Ethiopia’s 50-Year Sequel to its Stock Exchange
Ethiopia's recent launch of its capital market has been seen as its first. However, Ethiopia actually made significant strides in establishing a capital market in its early history, the current capital market being a sequel to the early efforts.
On January 10th, 2025, Ethiopia made the historic move of relaunching its capital market. This is Ethiopia’s first capital market in the past five decades. At least 50 companies are expected to list their securities on the exchange. The exchange is a public-private partnership with 75% allocated to private investors. It started with Wegagen Bank as the first listed company, with founding members like Ethio Telecom and Ethiopian Insurance Corporation expected to make an IPO soon.
As mentioned above, Ethiopia had a capital market before it was closed by the Derg regime when it took over the country in 1974. To understand the current capital market and what potential benefits it would bring to Ethiopia, its history is a good place to start.
Ethiopia’s History of Capital Markets
Ethiopia's engagement with stock ownership and capital markets dates back to Emperor Menelik II, who raised funds in 1897 by selling shares in France to construct the Ethio-Djibouti railway. By 1905, the Bank of Abyssinia issued shares internationally, signaling Ethiopia's readiness to join the global economy. Emperor Menelik himself invested in American railroads and European markets, amassing a personal fortune estimated at $25 million.
In the 1960s, Ethiopia saw the first institutional share-dealing arrangements through the State Bank of Ethiopia's Share Exchange Department, which facilitated share trading and boosted public participation. By 1965, the share market had grown significantly, leading to the formation of a share-dealing group by key financial institutions. However, these developments were halted in the 1970s when the military government nationalized private assets. For a more in-depth look at Ethiopia’s history in the participation of capital markets, check out this blog written by one of our bloggers.
Present Day
Today, Ethiopia is reviving its capital market, drawing on its historical legacy to build a modern financial sector. The benefits of the capital market are numerous, including:
- Increased access to capital for businesses
- Wealth creation opportunities for individual investors
- Greater foreign investment (by extension, foreign currency)\
All this culminates in greater economic growth for Ethiopia and improved financial circumstances for its citizens. However, as with many things, implementation is what determines its success. Although Ethiopia’s capital market is full of potential, it also comes with its set of risks.
We’re in Africa, After All
African stock exchanges often face challenges with lower liquidity compared to markets outside the continent. That is to say, many African stock markets have low trading volumes, which makes trading hard to execute at desired prices. As a result, some local companies looking to raise equity capital choose to list in London or New York, where they can access a larger pool of investors. The UK and US markets, in particular, provide deeper capital resources and higher trading volumes.
The Ethiopian Securities Exchange is cognizant of these risks and has said, through its CEO, that the exchange is working to offer a wider range of products and services, including money, debt, and stock markets, as well as new options like Islamic bonds, to attract companies.
So What is the future for Ethiopia’s capital market and the changes it will have on our economy? That is something we get to witness, all in due time.