Nairobi, Jan.19, 2024: Ethiopia is set to issue licences to let foreign investment banks operate in the country.
This is a key step ahead of its planned launch, later this year, of a securities exchange, an official, Brook Taye said.
The liberalisation initiative attracted foreign investors such as Kenyan telecoms operator, but faced recent setbacks due to what some analysts described as an unpredictable regulatory environment, security concern, and macro-economic instability.
The justice ministry authorised the capital market regulator, this week, to go ahead with issuing the licences, according to Brook Taye, Director-General of the Ethiopian Capital Market Authority.
The move is part of a drive by Prime Minister Abiy Ahmed, since 2018, to open up the country of 120 million to greater private investments.
Ethiopia’s economy is still heavily controlled by the state, a legacy of being a command economy for decades.
The shift by Abiy Ahmed toward a more private sector involvement was notable for being more ambitious than previous attempts at opening up.
There are currently no investment banks in Ethiopia, and commercial banks are only able to offer limited funding to businesses due to prudential requirements.
The director-general said that the demand for capital-raising services was “huge” because businesses were paying 25% interest on commercial bank funding, and had to provide collateral worth 70% of the value of the loan.
“This is the biggest bottleneck in the Ethiopian economy, There is no optimal way to raise capital,” the official said.
The regulator is offering licences to global and regional investment banks, securities brokers and dealers.
This also involves credit rating services providers who can help businesses list shares on the securities exchange and issue corporate debts, said the official.
“The exchange would launch sometime this year and would enable the government to plug its budget deficit by offering debt securities to retail investors,” the official added.
Zemen, an Ethiopian commercial bank, will be among the owners of the exchange after its commitment to buying five per cent of the shares last week, according to the official.
The Horn of Africa nation is facing acute foreign exchange shortages and high inflation.
It defaulted on its one billion dollars international bond last month after failing to make 33 million dollars coupon payment.