Ethiopia's Stock Market Presents Hope Despite Shadows of Past Failures


Jan 18 , 2025
By Yared Haile-Meskel


I am delighted that Ethiopia has finally inaugurated a stock market, half a century after the Addis Share Dealing platform closed.

My journey in this field began in the midst of the dot-com boom, when soaring valuations and widespread speculation piqued my curiosity. I followed share prices, pored over financial newspapers, and recognised that Ethiopia lacked a modern finance cornerstone. I championed the cause for years, contrasting Ethiopia’s predicament with countries boasting thriving exchanges and well-established institutions.



Today, I recount my story and offer cautionary advice to keep the Ethiopian stock market transparent, efficient, and free from undue government intervention.

While studying economics, I learned how stock markets have propelled prosperity since 1602, beginning with the Dutch East India Company’s issuance of shares to public investors. Britain drew on Dutch innovations, using private capital to fuel naval expansion, trade routes, and industrialisation. Two books - Niall Ferguson’s “The Ascent of Money” and “Empire” - shaped my outlook. These books demonstrate how financial markets underpin empire-building, catalyze economic reforms, and occasionally spark transformative social change.

In 2012, I returned to Ethiopia determined to investigate the share market’s potential. I designed a research project surveying multiple regulatory agencies, including the National Bank of Ethiopia (NBE), the Ministry of Trade, Addis Ababa University’s Law School, and prominent legal firms. Simultaneously, I approached share promoters such as Access Capital, Habesha Cement, Enat Bank, Tsehay Insurance, and Finot Health Service, seeking to gauge their appetite for expanding equity finance.

I also interviewed scores of private investors, fascinated by their varied motivations for buying shares. Officials at the NBE and the Ministry of Trade generously shared insights, while journalists described the industry’s many unresolved issues.

My research revealed that around 4.2pc of the GDP was locked up in unofficial share companies, a shadowy space rife with risks. Comparing these loosely regulated entities, licensed by the Ministry of Trade, with the more orderly financial sector overseen by the NBE, convinced me of the pressing need for a formal stock exchange. By 2017, I estimated that around 80 billion Br worth of shares had been sold, split between 30 billion Br in regulated finance and the balance in unregulated ventures. Many of the latter collapsed, though some remained viable, including Raya Brewery, Zebidar Brewery, and Habesha Cement. Others, like Hiber Sugar, Access Capital, Access Real Estate, and Addis Prefab, unravelled disastrously.

I proposed that a properly structured stock market would enforce stricter vetting of IPOs, demanding realistic projections rather than inflated returns. It would also mandate quarterly reporting, enabling transparency and preventing fiascos from festering until annual disclosures. My research turned up numerous conflicts of interest, including the 108 million Br tied up in litigation over Hiber Sugar, which unearthed the pitfalls of opaque governance.

A regulated exchange, I argued, could streamline capital-raising, reduce corruption, and encourage the professional oversight essential for Ethiopia’s economic modernisation.

Convinced of the system’s importance, I approached the NBE, the ministries of Trade, and Finance with my recommendations, hoping they would champion the cause. Yet the prevailing official perspective echoed the late Prime Minister Meles Zenawi’s dismissive remark equating the stock market to a casino. Scepticism took root in a culture where the leader’s words became dogma. Nonetheless, I pressed forward, co-hosting an investment conference with a Spanish firm specialising in frontier markets, where global private equity representatives repeatedly questioned how they could exit Ethiopian investments without a stock exchange.

Accessing international buyers or orchestrating trade sales is daunting in an emerging market setting, and the notion of building exit pathways through a stock market seemed almost self-evident. In these fora, I learned how deeply investors crave transparency and liquidity and how unwilling they are to commit large sums without a reliable exit mechanism. I also realised that many local business owners, hungry for capital, stood ready to tap into equity financing if only a credible trading platform existed. In my view, that gap stifled entrepreneurship and prevented Ethiopia from fully harnessing its economic potential.

Throughout my 12-year quest, I crossed paths with individuals campaigning for a stock exchange far longer than I had. One of them, Eyesuswork Zafu, offered astute guidance and tirelessly lobbied authorities to embrace modern financial structures. His dedication revealed that establishing a stock market in Ethiopia was not simply a technical matter but a political one, subject to shifting ideologies and entrenched scepticism. Now that the market has materialized, there is optimism that Ethiopia can follow in the footsteps of countries that have leveraged capital markets for enduring growth.

The test will be whether it remains dynamic, transparent, and investor-friendly. As the Exchange moves forward, I sincerely hope it avoids the pitfalls that plagued the Ethiopian Commodity Exchange (ECX).



When the ECX was unveiled, it promised to avert the market information gaps that its founding CEO, Eleni Gabre-Madhin (PhD), blamed for previous famines. Her influential TED Talk stressed how certain regions had surplus while others starved, implying that stronger market data could have saved countless lives. Yet, once launched, the ECX evolved into a state-centric apparatus that harmed coffee growers rather than helping them. By 2016, speciality coffee producers faced rigid categorisations like Jimma, Wellega, or Harar, preventing the direct buyer-seller relationships needed to earn premium prices.

I witnessed these distortions firsthand while working with the Dutch government at a speciality coffee conference. Experts pointed out that standard Ethiopian coffee sold for around 2.50 dollars a kilogram on global markets, whereas speciality varieties could command anywhere from eight to 16 dollars. Because the ECX lumped beans by broad regional origin, roasters could not contract specific growers for consistent flavour profiles.

Meanwhile, restrictive regulations on transporting exportable goods between regions demanded special permits, akin to controlling narcotics. A friend once said on a radio interview that this effectively turned valuable commodities into bureaucratic property, depriving farmers and traders of a fair and flexible marketplace.

Publicised as a groundbreaking achievement, the ECX gradually veered away from Eleni’s initial vision of bridging supply and demand to prevent starvation. In reality, no grains ever traded through the platform, only export commodities subject to government oversight. After Eleni’s contract ended, she formed Eleni LLC, backed by private equity, to replicate the ECX model across Africa. But in more liberalised settings without state backing, the concept quickly floundered, revealing the fragility of command-driven structures.

This should forewarn the risk that Ethiopia’s new stock market might stumble if political interference overshadows transparent trading and genuine price discovery.

History shows that Ethiopia once embraced market solutions without ceding autonomy. Emperor Menelik II, who apparently did not trade Djibouti for a railway, formed the Imperial Railway share company in 1897, raising capital by selling shares and bonds in Addis Abeba, Paris, Vienna, and London, eventually amassing 40 million francs. In 1906, the Bank of Abyssinia [no relation with the existing bank] similarly emerged through share sales, affirming Ethiopia’s capacity for market-driven financing.

Between 1960 and the 1974 revolution, the Addis Abeba Share Dealing platform enabled the creation of 14 banks and insurance companies. These precedents confirm that Ethiopia can benefit from a properly managed exchange, provided it remains a transparent marketplace rather than a vehicle for bureaucratic control. As we celebrate the launch of this new stock market, we should stay vigilant to ensure it enables genuine trading, spurs innovation, and safeguards investors’ interests.



PUBLISHED ON Jan 18,2025 [ VOL 25 , NO 1290]



Managing director at YHM Consulting & Com Agent Plc, a transaction services consulting firm.





How useful was this post?

Click on a star to rate it!

Average rating 5 / 5. Vote count: 2

No votes so far! Be the first to rate this post.





Editors' Pick




Editorial




Fortune news