During the late years of the imperial regime, there was an attempt to establish stock market. Interested groups made their maximum effort and realized it. Though the economy was feudal dominated based on tenant farming, capitalist based relied on small industries and commercial farming were flourished which became an impetus for capital market.
The socialist economy prevailed during the Derg regime; however, did not officially allow the market to be in place because the role of the private sector was greatly reduced to its obscurity.
After years of relentless efforts, the House of People’s Representatives endorsed the proclamation of the establishment of stock exchange recently in which the draft proclamation was forwarded by the National Bank of Ethiopia via the Council of Ministers.
Cognizant of these, the School of Commerce under the auspicious of the Addis Ababa University with the collaboration of the Addis Ababa Chamber of Commerce and 13 professional associations organized symposium entitled “Emerging stock market in Ethiopia; Sensitizing the actors towards a collaboration approach and flourishing future” which intended to infer knowledge to the stakeholders.
Mulugeta Gebremedihin (PhD) is an instructor on management and marketing programs and currently chairing the Ethiopian Marketing Professional Associations. As to him, the symposium enlightens the business community to know the value of stock market. In addition, it creates a plat form for professional forums to exchange ideas and to galvanize their efforts to realize a functioning stock exchange. Instead of exerting their energy in fragmented manner, associations are urged to create synergy as it is vital and the practice can be a model for other stakeholders.
Mulugeta further said that in Ethiopia, currently, capital market is in its formative period and the authority that runs the stock is under establishment. In the near future, stock or capital market will be accelerated. The capital market is mainly related with the financial system. It has three pillars which are financial institutions. Based on the Ethiopian objective reality, there are private and public banks and insurance companies. They play crucial role in facilitating investment. In addition to these, there are institutions which support finance economy such as privatization institute and the public owned pension fund. These all participate in capital market through purchasing or selling their shares and asset.
Next to these, there is a financial market. The Ethiopian Commodity Exchange in this regard can be mentioned as the case in point. It is a financial market, but focuses on commodity exchange such as coffee, soybeans and other cereals. It does not involve in purchasing treasury bills. In addition, the products are intended to be supplied to the capital market to the third parties.
In the stock market, there are primary and secondary markets. The participant companies involve in the capital market have two options either by obtaining loan from various sources mainly from financial institutions or sell the share to investors to be shareholder in the institutions. When they sell the share, they supply the Initial Public Offer to the market.
In Ethiopia, when Banks and Insurances are established, first they sell the share which is known as primary market. The selling share company intends to get money from investors invites them.
As it is known, the stock market is in its formation stage. Hence, creating awareness to the actors and to the public at large is essential. In line with this, explaining the difference and similarity of the stock market in Ethiopia with other African countries is vital.
For example, the Ethiopian Commodity Exchange ECX which is involved in capital market is the second largest next to the South African Commodity Exchange SACE in its performance, which is vibrant in the continent. There are numerous commodity exchanges in the eastern African countries such as Kenya, Ruanda, Burundi and Uganda, but they are not vibrant as such and remained crawling since their establishment 30 years ago. In Nigeria Abuja, there is insurance exchange which shows progress in its performance. But in the commodity exchange it lags behind. Gahanna also has stock market but still it is in its infancy. Hence, building capacity to the institutional actors in this regard is essential.
As to Mulugeta, in 2015 and 2016 when the ECX was established he could get chance to monitor the way how they organize the institution and the system and in that moment providing training to the staffs was prioritized.
Identifying the types of the commodities that are supplied to the market, how the exchange is performed and types of actors institutions was scrutinized. However, most participant stakeholders were at the lowest level in understanding the matter. Therefore, training was provided to the participants and only those who passed the exam could join the commodity exchange market as actors at various levels.
In order to facilitate the stock market, players such as brokers and agents are essential but in Ethiopia’s context such individuals and entities which play pivotal role in connecting buyers and sellers are not flourished yet and must have sufficient knowledge with regard to capital and stock market. It is expected that, through time they will be evolved.
As to Mulugeta, the proclamation that gives green light to the establishing of stock market is ratified by the House of Peoples Representative. It explains how the business is conducted and who must participate in the market. Experience in Ethiopia indicates that when private banks are established, shares are provided to shareholders as primary market but in other countries share in the stock market is sold not by new companies rather by companies with long business experience. In addition, in other countries there are investment banks which facilitate stock market that is not experienced in our country yet.
The Addis Ababa Chamber of commerce and sectorial Association President, Mesenbet Shenkut, on her part said that banks play crucial role in availing money for stocks market. When the market flourishes and boosts, it encourages job creation which in turn contributes for unemployment reduction and increases government revenue.
As to her, stock market was established in the 1960s. That time there were companies which involve in the venture such as the Anbesa Bus Shareholders Company, the Metehara Sugar Corporation and Meta Brewery. During the imperial regime, the role of the private sector in the economy was acknowledged by the government and most private companies were established and engaged in agriculture, manufacturing and import and export trade. But the eruption of the Ethiopian revolution in 1974 dragged the venture in to back to square one. Nevertheless, during the Derg governance, it could not survive and remained in its obscure position with no progress since the socialist oriented economic policy of the then government was not encouraging to the private sector.
She added that the capital market plays pivotal in bringing positive outcome in the economy though it has its own risks and to avert the risk, there must be conductive ecosystem bounded by legal framework. She further said that in the TPLF led EPRDF era, Ethiopia was not freed from communist type command economy, because the economy was dominated by the government. The public ownership of land was continued. In the post Derg era the nullification of transaction value of land was resumed and such situation still curtailed the inflow of capital and idea to the agricultural sector which remains subsistence. The government did not assumed the private sector as partner rather it looked as foe. Most job bids that could be performed by the private sector was unfairly given to the public sectors, but as time revealed most projects conducted by these companies were delayed or even interrupted due to mismanagement and corruption and ultimately incurred heavy lose to the nation.
In due course, the parliament has enacted law that allows establishment of the Ethiopian Capital Market Authority to make real smooth functioning of the business, it was learned.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD TUESDAY 25 JANUARY 2022
