According to the chief economist and vice president of the AfDB, Mthuli Ncube, “now is the right time for Ethiopia to invest in the necessary infrastructure that will enable it to introduce a stock market”.
The AfDB recommends the setting up of an exchange as this will enable the country to mobilise capital and encourage savings.
However, we gather that the state has not been that enthusiastic in fast tracking the formation of an exchange, considering it not to be at the top of its economic priorities.
A look at Ethiopia’s history reveals that there were some share and bond dealings under the sponsorship of the National Bank of Ethiopia circa 1965. Later the Addis Ababa Share Dealing Group was set up to trade in shares and government bonds with the objective of enlarging the membership base of the group and eventually establishing a stock exchange. However, these developments did not come to fruition, mainly as a result of the post-1974 socialist economic policies.
Ethiopia’s economy is dominated by agriculture, with the sector’s contribution to GDP consistently in excess of 40%.
GDP growth has been very impressive, one of the best performers in Africa outside the oil driven economies, averaging 7.8% since the year 2000, with growth in the past five years averaging 11.4%. The country is estimated to have grown 9.9% in 2009, though 2010 should see some slowdown to 7%.
Foreign direct investments are also increasing. In a recent development, Chinese company Hung Shen officially inaugurated a cement factory in Modjo, which has a production capacity of 2,000 tonnes of cement per day. The facility will be established with a total investment capital of $36m. The company is estimated to cover about 10% of the total cement demand in the country.
In another development, the AfDB provided a $150m facility to support Ethiopia’s plan of selling electric power to its neighbour Kenya.
Certainly, like many other African countries, there are still some hurdles to be overcome in terms of creating an enabling environment for foreign investors. We believe Ethiopia’s large population, relatively stable politics, nascent industrial development and consistent economic growth all provide a strong argument for giving the country a look, even if just in the private equity space for now.
Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.