A three-day summit last week set the stage to launch the long-awaited Ethiopian Securities Exchange (ESX), bringing together high-profile figures from the financial and policy spheres. Governor Mamo Mihretu of the National Bank of Ethiopia (NBE) accentuated the economic necessity of a vibrant capital market ecosystem. He declared the urgency of the transition, noting that the ecosystem is not merely a luxury.

A reliable source of domestic financing that reduces reliance on inflationary NBE funding is a major outcome expected from the capital markets for the federal government. Mamo reiterated the potential for companies to provide much-needed long-term financing in equity and debt forms filling a gap in the current financial system. For individuals, Mamo expects a wider array of savings and investment options will be introduced, tailored to different risk and liquidity preferences.

“Ethiopia is a latecomer,” the Governor acknowledged. “But, recent progress shows our dedication to catching up.”

The timing of the capital market launch aligns with broader macroeconomic reforms, which aspire to stabilise the economy, modernise financial systems, and attract foreign investment.

ESX is expected to allow the government to raise funds through bonds, reducing dependence on central bank deficit financing and helping control inflation while a newly piloted money market platform has already facilitated over five billion Br in interbank transactions within days. Mamo said that recent foreign exchange reforms pave the way for foreign direct investment in securities, providing fresh foreign currency inflows.

The groundwork for launching the capital market has been laid over the past four years. Mamo outlined key milestones under the central bank such as initiating the groundwork with the Capital Market Proclamation and establishing the Ethiopian Capital Market Authority (ECMA), the industry regulator.

Efforts to establish the stock exchange were initiated two years ago under Ethiopian Investment Holdings (EIH) while the NBE spearheaded efforts to create a Central Securities Depository to manage securities transactions.

“It’ll be operational in the coming month,” he said.

Organised by the Authority in partnership with the African Development Bank (AfDB) and the International Finance Corporation (IFC), the summit convened key partners from global financial heavyweights like the World Bank, UNDP, and major consultancies including Deloitte, PwC, and KPMG. The ballroom was filled with heavyweight businesspeople and curious citizens alongside international partners and government officials.

The Authority has been building up the ecosystem's regulatory framework with five directives already in play and the offering of 15 license types for a wide range of market participants.

Public Offer directive ensures transparency and investor protection in public offerings; the SROs directive empowers market supervisors; the Fee directive sets specific fees for market participants; Licensing, Operation & Supervision directive sets standards for exchanges and over-the-counter markets, and the Service Providers directive sets rules for market intermediaries to protect investors.

While discussing the latest directives, Hana Tehelku, director general of the Authority, recalled there were problems in regulating the information forwarded to investors while there were no proper legal guidelines on the responsibility of issuers. This will be no more, she stressed.

Hana identified the Authority’s efforts at partnership with regional markets such as Kenya, Namibia, and Nigeria to entice foreign capital through borrowed best practices.

The remarks flowed into a broader discussion on the practical applications of these new policies. Ethio telecom’s recent initial public offering (IPO), conducted through the Telebirr digital platform, was underlined as a test case for the Authority's regulatory ambitions. According to Hana, the IPO showed the potential of retail investors in the burgeoning capital market, with Telebirr stepping in as a temporary broker. However, this was a provisional measure.