Draft Bill Caps Foreign Portfolio Ownership at 15pc in Listed Ethiopian Firms

Stakeholder Scrutinize Bill over Caps, Custody, and Repatriation Ethiopia’s proposed foreign portfolio investment (FPI) regulation has triggered intense debate over capital repatriation, investor confidence, and the readiness of local financial institutions, as stakeholders gathered on October 26, 2026 for a public consultation in Addis Ababa. The draft regulation, spearheaded by the Ethiopian Capital Market Authority (ECMA), establishes a comprehensive legal framework designed to deepen financial markets, enhance liquidity, bridge domestic savings gaps, and integrate Ethiopia into the global financial ecosystem. However, it also introduces strict ownership ceilings and operational safeguards for international capital. Under the proposed rules, a single Foreign Portfolio Investor—including affiliates and persons acting in concert—is strictly prohibited from holding more than 10 percent of an issuer’s total paid-up capital directly or indirectly, unless a higher limit is permitted under sector-specific laws. However, Category I FPIs (comprising governments, central banks, sovereign wealth funds, multilateral organizations, and regulated pension funds) may hold up to 15 percent, subject to prior approval from the Authority, while Category II covers all other eligible entities, including corporates, foundations, and non-resident retail investors. Furthermore, any acquisition exceeding the 10 percent ceiling requires mandatory ECMA approval. If an investor breaches the threshold due to circumstances beyond their control—such as corporate restructuring or mergers—they must notify the Authority and their designated custodian within five business days and divest the excess holding within 15 business days. The draft also caps total combined FPI shareholding in a single listed company at 30 percent. Crucially, FPIs are barred from holding board seats or participating in management; doing so risks reclassification as Foreign Direct Investment (FDI). Presenting the draft at the ECMA office, Assefa Sumoro, Senior Capital Market Advisor at the Authority, emphasized that the framework establishes robust macro-prudential safeguards, empowering regulators to respond to exceptional market stress, including foreign-exchange pressures. To manage systemic risks, the bill proposes a high-level Coordination Committee chaired by the Minister of Finance, drawing members from the National Bank of Ethiopia (NBE), ECMA, the Ethiopian Investment Commission, the Ministry of Trade and Regional Integration, and the Financial Intelligence Service. Despite these assurances, market participants raised sharp concerns regarding practical implementation and investor sentiment. Gemechu Waktola (PhD), Group CEO of i-Capital Africa, questioned whether the regulatory framework provides adequate comfort to risk-risk-averse international capital. “Over the past two months alone, I have had many encounters with potential investors, and the recurring perception is that Ethiopia is not investment-friendly,” Gemechu remarked, suggesting that restrictions should be scaled dynamically based on investment size. Gemechu also criticized the mandatory one-year minimum holding period for investments, noting its impracticality for short-term maturities. “If an instrument has only six months left until maturity and someone buys it, what happens?” he asked, while also echoing widespread anxieties over foreign exchange availability and the guaranteed repatriation of proceeds. While the draft allows investors to freely repatriate capital gains, dividends, and interest through authorized dealers, it also empowers the NBE to impose temporary capital flow management measures for up to 180 days during exceptional macroeconomic crises like severe FX shortages. Officials noted that ECMA retains the flexibility to adjust or waive holding periods via directives based on instrument type and market conditions. Custodian eligibility also emerged as a major sticking point. The draft requires all FPI assets to be safekept through ECMA-licensed Designated Custodians. While commercial banks licensed by the NBE are permitted to offer custody services provided they meet rigorous capital adequacy, ring-fencing, and Basel compliance standards, participants flagged ambiguities regarding terms like “material non-compliance.” Critics argued that vague legal phrasing could invite subjective interpretations and proposed anchoring standards to the NBE’s CAMEL rating system. Yehualashet Abebe, Licensing and Registration Officer at ECMA, acknowledged the feedback, stating that the Authority will review the wording to minimize subjectivity. He noted that no local commercial banks have yet been officially licensed or applied for custody operations, partly due to the evolving legal architecture. Meanwhile, Naol Duga of Synestate recommended adopting structured corporate identifiers, such as Legal Entity Identifiers (LEIs) issued via Bloomberg, alongside national identification frameworks like Fayda for individuals to streamline transparency and verification. ECMA officials stated that the feedback gathered from the public consultation will be integrated into the finalization of the regulatory framework before it is formally enacted.