Ethiopia is gearing up for a major economic transformation as it prepares to welcome foreign investment banks into the country, a pivotal move leading up to the anticipated launch of its securities exchange later this year. Despite drawing interest from international players like Safaricom, the liberalization push has encountered obstacles such as regulatory uncertainty, security issues, and economic instability.
This week, the justice ministry granted approval for the Ethiopian Capital Market Authority to proceed with issuing licenses, marking a significant milestone in Prime Minister Abiy Ahmed's mission to attract greater private investment since 2018. The nation, historically dominated by a state-controlled economy, is witnessing a more ambitious shift toward increased private sector participation.
With no existing investment banks and limited funding options for businesses, the demand for capital-raising services is substantial. The current scenario, where businesses pay a hefty 25% interest on commercial bank funding and must provide collateral worth 70% of the loan value, is identified as a significant bottleneck in the Ethiopian economy.
In an effort to address these challenges, the regulator is extending licenses to global and regional investment banks, securities brokers, dealers, and credit rating service providers. This diverse range of entities will play a crucial role in assisting businesses in listing shares on the upcoming securities exchange and issuing corporate debt. The launch of the exchange, expected later this year, aims to enable the government to address its budget deficit by offering debt securities to retail investors.
Zemen, a prominent Ethiopian commercial bank, has already committed to acquiring a 5% stake in the exchange, positioning itself among the key stakeholders. Against a backdrop of foreign exchange shortages and high inflation, Ethiopia is navigating economic complexities, including a recent default on its $1 billion international bond after missing a $33 million coupon payment last month.