Six months after launching its stock exchange, Ethiopia has opened a secondary market that allows peer-to-peer (P2P) trading of treasury bills (T-bills) and equities.
The secondary market also allows regular people to invest in T-bills and sell them when they need cash. Returns are tax-free, and the risk is low because the bills are backed by the government.
State of play: Ethiopia’s exchange-based, retail-accessible T-bill market is unique in Africa. Kenya’s M-Akiba is similar, but it offers retail bonds instead of treasury bills. In Nigeria, Ghana, and South Africa, retail investors can access T-bills, but only through banks or brokers—not direct P2P trading.
Catch up: Until now, Ethiopia’s T-bills were sold to banks through auctions. But with the launch of a secondary market, anyone can now buy and sell them on the Ethiopian Securities Exchange (ESX) with a minimum of 5,000 birr ($36) and an investor account. Investors can also sell before maturity, increasing the liquidity in the market.
This is part of Ethiopia’s push to open up its economy. The government recently made a reform to allow foreign banks to freely operate in the country’s banking sector for the first time in 50 years. Now it is creating new tools to help people invest—and new ways for the state to raise money without relying on the central bank.
Between the lines: Previously, when Ethiopia sold debt directly to banks, it limited competition—retail investors and private companies couldn’t take part. That meant little or no access and fewer bidders. The government could afford to artificially keep interest rates low, because banks were required to buy the debt whether they wanted to or not.
But with open trading, prices are now influenced by market demand, not government directive. This will give the state more honest signals about what it truly costs to borrow in the open market.
Ethiopians are still warming up to the country’s local bourse, and trading volumes are small. More liquidity options like a P2P market could encourage retail investors to embrace the stock exchange, allowing capital to flow into the market. It’s a master stroke.
