Trillions in Financial Assets But Too Little Reaches Markets

Trillions in Financial Assets But Too Little Reaches Markets

May 17 , 2026. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

The financial-sector assets reached 5.6 trillion Br by June 2025, marking a 40pc increase from the previous year and representing 37.2pc of the GDP. Social-security agencies hold 529 billion Br of these total assets. The foundational challenge facing the domestic economy is not a lack of capital, but the narrow channels through which it moves. A newly drafted masterplan reveals a financial system heavily dependent on commercial banks and government securities. Close to 95pc of pension assets are currently locked in treasury instruments. This concentration leaves limited long-term capital accessible for private enterprises looking to expand.

The federal government's plan to build a capital market begins where the financial system is most revealing, but not with a lack of money. It is with the narrow channels through which money moves.

A new masterplan for a capital market proposes a new Insurance & Pensions Authority and looser investment mandates for pension funds and insurers to move the system beyond its dependence on banks and government securities. By June 2025, financial-sector assets had reached 5.6 trillion Br, up 40pc from a year earlier and equivalent to 37.2pc of GDP. Public and private social-security agencies held 529 billion Br, close to 10pc of these financial-system assets. Pension assets amounted to four percent of GDP, while insurance penetration was limited to 0.9pc.

The balance sheet is large enough to matter, still locked into a conservative architecture.

Close to 95pc of pension assets are invested in treasury instruments, leaving limited long-term capital for private enterprise. Insurers held 46.3 billion Br in investment assets, but rules require that more than half of their assets (32.4 billion Br) be held in bank deposits to meet short-term liabilities. The master plan treats this concentration as a structural bottleneck.

International consultants and local regulatory experts prepared the document. Alongside Nyamu & Dudas, the advisory group included Adriaan Slabbert as project manager, with Nahom Shewaferaw and Christopher Ujima as project associates. Other experts involved were Hugh Simpson, Raymonda Sabbah, Andrew Douglas, Aschalew Tuji and Mahalet Kassa, a board member at the Commercial Bank of Ethiopia (CBE). The same advisory team also contributed to the digital payment strategy, recently launched by the National Bank of Ethiopia (NBE).

The proposed Authority would take insurance and pension supervision from the NBE, whose Insurance Supervision Directorate now oversees both areas. Public-sector pension administration sits with the Ministry of Finance’s Capital Account Directorate. The plan calls for actuarial reviews to guide long-term asset allocation, while shifting insurance oversight from compliance checks toward risk-based supervision.

The redesign accompanies a push to mobilise dormant savings. The reform package seeks to operationalise bancassurance - a business arrangement in which a bank and an insurance company partner so that the bank sells insurance products to its customers - introduce micro-pension products for informal workers, and use mobile-money platforms to formalise retirement savings through regulated digital wallets. It also proposes bonds for natural disasters and agricultural insurance products, expanding the market’s capacity to price and distribute risk.

For regulators, the workload is heavy. The Ethiopian Capital Market Authority (ECMA) is finalising a financial regulatory code that includes a directive for dispute resolution, mediation and arbitration, a regulation to protect investors against intermediary failure, and procedural rules for the Capital Market Administrative Tribunal.

The masterplan also calls for rules on capital inflows, ownership ceilings and repatriation procedures. It proposes removing pre-funding requirements that require investors to deposit the full amount in cash before placing orders, exposing foreign participants to exchange-rate volatility. The absence of International Securities Identification Numbers (ISIN) still limits cross-border settlement and global index inclusion. Without ISINs, local securities remain difficult to identify in systems used by custodians, index providers and global settlement agents, reducing the visibility of Ethiopian instruments and complicating any future inclusion in global portfolio benchmarks.

The plan also proposes tax-neutral treatment for schemes on collective investment, a trust for real estate investment (REIT), and accounts for tax-free savings, designed to remove multiple layers of taxation on pooled vehicles.

The Ethiopian Securities Exchange (ESX) has set a target of 50 company listings and three million retail investors by 2029 through its Main & Growth Markets. It expects support from state-owned enterprise privatisation and the CrowdX crowdfunding platform. By the same year, it targets one trillion Birr in equity market capitalisation and 2.2 trillion Br debt issuance.

According to Assefa Sumoro, senior advisor at the ECMA, the structures of the real estate trust could emerge soon as collective-investment regulations near completion.

"The products would package underlying assets, including large real-estate developments, into tradable units for collective investment schemes (CIS)," he told Fortune. "They could be listed on the exchange or offered as unlisted instruments available to the public."

More complex CIS products and investment funds are expected as part of a phased rollout over the next one to three years. Liberalising institutional mandates would eventually allow pension funds to outsource capital management to professional fund managers using diversified collective vehicles.

Assefa cautioned that capital-account liberalisation remains the NBE’s responsibility, not ECMA’s or the masterplan’s. ECMA has drafted foreign portfolio investment regulations and shared them with stakeholders, including the Ministry of Finance. The plan avoids setting a timeline for opening the capital account, instead promoting the NBE’s recent foreign-exchange liberalisation as the enabling condition for foreign capital participation.

"Because the capital account is a sensitive policy area, public debate should focus on the foreign portfolio framework for international participation in listed equities and bonds," said Assefa.

Kature Nyamu, a member of the consulting team and an expert in capital market products, has witnessed how quickly the reforms have progressed over the past two years, despite the market being young. The legal basis is emerging through laws governing capital markets and risk-based capital rules, but gaps persist in CIS, REITs, exchange-traded funds, Islamic finance, and asset-backed securities.

Nyamu spoke of the progress in electronic trading and dematerialised depository infrastructure, while stating the need for market indices, real-time data and market-making systems. Investor demand is still low, with pension funds and insurers concentrated in government securities. In Kenya, collective investment schemes expanded by 1,200pc in seven years, helped by public trust and partnerships with commercial banks.

On supply, Nyamu observed most firms are still preparing for entry, with banks and state-owned enterprises likely to dominate early issuance. The equity market has four issuers, including Awash Bank, while secondary trading remains limited. Intermediaries are scarce, and many investment banks depend on their parent commercial institutions for technical capacity.

According to Gyorgy Dudas, leader of the Genesis Advisory Team, the capital market is one ecosystem built on six connected pillars that should advance together.

“Stronger rules alone won't deliver much without issuers and investors,” he said. “More issuers will not come if there is no investor demand, and investors will not participate if they can't trust the integrity of the market.”

For Dudas, the agenda should not be about building market architecture for its own sake, but about creating a platform that channels capital into productive sectors.

"Foreign participation is essential because international investors bring capital, liquidity and expectations for stronger transparency and disclosure," he told Fortune. “They need to trust that what is written in the regulations works today and will continue to work tomorrow.”

The masterplan treats pension liberalisation and modernisation of the Central Securities Depository (CSD) as interdependent. The Depository is being upgraded to support CIS products, REITs, and Sukuk, the latter of which represent proportional ownership in underlying Sharia-compliant assets. Complete dematerialisation of securities is identified as a priority to reduce settlement risk, while authorities work on cross-border settlement links with regional markets and international clearinghouses.

Implementation will depend on coordination among the Ministry of Finance, the NBE and ECMA. The plan warns that regulatory reform without supervisory capacity could become a major risk. It also stated that the sequencing of pension liberalisation and Depository modernisation should move together, avoiding investor demand without infrastructure or infrastructure without participants.

PUBLISHED ON May 17,2026 [ VOL 27 , NO 1359]