The East Africa’s largest economy, Ethiopia, is just establishing its maiden stock exchange, the Ethiopian Securities Exchange (ESX). The latecomer in the mix of exchanges in Africa, ESX has been undertaking several preoperational tasks, among which includes raising capital.

October has been one successful month for the team behind the ESX, who managed to found the exchange as a share company. The Ethiopian Investment Holdings (EIH) and four of its subsidiary state-owned enterprises signed the founding agreement, taking a 25 percent stake altogether. Prominent names including EleniGebre-Medhin (PhD) and ZemedenehNigatuhave been designated as founding board memsbers, with HilaweTadesse chairing it.

Situated on the garret of Minaye Corporate Complex,a new building by the Africa Avenue, the Exchange secured an extensive trading floor. It is now revamping the whole floor in order to create the stock market environment that incorporates stock brokers, observers, media court and the yet to be gathered its three dozens of staff.

Tilahun Kassahun (PhD) has been serving intop management for over a year and half, since the exchange was formed as a project office. The Reporter’s Samuel Bogale sat down with Tilahun to discuss the developments at ESX. Excerpts:

The Reporter: What is the bigger picture behind ESX?

Tilahun (PhD):This is a good question and a reminder that we shall always consider, as you said, ‘the bigger picture’. We see the ESX as part of the broader capital market ecosystem. Within that ecosystem, the exchange plays a critical role as market organizer and a pivotal institution in creating liquidity for the securities market. It will be a liquidity providing infrastructure.

There are critical institutions that make up the capital markets alongside ESX. The Ethiopian Capital Market Authority (ECMA) is among others, which is the apex regulator playing critical role in investor protection. Its objectives include ensuring that those who seek to raise capital from investors are transparent, and meet certain corporate governance and financial reporting standards.

Other participants include the capital market service providers, who will play a key role in intermediating issuers and investors by giving advisory services, brokerage, auditing, and management of funds, among others. There are also private and government securities issuers with the desire to raise capitals by issuing bonds or selling shares and equities.

These ecosystems have an ultimate objective of filling the unmet need for long term finance to the government and private sector. The Ethiopian economy, in both sectors, requires 40trillion birr in the next 10 years. These needs will be met by foreign sources such as government borrowing or grants, as well as local sources by issuing treasury bills and bonds, or borrowing from banks.

The role of capital markets in this aspect is to become the additional and alternative sources of finance. Bank and other sources of finance will continue to be the primary sources of finance for the private sector, but gradually capital markets can have a significant role. There are individual and institutional investors such as pension funds, who will be on the supply side and put their savings in investable instruments.

How this ecosystem contributes to the national development objectives by filling the unmet gap for the long term finance, is the bigger picture we look. Our one collective goal is to enhance capital formation. In delivering on these objectives, I think it also plays a key role allowing all of us to share from the growth of the economy. That is why listing of certain key state-owned enterprises on the exchange will be useful. It gives Ethiopians across the country, and indeed in the diaspora, the opportunity to contribute and share from the growth of these companies.

The Reporter: What services will you mostly provide?

Tilahun (PhD): Exchanges play a central role in organizing the marketplace for transactions on securities. They are the infrastructure, or you might say the ‘highway’ which capital market flows. They serve this objective by delivering on key roles, which is to be a central platform for the listing, trading, clearing, and settlement. They also play a key role in product and market development.

Taking these objectives into consideration and learning from the experiences of exchanges in other economies, ESX will be organized as an exchange that caters for both,thefixed income and equity markets. We will list government treasury bills, bonds and corporate debt instruments. One key product that will make ESX an innovative exchange will be the interbank money market, which will allow financial institutions to trade on short-term money to meet their liquidity needs.To cater for Ethiopian small and medium sized enterprises, our equity market will be structured into two market segments, the main segment for high cap companies, and an emerging and growth segment to list small and medium enterprises.