Contrary to the case in many countries, Ethiopia does not have a stock market if companies want to go public. After debating on the issue for more than two decades after Ethiopia embraced a free market economy, the government is finally considering to set up the country’s first stock market by 2020. Yet, it is a must that every precondition has to be fulfilled to launch a stock market in the country.
For some, the importance of a stock market is not a debatable issue. This is because, they say, stock markets have a central role in raising capital and establish giant companies. True, the establishment of a stock market brings with it several advantages. Besides enabling companies to raise a significant among of capital and the government to generate a large amount of income from tax, it also gives freedom of decision making for shareholders.
While Ethiopian companies sell their shares to the public through a primary market whenever they want to or open their doors, what the establishment of a stock market brings about is that it creates a secondary market where shareholders sell their shares whenever they want to. In addition, it also allows new investors to invest in profitable companies.
On the other hand, there is a counter-argument. Some prominent personalities in Ethiopia’s financial sector argue that it is not the right time to establish capital markets in the country as the number of companies that meet the criteria to engage in capital markets is limited.
The criteria, they say, include respecting rules and regulations, paying taxes and having a bookkeeping system that meets international standards. For instance, most companies in Ethiopia are not willing to reveal their profit to evade tax. Hence, as there are few companies that could take part effectively, stock markets will have a very limited role for economic development and distribution of wealth.
Mentioning the case of some 19 African countries’ stock markets have not been delivering meaningful contributions to the economies as most of them do not have a well organized financial system, they argue, the outcome would not be any different in Ethiopia.
Whatever the case, once the decision is made to establish a stock market, every criterion has to be fulfilled before commencing it. Before launching a stock market, there is a need for setting up a government organization that protects the country’s investment interests and controls daily tradings in the capital market. It is a must that a regulatory institution is set up.
There is also a need for rules and regulations that govern the market, and skilled and legally registered or licensed stock market brokers who trade on behalf of their customers. There also has to be an investment bank that prepares criteria on whether the companies that are to sell their stocks are fit or not.
Hence, the expertise team organized by the government and stakeholders for this purpose should have to take maximum care in setting up the procedures for the stock market. The criteria for launching a stock market must be met and companies that are aspiring to get involved need to also meet the criteria.
The Ethiopian Herald, August 8/2019
