Sunday, September 24, 2023
BusinessRegulator eyes loosening capital controls to draw foreign cash for stock market

Regulator eyes loosening capital controls to draw foreign cash for stock market

Breaking down barriers to foreign capital, Addis Ababa is mulling a policy overhaul to let international investors on the trading floor of Ethiopia’s embryonic stock exchange.

The government is considering allowing full foreign participation in Ethiopia’s upcoming stock exchange, which would involve buying and selling company shares.

Experts and officials from the newly established Ethiopian Capital Market Authority (ECMA) are currently analyzing the policy aspects of allowing foreigners to invest in purchasing and selling shares of companies that will be listed on the Ethiopian Securities Exchange (ESX).

While foreigners are permitted to set up businesses and participate in other aspects of the market, they are not yet authorized to buy and sell stocks on the soon-to-be-opened exchanges.

“This is because we have the capital account restriction and other laws that prohibit us from doing that,” Brook Taye (PhD), director general of the ECMA, told The Reporter.

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His office has been crafting policy proposals to make the proposed change a reality and will put forward the ideas to the macroeconomic team and other relevant government agencies for possible policy changes.

“If you want to buy USD 1,000 worth of shares, the money comes in and you buy the shares. But if you want to repatriate it, how is that going to be? What type of investor are you going to be?” Brook explains the hindrance of allowing foreigners to exchange shares, “but we aren’t in a rush.”

The capital market regulator has been working to align its policy proposals with other government initiatives and hopes to recommend them to decision-making bodies for approval.

The Authority seeks to harness Ethiopians abroad for the stock exchange, in keeping with the favorable investment terms Addis Ababa offers the diaspora.

However, it is working to “define what parameters and requirements there should be” for foreigners’ participation in the exchange.

“It may not be in the near future, but we see the future in the mid- to long-term. We are defining the policy elements for their participation,” Brook said.

Since the Authority’s establishment, officials have focused mainly on crafting legal frameworks. Based on the capital market proclamation, around a dozen directives have been drafted, three of which have completed public consultations and board approval, the director general said.

Beginning in Dire Dawa this week, the regulator is also holding public education programs to ready Ethiopians for the stock market debut.

The Exchange, established with a 25 percent government stake through the Ethiopian Investment Holding (EIH), has expressed interest in selling the remaining 75 percent of shares to private investors, including foreigners.

Trading is projected to start within the year.

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