By Muluken Yewondwossen

The Ethiopian Securities Exchange (ESX) plc, evolves from being just a projects office as five founding members and a board of directors come to the picture to bring the ESX dream to life with preparations underway to make the exchange as a full blown company in the coming few weeks.

The company is now expected to raise the remaining initial investment in the coming three months.

As of Tuesday October 3, the first capital market in Ethiopia has got its first five investors who will contribute a 25 percent investment, followed by the assignment of the founding board of directors which will be chaired by Helawi Tadesse.

According to the capital market proclamation no. 1248/2021 article 34 sub article one of the affairs of a securities exchange shall be to be managed by a board of directors whose members shall be elected by the shareholders of the securities exchange.

Sub article two goes on to add that the election of the board of directors of the securities exchange shall be effective subject to consent of the Ethiopian Capital Market Authority and the third sub article added that if the Authority does not express its objection within 30 days, the election of board of directors of the securities exchange shall be considered as having received the consent of the Authority.

So far the responsibility of the formation of the company, ESX, will rely on the newly assigned board which is expected to hire the CEO and staff to give life for the highly anticipated capital market, which will be an alternative source of finance that plays a significant role on the way to boost the economy that is led by the government or private sector.

According to Tilahun E. Kassahun, ESX project office lead, since the capital market got its founding investors, it is no longer a project office as things are starting to take shape, “We are on the verge of establishing it. Currently we are on the process to get the license as a company which may take a few weeks.”

He told Capital that the board, which is responsible for the establishment and leadership of the operation of ESX, has started its activity albeit being formed very recently.

“So far the board has held two meetings including the last one which was held on Friday,” he said

The board is in charge to hire the CEO who will be an interim leader until the remaining shareholders are included in the coming months.

The remaining shareholders will be included in the coming three months to fill the remaining 75 percent capital.

In the past one and half years, the project office has been engaged in developing business planning, strategy, rule book, evaluating suitable technologies and assessing others relevant inputs that are required for the upcoming company.

Organizing team, issuing RFP for technology and other works is the upcoming operation that will be taking place in the coming weeks for the board, which are said to hire a leadership that shall manage the process.

“As per the frameworks of others capital market the major responsibility is resided on the board of directors that would have also different committees and management that it will be formed,” Tilahun explained.

He added that at the current stage the board will give priority to review business plan and strategy and adapt it prior to appointing the CEO.

Besides Helawi, who is well known as the Vice President of Zemen Bank and also familiar for the business on her career in the US, Eleni GabreMadhin, Fekadu Petros, Hinjat Shamil, Tewodros Mekonnen, Yasmin Wohabrebbi, Deputy CEO of EIH, and Zemedeneh Nigatu have been assigned as board of directors.

On the historical event that was held on Tuesday October 3 at the Ethiopian Investment Holdings (EIH) HQ, five founding members; Ethiopian Shipping and Logistics (ESL), Ethio Telecom, Ethiopian Insurance Corporation (EIC), Berhan Ena Selam Printing Enterprise and EIH itself signed as the first investors of ESX.

As per the plan ESX will have close to one billion birr equity funding inclusive of sterilized capital, while the equity contribution will be more than 850 million birr.

When the capital market starts operation it may manage the trading of different type of treasury bills, interbank market, Treasury bond, corporate bond, REPOs, commercial paper, equity and other products.

Its revenue is also expected to reach 1.5 billion birr by 2033 from 5.9 million birr, which is the first year of starting business. As per the analysis the company will be profitable in 2028 and its profit will climb to over a billion birr by 2033.  

Potential members will be financial institutions, brokers, dealing members as investor and non-trading members and expected it may 50 trading member.

The founding investor EIH, formed in December 2021 as one of the largest sovereign wealth fund (SWF) in Africa, has become a member as expected. The SWF that have over USD 36 billion asset manages 26 huge public enterprises comprised from transport, finance, manufacturing, trading, hospitality and construction that includes the mammoths  including Ethiopian Airlines Group, Commercial Bank of Ethiopia, Ethiopian Electric Utility and Ethiopian Sugar Industry Group.  

The telecom, Ethio Telecom that has close to a 130 years of business operation in Ethiopia is also selected as to be one of the state owned public enterprises to invest on the ESX.

The enterprise, which is also member of EIH, is one of the most profitable public enterprises. It is also on the process to sale part of its share for foreign investors and Ethiopian. Experts said that becoming an investor for ESX was as expected for the telecom giant.

The other aged business entity Berhan Ena Selam Printing Enterprise, which played a big role on the printing industry has become part of the founders of ESX.

Shitahun Wale, CEO of Berhan Ena Selam, recalled that his enterprise is a 102 years old firm that has molded the country in different economic spheres.

“In general, the enterprise work practice and its financial administration has made as to be one of the EIH enterprises as founding members of ESX, and we are delighted to be part of the promising business venture,” he told Capital.

“He said that as per the EIH plan and as an enterprise we have massive plans to attain in the coming years as per the five year strategic plan,” he added.

Similarly ESL public relation head, Demissew Benti, said that the selection of his company to be part of the capital market is recognition of the logistics giant, its capacity and contribution that it provide for the country. He said that the 60 year old enterprise, which is the only deep sea vessel operator in Africa, will fetch the benefit that will be secured as being a member of ESX.

The other EIH member, EIC, that is the biggest ever insurer in Ethiopia with almost 47 years of experience, is also expected to tap the opportunity that shall be available on the new financial entity.

The Ethiopian government decided to establish the capital market to support the development of the national economy by mobilizing capital, promoting financial innovation, and sharing investment risks as an alternative means of saving, reducing reliance on external sources of financing.

By our staff reporter

Ethiopia’s public debt of gross domestic product (GDP) share shrinks by a fifth in the previous budget year to stand at 40.8 percent. As reports show, the external debt share for GDP has continued to dwindle while the country’s debt distress remains on its high risk.

For the past about three years, the country has not been taking significant amount of external debt due to public enterprises and had refrained from taking fresh loans leading to a reduction of inflows for central government.

Despite the slow inflow and foreign currency shortage in the country, the government has continued on its commitment to repay the debt that it receiving in the past.

According to the Ministry of Finance (MoF) debt analysis for the 2022/23 budget year the closed June 30 the total public sector debt including the external increased by 9.8 percent to reach almost USD 63 billion from USD 57.4 billion a year ago.

But the nominal public sector debt, which combined domestic and external, was about 40.8 percent of GDP from 50.3 percent a year ago. The nominal external debt accounting for nearly 18.2 percent share of the stated percentage while the balance of over 22 percent went to domestic debt.

In the 2020 and 2021 budget years, the external debt GDP debt ratio share was higher than domestic debt up until the 2021/22 year where it left the position for domestic debts.    

Even though the country public debt shows slight increment the aggregate public sector external debt rose by almost nil.

For the year, the external debt stood at USD 28 billion from USD 27.9 billion a year ago, “One explanation for this minor increase is the variation in the value of the US dollar in reference to other currencies besides contributing to the limited rise is lesser disbursement during the period.”

In the year the repayment was higher than the disbursement similar to the 2021/22 budget year.

For the reported period external public sector debt disbursements totaled USD 1.47 billion, with IDA accounting for the lion’s share.

“In the last three years, less external finance has been disbursed than in the prior two years. One factor contributing to the decrease in total external debt disbursement is that, with the exception of Ethiopian Airlines, state owned enterprises (SOEs) have not obtained a new loan in the last four years, and they are disbursing less and less for their older projects as they near completion and the amount of money disbursed to them decreases,” MoF’s report explained.

Regarding repaying the external public sector debt, an amount of USD 1.7 billion was paid and of that USD 1.35 billion was principal.

Subtracting the disbursement (inflow) from principal and interest payments resulted in a net resource transfer of USD -293.52 million. The net resource transfer was negative because the entire debt service payment was greater than the disbursement for the period.

Even though the entire external Ethiopian loan disbursement was lower than the experience three years ago it showed improvement compared with the past two years particularly from the 2021/22 budget year which was USD 1.08 billion.

The present value of entire public sector debt as a proportion of GDP was approximately 35.4 percent, while external debt as a percentage of GDP was approximately 13 percent.

“Both figures are substantially below the lowincome country debt sustainability requirements of 40 percent for external debt and 55 percent for total public sector debt for nations with medium debt carrying capacity,” the report read.

From the 40.8 percent nominal public sector debt of the GDP the external debt GDP share throughout the last four years have registered a massive decline. For instance in the 2019/20 budget year was 26.8 percent that was 27.1 percent a year later but it was below the domestic share to stand at 24.5 percent in the budget year that ended  June 2022 and for the year closed June 30, 2023 it further dropped to 18.2 percentages.

As experts express, the country is in a high debt distress due to its foreign currency earning being very poor. However, if countries mainly on the G20 would give a relief under Common Framework (CF) there is a chance to get back on moderate risk level as it was before 2017. 

As its previous reports, MoF mentioned that a discussion with various development partners is underway in response to the November 2020 G20 communique on the CF, “The creditor committee, which is chaired by France and China, for Ethiopia’s CF application was established, but it has not moved forward as expected, so the country has not benefited from this initiative.”

Early 2021 when the country expressed its interest to get debt restructure through CF, despite being a frontrunner some other African countries like Chad, who applied later, have got a green light from creditors for the relief.

As the government and SOEs are slow downing accessing the external credit from private sector creditors its debt share is also reducing in the past few years. Similarly the reduction of bilateral credit from Ethiopian partners mainly from western countries has also shrunken.

The report indicated that from the total over USD 28 billion outstanding funds, the private creditors share for GDP was 3.4 percent at the end of the past budget year that was 6.1 and 4.6 percent in June 2020 and 2022 respectively.   

The bilateral credit share for GDP as of June 30, 2023 also stood at five percent that was 7.9 and seven percent in the year that closed in 2020 and 2022 respectively.

The multilateral credit that is usually at the top has also dropped to 9.9 percent of the GDP share for the reported year from 12.9 percent in 2022.