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It was aBBCIMF UNYour browser does not support the element. momentous occasion. But the peal of the bell did not initiate a flurry of trading at the Ethiopian Securities Exchange, which opened on January 10th. With no brokers and only one listed stock, the exchange enjoyed a relaxed start to life. The country’s officials nevertheless see the institution as a crucial part of their liberalising economic reforms. Ethiopia, home to some 130m people, had been the most populous country without an exchange.The rudiments of an earlier stockmarket did not survive the Emperor Haile Selassie’s overthrow in 1974. Later governments believed that economic development should be directed by the state. In contrast, Abiy Ahmed, who became prime minister in 2018, talks up the potential of the private sector. In July the central bank floated the birr, a signal of intent after decades of . The government is opening industries such as banking, retail and telecoms to foreign competition.A new stock exchange is the “icing on the cake”, says Tilahun Kassahun, its chief executive, who hopes to attract 50 listings in the next five years. He says that domestic companies require ways to raise capital without simply relying on bank loans. Although that may be true, it does not follow that they will rush to capital markets. Most African exchanges are small and illiquid. The continent’s family firms are often reluctant to open their books to scrutiny. As a familiar joke goes, the biggest listed companies in Africa tend to be the : banks, breweries and cement.In Ethiopia, too, banks are the most obvious candidates to list. They already have thousands of shareholders, even if buying and selling their shares is currently a cumbersome process, often arranged informally between strangers on social media, and completed with a visit to the bank in question. Shares in Wegagen Bank, a mid-sized lender, are the first and so far only to trade on the new exchange. The opening of Ethiopia’s financial industry to foreigners, who can now own up to 49% of shares in local banks, might also encourage some banks to seek capital on the market.A second source of listings will be state-owned firms. Around 40 have been brought together under Ethiopian Investment Holdings, a newish state investment fund. Its boss, Brook Taye, says that the government wants to reform its firms, rather than rush into privatisation. Ethio Telecom, the national telecoms provider, is selling a 10% stake to retail investors, while seeking a strategic partner to buy a further 45%. Listings are being considered for five other state enterprises, variously involved in shipping, insurance, printing, school supplies and duty-free shops.The launch of the exchange complements other reforms that loosen the government’s grip on finance. For decades the state has squeezed savers and pushed credit towards its favoured development projects at below-market interest rates. Ministers now plan to relax some of the rules which made such an approach possible, including those forcing banks to buy state debt. Capital has been cheap but scarce, says Nebil Kellow of First Consult, a consultancy. For many firms, it might now become dearer but more abundant.These reforms are being introduced at a supremely difficult time. Ethiopia’s government is badly in need of finance itself. It is in a stand-off with foreign bondholders after missing an interest payment in 2023. Last year it signed up to a $3.4bn programme. The birr has lost more than half its value against the dollar over the past six months. Although that has so far not led to a surge of inflation, tight monetary policy, such as caps on bank lending, is weighing on business.Ultimately it is security, not securities, that will determine Ethiopia’s economic fate. A devastating war in the northern region of Tigray ended in 2022. Other conflicts continue, notably in the vast regions of Amhara and Oromia. Industrial parks have emptied of factories. Flower farms have been looted. Last year 16m people required food assistance, according to the World Food Programme, run by the . These are rarely the sort of conditions that entice investors.
