The Ethiopian capital market is “a new way that creates efficient financial system, better savings capacity, wide investment opportunities, and fair distribution of resources.”

The new Ethiopian capital market has been established by ‘Capital Market Proclamation No. 1248/2013’ to strengthen the country’s economic development by supporting the financial system with new innovations by gathering capital in Ethiopia. According to this decree, an “Ethiopian Capital Market Authority” office, which is responsible to the Prime Minister, has been established and started working. The Ethiopian Capital Market Authority has been empowered to create a complete capital market ecosystem by making the trading system fair, efficient and transparent by issuing document investments. It is also responsible for creating a favorable environment to encourage investment by protecting and protecting investors and ensuring the credibility of the capital market.

The capital market system allows company owners to raise money by selling shares to individuals. In addition to shares in the capital market, debt securities are also sold. “Capital Market” usually means “Stock Market”. Capital market is a system that creates sellers who get extra profit by temporarily selling (renting) their money to other people.

This institution, which aims to create market wealth, is also considered a transition phase of economic freedom.

According to the author of the Stock Market and Investment book, Dr. Abush Ayalew, it consists of buyers who get a higher profit (profit) than the purchase price by paying the necessary additional rate from the suppliers, the sellers (landlords). The primary purpose of this capital market is to sell and buy documents that represent the money, which makes it unique. What it has in common with other commodity products is that money is bought and sold as a commodity. They are negotiable instruments that can be purchased or sold.

Dr. Abush Ayalew explained the damage caused by Ethiopia’s failure to establish a capital market. As a result, the country has lost a lot of wealth. In addition, it is said that the lack of an integrated stock market has caused economic problems. The stock market is a great investment bridge that will bring people to financial freedom by increasing the cost of living and the problem of economic effort created by capitalism.” According to Dr. Abush. Explanation: Failure to take advantage of the capital productivity opportunity that the stock market brings with it would be a failure to understand the wisdom of the times.

Although financial performance is a criteria for our country’s banks to provide loans to the private sector, the issue of collateral is a big challenge. Although the company’s past profitability is one of the main criteria for borrowing money, the company’s market value is the most significant basis. The stock market system allowed companies with large market capitalization to borrow as much as they wanted from the bank. Many companies have been affected because of the lack of a stock market in Ethiopia.

Abush Ayalew (Dr.) says that the stock market is a prohibited sector for local and foreign citizens to use for the council. The private sector contributes 30 percent of the country’s gross domestic product, while the government controls 70 percent of the economy. However, both the public development organizations and the private sector need cash and cash dollars to grow for operation or expansion investment.

The capital market solves the problem that the manufacturing companies and banks, suffering from the lack of dollars, cannot be competitive due to the lack of bank loans and interest. Dr. Abush Ayalew said, “The absence of a capital market did not allow the business community to create alternative money.” Trillions of dollars flow like a flood in the world, and we have accumulated a lot of wealth just because we cannot establish a capital market system that can bring this. They say that stock trading is worth about four trillion dollars daily worldwide, and it is a shame that our country does not exist in this vast market.

The absence of a stock market prevents the development of competition and innovation among companies. In contrast, the stock market has a higher speed of competition and innovation in countries that have implemented it. The reason is that their stock price is based on competition and innovation. Many people instead of putting their money in the bank, the bank invests in the stock market and allows them to share the ownership of different companies. Dr. Abush Ayalew says that when this kind of feeling develops at the national level, apart from the development of national peace, one of the root causes of the recent public protests in our country will be the solution to the issue of wealth distribution.

Dr. Abush Ayalew reinforces this idea by referring to the American experience. When we look at the fact that 45 percent of the American population is a user of the stock market, it is known that 20 percent of the 80 percent of the American economy is owned by the large private companies structured at the corporate level, which is 45 percent owned by the American population. Beyond benefits, they explain its positive role in the country’s economy.

Dr. Abush Ayalew

Zemedeneh Ngatu is the International Chairman of Fairfax Africa. They closely monitor Ethiopia’s economic affairs. They say that we can give the equivalent Amharic translation of stock market as ‘share market’.
Companies market their ownership shares of the company. After people buy these shares, the company sells their shares back at a profitable rate or makes a profit from dividends. What will the stock market bring to Ethiopia? Ato Zamedeneh says that although Ethiopia is preparing to establish a stock market, the concept of a stock market is not new to the country’s market.

They state that the stock market, established by the government and the private sector, will mainly benefit Ethiopia. The capital market is the Ethiopian Securities Exchange (ESX). He adds that it will shorten the long way that banks and insurers used to sell their shares when they were established or wanted to expand.

“Since there was no stock exchange when these companies were established, they are going through a very long process and selling shares to everyone. This takes a long time and money. It is not viable,” says Zemedeneh.

They say that one of the benefits of establishing the Ethiopian Securities Exchange is to create a capital market for both new and existing companies. Zemedeneh explains that the stock market is a good option for those who want to raise capital.

“It will benefit people who have good ideas and lack capital. Getting a loan from a bank is not easy these days. Selling a share to a relative or friend is not easy. The stock market creates a capital market for new or expanding companies.”

Another advantage of the stock market is that it is a system that can distribute wealth fairly and equitably, says Zemedeneh. Remembering that huge state-owned companies are currently being transferred to the private sector, He points out that only a few individuals and corporations have been buying huge companies from the government to the private sector.

However, with the advent of ESX, the government can distribute public wealth equitably. “When one share is sold for five or ten dollars on the stock market, it is possible to distribute the wealth that Ethiopia has collected by buying everything,” they explain. They add that when these privatized companies enter the stock market, everyone owns as much as they can, resulting in a wealth redistribution.

Zemedeneh Ngatu, the International Chairman of Fairfax Africa

Zemedeneh says that when the Ethiopian Securities Exchange becomes a reality, it will raise the culture of saving. People are only investing in sectors they think will not make a loss. “It is seen that people who have money only focus on housing development. The manufacturing sector was also affected. This creates an imbalance in savings by limiting the sectors that can be invested. The stock market, however, allows for efficient capital distribution in all sectors.

Another advantage is that share markets can be bought and sold quickly and transparently. It is clear how many shares were marketed at what price. “People can easily buy shares of the market and sell what they bought,” says Zemedeneh. Bank shareholders cannot simply sell their shares without waiting a year and distributing profits. However, when ESX becomes a reality, it simply opens up the opportunity to sell shares.

Getachew Teklamaryam, an economic consultant, explains that the capital market system increases the lending capacity of banks, so it has the advantage of increasing business activity and investment. He said that the capital market is useful for companies with a lack of capital to raise more money for investment and to establish a new company. They say that a company with a lack of capital will be able to expand by selling it to companies that sell capital.

Ato Getachew said that there will be no capital shortage for investment operations in the capital market system. It will allow for an increase in investment as there will be no fear of a shortage of capital, so there will be an increase in foreign direct investment (FDI). When the stock market is established, it will allow for job opportunities.

According to the consultant, the capital market will also increase financial activity. The Director General of Ethiopian Capital Markets Authority, Brock Taye (Dr.), mentioned that the legal framework and guidelines have been completed.
He explained that a list of companies that can be bought and sold on the Ethiopian bond market is being finalized. In connection with this, five government development organizations have been identified. In addition, seven new guidelines have been issued.

Dr. Brook Taye, Director General of the Ethiopian Capital Market Authority.

The Capital Market Service Providers Licensing and Control Guideline No. 980/2016 has been officially implemented since January 9, 2016, the Ethiopian Capital Market has announced. The Ethiopian Capital Market Authority has announced that it has established the guidelines for granting licenses to capital market service providers. “This directive is an important step in launching the capital market in our country, and it will be a legal framework that helps to ensure that the market is reliable and fair and enhances the protection of investors,” said Dr. Brook Taye, Director General of the Ethiopian Capital Market Authority.
There will be 15 different license types in this framework. These licenses will be issued to applicants who meet the conditions listed in the guidelines, and the authority will supervise these service providers.