BY ABEBE WOLDEGIORGIS
In the countries which built advanced economy and other developing countries, capital market plays key role as a source of finance. For long, many professionals in the macroeconomic field have advised the Ethiopian government to establish such market system. Finally, their effort bore fruit and last year, the House of Peoples’ Representatives endorsed the law which allows the establishment of capital market.
To commence the formation, the professional group is working to lay the ground. In addition, recently, the Ethiopian Investment Holding (EIH) and the Great Britain Government Company FSD /Financial Service Developer/ signed memorandum of understanding to establish the market.
Mesele Minale is the head of the professional group formed to establish the capital market and at the same time he serves as an advisor for the governor of the National Bank of Ethiopia. As to him, various works are underway to establish the capital market and in order to form the regulatory body for the capital market, organizing the institution and formulating draft legal frame work is on progress. In addition, organizing human resource that leads the capital market and manages the activities has continued.
As to Mesele, the National Bank of Ethiopia (NBE) formulated the capital market project implementation team last year following the endorsement of the proclamation that was issued to establish the capital market. The team comprised professionals with long experience in international laws, Ethiopian laws, macro economy and capital market and opened its office at the Head Quarter of NBE.
Preparation for the establishment of the capital market is still in motion and the first task of the team is preparing legal frame work for establishing the authority which supervises the capital market. The draft law also indicates about the organizational structure of the authority, the workers and management administration. In addition, it explains key legal frame works helpful for consolidating the institute. The other thing the team is duty bonded to is preparing supervision frame work on how to conduct the capital transaction for the reason that the proclamation by itself does not explain about the supervision procedure. Hence, to fill the gap, formulating supervision mechanism through introducing rules is essential.
Till now, about ten draft rules and fifteen instructions are prepared. Discussions have been conducted with the stakeholders in order to add inputs. In addition, capacity building works are afoot to the staff members. Trainings are also provided to the newly employed workers and other stakeholders who would participate in the capital market. In addition, training was also given to employees in abroad. Moreover, the authority has provided training to stakeholders focusing on the capital market with the cooperation of donors. Courses are also prepared to journalists to enable them how to make news about the operation of capital market. The capital market established last year by the proclamation will facilitate the transaction of finance related documents.
The institute also can be taken as a showcase for private public partnership. The government has only 25 percent of share in the capital market. The rest 75 percent share will be allotted to the private sector. Since NBE is the policy institute, it will not have share because it is the government entity. But the Ethiopian Investment Holding is the right entity to represent the government and to have share in the capital market.
As it is vividly clear, the investment holding has played pivotal role for the establishment of the capital market. For instance, the Ethiopian Investment Holding (EIH) has signed a memorandum of understanding with the Kenyan based Financial Sector Deepening Africa in order to accelerate the formation of capital market here.
The Kenyan based company also agreed to cover some costs of the establishment of the capital market. As soon as the capital market is established, it will be registered as a market share holder by the Ministry of Trade and Regional Integration. Consequently, its business plan will be prepared; selling shares also will start, equipping the institute with crucial technology helpful for conducting capital transaction will take place then.
So far, the institute trained more than 600 professionals. Employees who were trained in some skills will be assigned by their respective cherry-picked professions. The capital market’s authority also prepares criteria for the participant stakeholders, for fund administrators, for example.
Fund administrators need abstracted skills but only brokers required to fulfill the fundamental criteria. Until obtaining the qualified professionals in the sector here, professionals from Kenya can come and provide the services. Other Ethiopian
professionals who got sufficient trainings can work with foreigners and eventually substitute the foreigners. They can also establish their own local company and transfer knowledge to the local actors.
As to Mesele, the capital market’s proclamation equally treats both local and foreign investors, professionals, investment banks, standard provider agencies, retailers, brokers and developers. Based on the draft law, any interest group or individuals who fulfill the criteria can get license and join the capital market.
As it is known, the National Bank of Ethiopia determines the amount of paid capital for banks and similarly, the amount of capital market is determined by the authority of the capital market.
As to Mesele, the amount of money utilized for capital market is determined by the vulnerability to risk and the capital amount serves to withstand the risk. It is also determined by the number of the company’s shareholders; the types of technology employed to control and manage the market; the business model which is feasible and how it attracts foreign investors.
The capital market will be established by huge capital. To date, foreign investors have revealed their great interest to involve in the Ethiopian capital market. As to Mesele, the government’s share will be 25 percent of the total capital. However, it is unclear how the government intends to pay its share. It can pay in cash or provides property.
He further said that the cost of the first phase of the project is not huge. The cost will be covered by FSD Africa / Financial Security Development/ which is none governmental institute. The expense for accomplishing legal process, to register the capital market under the Ministry of Trade and Regional Integration, to obtain license for exchange of share, for employing professionals, to cover
the cost for the stakeholders’ international travel participation, to cover the cost for the participation of international investors, international travel cost, and street exhibition will be covered by FSD.
The capital market proclamation declared that all shares are not forwarded in the form of paper money or documents. This means that all shares must be changed to digital format. In addition, they are required to be registered by authorized company to hold share and to avoid depreciated properties.
Shareholders must be protected. In the capital market there must be a company which holds the responsibility to protect the shareholders security. Each share has to have its own identity card. There is a system which can identify each shareholder. When there is an exchange or purchase of share takes place, the ownership rights will be transferred from the seller to purchaser in the electronic document. The strength of the technology helps to protect property owners from fraud.
Ethiopia is an agrarian economy, the manufacturing and the service sectors are growing from time to time. Some innovators are also attracted to evolve in various enterprises. To support the flourishing enterprises in the last two decades, both the public and the private financial institutions provided loan to the enterprises engaged in manufacturing. But borrowers did not get sufficient finance to expand their business and the collateral requirement by banks was a constraint factor which inhibited them not to do so.
Now, the establishment of capital market will pave the way for creating conducive environment for availing finance. Every types of property including movable and immovable ones can be changed in to money so that the chance to getting access to loan will be broaden. Therefore, stakeholders should show their support for the capital market to be operational.
THE ETHIOPIAN HERALD 16 DECEMBER 2022
