BY HIZKEL HAILU
Many of financial market experts and economists agree that capital market serves citizens as an alternative saving mechanism facilitating investments in stocks. Such increase in the investments coming from domestic saving will reduce Ethiopia’s dependency on foreign direct investment.
According to the research document obtained from Cytonn Foundation, the capital market plays an important role in mobilizing savings and channel in them into productive investments for the development of commerce and industry. Additionally, the capital market acts as an important link between savers and investors. The savers are lenders of funds while investors are borrowers of the funds.
Owing to this fact that the current government’s reform initiative by the name ‘Home-grown Economic Reform’ is expected to bring some adjustments in the financial system so that the private sector can have better choice for its long term investment needs with the introduction of market-based financial access.
As a part of its duty, the House of Peoples’ Representatives of Ethiopia has recently ratified a law regarding the establishment of capital market in the country. The government of Ethiopia, in the leadership at the moment, has given due emphasis for the formation of capital marketing in Ethiopia for its advantage in booming the national economy.
According to the recent press statement from the Office of the Prime Minister, introducing capital market in Ethiopia is found to be important for economic development of the country and prosperity. It is indicated that companies will be able to raise funds by selling shares, stocks and bill to finance promising investment projects.
Moreover, it has also been stated that capital market plays critical role in stabilizing the macro-economy by fixing balance of payment in the country. The market will also help citizens to transform them to become investors than only letting them to save their amount in banks.
Approached by The Ethiopian Herald, CEO of Cellular Consultancy Abush Ayalew said that as it is of paramount importance for escalating the nation’s economy coupled with improving the citizen’s life, great emphasis is given for the introduction of capital marketing in Ethiopia by the Ethiopian government.
Applauding government’s commitment to capital market in Ethiopia, he stated that the market is also significant to create successful market chain among the traders and their clients. As to him, the National Bank of Ethiopia is undertaking preliminary activities in order to make it operational soon.
As to Abush, apart from operating the market in the country, the government should also be active in monitoring and evaluating the overall accomplishment of the firm. Thus it will be possible to get remarkable change in the national economic growth.
While illustrating how the neighboring Kenya’s Nairobi Stock Exchange has benefited the country, he stated that there are around 30 African countries that have capital markets / stock exchanges currently. Ethiopia is expected to start listing of public companies, which are being regulated by the National Bank of Ethiopia such as, shares of banks and insurance companies.
Introducing and adopting of stock exchange in Ethiopia is expected to allow shareholders of the banks and insurances in Ethiopia to sell their stock any time and get their money or invest in other stocks, among others, he explained.
As to him, the advantages of capital markets include job creation, economic growth and technological innovation. In many instances, capital markets take the form of stock exchanges. These include firms include market debt securities such as bonds, and equity securities like stocks.
“For the first time in our country, a large seminar was held on the stock market agenda of the Initial Public Offering (IPO). One of the many benefits of capital marketing is the way in which both private and public enterprises can earn money by selling their shares or bonds for the operations they need,” he said.
It is well known that in the past, when private and public organizations needed money, they only got loans from banks and there was no other alternative source of funding. As a result, financial constraints have hampered the growth of organizations.
In this regard, companies are required to fulfill the necessary formalities in selling their assets in the form of bonds or shares through the stock market. The process by which these requirements are met and what is expected of them is called Initial Public Offering (IPO).
While experiencing the capital market, there will be increasing or decreasing in the price of the shares regularly. Therefore, the formal formation of stock market system in the country will also prevent such challenges in the sector, he remarked.
Mentioning many African and western countries that have been benefited from the capital market, Hikemet Abedela, Director General of Accounting and Audit Board of Ethiopia, explained that countries should also work ardently in monitoring and evaluating the market. As a result, the Board has been implementing different strategies to reduce problems related with the stock market.
According to Hikemet, her office is heading to establish Ethiopian Accredited Accountants Institute. To this end, draft of the establishment has been sent to the Council of Ministers for its ratification. The institute is also of paramount importance to introduce Ethiopia in the international stages as it is a member of International Federation of Accountants (IFAC), she noted.
She further stated that the institute will be led by 7 board members including the chairperson. “But” she said adding: “Five of the members are selected from the private sector while the rest two will be from the government side”. For her, a capital market is a company established by shareholders to earn profit through dividends.
Noting that the introduction of stock or capital market is important to raise national economy, she explained that there are also mediators or brokers who are responsible to create profit balance among the companies and shareholders. In this case, all parties will be benefited fairly from the stock or capital market offered in the Ethiopian market.
Hikemet further said that her office is conducting different projects in order to overcome problems observed in auditing system in Ethiopia. Explaining there are about 160 audit firms in the country of which 19 of them are in partnership, she pledged the government to give high emphasis for the sector in a way to improving the economic growth of the country.
Providing the necessary and timely information with regard to the functioning of the market to shareholders is essential in order to conduct a perfect stock market. In addition to this, shareholders have to have adequate knowledge of the changes in the stock market’s financial system. It is also vital to scrutinize the registration process and the institutions’ financial status to be a member of the stock market.
Capital markets provide one means to raise capital, as capital markets mobilize savings of investors. Therefore, capital markets are essential for the country’s overall economic growth, she noted.
As the market is characterized by primary and secondary markets and established for long-term investment and mostly institutions and large companies are the ones involved in such venture, Abush called on the traders and the government to take parts in this opportunity.
The Ethiopian Herald August 4/2021
