Officials plan a modest start for the Ethiopian Securities Exchange (ESX), set to launch by mid-2024, aiming to initially list just 15 firms with the hopes of expanding to 50 listed companies within a decade.
ESX coordinators at the Project Office, formed to facilitate the launch process, plan to finalize registration and acquire business licenses by September 2023. They also aim to apply for an operating license from the Ethiopian Capital Market Authority (ECMA) by December 2023.
“That will give us sufficient time to deploy technology, onboard brokers, investment banks and prepare, launching operations by end of 2016 E.C,” said Tilahun Kassahun, senior project manager at the ESX project office.
“Our first-year plan is to list private companies, some state-owned enterprises and debt security market. Growth will be gradual. We will list firms from all walks, industries, SOEs, and private firms,” Tilahun said.
ESX project managers envision 25 to 35 private listings within 10 years, mostly financial institutions, banks and insurers, according to Tilahun.
At least five state-owned enterprises will debut in the first year, with most of the initial listings from private firms. Currently, only Ethio Telecom has confirmed plans to list on the fledgling exchange, indicating the long road ahead to meet lofty ambitions.
“The government promised to list up to five SOEs in the initial rounds after ESX is established,” Tilahun said. “We don’t know yet how long that will take—it could be within the first year or up to 10 years.”
Studies are underway with the Ethiopian Investment Holdings, Kassahun said. Several SOEs were initially scheduled for privatization in 2019 but it’s unclear if that policy remains.
“Those SOEs may ultimately be listed but I wouldn’t say an enterprise as huge as Ethiopian airlines will be on-boarded on the first initial public offering (IPO),” Kassahun said. “Several assessments must first determine what’s in ET’s interest and how it could be listed.”
The Commercial Bank of Ethiopia (CBE) is also among SOEs planned for listing. But CBE President Abe Sano said new policies must first be introduced to allow the state bank to float shares.
“CBE listing is inevitable,” Abe said. “But that doesn’t necessarily mean we’ll immediately sell shares. First we will participate as Capital trade management. Then if government introduces policy that enables it to sell shares, we will start. Only if the government introduces policies enabling CBE to sell shares will we actually start selling shares.”
Multiple steps remain before CBE starts selling shares, Abe said. “But for now, the stock exchange is still in early stages.”
ESX project managers and the EIH are conducting studies to determine which SOEs will be listed.
“We have not yet made our final recommendations regarding which SOEs should be listed,” said Tilahun. “The larger SOEs may be listed within the first two to three years after the stock market launches. The smaller SOEs may take longer to meet listing requirements.”
The project managers do not expect ESX to be profitable in its first year. Nearly one billion birr in capital is required to establish the Exchange. Of that, the EIH will contribute 25 percent.
Technology will account for 25 percent of total expenses while the majority of capital will be needed for working capital. However, ESX plans to avoid technology costs by partnering with technology providers.
“We may have a technology provider who will join ESX as an investor and become a partner,” Tilahun said. “We prefer to lease data centers, local cloud services and co-locators. In the first few years, we will not develop our own data center. We plan to acquire the best technologies in the market. Either we will buy the technologies or partner with the technology providers.”
Tilahun says NASDAQ owns the best technology, adding “the technology providers may become stakeholders in ESX.”
A data center is among the most expensive technology cost components. It can cost between USD five million and USD 15 million. ESX project managers dropped initial plans to develop their own data center. Instead, the stock exchange will lease cloud services or co-locators.
The project managers are also consulting with the Nairobi stock exchange, Nigeria Stock Exchange, Euronext in France, Greek exchanges, Botswana, Johannesburg, Ghana, Morocco, and the African Stock Exchange Association.
“All the exchanges we contacted are ready to support, cooperate, train and assist with market development,” Tilahun said. “They want us to extend ESX to different countries.”
However, ESX will not be able to operate in other countries beyond Ethiopia since Ethiopia has not authorized capital account liberalization. Consequently, ESX project managers are planning unique accounts for foreigners investing in ESX.
“We are part of the advocacy for Ethiopia’s capital account liberalization,” Tilahun said. “We know the government will not liberalize it just for the sake of the stock exchange. It will be part of the wider reform.”
However, there will be a unique fund structure for foreign investors in the stock market, Tilahun says. “Foreign investments will go into a unique account. Then they will also repatriate from that account.”
“We are looking at how to make the most of the existing investment rules until the account is liberalized. Policymakers have told us to first maximize these options and then the government will consider account liberalization. We are not in a hurry. We will not press the government to liberalize the account without confirming it will benefit the country,” he explained.
Contributed by Ashenafi Endale & Selamawit Mengesha
