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The Ethiopian Capital Markets Authority (ECMA) has introduced its inaugural regulatory guidelines for the Ethiopian Securities Exchange (ESX), aiming to build investor confidence ahead of the exchange’s imminent launch.
The Ethiopian government has been working for four years to establish a securities exchange as part of its broader economic reform and liberalisation agenda. This includes the recent decision to allow the Ethiopian birr (ETB) to float freely and open up strategic sectors such as banking and telecommunications to competition.
The exchange’s debut will feature several significant state-owned enterprises, including Ethio Telecom, the Ethiopian Insurance Corporation, and the Ethiopian Shipping and Logistics Services Enterprise (ESLSE), which will be listed on the platform. The government views the move as a way to break the long-standing dominance of nationalised entities in the economy, increase Ethiopia’s global competitiveness, and attract foreign direct investment.
Local reports suggest that over 90 companies are expected to list on the exchange within its first few weeks of operation. So far, the exchange has raised approximately 1.6 billion birr (around $13 million) in capital.
In a bid to bolster investor trust and ensure the safety of investments, ECMA has introduced new transparency and disclosure rules. These measures are intended to enhance the credibility of the market and reassure both local and international investors.
At a recent event in Addis Ababa, Hana Tehelku, the Director-General of ECMA, highlighted that the new guidelines are essential for creating a well-regulated capital market. She explained that the measures focus on increasing transparency, standardising processes, and safeguarding investor interests, all in alignment with the country’s broader economic objectives.
The new rules include mandatory annual audited financial statements for listed companies, along with ongoing communication with shareholders. To further protect investors, a “pre-emptive rights” clause will allow existing shareholders to maintain their proportional ownership when additional shares are issued, thus preventing dilution of their holdings.
Additionally, companies will be required to demonstrate adequate capital reserves to reduce the risk of defaults and protect shareholder investments. ECMA will oversee the implementation and enforcement of these regulations.
While such regulations are common in many stock exchanges globally, some African markets have faced challenges in assuring investors of the safety of their capital due to insufficient transparency and weak disclosure practices.
A 2022 report from the African Development Bank (AfDB) noted that international investors may hesitate to engage in markets where they lack confidence in the disclosure standards, even if the underlying investments appear solid.
