Ethiopia is on track to launch its first stock market for 50 years in the middle of 2024, Brook Taye, director general of the Ethiopian Capital Market Authority, tells The Africa Report.

The KPMG accounting group is now studying five state-owned enterprises (SOEs) to assess their readiness for initial public offerings (IPOs), Taye says on the sidelines of the AFIS financial industry summit in Lomé, Togo. That’s in addition to Ethio Telecom, which will offer a stake of 10% to the public and for which an unnamed investment advisory firm has already been appointed, he adds.

Ethiopia’s socialist revolution of 1974 led to the abolition of the country’s stock exchange, which was called the Share Dealing Group and was created by the country’s imperial regime in 1965. Liberalisation of the command economy started in 1991 and has gathered pace in recent years.

The government issued a mobile money service licence to Safaricom in May, the first for a foreign operator. In September, a central bank directive allowed the birr to be converted into hard currency for strategic foreign investments in energy and miningpublic-private partnerships, as well as allowing offshore accounts to be used for the projects.

Shareholders in the country’s banks and insurers currently total around 350,000, and they currently buy and sell shares directly via social media, Taye says. “For all intents and purposes we have a stock market. Our role is to formalise this.”

The exchange also plans to offer corporate, green and municipal bonds, and is looking at the possibility of real-estate investment trusts (REITs), Taye adds. Macroeconomic stability and peace in Ethiopia, he says, are “the two fundamental components” of the plans.

New kids on the block

Ethiopia’s large, youthful population and its early stage of urbanisation have the potential to attract foreign investors, but the reforms to date have not been enough to get the country on the international radar.\

Ethio Lease, part of African Asset Finance Company and the only foreign financial services company operating in the country, said in November it’s pulling out due to restrictions on foreign exchange, after attempts to find a solution with the government failed.

Along with central bank governor Mamo Mihretu, Taye is part of a group of young Western-educated officials who are trying to accelerate the liberalisation process. Taye has a PhD from Université Paris-Saclay, where he researched high-growth entrepreneurial firms in Ethiopia. He has worked as a private-equity fund manager with A&A Capital in the US and is a former senior advisor to Ethiopia’s ministry of finance, where he contributed to the government’s privatisation strategy.

One pitfall Taye is keen to avoid is the fate of the Kenyan stock market, which is dominated by a small number of large companies, led by Safaricom and Equity Group. Foreign investors who want those shares probably already have them, and there’s not much else to choose from. Plans by Credit Bank to list in Nairobi by the end of 2023 would be the exchange’s first IPO since 2015.

The Ethiopian model will prove more vibrant than that of Kenya, Taye argues, due to the fact that foreign investors don’t have stakes in its financial services industry. Kenya allowed foreigners to invest, leaving companies reliant on changes on global sentiment, he says. “They’re paying for it in capital flight.”

While Kenya has performed well in terms of money market investment and collective debt investment schemes, equity listing requirements are too onerous, and the market has relied too heavily on the financial sector, Taye says. “The dynamism of the Ethiopian economy is not comparable with that of Kenya, which is “an example of “how not to do an equity market”.

Ethiopia plans three different equity listing platforms, each with its own requirements. The main board will require a minimum of three years of financial statements, the emerging board will have simplified requirements, while the alternative market will allow discounted receivables to be traded as securities. All three platforms will be launched at the same time, Taye says.

Indonesia and Morocco, he adds, are examples of countries which have created thriving stock markets which Ethiopia hopes to emulate. Indonesia has been successful in developing a pipeline of unicorns such as Bukalapak and GoTo, which listed in 2021 and 2022 respectively, while Morocco has specialised in asset management companies and collective investment schemes.