BY ABEBE WOLDEGIORGIS
In the countries which build advanced economy and other developing countries, capital market plays key role as a source of finance. For long, many macro economy professionals advised the government of Ethiopia to establish such market system. Finally, their effort bear fruit and last year the House of Peoples’ Representatives endorsed the law which allows the establishment of capital market. To run the establishment, a group of professionals is working to lay the ground. In addition, recently, the Ethiopian Investment Holding and the Great Britain’s Government Company FSD signed memorandum of understanding to establish the market.
Melese Minale is head of the professionals’ group formed to establish the market and at the same time he serves as a consultant for the governor of National Bank of Ethiopia on macro economy. As to him, to establish the capital market, various works are undergoing and to form the regulatory body for the capital market organizing the institution and formulating draft legal framework is continued.
In addition to lead the capital market and to manage the activities, organizing human resource is continued.
He further said that last year after the endorsement of the proclamation which gave green light for the establishment of the capital market by the parliament, the national bank capital market project implementing group is established. The group comprised people with long experiences on international laws, Ethiopian laws and by micro economy and cumulated experience in relation with capital market is working on the preparation. The group in the past months carried out various activities and among others is the establishing of the legal framework for forming the authority which has the mandate to monitor the capital market. It worked on the structural aspect of the authority, the required asset and budget and in addition, it prepared draft laws on the authority’s workers administration. Other key legal issues are also prepared. And the authority will take over the responsibility of managing the capital market from the National Bank of Ethiopia.
The second key issue is that the group is conducting the authority’s responsibility with regard to supervising the market because; the proclamation has nothing to do with supervision by its own. To make the proclamation functional, regulations and rules are prepared and cascaded from it. To that end, the group prepared 10 draft regulations and 15 draft rules. To gather inputs that are helpful to develop the draft rules, the group made discussions with stakeholders. In addition, capacity building works are conducted. The project implementing group provided trainings to the employee and other actors with regard to capital market activities. The training was provided both locally and in abroad.
In addition, preparations are undergoing in collaboration with the stakeholder to provide trainings to journalists concerning the capital market. The authority has the mandate to provide document based exchange of commodities. It is also established based on the public–private partnership. The government will have a 25 percent share in the capital market and the rest 75 percent is left to the private sector. As the National Bank of Ethiopia is a policy institution it has no mandate to have share in the capital market on behalf of the government. In this regard the Ethiopian investment holding is the correct institute which has the mandate to have share in the market on behalf of the government.
The capital market establishing proclamation clearly indicates that the Ethiopian Investment Holdings has the mandate to administer government’s wealth and participate on various investment ventures on behalf of the government. As it is known, the Ethiopian Investment holding is engaged in facilitating the establishment of the Ethiopian capital market. Based on the agreement, the Ethiopian Investment Holding and FSD Africa which is a Kenyan based Britain company will exert their efforts to consolidate the market. Therefore, the project implementing group has the mandate to involve in every aspect of the establishing of capital market. Among the tasks of the project implementing group, facilitating the registration of the Ethiopian Capital Market via the Ministry of Trade and regional integration as shareholder institution; crafting its business plan; selling shares; getting license from the would be established capital market authority and purchasing crucial technology helpful to boost capital market can be mentioned here.
As to Melese, the capital market functions in the complicated ecosystem and there are intermediaries work closely with the authority, investment banks, credit facilitator agencies, standard setting agencies for obtaining loans, share transferors, brokers, market transaction providers and others are vital. These all need skills and knowledge. Currently, there are no professionals in Ethiopia who can engage in such profession because there has not been capital market in the country.
Till now more than 600 professionals have obtained training regarding capital market function. Trainees get education in accordance with their tendency and interest. The capital market authority on its part will set criterion to employ workers based on their experience. For example, fund administrators required to have highly qualified skill. Brokers who want to participate in the market are required to fulfill the fundamental criterion. Until sufficient skilled labor is obtained from local market, personnel with qualified skill can be imported from Kenya. Professionals from local market, who obtained the necessary training and certified, can be employed and work together with foreign professionals and in such a way knowledge transfer is realized.
As to Melese, the capital market establishing proclamation allows different actors in the market without discrimination including both local and foreign investors, professionals, investment banks, standard setting agencies, retailers, brokers, asset developers and others. The draft law which is under preparation for license provision requires that competitors who fulfill the criterion can join the capital market business.
Melese further stated that the National Bank has the mandate to decide on the amount of paid capital when commercial banks are established. But unlike this, the capital market authority has a mandate to decide the initial amount of the capital market. After its establishment among the criteria to establish capital market, deciding the paid capital amount is a priority issue.
The amount of paid capital is decided based on vulnerability of the business transaction and after the evaluation of the vulnerability the paid capital amount will be decided. In addition to this, it depends on the participant companies share, the number of investors. The technology that is going to be used in the capital market, service provision and managing the market can be part of the capital amount.
If FSD serves as a feasible model for the Ethiopian capital market and attract foreign investors, the Market will be established with huge capital. Till now, it is witnessed that foreign investors showed interest to involve in the newly established capital market. Particularly if FSD brings the other countries’ companies which have international experience in shareholding market here, it will create conducive environment for huge capital transaction.
He also said that the government will have 25 percent share in the capital market however; it is not clear how the government pay its share. It can pay in cash or offer property. But whatever, the government brings can be taken as an asset.
The first phase of the formation of capital market does not cost huge amount of money, the first phase of the project cost will be covered by FSD.
Various measures have been taken to complete the legal process; to register the capital market in the Ministry of Trade and regional integration; to obtain license for share transaction; to employ professionals; and to cover the cost of foreigner participants in the market. The cost of international travel and other expenses will be covered by the FSD Africa Company. The cost also can be changed in to share. The shareholding ownership registration is conducted online because the proclamation stipulates registration will not be conducted by paper documentation. And the purchasing of the share will be carried out in officially known places.
In addition, the online registered documents will be kept in share preserving and avoiding company. For example, if a person wants to know the Zemen Bank shareholders he can get the manual book which registered the members from the bank. But in the capital market such kind of practice is not allowed. Regarding the security of the shareholders asset, there is responsible company which keeps and preserves the documents. Each shareholder has its own identification number and the owners are specifically identified. When the share exchange is performed immediately the ownership of the share is transferred from the seller to the purchaser through electronic system. The safety of the technology is ensured.
THE ETHIOPIAN HERALD THURSDAY 4 AUGUST 2022
