Governance Code For Namibia – NAMCODE –adopted by all listed companies and being used and adapted by many other entities that are worried about how effectively they operate.

Jingdong Hua, Vice President and Treasurer at the International Finance Corporation, which he joined in 2011, after a career at Asian Development Bank in the Philippines and before that as head of investment unit in the United Nations Development Program (UNDP) in New York and the African Development Bank in Abidjan. He turned his background in chemical engineering into deep knowledge of finance, industrialization, development and treasury.

William Ato Essien, President, Essien Swiss Int’l Capital Holdings, founder and President of Essien Swiss International Capital Holdings. Unfortunately we missed him due to ill-health.

Paul Murithi Muthaura, Acting Chief Executive, Capital Markets Authority, Kenya, since July 2012.  He’s a Board member of IOSCO, the International Organization of Securities Commissions, and a consultative group for the global Financial Stability Board (FSB).  He’s closely involved in Kenya’s Vision 2030 and its Delivery Secretariat. He has been with CMA for some years and previously worked with IOSCO General Secretariat. He is a lawyer with senior commercial experience.

Phuti Mahanyele, Founder, Sigma Capital and CEO of Shanduka Group, a R8 billion diversified African investment holding company that was established in 2001. She supervises a diversified portfolio of listed and unlisted investments, in resources, telecoms, real estate, energy, industrials and food & beverage, in various countries including South Africa, Nigeria, Mozambique, Mauritius and Ghana. Her previous background was Head of the Project Finance South Africa business unit at the Development Bank of Southern Africa and before that Vice President at Fieldstone, an infrastructure investment firm she joined in New York.


The panel covered topics such as the huge potential for capital markets to channel hundreds of millions of investments into infrastructure and into growing successful businesses. Mr Hua described how the IFC is leveraging local capital and opening up local markets through issues of AAA rated local currency bonds, paving the way for corporate and other investors. We discussed regional linkages and how to deepen Africa’s capital markets, Mr Bazuin talked about ways to build modern infrastructure cost-effectively and platforms for sharing infrastructure between securities exchanges. Mr Agyare said that exchanges do not include companies with great growth potential. Ms Mahanyele spoke of how listing and capital markets provided a way to increase financial inclusion and give Africans a bigger stake in large companies across the continent. Mr Muthaura talked of the role of regulators in building the capital markets and how they are central to achieving national development plans, as well as the fast progress being achieved in East Africa.

We heard how African capital markets can lead the way in terms of cross border investment flows and deepening investment and how our Ministers of Finance, regulators and central banks back this drive. The challenge is for the capital markets to rise to the challenge – Africa needs 300 m jobs, it needs tens of billions of dollars of infrastructure, it needs good governance and well run businesses, it needs growing debt markets. Policymakers, investors and capital market participants can create this – while making money.