Ethiopia's stock exchange & banking sector liberalisation

Ethiopia is currently making headlines with the launch of its stock exchange, a significant milestone in its economic liberalization efforts. The exchange, established in collaboration with Ethiopia Investment Holdings (EIH), the Ministry of Finance, and Nairobi-based FSD Africa, marks a pivotal step in modernizing Ethiopia's financial sector and attracting investment. Bernard Laurendau, CEO of Arifpay and a financial analyst, joined CNBC Africa to provide insights into the developments shaping Ethiopia's financial landscape. The launch of the stock exchange symbolizes a transformative period for Ethiopia, a country that has historically struggled to privatize its investments. Laurendau highlighted the short-term benefits, emphasizing how the exchange's transparency and governance improvements will enable listed companies to access previously unavailable capital. This move is expected to foster consolidation within sectors like banking and insurance and provide entrepreneurs with potential exit strategies through IPOs. Additionally, the stock exchange is positioned to create a virtuous cycle for corporations at a national level, supporting the growth of listed companies, pension funds, and the capital market at large. The long-term impact is poised to facilitate the scaling of infrastructure projects, such as the Grand Ethiopian Renaissance Dam (GERD), and enhance the country's capacity for large-scale ventures like municipal bonds for infrastructure development. However, amidst these optimistic projections lie challenges stemming from Ethiopia's predominantly public sector-driven past. Laurendau acknowledged the cautious approach to liberalizing sectors like banking due to their strategic importance, noting that a balanced progression is crucial to mitigate capital flight risks. Addressing the challenges ahead, he highlighted the need for talent development, information dissemination, and infrastructure building to support the transition towards a more liberalized economic environment. Looking ahead, Ethiopia's growth trajectory points toward attracting foreign investments, leveraging a regulatory framework that swiftly opens up the capital market to foreign investors and service providers. While the banking sector is expected to draw interest from abroad, factors like sector consolidation, clarity on regulatory timelines, and liberalization of the insurance and payment system operators will play critical roles in instilling investor confidence. The payment sector, in particular, holds immense growth potential in Ethiopia, with an anticipated exponential expansion in digital payments replacing traditional cash transactions. Despite ranking as one of Africa's top five economies by GDP, Ethiopia's payment landscape remains ripe for rapid evolution and transformation.