Ethiopia’s new stock exchange targets 90 listings in first decade

Following the launch of Ethiopia’s first fully-fledged stock market in January, the focus now shifts to securing new listings on the exchange.

So far, only one company – Wegagen Bank, a mid-sized lender based in Addis Ababa – has listed on the Ethiopian Securities Exchange (ESX). But Ethiopian Investment Holdings (EIH) is working on listing some of the country’s state-owned enterprises, which it manages, and state-owned Ethio Telecom – which long enjoyed a state monopoly – is also preparing to offer a stake to new investors through an initial public offering (IPO).

Michael Habte, chief operating officer ESX, is confident that the exchange will secure additional listings in coming months, noting that the long-term goal is to have around 90 listings within the first decade of operation.

EIH’s pipeline reportedly includes Ethiopian Insurance Corporation and Ethiopian Shipping and Logistics Services. EIH controls 27 portfolio companies, valuing their total gross assets at $45bn and reporting annual revenue of some $18.5bn (2022/23).

“We’re really optimistic. We think there’s a decent pool of share companies that could eventually list,” Habte tells African Business.

He argues that investors remain confident in the country’s economic prospects, thanks to a series of reforms spearheaded by Prime Minister Abiy Ahmed’s government. These include floating the national currency, the birr, and opening the telecoms and banking sectors to foreign competition.

Habte noted that the launch of ESX provides further impetus to the government’s reform agenda. It sends a signal that Ethiopia is ready to accept portfolio investments and open up its hitherto closed economy to foreign participation.

Building a trading ecosystem

To secure new listings, Habte notes that ESX’s primary focus in the coming months will be on building an ecosystem to support the country’s nascent capital markets. The last time Ethiopia had a capital market was in 1974 before the military seized power and shut down over-the-counter share trading in a bid to nationalise industries.

“We have to understand what works for Ethiopia. We don’t have an ecosystem. We don’t have brokers, we don’t have asset managers yet. There’s still a lot of capacity building needed. One key thing we’ve observed is that there hasn’t been an advisory community in our capital markets. So that also needs to start taking shape.”

Habte says that the exchange is helping Ethiopian banks manage their liquidity more efficiently. He says that an interbank trading platform that is part of the exchange is improving credit flow in the banking sector and that all Ethiopian banks are currently signed on. Since its pilot in late October 2024, the platform has facilitated trades exceeding 135 billion birr ($1.1bn).

Habte says that another key focus for ESX is developing interest in other products besides equities. ESX offers debt, derivatives, and other financial instruments commonly found in modern stock markets.

“We’ve for instance never had a proper corporate bond market, and we already have some interest in that space,” he says.

He says that some Ethiopian banks, as well as private companies in other sectors, are keen on tapping into domestic debt markets to raise capital without having to offer equity stakes in their businesses.

“They don’t want to give up ownership. I’m not quoting all of them, but there’s some that need financing, but they don’t want to dilute the business. We already have a bit of interest from the banks in this area…even large family-owned firms are interested in raising debt.”

Building from scratch

Mark Napier, CEO of Financial Sector Deepening Africa (FSD Africa), says that ESX puts Ethiopia on the radar of investors who prefer portfolio investments over direct investments. This could help the nation attract a larger share of the domestic and foreign capital controlled by pension funds, insurance firms, and other investment managers.

As a strategic partner to the exchange, FSD Africa provided technical assistance, regulatory support and capacity building initiatives to help establish the exchange. It also helped finance the establishment of market infrastructure in the country.

“I think it’s worth saying Ethiopia is a very unusual situation because you are really building a capital market entirely from scratch. There was no sort of formal capital market there before, so it was a unique opportunity and frankly a real privilege to be part of that journey,” Napier tells African Business.

“We were part of the task force that the government set up to oversee the development of the new exchange. Our job was to ensure that they had access to the right expertise to be able to set up the exchange,” he said.

“We also provided the funding for the central securities depository, which is part of the financial infrastructure that allows trades to be settled through the stock exchange. We decided to remain involved in the ESX as a shareholder and we’re the third largest shareholder in the exchange now,” he said.

ESX operates as a public-private partnership, with 25% of its shares owned by Ethiopian Investment Holdings. The remaining 75% is held by various private investors, including institutional investors and other stakeholders.

Supporting economic transformation

He noted that much of their current work focuses on tapping into the pools of domestic capital available within the continent to mobilise capital for Africa’s economic transformation.

“We know there is over $2 trillion in institutional money within pension funds, insurance companies, and banks in Africa,” he said.

“These large pools of capital are currently mostly used to fund government securities, essentially funding African debt. Our goal is to tap into some of that capital to support real economic sectors like energy, small businesses, and agriculture, which can drive job creation and better social outcomes,” Napier said.