Ethiopia is planning to ease its restrictions on participation of foreigners in its domestic financial markets as it prepares to launch its local currency securities exchange platform next year.
The country has in the last two years opened up its telecommunications and banking sectors to participation of foreign firms, allowing Kenyan telco Safaricom and bank KCB to set up operations there.
Other sectors have remained restricted, with only locals and Ethiopian diasporas allowed to invest or operate businesses in them, a factor which has greatly limited participation of foreigners in the country’s financial markets.
Brook Taye, director-general of the Ethiopian Capital Markets Authority (ECMA), told journalists that the country is working on liberalising “many other different sectors” after opening up its banking and telecommunication sectors.
“There is a very progressive and forward-looking approach that the entire economic policy of the country is being governed in the past five years, which has resulted in very significant improvements,” Dr Taye said at a press conference on the sidelines of the Africa Financial Industry Summit in Lome, Togo on Wednesday.
The liberalisation is expected to give room for foreigners to participate in the upcoming Ethiopia Securities Exchange (ESX), which is set to go live next year in efforts to “increase access to local currency finance,” for the government and businesses in the country.
Ethiopia still doesn’t have a stock exchange platform, despite being one of the largest economies in Africa, and most equity and stock investments are currently being transacted directly between investors and firms.
Currently, there are about 350,000 equity investors in the 30 banks and 18 insurance companies in Ethiopia, despite the lack of an exchange, an indication that the country is ripe for a bourse, Dr Taye said.
According to Dr Taye, the Ethiopia Securities Exchange, which is being developed in partnership with the International Finance Corporation (IFC), will significantly boost access to finance for the government and small and medium enterprises in Ethiopia, mostly from the domestic markets.
“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.
As part of the partnership, IFC will be an anchor investor in the initial public offerings at the soon-to-be ESX, on which the first firms to be listed will be Ethiopian state-owned enterprises and a few private firms whose IPO-readiness are currently being reviewed.
Aliou Maiga, IFC’s Africa regional director for financial institutions group, said the new bourse will “help allocate investment more efficiently and allow for better risk sharing, while providing an alternative funding source to complement bank financing.”
“Liquid, diverse and well-regulated capital markets are an essential source if local-currency financing for the government, financial sector participants, and for end users such as small businesses,” Mr Maiga said at the press conference in Lome on Wednesday.