A new stock exchange officially opened in Ethiopia is the country’s first since the fall of Haile Selassie’s imperial regime in 1974. Government officials say the launch of ESX marks an important milestone in Prime Minister Abiy Ahmed’s drive to liberalise the country’s dirigiste economy.

“We haven’t had an exchange in 50-plus years, so we are literally doing everything from scratch,” Michael Habte, chief operating officer of ESX, tells The Africa Report. “It has been a lot of work over the last few years [but] systems are ready [and] we are expecting activity very soon.”

Michael is confident Ethiopia can differentiate itself from most other African stock exchanges, where listings tend to be sluggish and liquidity is often low.

“We have done a lot of studies in the last two years on the region, and definitely there is a liquidity issue – there is no denying that,” he says. “The difference here, I think, is that there is pent-up demand.”

With plenty of share companies in need of capital, Michael argues that there will be significant appetite for listings, even in the initial stages, though he grants that, as in many other African countries, the first companies expected to go public are likely to be in the financial sector.

Early listing targets: Ethio Tel, Dashen Bank

Dashen Bank, a local lender, has already announced its intention to list, with other banks expected to follow.

Other early listings will serve as a means of privatising or part-privatising state-owned firms, in line with the government’s long-term objective of pivoting the economy towards “private sector-led development”.

Ethio Telecom, the national telecoms firm and one of Africa’s largest mobile service providers, last year held a 10% share sale, which will soon be publicly traded on the country’s new bourse.

Yet Michael argues that the appeal of ESX will extend far beyond banks and state-owned giants, owing to the sheer size of Ethiopia’s economy. The country is Africa’s second-most populous, with more than 120 million people.

“There is already an existing capital market. It’s just over the counter [OTC] – it’s very informal [and] very inefficient,” he says. “The macro picture is that it’s a big population that will be supportive of listings in the early years especially.”

“Your economy’s size always matters,” he says. “Ethiopia has a relatively large economy [compared with] the region. That should support an exchange – it’s generally a function of how big your economy is, and growth.”

90 listings in 10 years

ESX is aiming to hit 90 listings within the first decade of its existence. Were it to succeed, it would surpass the Nairobi Securities Exchange, currently East Africa’s largest, which has about 60 listed companies.

“We’ve learned a lot of lessons from other countries,” says Michael. “It’s not just stocks – we have a bond market for both government and private securities, and we also have a platform for interbank trading. We are trying to cover the full spectrum.”

By avoiding an exclusive focus on equity, ESX hopes to avoid some of the pitfalls it has observed in other fledgling stock exchanges, which tend to be dominated by a few big companies and to suffer from low trading volumes.

“We want to provide solutions for different segments and issuers,” he says. “That’s one of the issues that you face in other countries. The exchanges are so focused on the equity market, that when liquidity dries up you don’t have much other activity going on.”

Noting that more than 90% of businesses in Ethiopia are small- and medium-sized enterprises (SMEs), Michael says ESX is working on a crowdfunding platform, which will be separate from the main exchange, where smaller companies “can come to market in a regulated manner”.

“Given that we are a platform for raising capital, it doesn’t need to be limited to big companies only,” he says.

The launch of ESX comes after a series of measures taken by the Ethiopian government over the past year to liberalise its economy. It has eased restrictions on the repatriation of profits by multinational companies, opened up several sectors to foreign competition and floated its long-overvalued currency.