The Ethiopian Securities Exchange, or ESX, has just achieved a significant milestone, closing its capital raise with an astounding 240% subscription rate. The exercise, which began in November 2023, aimed to secure ETB 631 million (US$ 11.07 million) to kickstart operations.

However, the overwhelming response from both domestic and foreign investors, often coordinated through a broker eager to capitalize on Ethiopia’s promising financial landscape, saw the exchange collect ETB 1.51 billion (US$ 26.6 million), more than double the initial target.

A Milestone in Ethiopia’s Financial Landscape

The ESX’s capital raise is a critical development for Ethiopia, marking a significant step in the country’s efforts to build a robust financial infrastructure. The Exchange was established in October 2023 through a groundbreaking public-private partnership. Ethiopian Investment Holdings (EIH), the government’s strategic investment arm, is the founding shareholder, holding a mandated 25% public share, while the remaining 75% is open to private investors.

The diversity of investors participating in the capital raise reflects broad confidence in Ethiopia’s economic prospects. The list includes international strategic investors such as FSD Africa, the Trade and Development Bank Group (TDB), and the Nigerian Exchange Group (NGX). Additionally, 16 domestic private commercial banks, 12 private insurance companies, and 17 other private domestic investors contributed to this overwhelming success.

The Significance of Oversubscription

Surpassing the initial target by 240% is more than just a financial victory; it is a strong indicator of investor confidence in the Ethiopian economy and its potential for growth. This level of oversubscription suggests that investors see ESX as a critical vehicle for driving financial sector development in Ethiopia. The success of this capital raise is expected to have a ripple effect, boosting investor sentiment and encouraging further investments in the country’s burgeoning financial markets.

Tilahun Esmael Kassahun (Ph.D.), CEO of ESX, expressed his excitement over the results, stating, “We are thrilled to have exceeded all our expectations in terms of the capital raise and are excited by the overwhelming confidence shown by investors in the long-term prospects of both ESX and Ethiopia’s capital markets more broadly.” His words underscore the significance of this achievement not only for ESX but also for the broader Ethiopian economy.

Strategic Foreign Investments: A Catalyst for Growth

One of the most notable aspects of the ESX’s capital raise is the participation of strategic foreign investors. The involvement of TDB, FSD Africa, and NGX Group brings not only capital but also valuable expertise and best practices. These partnerships are expected to be instrumental in transferring technical know-how and enhancing the operational capabilities of the Exchange.

The CEO highlighted the importance of these investments, saying, “Strategic foreign investments by TDB, FSD Africa, and NGX Group are particularly important in allowing the transfer of technical know-how and best practices as well as other areas of long-term strategic value that we will explore.” This strategic collaboration is likely to pave the way for a more sophisticated and resilient financial market in Ethiopia, contributing to the country’s long-term economic development.

The Road Ahead: Operationalizing the Exchange

With the capital raise successfully completed, the focus now shifts to operationalizing the exchange. ESX has already made significant progress in this regard. The draft Exchange Rulebook has been released to the public. consultation, a crucial step in ensuring that the regulatory framework aligns with global best practices while catering to the unique needs of the Ethiopian market.

Additionally, the technical evaluation for selecting the Exchange’s technology provider has been completed. This is a vital component in setting up the trading infrastructure that will underpin the ESX’s operations. Ensuring a robust and secure technological backbone is essential for gaining the trust of investors and market participants, both domestic and international.

In the coming months, ESX plans to roll out issuer and investor education programs. These initiatives aim to build a knowledgeable and engaged market community, which is critical for the long-term success of the exchange. By promoting transparency and enhancing corporate governance standards, ESX seeks to create a marketplace that fosters trust and attracts sustained investment.

A Catalyst for Economic Transformation

The successful capital raise and the impending launch of the ESX are poised to be transformative for Ethiopia’s economy. The Exchange is expected to play a pivotal role in mobilizing capital, providing companies with access to long-term financing, and fostering entrepreneurship. By creating a platform for efficient capital allocation, ESX will contribute to the sustainable development of various sectors, from manufacturing to services.

Moreover, the introduction of a formal securities exchange in Ethiopia will likely enhance transparency in the financial sector. This is a significant step forward for a country that has traditionally had a less formalized financial market. With better corporate governance practices and increased access to capital, Ethiopian businesses will be better positioned to compete on a global stage.

Conclusion

The Ethiopian Securities Exchange’s highly successful capital raise is a landmark achievement, signaling robust investor confidence in Ethiopia’s economic future. The oversubscription by 240% is a testament to the potential that both domestic and international investors see in Ethiopia’s financial markets. As ESX moves towards its operational launch, it is set to become a cornerstone of Ethiopia’s financial sector, driving economic growth and facilitating the country’s journey toward becoming a more integrated and prosperous economy.