Ethiopian sovereign fund identifies ten state companies to list

Executives at Ethiopian Investment Holdings (EIH), the East African country’s sovereign wealth fund, have identified ten state-owned enterprises that will be listed on the Ethiopian Securities Exchange (ESX) when the market is launched in late 2024 or early 2025.

Among EIH’s portfolio companies that will be listed on the exchange are Ethio Telecom, the Ethiopian Insurance Corporation, and the Ethiopian Shipping and Logistics Services Enterprise (ESLSE). The move reflects the determination of the Ethiopian government to liberalise critical industries in the country after years of domination by state-owned enterprises, including in telecommunications, finance, and international trade.

The government has already taken several important steps in this direction. In 2021, the Ethiopian government granted two licences to private sector players in the telecommunications space, breaking the monopoly of Ethio Telecom.

Last year, the National Bank of Ethiopia announced its intention to issue between three and five licences to foreign banks within five years, opening up the Ethiopian banking system to competition from foreign entities. Last month, the government liberalised its foreign exchange markets, ending central bank interventions and committing to “a competitive, market-based determination of the exchange rate [to] address a long-standing distortion within the Ethiopian economy.”

The EIH’s decision to float at least ten major state-owned enterprises on the ESX is another step towards liberalising the Ethiopian economy and attracting the foreign capital which the government believes is critical to boosting living standards in the country.

The extent to which foreign investors are interested in the ESX and in purchasing shares in Ethiopia’s major companies remains to be seen when the market starts trading. However, interest does appear to be high. The exchange has already raised more than 1.5bn birr ($13.3m) from 48 investors – more than double its initial target of 631m birr – with several prominent African financial institutions committing capital, including the Trade and Development Bank (TDB), FSD Africa, and the Nigerian Exchange Group (NGX).

Part of the attraction of investing in major Ethiopian companies is that the East African country is the second most populous on the continent and continues to experience high levels of economic growth, but still has an informal and relatively unsophisticated economy. In finance, for example, around 75% of the country’s population is reportedly unbanked, meaning there is a huge untapped market for foreign companies to cater to. There are still only two telecommunications operators in a country of over 120m.

While these opportunities could encourage foreign investors to commit capital to Ethiopia’s state-owned enterprises when they list on the ESX, they will also have to battle a challenging macroeconomic climate. High inflation and a birr that is continuing to weaken could jeopardise the value of any birr-denominated assets, even if Ethiopia’s economic fundamentals continue to demonstrate promise.