The Ethiopian Securities Exchange (ESX) is pushing forwards towards its launch and aims to launch secondary trading in bonds, equities and money market instruments in September. The first listings could also occur at the same time.

A big milestone was the strong response to the capital raise for the exchange, a for-profit company. It announced on 4 April that investors had offered $26.6m (ETB 1.51bn) in response to its targeted capital raise of $11.1m.

Tilahun Esmael Kassahun, CEO of the ESX, said (press release): “We are thrilled to have exceeded all our expectations in terms of the capital raise and are excited by the overwhelming confidence shown by investors in the long-term prospects of both ESX and Ethiopia’s capital markets more broadly.”

“Strategic foreign investments by TDB, FSD Africa, and NGX Group are particularly important in allowing the transfer of technical knowhow and best practices as well as other areas of long-term strategic value that we will explore.”

Subscribers to the share capital are 48 domestic and international institutional investors into the shares of the ESX itself, including foreign strategic investors

• FSD Africa, a development agency funded by the UK government
• Trade and Development Bank Group (TDB)
• Nigerian Exchange Group (NGX)
• Ethiopian investors are 16 private commercial banks, 12 private insurance companies and 17 other private investors
• Entities owned by the Ethiopian Government hold 25% of the shareholding. They include Ethiopian Investment Holdings (EIH) and its subsidiaries Ethio telecom and the Commercial Bank of Ethiopia.

The ESX capital raise was launched last November 2023, and the roadshow presentations were in Addis Ababa, Nairobi and London.

What will list and be traded?

The exchange is expected to launch trading in September, according to this story on Bloomberg. It will offer electronic trading in equities, bonds and other fixed-income securities issued by Government and by businesses and short-term money-market securities, including interbank funds and repurchase agreements (REPOs).

Brook Taye, Director-General of the Ethiopian Capital Markets Authority, said in an interview with the East African, that the first listing on the exchange could be a fixed-income security.

He added that Ethio telecom, 100% owned by EOH on behalf of the government, will be the first equity listing on the ESX. The regulator is reviewing the prospectus for an offer of 10% of the shareholding to investors.

Five other companies owned by the state through EIH have been checking their readiness for initial public offers (IPOs) and for listing their securities for trading on the exchange. Tilahun recently said that government has cleared 10 state-owned enterprises for listing and that the exchange targets 90 listings within the first ten years.

Banks and insurance companies are among the private companies that are keen to list. Many banks brought in a large number of shareholders when they raised capital to begin operations, for example Amhara Bank S.C. raised $114m in paid-up capital from 138,500 shareholders.

CSD and other progress

The National Bank of Ethiopia is setting up the Central Securities Depository (CSD), which will hold all securities including government bonds and short-term bills and other securities. The CSD system is supplied by Montran, which works closely with the NBE and Ethiopia’s banks. The project is also supported by FSD Africa.

ECMA will license the capital market intermediaries, including stockbrokers, investment banks, fund managers and custodians who safeguard securities for institutional investors. Some foreign firms, including from Kenya, are applying.

ESX said that it has published its draft Exchange Rulebook for public consultation.

The team has completed the technical evaluation after a range of technology providers responded to a bidding notice for electronic trading platform for the exchange and back-office systems for stockbrokers. The project was reported here.

The ESX is preparing education campaigns for businesses which are potential issuers of securities and for investors.

Background

Ethiopia is one of the largest African economies that does not have a securities exchange, although the previous State Bank of Ethiopia had organized share dealing in the 1960s which lasted until 1974

In May 2022, the Ministry of Finance, EIH and FSD Africa had signed a cooperation agreement to set up the exchange. The ESX was incorporated in October 2023 as a collaborative effort between the Government of Ethiopia and the private sector. This article from November 2022 gives background on the project.

It is a central part of an economic transformation drive by the government, with support from the central bank and many stakeholders. The goal is to catalyse economic growth by providing a platform for companies to raise capital, promoting transparency and corporate governance, and to open new investment opportunities for savers.

Declaration of interest: The author has done consulting work involving ESX.