1 Background and Rationale

1.1 Current Market Landscape

The financial market in Ethiopia is undergoing significant transformation, driven by regulatory

reforms and increasing demand for diversified financial services. One of the most notable recent
developments is the ongoing work to establish the Ethiopian Securities Exchange (ESX). The
introduction of this exchange represents a major milestone for Ethiopia's capital market, opening
up new opportunities for investors, businesses, and financial institutions to engage in securities
trading, equity financing, and bond issuance.

While the ESX is expected to facilitate the development of the capital market, Ethiopia still faces
challenges such as limited access to capital for small and medium-sized enterprises (SMEs), a
lack of diversified financial instruments, and a need for financial advisory services. The financial
sector, which has been largely dominated by commercial banks, is seeing increasing demand for
more specialized financial services, like capital market service providers including investment
banking, asset management, and capital market advisory.

The Cooperative Bank of Oromia (CBO) is strategically positioned to capitalize on these

developments. has a strong network of clients, especially among cooperatives and SMEs, who
are likely to benefit from improved access to capital and financial advisory services that an
investment banking subsidiary could offer. As the Ethiopian financial market evolves, there is a
growing need for institutions that can provide a comprehensive range of financial services,
including capital raising, mergers and acquisitions advisory, and securities underwriting.

1.2 Bank’s Strategic Position

The establishment of an investment banking subsidiary aligns with CBO's strategic goals of
expanding its financial services portfolio and supporting economic development, particularly
within the cooperative and SME sectors. This initiative is in line with the bank's mission to
contribute to the socio-economic transformation of Ethiopia, especially in the regions where
has a strong presence, such as Oromia.
has already demonstrated a strong commitment to innovation and growth, as evidenced by its
rapid expansion and successful financial products tailored to the needs of cooperatives and
businesses. By establishing an investment bank, CBO can leverage its existing customer base
and expertise in the local economy to provide specialized financial services such as:

 Equity and Debt Financing: Facilitating access to capital markets for businesses
looking to raise funds through equity or debt instruments.
 Mergers & Acquisitions Advisory: Providing strategic advice to businesses on mergers,
acquisitions, and corporate restructuring.
 Asset Management: Offering investment management services to institutional and
individual investors.

This subsidiary would also enhance the bank’s ability to support large infrastructure projects,
agricultural investments, and other high-impact sectors that are critical to Ethiopia's long-term
economic development. By expanding into investment banking, CBO will position itself as a
full-service financial institution capable of meeting the growing and diverse financial needs of its
clients.

1.3 Gap Analysis

The current Ethiopian financial market presents several key gaps that CBO’s investment banking
subsidiary can address:

1. Limited Access to Capital Markets: Many businesses, particularly SMEs, struggle to

access long-term financing options. With the establishment of the Ethiopian Securities
Exchange, there will be a new platform for companies to raise capital through public
offerings. However, businesses will need advisory services to navigate this new
landscape, including preparing for initial public offerings (IPOs), bond issuance, and
compliance with securities regulations.
2. Advisory Services Deficiency: There is a shortage of financial advisory services tailored
to Ethiopian businesses, particularly those looking to expand, merge, or restructure.
Many businesses do not have the internal capacity to manage complex financial
transactions, and the advisory services provided by commercial banks tend to focus on
 traditional banking products. An investment banking subsidiary would provide
specialized advisory services to meet these needs.
3. Investment Management Needs: Institutional investors, cooperatives, and high-net-
worth individuals (HNWIs) are seeking more sophisticated investment options to
diversify their portfolios. Currently, there are limited investment management services
that cater to these groups. The investment banking subsidiary could fill this gap by
offering asset management and investment advisory services.
4. Corporate Finance and Project Financing Needs: As Ethiopia pursues ambitious
infrastructure and industrialization projects, there is a growing demand for corporate
finance solutions. The investment banking subsidiary can play a key role in structuring
project financing, syndicating loans, and arranging debt instruments for large-scale
projects.

By addressing these gaps, the investment banking subsidiary will not only generate new revenue
streams for CBO but also contribute to the broader financial and economic development goals of
Ethiopia. This subsidiary will be uniquely positioned to support businesses as they grow, access
new markets, and navigate the evolving financial landscape.

This section of the proposal outlines the need for and strategic rationale behind the establishment
of the investment banking subsidiary, which will be further detailed in subsequent sections on
operational strategy, financial projections, and regulatory compliance.

2 Objectives of the Investment Banking Subsidiary

The establishment of an investment banking subsidiary under the Cooperative Bank of Oromia
(CBO) is driven by the need to expand the bank’s services in a rapidly evolving financial
landscape and contribute to the development of the Ethiopian economy. The key objectives of
the investment banking subsidiary will focus on offering specialized financial services, fostering
innovation in the capital markets, and supporting the growth of the local business ecosystem.
2.1 Provide Capital Raising Services

One of the primary objectives of the subsidiary will be to assist businesses in raising capital
through various financial instruments. This will be essential for companies looking to expand,
modernize, or enter new markets. The capital raising services will include:

 Initial Public Offerings (IPOs): With the establishment of the Ethiopian Securities
Exchange (ESX), more companies will be looking to go public to raise funds. The
investment banking subsidiary will play a pivotal role in helping these companies prepare
for IPOs, from managing regulatory compliance to structuring the offerings and
marketing the shares to potential investors.
 Private Placements: For companies that are not ready to go public, private placements
will be a viable option. The subsidiary will facilitate private equity or debt placements
with institutional investors, venture capitalists, and private equity firms. This service will
be particularly valuable for small and medium-sized enterprises (SMEs) and family-
owned businesses looking to raise capital without diluting ownership too much.
 Debt Issuance: Many businesses require access to long-term debt financing for projects,
expansions, and working capital. The subsidiary will specialize in structuring and
managing debt issuance, including corporate bonds, syndicated loans, and asset-backed
securities. By providing this service, the investment bank will open up new avenues for
Ethiopian companies to access long-term, affordable capital, particularly as the debt
market in Ethiopia matures with the introduction of the ESX.

By offering these services, the subsidiary will help bridge the gap in access to capital, which
remains one of the most significant challenges for businesses in Ethiopia.

2.2 Offer Advisory Services for Mergers and Acquisitions, Corporate

Restructuring, and Financial Management

The subsidiary will be positioned as a trusted advisor to businesses navigating complex financial
transactions and corporate decisions. The advisory services will focus on:

 Mergers & Acquisitions (M&A): As the Ethiopian economy grows and diversifies,
there will be an increasing demand for M&A advisory services. Many businesses will
 seek to expand by acquiring competitors or entering joint ventures. The investment
banking subsidiary will provide comprehensive M&A services, including valuation, deal
structuring, negotiations, and post-merger integration.
 Corporate Restructuring: Businesses facing financial challenges or looking to improve
their operational efficiency will need expert guidance on restructuring options. The
subsidiary will assist companies in debt restructuring, divestitures, and recapitalization
efforts, ensuring that these processes align with the companies' strategic objectives and
financial health.
 Financial Management Advisory: In addition to transactional services, the subsidiary
will offer ongoing financial management advice to clients, helping them optimize their
capital structure, manage liquidity, and improve their financial performance. This service
will be essential for SMEs and cooperatives, which often lack the in-house expertise to
manage their finances effectively.

These advisory services will position the investment banking subsidiary as a key player in
Ethiopia’s evolving corporate landscape, helping businesses make informed strategic decisions.

2.3 Facilitate Asset Management Services for High-Net-Worth

Individuals, Companies, and Institutional Clients

There is a growing need for sophisticated asset management services in Ethiopia, particularly as
wealth increases among high-net-worth individuals (HNWIs), corporations, and institutional
investors. The investment banking subsidiary will aim to meet this demand by offering a range of
asset management services, including:

 Portfolio Management: The subsidiary will help clients construct and manage
diversified investment portfolios tailored to their risk tolerance, return expectations, and
investment goals. This will include managing investments in domestic and international
securities, real estate, and alternative assets.
 Investment Advisory: In addition to managing portfolios, the subsidiary will provide
tailored investment advice to HNWIs, cooperatives, pension funds, and other institutional
investors. This advice will cover asset allocation strategies, risk management, and
investment opportunities in both local and global markets.
  Wealth Management Services: The investment bank will also provide wealth
management services to HNWIs, including financial planning, estate planning, and tax-
efficient investment strategies. This will be a growing market segment as more affluent
individuals in Ethiopia look for ways to preserve and grow their wealth.

By offering these services, the investment banking subsidiary will not only cater to the growing
needs of Ethiopian investors but will also contribute to the deepening of the local financial
markets by increasing demand for various investment products and services.

2.4 Support the Development and Growth of the Ethiopian Capital Market through
Financial Innovation

The investment banking subsidiary will play a critical role in advancing the development of
Ethiopia’s capital markets. As the Ethiopian Securities Exchange becomes operational, there will
be an increased need for innovative financial products and services to meet the demands of
issuers and investors. The subsidiary will aim to introduce and facilitate:

 Innovative Financial Instruments: Developing and introducing new financial

instruments, such as derivatives, corporate bonds, and real estate investment trusts
(REITs), will be essential to creating a more dynamic and liquid capital market. The
investment bank will focus on creating these instruments in a way that meets the needs of
both issuers and investors, enhancing the depth and breadth of the Ethiopian financial
market.
 Capital Market Research & Development: The subsidiary will also focus on research
and development to identify emerging trends, market opportunities, and new investment
products that can be introduced in the Ethiopian context. By staying at the forefront of
market developments, the subsidiary will help drive innovation in the financial sector and
position Ethiopia as an attractive destination for both domestic and international
investors.
 Capital Market Education & Awareness: Given that Ethiopia’s capital markets are still
in their early stages, many businesses and investors lack the necessary knowledge to
participate effectively. The investment banking subsidiary will play a role in educating
market participants on the benefits and risks of capital market participation. This will
 include organizing workshops, seminars, and training programs to raise awareness and
build capacity among local businesses, cooperatives, and investors.

By driving financial innovation, the investment banking subsidiary will support the development
of a robust and diversified Ethiopian capital market that can contribute to long-term economic
growth

3 Strategic Advantages and Benefits of Establishing the

Investment Banking Subsidiary
The establishment of an investment banking subsidiary by the Cooperative Bank of Oromia
(CBO) presents numerous strategic advantages and opportunities. These benefits not only
contribute to the bank's overall growth and competitive positioning but also align with Ethiopia's
broader financial sector development goals. Below is an elaboration of the key strategic
advantages and benefits:

3.1 Revenue Diversification

One of the most significant advantages of establishing an investment banking subsidiary is the
potential for revenue diversification. Currently, CBO generates most of its income through
traditional commercial banking activities, such as loans, deposits, and transaction services. While
these remain essential revenue streams, they are subject to fluctuations due to factors such as
economic cycles, regulatory changes, and macro economic chalenges.

By entering the investment banking sector, CBO can unlock new and more diversified revenue
sources, including:

 Advisory Fees: Revenue from providing mergers and acquisitions (M&A) advice,
corporate restructuring services, and financial management consulting will create a
steady flow of income. These advisory services typically command high fees, especially
for large transactions, contributing to profitability.
 Underwriting Fees: Acting as an underwriter for initial public offerings (IPOs), private
placements, and debt issuance will generate significant fees. With the introduction of the
 Ethiopian Securities Exchange (ESX), the demand for such services will grow, and the
investment banking subsidiary can capture this opportunity.
 Asset Management Fees: Offering portfolio management and investment advisory
services to high-net-worth individuals (HNWIs), corporations, and institutional clients
will produce recurring revenue through management fees and performance-based
incentives.
 Capital Markets Trading: The subsidiary can earn revenue from facilitating and
executing trades in the capital markets for institutional and retail clients. This includes
equities, bonds, and other securities as the Ethiopian capital market develops.

By creating these new income streams, CBO will be less dependent on traditional banking
activities and better equipped to withstand economic downturns, regulatory pressures, or shifts in
market conditions. This diversified revenue model will enhance financial stability and provide
greater flexibility to respond to emerging opportunities.

3.2 Competitive Positioning

The Ethiopian financial market is becoming more competitive, with both local and international
banks expanding their service offerings. To maintain and enhance its competitive advantage,
CBO must continue to evolve beyond its traditional commercial banking services. The creation
of an investment banking subsidiary will allow CBO to position itself as a full-service financial
institution, providing a comprehensive range of financial services that few other banks in
Ethiopia currently offer.

Key aspects of this competitive positioning include:

 Differentiation in the Market: By offering services such as capital raising, M&A

advisory, and asset management, CBO can differentiate itself from competitors who
primarily focus on retail and commercial banking. This will help attract a broader range
of clients, including larger corporations, government entities, and international investors
who require more sophisticated financial services.
 Attracting New Client Segments: The subsidiary will open doors to new client
segments that may not have traditionally relied on CBO, such as institutional investors,
 multinational corporations, and high-net-worth individuals. These clients typically seek
out specialized financial services, such as investment banking, that go beyond traditional
banking products. Capturing these segments will further diversify CBO’s client base and
expand its market share.
 First-Mover Advantage: Given the relatively nascent state of Ethiopia's investment
banking sector, CBO has the opportunity to establish itself as a pioneer. Being one of the
first banks to offer full-scale investment banking services will allow CBO to gain early
market share and build a reputation as a trusted partner in Ethiopia’s financial ecosystem.
This first-mover advantage could create long-term client loyalty and establish CBO as the
go-to institution for investment banking services in the country.
 Support for Clients The creation of an investment banking subsidiary will significantly
enhance CBO’s ability to support its clients with a broader and more integrated set of
financial solutions. This holistic approach will strengthen client relationships, increase
client retention, and create cross-selling opportunities across the bank’s various business
lines.

 Comprehensive Financial Solutions: By providing capital raising, M&A advisory, and

asset management services, CBO will be able to meet the evolving financial needs of its
clients throughout their lifecycle. Whether a client is seeking to expand, raise capital,
restructure, or manage their wealth, CBO will be able to offer tailored solutions that
address all of these needs under one roof.
 Enhanced Client Relationships: Offering investment banking services will allow CBO
to engage more deeply with its clients, particularly those in the SME, cooperative, and
corporate sectors. For instance, businesses that initially come to CBO for loans or deposit
services may later require M&A advisory or assistance with an IPO. By building long-
term relationships and offering high-value services at critical stages of growth, CBO can
cement its position as a trusted financial partner.
 Cross-Selling Opportunities: The investment banking subsidiary will create
opportunities to cross-sell other CBO products, such as corporate loans, treasury
management services, and trade finance. For example, a client that receives M&A advice
 may also require a loan to finance an acquisition, thus leading to multiple revenue
streams from a single client.
 Advisory for Cooperative Clients: Given CBO’s strong ties to cooperatives and SMEs,
the investment banking subsidiary will provide much-needed advisory services for these
sectors. Many cooperatives and SMEs in Ethiopia lack access to high-quality financial
advice, particularly when it comes to raising capital or managing growth. The subsidiary
can bridge this gap, offering advisory services that will support the long-term
sustainability and expansion of these important sectors.

By offering comprehensive and integrated services, CBO will not only strengthen client
relationships but also position itself as an essential partner in the long-term success of its clients.

3.3 Contribution to Capital Market Development

The investment banking subsidiary will play a critical role in contributing to the development
and growth of Ethiopia’s capital markets. As the Ethiopian Securities Exchange (ESX) is
established, the investment banking subsidiary will act as a key facilitator in bringing companies
to the market, introducing new financial instruments, and educating market participants.

 Capital Market Expertise: CBO’s investment banking subsidiary will offer expertise in
navigating the complexities of capital markets, including IPOs, bond issuance, and
private placements. This expertise will be crucial in helping Ethiopian businesses,
particularly SMEs, access new sources of capital through the ESX, thereby driving
economic growth.
 Development of Financial Products: The subsidiary will be instrumental in developing
and introducing new financial products to the Ethiopian market. This could include
derivatives, corporate bonds, and innovative structured products that cater to the needs of
both issuers and investors. By creating these products, the investment bank will
contribute to the diversification of Ethiopia’s financial markets and enhance liquidity.
 Market Education and Awareness: Given the relatively early stage of Ethiopia’s
capital markets, there is a significant need for education and awareness among potential
issuers and investors. The subsidiary will take an active role in providing this education,
 helping businesses understand the benefits of capital market participation and guiding
investors on how to engage with new financial instruments.
 Supporting Government and Infrastructure Projects: As Ethiopia undertakes large-
scale infrastructure and industrial projects, the investment banking subsidiary will be
well-positioned to support these initiatives through project financing, syndication, and
advisory services. This will not only benefit the subsidiary in terms of revenue generation
but will also contribute to the overall development of the country by facilitating the
financing of critical infrastructure projects.

By actively participating in the development of Ethiopia’s capital markets, the investment

banking subsidiary will contribute to broader economic growth and help build a more resilient
and dynamic financial system in the country.

4 Market Analysis for the Establishment of an Investment

Banking Subsidiary
A comprehensive market analysis is essential for the successful launch of an investment banking
subsidiary under the Cooperative Bank of Oromia (CBO). The analysis should focus on
identifying the target market, understanding the competitive landscape, and evaluating the
regulatory environment in Ethiopia. This will provide critical insights into the market dynamics
and help CBO position the subsidiary effectively.

4.1 Target Market

The investment banking subsidiary will cater to a wide range of customers, each with unique
financial needs. The target market can be broadly categorized into four key segments: large
corporations, small and medium-sized enterprises (SMEs), government entities, and high-net-
worth individuals (HNWIs).

4.1.1 Large Corporations

Large corporations in Ethiopia are expected to be a key segment for the subsidiary. These firms
typically require more complex financial services, such as:
  Capital raising: Through debt issuance or equity financing, including IPOs and private
placements.
 Mergers and Acquisitions (M&A) Advisory: For businesses looking to expand through
acquisitions or partnerships.
 Corporate restructuring: Assistance with financial and operational restructuring to
enhance performance or address financial challenges.

This segment includes companies in sectors such as manufacturing, telecommunications,

agriculture, and energy, which are poised for growth in Ethiopia’s developing economy. As the
Ethiopian economy continues to modernize, these corporations will increasingly seek specialized
investment banking services to support their expansion, access international capital markets, and
undertake strategic M&A transactions.

4.1.2 Small and Medium-Sized Enterprises (SMEs)

SMEs play a vital role in the Ethiopian economy, especially in sectors such as agriculture,
manufacturing, and trade. While SMEs often face challenges in accessing capital and financial
advisory services, they represent a substantial growth opportunity for the investment banking
subsidiary. The key services that the subsidiary can offer to SMEs include:

 Capital raising and access to financing: Helping SMEs access capital through private
equity or venture capital, as well as bond issuance tailored to their scale.
 Financial advisory: Providing guidance on growth strategies, including preparing for
IPOs, expanding operations, and securing financing.

Given the Cooperative Bank of Oromia’s strong presence in rural areas and its established
relationships with cooperatives and SMEs, the investment banking subsidiary is well-positioned
to target this segment. Offering tailored solutions to SMEs can drive significant growth and
market share for the subsidiary.

4.1.3 Government Entities

Government entities and public-sector institutions represent another important target market. As
Ethiopia continues to develop its infrastructure and industry, the government will need to finance
large-scale projects through debt instruments, bonds, and syndicated loans. The investment
banking subsidiary can play a crucial role in:

 Project finance: Structuring and managing financing for large public infrastructure
projects, such as roads, power plants, and industrial zones.
 Debt issuance: Assisting government entities in issuing sovereign and municipal bonds
to fund development projects.

In addition to direct financing, the subsidiary can provide advisory services on strategic
economic initiatives and public-private partnerships (PPPs). These services will help the
government efficiently manage its financing needs and attract private-sector investment.

4.1.4 High-Net-Worth Individuals (HNWIs)

Ethiopia’s growing class of high-net-worth individuals, driven by economic growth and

increasing wealth creation, represents a lucrative target market for the subsidiary. HNWIs often
require sophisticated financial services, such as:

 Wealth management and investment advisory: Tailored services to manage and grow
personal wealth through investment portfolios.
 Estate planning and tax optimization: Providing strategies for intergenerational wealth
transfer and tax-efficient investment structures.

The investment banking subsidiary can offer customized asset management services, including
portfolio construction, risk management, and access to international investment opportunities. As
Ethiopia’s economy continues to grow, the number of HNWIs is expected to rise, making this a
key growth segment for the subsidiary.

4.2 Competitive Landscape

The competitive landscape for investment banking in Ethiopia is evolving, driven by both local
players and the anticipated entry of international financial institutions as the regulatory
framework matures. Understanding the competition will be critical for positioning CBO’s
subsidiary effectively in the market.
4.2.1 Local Competitors

Currently, the Ethiopian investment banking sector is relatively underdeveloped, with only a
handful of local financial institutions offering limited capital market services. However, several
local banks and financial institutions are expected to enter the space once the Ethiopian
Securities Exchange (ESX) is fully operational. Key local competitors include:

 Commercial Banks: Leading commercial banks in Ethiopia, such as Awash Bank,

Dashen Bank, and Bank of Abyssinia, may establish their own investment banking
subsidiaries or divisions. These banks already have established corporate client bases and
strong market presence, which could pose competition.
 Microfinance Institutions (MFIs) and Development Banks: These institutions, while
currently focused on microcredit and development finance, may expand their services to
include more sophisticated investment banking offerings, especially for SMEs and
cooperatives.

The investment banking subsidiary of CBO will need to differentiate itself by leveraging its
strong cooperative and SME client base, as well as its focus on capital market innovation and
tailored advisory services.

4.2.2 International Competitors

As Ethiopia opens its financial markets to foreign investors, international financial institutions
and investment banks may seek to enter the Ethiopian market. These global players bring
significant expertise and capital, which could make them formidable competitors. Potential
international competitors could include:

 African Regional Investment Banks: Banks such as the African Export-Import Bank
(Afreximbank) or regional investment banks from Kenya, South Africa, or Nigeria may
seek to establish a presence in Ethiopia.
 Global Investment Banks: Large global investment banks, such as Goldman Sachs or
JPMorgan Chase, may enter the Ethiopian market as capital markets mature and cross-
border investments increase. These institutions could target large corporations and
government clients with sophisticated products and services.
While international players may have the advantage of scale and expertise, CBO’s local
knowledge, established client relationships, and understanding of the Ethiopian regulatory
environment will be critical competitive differentiators.

4.3 Regulatory Environment

The regulatory environment for investment banking in Ethiopia is currently in its early stages,
particularly as the government works toward establishing the Ethiopian Securities Exchange. A
clear understanding of the regulatory framework and compliance requirements is essential for
setting up the investment banking subsidiary. Below are some key regulatory considerations:

4.3.1 Regulatory Authorities

Investment banking in Ethiopia will be regulated by several key entities, including:

 National Bank of Ethiopia (NBE): As the central bank, the NBE plays a critical role in
regulating financial institutions and setting guidelines for investment banking activities,
including capital adequacy, risk management, and corporate governance.
 Ethiopian Capital Market Security Authority (ECMA)
 Ethiopian Securities Exchange (ESX): Once operational, the ESX will be the primary
regulatory body for capital markets in Ethiopia. The ESX will establish rules governing
the issuance of securities, market participation, and investor protection.
 Ministry of Finance (MoF): The MoF will continue to play a role in overseeing public-
sector financing, debt issuance, and broader financial market policies.

5 Business Model and Revenue Streams for the

Investment Banking Subsidiary
The business model of the investment banking subsidiary of the Cooperative Bank of Oromia
(CBO) will be designed to leverage multiple revenue streams, each catering to the needs of
different target market segments. This approach will help diversify income sources and reduce
dependence on any one area of business. Below is a detailed explanation of the business model,
including estimated financial data for revenue, pricing strategy, and cost structure.
5.1 Revenue Model

The investment banking subsidiary will generate revenue from several key sources, each aligned
with the services it provides. These sources include fees from advisory services, commissions
from underwriting, trading fees, and management fees. The revenue model can be broken down
as follows:

5.1.1 Advisory Fees

The subsidiary will offer advisory services to clients, including mergers and acquisitions (M&A)
advisory, corporate restructuring, and strategic financial consulting. These services typically
generate high fees, especially when advising large corporations and government entities.

 Estimated Revenue from Advisory Fees:

o Corporate M&A Advisory: $500,000 per transaction, with an expected 5
transactions in the first year ($2.5 million in total).
o SME and Cooperative Advisory: $50,000 per transaction, with an expected 20
transactions in the first year ($1 million in total).

5.1.1.1.1 1.2 Underwriting Commissions

The investment banking subsidiary will earn commissions for underwriting securities, such as
initial public offerings (IPOs), bond issuances, and private placements. This is a significant
revenue stream, especially with the anticipated development of the Ethiopian Securities
Exchange (ESX).

 Estimated Revenue from Underwriting Commissions:

o IPOs and Bond Issuances for Large Corporations: Underwriting fees are
typically 3-7% of the total offering size. For an estimated total of $200 million in
equity and debt raised in the first year, at a 5% commission rate, this translates to
$10 million in revenue.
o SME Private Placements: A lower commission rate of 3%, with an estimated
$30 million raised, would generate $900,000 in revenue.
5.1.1.1.2 1.3 Trading Fees

As the Ethiopian Securities Exchange develops, the investment banking subsidiary can facilitate
trades in securities such as stocks, bonds, and derivatives for institutional and retail clients. This
will create a recurring source of income through transaction fees.

 Estimated Revenue from Trading Fees:

o Assuming an average transaction fee of 0.1% per trade and an estimated trading
volume of $500 million in the first year, trading fees would generate
approximately $500,000.

5.1.1.1.3 1.4 Asset Management Fees

The subsidiary will offer asset management services for high-net-worth individuals (HNWIs),
corporations, and institutional clients. These services will be structured as a percentage of assets
under management (AUM), providing a recurring revenue stream.

 Estimated Revenue from Asset Management Fees:

o For an estimated $200 million in AUM in the first year, with management fees of
1.5% per year, the asset management division would generate $3 million in
revenue.

5.1.1.1.4 1.5 Other Services and Fees

 Project Financing Advisory: Given Ethiopia's focus on infrastructure development, the

subsidiary can offer project financing services to government entities and private
companies. Estimated revenue: $2 million annually from large-scale infrastructure
projects.
 Financial Innovation Services: Providing advisory on new financial products, such as
green bonds or sukuk (Islamic finance), could generate additional fees. Estimated
revenue: $500,000.

5.1.1.2 Estimated Total Revenue for Year 1:

 Revenue Source Estimated Revenue

Advisory Fees (M&A, SME) $3.5 million

Underwriting Commissions $10.9 million

Trading Fees $500,000

Asset Management Fees $3 million

Project Financing Advisory $2 million

Financial Innovation Services $500,000

Total Estimated Revenue $20.4 million

5.1.1.3 2. Pricing Strategy

The pricing strategy for the investment banking subsidiary will be based on market conditions,
the complexity of the services provided, and the size of the transactions. The subsidiary will
adopt a flexible pricing model, allowing it to compete effectively while ensuring profitability.

5.1.1.3.1 2.1 Advisory Services Pricing

Advisory services will be priced on a fee basis, typically calculated as a percentage of the
transaction size or as a flat fee for smaller clients such as SMEs.

 Large Corporate Clients: Fees will range from 1-3% of the total transaction value (e.g.,
M&A transactions).
 SMEs and Cooperatives: A flat fee of $50,000 for advisory services such as capital
raising or restructuring.

5.1.1.3.2 2.2 Underwriting Pricing

Underwriting fees will follow standard market practices, typically ranging from 3-7% of the
capital raised. The pricing will depend on factors such as the complexity of the offering, the
client's size, and market conditions.
  Corporate Clients: 5-7% of the capital raised for IPOs and bond issuances.
 SME Clients: 3-5% for private placements.

5.1.1.3.3 2.3 Trading Fees

Transaction fees for securities trading will be competitive, with a fee structure based on trade
volume and client type.

 Institutional Clients: 0.05-0.1% per transaction.

 Retail Clients: 0.1-0.2% per transaction.

5.1.1.3.4 2.4 Asset Management Pricing

Asset management fees will be charged as a percentage of assets under management (AUM),
typically ranging from 1-2%, with potential for performance-based fees.

 Institutional and Corporate Clients: 1-1.5% of AUM.

 High-Net-Worth Individuals (HNWIs): 1.5-2% of AUM.

5.1.1.4 3. Cost Structure

The cost structure of the investment banking subsidiary will consist of several key components,
including startup costs, ongoing operational expenses, regulatory compliance, and staff training.
Below is an estimate of the cost structure:

5.1.1.4.1 3.1 Startup Costs

Initial investments will be required to set up the subsidiary, including licensing, infrastructure,
and technology costs.

 Licensing and Legal Fees: $1 million for regulatory approval from the National Bank of
Ethiopia and other authorities.
 Office Setup and IT Infrastructure: $2 million for office space, technology platforms,
and trading systems.
  Marketing and Branding: $500,000 to establish the subsidiary’s brand and attract
clients.
 Total Estimated Startup Costs: $3.5 million.

5.1.1.4.2 3.2 Ongoing Operational Expenses

These costs include day-to-day expenses related to running the investment banking subsidiary,
such as salaries, rent, and IT maintenance.

 Salaries and Compensation: $5 million annually for key personnel, including financial
analysts, advisors, traders, and support staff.
 Office Rent and Utilities: $500,000 per year for office space in Addis Ababa.
 Technology and IT Maintenance: $500,000 annually for maintaining trading platforms,
cybersecurity, and client management systems.
 Marketing and Client Acquisition: $1 million per year to attract and retain clients.
 Total Estimated Ongoing Operational Expenses: $7 million annually.

5.1.1.4.3 3.3 Regulatory Compliance Costs

The investment banking subsidiary will need to comply with the regulatory framework
established by the National Bank of Ethiopia (NBE) and the Ethiopian Securities Exchange
(ESX). These costs include regulatory filings, audit fees, and capital adequacy requirements.

 Compliance and Audit Fees: $300,000 annually for regulatory filings, risk
management, and financial audits.
 Capital Adequacy Requirements: The subsidiary will need to maintain sufficient
capital reserves to meet regulatory requirements, estimated at $5 million in capital
reserves (non-operational cost but a required capital buffer).

5.1.1.4.4 3.4 Staff Training and Development

Given the specialized nature of investment banking services, it will be critical to invest in
ongoing staff training to ensure that employees are up-to-date with financial regulations, market
trends, and new technologies.
  Training and Professional Development: $300,000 annually for staff training,
certifications, and attending international financial forums.

5.1.1.5 Estimated Total Annual Operating Costs for Year 1:

Cost Category Estimated Costs

Startup Costs $3.5 million

Salaries and Compensation $5 million

Office Rent and Utilities $500,000

Technology and IT Maintenance $500,000

Marketing and Client Acquisition $1 million

Compliance and Audit Fees $300,000

Staff Training $300,000

Total Operating Costs $11.1 million

5.1.1.6 Projected Financial Overview (Year 1):

 Total Estimated Revenue: $20.4 million

 Total Estimated Operating Costs: $11.1 million
 Estimated Net Profit: $9.3 million

5.1.2 Illustration: Business Model and Financial Summary

Revenue Stream Estimated Revenue

Advisory Fees $3.5 million

Underwriting Commissions $10.9 million

Trading Fees $500,000

Asset Management Fees $3 million

 Revenue Stream Estimated Revenue

Project Financing Advisory $2 million

Financial Innovation Services $500,000

Total Revenue $20.4 million

Cost Category Estimated Cost

Salaries and Compensation $5 million

Office Rent and Utilities $500,000

Technology Maintenance $500,000

Marketing and Acquisition $1 million

Compliance and Audit Fees $300,000

Staff Training $300,000

Total Operating Costs $11.1 million

This structure shows a healthy profit margin in the first year, driven by a strong revenue model
and effective cost management. As the investment banking subsidiary grows, these revenue
streams are expected to increase, further enhancing profitability.

5.1.3 Operational Plan for the Investment Banking Subsidiary

A successful operational plan is vital to the establishment and growth of the investment banking
subsidiary under the Cooperative Bank of Oromia (CBO). The subsidiary will require a robust
organizational structure, the right talent and skills, advanced technology infrastructure, and
comprehensive risk management systems to function efficiently. The following sections provide
a detailed outline of each of these components.
5.1.3.1 1. Organizational Structure

The investment banking subsidiary will operate with a well-defined organizational structure that
ensures clarity in roles, responsibilities, and reporting lines. A key factor in the success of the
subsidiary will be the alignment of these roles with its strategic goals.

5.1.3.1.1 1.1 Board of Directors

 Responsibilities: Provide strategic oversight and ensure the subsidiary aligns with the
overall objectives of CBO and Ethiopian regulatory requirements.
 Members: The board will include executives from CBO, external financial experts, and
key stakeholders from Ethiopia's financial market.

5.1.3.1.2 1.2 Executive Management Team

 CEO (Chief Executive Officer): Oversees all activities of the subsidiary, formulates
strategic direction, manages client relationships, and ensures regulatory compliance.
 CFO (Chief Financial Officer): Manages the subsidiary's financial operations, oversees
capital management, budget control, and financial planning.
 COO (Chief Operating Officer): Handles day-to-day operations, including staff
management, technology implementation, and process optimization.
 CRO (Chief Risk Officer): Responsible for developing and overseeing risk management
policies, including market, credit, and operational risks.

5.1.3.1.3 1.3 Business Divisions

Each business unit will be led by a division head, ensuring specialized expertise in various
sectors of investment banking:

 Corporate Finance and Advisory Division:

o Services include mergers and acquisitions (M&A), capital raising, restructuring,
and project financing.
o Division head will manage client engagements, ensure transaction quality, and
identify business opportunities.
  Capital Markets Division:
o Handles securities underwriting, equity and debt capital markets, and trading
activities.
o The division head will oversee underwriting operations, ensure smooth trading
activities, and manage investor relations.
 Asset Management Division:
o Manages portfolios for high-net-worth individuals (HNWIs), corporations, and
institutional clients.
o The head will ensure the performance of portfolios and manage client
relationships.
 Research and Analysis Division:
o Responsible for providing in-depth market analysis, research reports, and
economic forecasting.
o The head will supervise the team of analysts providing insights for clients and in-
house decision-making.

5.1.3.1.4 1.4 Compliance and Legal Division

 Ensures all operations comply with Ethiopian regulations and international best practices.
 Oversees the legal aspects of transactions, contractual obligations, and regulatory filings.

5.1.3.1.5 1.5 Support Services

 Human Resources: Manages recruitment, training, and staff development.

 IT Department: Supports technological infrastructure, including trading platforms and
cybersecurity.

5.1.3.2 2. Staffing Requirements

The success of the subsidiary will depend heavily on recruiting a skilled and experienced
workforce with expertise in investment banking and financial services.

5.1.3.2.1 2.1 Required Skills and Experience

  Financial Analysts and Advisors: Expertise in corporate finance, M&A, securities, and
capital markets.
 Portfolio Managers and Traders: Experience in managing client portfolios and
executing trades across asset classes (equities, bonds, etc.).
 Risk Management Experts: Professionals with strong knowledge of risk modeling,
market analysis, and compliance with regulatory standards.
 Legal and Compliance Officers: Knowledgeable in Ethiopian financial laws,
investment banking regulations, and corporate governance.
 Technology Specialists: Experienced in maintaining secure trading platforms, data
analytics systems, and fintech integration.

5.1.3.2.2 2.2 Recruitment Plans

To build a strong team, the recruitment plan will include:

 Internal Hiring from CBO: Leveraging in-house talent from the Cooperative Bank of
Oromia with transferable skills to the investment banking subsidiary.
 External Recruitment: Hiring experienced professionals from local and international
financial institutions.
 Partnership with Universities: Collaborating with Ethiopian universities to create
internship and graduate programs for future talent.
 Training and Development: Ongoing training and certifications to ensure staff remains
up-to-date with international best practices and technological advancements.

5.1.3.3 3. Technology and Infrastructure

The investment banking subsidiary will require a sophisticated technological infrastructure to

support its operations efficiently. This includes systems for trading, client relationship
management, research, and risk management.

5.1.3.3.1 3.1 Trading Platforms

The subsidiary will need a secure and high-performance trading platform to facilitate the buying
and selling of securities for its clients. This platform must integrate with the upcoming Ethiopian
Securities Exchange (ESX) and provide:

 Real-time trading capabilities for equities, bonds, and other financial instruments.
 Risk management tools that monitor trading activities and market volatility.
 Client access portals to allow institutional and retail clients to view their portfolios,
execute trades, and track performance.

5.1.3.3.2 3.2 Research Tools and Data Analytics

Research and analysis are critical functions for both advisory services and asset management.
The subsidiary will invest in:

 Advanced data analytics platforms for market and financial research, including real-
time data feeds, macroeconomic forecasting, and financial modeling.
 Research databases to track global and local financial markets, including economic
indicators and industry trends.

5.1.3.3.3 3.3 Risk Management Systems

To effectively manage credit, market, and operational risks, the subsidiary will need advanced
risk management tools capable of:

 Stress testing and scenario analysis to model potential losses in adverse market
conditions.
 Credit risk assessment software that evaluates client creditworthiness and monitors
exposures.
 Operational risk management systems that ensure business continuity, cybersecurity,
and compliance with regulatory standards.

5.1.3.3.4 3.4 IT Security and Cybersecurity

Given the sensitive nature of financial transactions and data, cybersecurity will be a top priority:
  Encryption protocols to protect sensitive client and transaction data.
 Firewall and intrusion detection systems to safeguard against external threats.
 Disaster recovery systems to ensure business continuity in the event of technical failures
or cyberattacks.

5.1.3.4 4. Risk Management

The subsidiary will face various risks, including market risk, credit risk, and operational risk. A
robust risk management framework is essential for mitigating these risks and ensuring the
subsidiary operates within regulatory guidelines.

5.1.3.4.1 4.1 Market Risk

Market risk arises from fluctuations in financial markets, including equity prices, interest rates,
and currency exchange rates. Strategies to manage market risk include:

 Diversification of investment portfolios to reduce exposure to any single asset class or

sector.
 Use of derivatives such as options and futures to hedge against adverse price
movements.
 Regular stress testing to assess potential losses under different market scenarios and
economic conditions.

5.1.3.4.2 4.2 Credit Risk

Credit risk arises when clients or counterparties default on their financial obligations. Managing
credit risk will involve:

 Rigorous credit assessments for clients, especially in capital raising and underwriting
services.
 Collateral requirements for high-risk transactions to protect against potential defaults.
 Credit exposure limits to ensure the subsidiary does not become overly reliant on any
single client or sector.
5.1.3.4.3 4.3 Operational Risk

Operational risk involves the potential for losses due to internal failures, such as system
breakdowns, human error, or fraudulent activities. Strategies to mitigate operational risk include:

 Strong internal controls to prevent fraud and ensure compliance with regulations.
 Automated systems for trade execution, reducing the likelihood of human error.
 Comprehensive training programs for employees to ensure they understand operational
procedures and risk management protocols.

5.1.3.4.4 4.4 Regulatory and Compliance Risk

As the regulatory environment for investment banking in Ethiopia evolves, the subsidiary will
need to remain compliant with all relevant laws and regulations. Key strategies include:

 Dedicated compliance officers to monitor changes in the regulatory landscape.

 Regular audits to ensure the subsidiary adheres to legal requirements, including capital
adequacy ratios and reporting standards.
 Close coordination with Ethiopian financial authorities, such as the National Bank of
Ethiopia (NBE) and Ethiopian Securities Exchange (ESX).

5.1.4