The Capital Market Project Implementation Team (CMPIT) at the National Bank of Ethiopia (NBE) finalizes the drafting of 10 directives and two regulations necessary to establish the Capital Market Authority and the Ethiopian Securities Exchange (ESX).
The two regulations, which are currently being readied to be sent to the Council of Ministers for approval, are the ‘regulation for investors’ compensation fund’ and the ‘regulation of capital market authority employees’ administration.’
There are also a number of directives underway. The Licensing of Securities Exchange Directive, Directive for public offer, Licensing of Capital Market service providers directive, a directive for collective investment scheme, an alternative investment fund directive, and self-regulatory organizations that will participate in the stock market ecosystem are among the legal frameworks in the pipeline.
“Once the management of the working team approves the drafts, there will be stakeholders’ discussion. The 10 directives and two regulations are at draft status as of now. The two regulations are ready to be sent to the Office of the Prime Minister (PMO). They will be approved by the Council of Ministers,” said an official at the project office at the NBE.
The project office at the NBE has been active for the past 10 months, almost since the Capital Market Proclamation was ratified in July 2021. The team of professionals at the NBE, which was formed to establish the capital market authority, includes local and foreign legal experts, macro-economists, and other professionals.
The public offering directive governs standards and requirements for companies and enterprises that will be listed on the stock market should meet. However, more directives that govern the standard IPO listing will be introduced by the capital market authority once it comes to fruition.
“There are obvious rules and conventional knowledge as to which companies and enterprises will be listed, but we cannot disclose them until they are determined by the rules,” said the official.
The structure and legal framework for the establishment of the authority have also been finalized. The project office team submitted designated directors, deputy directors, and board members of the authority to the PMO six months ago. According to the capital market proclamation, these officials have to be approved by the PM.
“The PMO is taking time to approve them. We are waiting for direction from the government to launch the establishment of the capital market authority. But the authority cannot be active unless the PM approves the management and board. We do not know when it will be, but we are waiting for the approval,” added the official, who spoke to The Reporter on the condition of anonymity.
The official believes that as soon as the approval comes, the authority will become operational and that the government will approve the management and board at any time.
Foreign firms will be allowed to participate in the Ethiopian stock market. But that will be in line with other laws such as the Banking Business Proclamation and the Investment Regulation. Especially, the investment proclamation has provisions on thresholds and sectors allowed for foreign investors.
Foreign investors can participate in capital market service providers, investment banks, brokerage firms, fund managers, and others. Foreigners can take a license, engage in these areas, and also invest in the ESE. This is allowed partly to acquire technology transfer.
Foreign firms registered and operating in Ethiopia can be listed on the exchange if they are willing, according to the official.
Local financial institutions, state-owned enterprises, international hotel brands, and other potential firms that implement IFRS are expected to be listed on the Ethiopian Stock Exchange, which is expected to be launched in 18 months from now.