Authority Tightens Purse Strings on Capital Market Players

Oct 18 , 2025. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

The Ethiopian Capital Market Authority, or ECMA, has raised the minimum paid-up capital for transaction advisors from half a million Birr to eight million Birr for those advising companies with over 250 million Br in capital, and to five million Birr for those serving smaller entities. The new thresholds arrive weeks before a major share registration deadline set for November 27, 2025.

Transaction advisors working with companies that hold over a quarter of a billion Birr in capital are required to maintain at least eight million Birr in paid-up capital, while those advising companies below that threshold should hold five million Birr.

The move comes weeks ahead of a critical share registration deadline on November 27, 2025, raising concerns about the timing, legal authority, and market impact. The authorities have outlined different timelines for compliance. Firms newly licensed after the directive's release should meet the capital thresholds immediately, while those already licensed are given six months from their first advisory assignment to comply.

The number of licensed capital market service providers has gradually increased since ECMA began issuing licenses. In March 2025, the Authority approved five new providers, including the country’s first investment banks, CBE Capital and Wegagen Capital, as well as the first securities dealer, Ethio-Fidelity Securities S.C. By October 2025, three more firms, Zuri Capital S.C., First Addis Investment Bank S.C., and Ignite Capital Plc, have joined the ranks, bringing the total to 11.

The change has triggered a wave of debate in the budding capital markets sector, leading to a sharp increase in the minimum paid-up capital required of transaction advisors. The new requirement, communicated to the advisory firms last week in a meeting held at the headquarters of the Ethiopian Capital Market Authority (ECMA), off Africa Avenue (behind Flamingo Restaurant), represents a leap from the previous minimum of half a million Birr, which had been the legal standard since the Authority began licensing advisors.

This has drawn criticism from industry participants and legal scholars who argue that the decision lacks a proper legal foundation. ECMA issued the notice without formally amending the 2021 Capital Market proclamation or releasing a directive with legal force.

The directive's long-term impact will come into sharper focus over the next six months, as existing firms race to meet the capital thresholds and new entrants face immediate barriers. While the measure aspires to boost capacity and ensure market integrity, experts fear it may also limit entry for smaller players in a sector still in its infancy.

Dakito Alemu(PhD), an accounting professor and capital markets lecturer at Addis Abeba University (AAU), questioned the legal standing of the directive.

“ECMA should have notified firms through proper directives,” he said. "Without formal amendment to the law, the directive lacks an authority's weight."

Solomon Zewde, a senior capital market advisor at ECMA, defended the decision. According to Solomon, this was done in accordance with provisions under the initial public offering (IPO) directive that authorise the Authority to assess whether advisors are “fit and proper” to handle large transactions.

“The directive allows ECMA to determine financial and human capital requirements,” Solomon told Fortune. “Advisors must be in a strong position to handle transactions for large companies, and ECMA has the right to set such standards to safeguard market integrity.”

The timing of the announcement has amplified its impact. As the share registration deadline nears, demand for advisory services is rising. Companies are racing to comply with ECMA’s requirements, and the industry is under pressure to expand capacity. While ECMA expects aggregate equity in the capital market to almost double from 537 billion over the next three years, the sudden capital increase has raised concerns, especially for small advisory firms that may struggle to raise the required funds on short notice.

Among the roughly dozen licensed transaction advisors, reactions have varied. Some firms have responded swiftly, while others are still scrambling to adjust.

Gemechu Waktola(PhD), CEO of i-Capital Investment Advisory, expressed confidence in his firm’s readiness.

“We’ve aligned our capital structure and bring a decade of expertise with local and international specialists,” he told Fortune. “This positions us to deliver high-quality advisory services as the market matures.”

Habtamu Eshetu, CEO of Ethio Capital Plc, also voiced support for the directive, though he raised concerns about the tight timeframe. His firm currently holds 5.5 million Br in capital and plans to inject additional funds to reach eight million Birr “within weeks.” Ethio Capital transitioned to a private limited structure in February 2025 to improve efficiency and is currently serving five major clients.

“The law predates our ecosystem," Habtamu said. "It assumed no licensed advisors existed. Extending the November-to-November cycle would allow companies breathing room without compromising compliance.”

Others find the pace of the change difficult. HST Investment Advisors Plc, which started with 1.5 million Br, three times the initial minimum, has now increased its capital to meet the eight million Birr mark. Licensed in March 2025, the firm is led by Tewedaj Gezahegn, who has 15 years of experience in auditing and finance. The company is majority-owned by HST Consulting Agency, with Tewedaj as a key stakeholder.

However, not all firms are in a position to meet the requirements easily. A Chief Executive Officer (CEO) of a firm which began operations with half a million Birr capital and later doubled it acknowledged the strain.

“Every project feeds our capacity, but this timeline feels truncated,” he said, asking for anonymity due to the sensitivity of the issue. “We’re optimistic about the market’s urgency. ECMA’s push for registrations signals vibrancy, but if liquidity doesn’t flourish, fulfilment becomes aspirational.”

Some professionals argue that the policy, while demanding, may open new doors. Endalkachew T. Asmamaw, a corporate finance advisor at BDO Ethiopia, believes the capital raise can be offset by the opportunities the directive creates.

“The timing aligns with ECMA’s registration drive, creating advisory opportunities that offset costs,” he said.

But he also criticised the vague legal framework, cautioning that ambiguity could undermine effective enforcement.

“The law shouldn’t be ambiguous,” he said, calling for broader consultation with stakeholders. “With few institutions underpinning the market, shortfalls must be addressed collaboratively, gaps filled as we build.”

PUBLISHED ON Oct 18,2025 [ VOL 26 , NO 1329]