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In May 2022, Ethiopia established EIH (Ethiopia Investment Holdings), a sovereign and dedicated wealth fund. The idea was to attract more international investments within the program and move forward with economic privatization. Since the development of EIH, the country is set to launch the Ethiopian Securities Exchange.
Ethiopia’s new ESX, or the stock market, is set to become a reality in 2024-25. In the last five years, there have been continuous efforts by the Ethiopian finance ministry in association with African market specialists to pave the way for its stock market.
EIH expects the Ethiopian stock exchange to launch with 50 listed companies, and it has the potential to attract fresh capital into the country over the next decade.
Tesfaye Hailemichael, a founding member of ECMA or Ethiopian Capital Markets Authority, makes investment decisions for Ethiopia’s physical infrastructure.
One of Hailemichael’s priorities is to launch the Ethiopian security exchange successfully. And before heavily investing in the country’s physical infrastructure, Hailemichael wants to ensure Ethiopia gets a stock market and runs active securities exchange operations.
But to launch a flourishing Ethiopian stock market, the country needs infrastructure support and significant investments beforehand.
For starters, Ethiopia needs to upgrade its internet and cell phone capabilities. It is a digital and tech-driven age, and Ethiopia needs to set foot in and ensure fast and accurate trading.
Before Ethiopia launches its stock market, it must run informative campaigns to raise public awareness about the stock market. For instance, the stock market can help Ethiopia drive consistent economic growth. Let’s touch on some essential benefits Ethiopia can expect after establishing and running successful stock market operations:
1) Stock liquidity: “Investors and financial institutions love stocks because they are the second most liquid asset, next to cash,” says Robel Getaneh, founder and operator of a private investment firm based in the United States. “Ethiopia’s stock exchange will need some time to develop, but once the daily volume begins to pick up, we will see more and more citizens looking to participate.”
2) Increased transparency: A regulated body controls and mandates compliance in a country’s stock exchange markets. As a result, it increases market transparency and protects investors’ rights. Regulatory bodies create a roadmap for stock markets to function.
When there’s little to no risk of fraudulent activities, it leads to heightened transparency, which instills more confidence among investors to continue investing in the stock market. It also creates investment flexibility within the stock market and makes it easier for regulators to address potential risks.
3) Grow the economy: The stock market allows companies to list their shares on a public exchange. In doing so, it will become easier for them to raise funds for current and future business expenditures. Consequently, these expenditures will boost employment, output, and growth—all of this will help increase each business’s value and share price.
4) Dividend benefits: A dividend is a portion of a company’s profits paid quarterly or yearly to shareholders. From an investors’ perspective, the payments allow them to cover a part or all of their living expenses and tap into more opportunities to grow their investment portfolio.
Diverse Investment
One of Ethiopia’s main objectives is to launch a transparent and regulated stock market, which can attract outside investments. The country’s goal is to make financial products like derivatives, mutual funds, bonds, and shares available in the stock market. With added flexibility, investors can diversify their entire investments and simultaneously reduce the risk of stock investing.
Opportunities in Launching the Ethiopian Stock Market
Ethiopian national bank sees emerging markets as a step forward in establishing a thriving securities exchange market. The country is following the lead of Kenya’s framework to ensure success. Global experiences are essential and support open economies when launching the stock market.
Ethiopia understands it can attract direct and consistent foreign investments through its stock exchange market. Market experts hope that new proposals, regulations, corporate governance, and financial disclosures assure global investors that their funds will remain safe and secure in Ethiopia.
As long as Ethiopia’s central bank, the federal government, and the international wealth fund play an active role in launching the stock market, the country will enjoy economic benefits for decades. In any case, laying the foundation of the Ethiopian stock market is a step in the right direction for the country.
Final Thoughts
With the right tactics and initiatives, Ethiopia can become the hub of African capital markets. Getaneh believes that once more startups and companies can drive growth and receive financial support, Ethiopia will have the opportunity to make its economic system more innovative and drive unprecedented change.
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