BY DANIEL KASSAHUN
Decades ago, Ethiopia made an attempt to establish a capital market under the reign of Emperor Haile-Selassie in the Imperial era. However, this initiative was met with setbacks due to the military regime's ideology, which opposed a market economy.
Fortunately, in 1990, after the collapse of the socialist era and the emergence of the EPRDF, Ethiopia's intention to develop the capital market was revived. A significant step was taken in 2008 with the launch of the Ethiopian Commodity Exchange (ECX), which marked the beginning of the country's journey towards developing a broader capital market ecosystem.
Another milestone was reached in 2014 when Ethiopia formed the Ethiopian Securities and Exchange Board to regulate and oversee the capital market. This was a crucial step towards creating an environment that nurtured market participants and ensured the protection of investors.
To serve as a legal foundation for this ambitious undertaking, Ethiopia approved a Capital Markets Establishment Proclamation. This Proclamation was developed based on the National Bank of Ethiopia's 2021 Capital Markets tips ten-year implementation plan, which focused on market development, capacity development, infrastructure development, and policy reviews.
Despite various challenges, the capital market in Ethiopia is progressing well, thanks to the homegrown reform agenda being implemented in the country. The aim is to enhance market efficiency and enable the capital market to play a crucial role in mobilizing capital, promoting investment, and driving economic growth.
To facilitate these goals, Ethiopia has established the Capital Market Authority as an independent regulatory body accountable to the Prime Minister of the Federal Democratic Republic of Ethiopia. The Authority's responsibilities include safeguarding investors, ensuring the integrity of the capital market, and supervising various market participants, such as securities brokers, investment advisers, and securities dealers.
In simple terms, the capital market refers to financial markets where buyers and sellers come together to trade stocks, bonds, currencies, and other financial assets. It offers numerous investment opportunities for both domestic and foreign investors.
For local investors, the capital market provides a chance to participate in the growth of listed companies and diversify their investment portfolios. Additionally, it serves as an alternative source of financing for businesses through equity and debt instruments. Foreign investors can also participate in the stock exchange, in line with government policies.
Building investors' confidence is crucial for the success of the Ethiopian capital market. Measures have been implemented, including mandatory disclosure requirements, stringent corporate governance standards, and the establishment of an Investor Protection Fund. These initiatives aim to protect investors' interests and create a fair and efficient market environment.
Currently, efforts are underway to issue licenses to capital market service providers. The Ethiopian finance ministry, in collaboration with African market specialists, has been working tirelessly to pave the way for the market's development.
Ethiopia's capital market is steadily evolving and has the potential to play a significant role in the country's economic development. With its strong economic growth, abundant natural resources, and dynamic youth population, Ethiopia is an attractive destination for both local and international investors.
However, it is important to acknowledge that there are challenges that need to be addressed. These challenges include limited liquidity, a small number of listed companies, and the need for further market infrastructure development.
Considering the commitment of the government and the ongoing efforts, Ethiopia is heading in the right direction to realize its vision of becoming a hub for African capital markets.