Final preparations to usher in Ethiopia’s stock market are focused on ensuring that technical systems and market participants are adequately prepared, while a directive governing public trading needs to be registered by the Ministry of Justice, Director General of the Ethiopian Capital Market Authority (ECMA) Hana Tehelku says. “I’m confident that the market will be launched by mid-November,” she tells The Africa Report. 

Ethiopia’s socialist revolution of 1974 led to the abolition of the country’s stock exchange. Economic liberalisation has gathered pace under Prime Minister Abiy Ahmed, who has been in power since 2018.

The country’s Ethiopian Investment Holdings (EIH) sovereign wealth fund has identified 10 companies to be listed on the exchange, including Ethio Telecom, the Ethiopian Insurance Corporation and Ethiopian Shipping and Logistics Services.

Tehelku was named director general of the ECMA in August, replacing Brook Taye, who became the CEO of EIH. Tehelku is a former public prosecutor with experience in cases of corruption and economic crime.

She sees the decision to float the birr in July as an opportunity to attract foreign investors and notes that the gap between the official and parallel-market dollar-birr rates has virtually disappeared. The move will make it easier for stock-market investors to achieve exits, she says. “The government is keeping its promises on reforms.”

The ECMA is working on creating an “initial public offering (IPO) clinic” for companies that plan to list. The clinic is being developed in partnership with the World Bank and will be available as soon as the stock exchange is up and running, Tehelku says.

Call for innovation in the ‘sandbox’

The ECMA has worked with a range of national stock market regulators to prepare for the launch. The authority has consulted regulators, including in China, Malaysia, Georgia, Kenya and France, and continues to work closely with the US Securities and Exchange Commission (SEC), Tehelku says.

The stock market will be “a strictly regulated platform” and unregulated trading activity can lead to criminal penalties, Tehelku says. The objective is not to punish but to get unregulated trading activity on board.

Firms can submit their concepts to the ECMA via its website, and selected ideas will be tested on real consumers, with a deadline for the first cohort of submissions of 30 December

Tehelku aims to bring a more distributed approach to capital markets regulation. Some of the ECMA’s powers, she says, will be delegated to self-regulating organisations. The stock exchange, for example, will be responsible for regulating service providers.

It remains to be seen whether short selling will be allowed on the new exchange. Critics of the practice argue that short selling, or borrowing securities in the hope of profiting from a fall in price, destroys investor value. Proponents argue that short selling plays an important role in identifying companies that may be overvalued, or even fraudulent. Tehelku declined to comment on whether short selling will be allowed.

One of Tehelku’s first actions in late August was to announce the launch of a new regulatory “sandbox” to encourage innovation in the financial sector. The initiative is backed by the UN Development Programme. Firms can submit their concepts to the ECMA via its website, and selected ideas will be tested on real consumers, with a deadline for the first cohort of submissions of 30 September.

The country, Tehelku says, needs new capital market products and services. In the past, there has been a tendency to “say no” if an innovation was not covered by existing regulations, Tehelku says. “This is an attempt to say yes.”