Published on: Mar 5, 2024 at 10:22
In Ethiopia, the formation of capital is acknowledged as a crucial catalyst for economic development and growth. Throughout the years, the nation has made significant progress towards establishing a robust capital market ecosystem, facing challenges along the way and achieving notable milestones.
Several decades ago, during Emperor Haile-Selassie’s reign in the Imperial era, Ethiopia embarked on an attempt to establish a capital market. However, this initiative encountered hurdles due to ideological opposition from the military regime, which was hesitant to embrace a market-oriented economy.
After the socialist era came to an end and the Ethiopian People’s Revolutionary Democratic Front (EPRDF) emerged in 1990, Ethiopia’s aspirations to develop the capital market were reignited. This renewed commitment gained momentum in 2008 with the launch of the Ethiopian Commodity Exchange (ECX), marking the initial step towards creating a more extensive capital market ecosystem.
Subsequent milestones further solidified Ethiopia’s dedication to market development. In 2014, the establishment of the Ethiopian Securities and Exchange Board laid the groundwork for regulatory oversight, ensuring investor protection and fostering the growth of market participants.
To provide a legal framework for this ambitious endeavour, Ethiopia approved the Capital Markets Establishment Proclamation, in line with the National Bank of Ethiopia’s 2021 Capital Markets tips ten-year implementation plan. This comprehensive plan prioritised market development, capacity building, infrastructure enhancement, and policy refinement.
Despite facing challenges, Ethiopia’s capital market is making significant strides, driven by a locally driven reform agenda. The primary focus remains on enhancing market efficiency and leveraging the capital market’s potential to mobilise funds, stimulate investment, and drive economic growth.
Central to this vision is the establishment of the Capital Market Authority, an independent regulatory body accountable to the Prime Minister. Tasked with safeguarding investors and upholding market integrity, the Authority oversees securities brokers, investment advisers, and securities dealers, fostering transparency and trust.
In essence, the capital market serves as a financial hub where buyers and sellers converge to trade stocks, bonds, currencies, and other assets. It offers diverse investment opportunities for both domestic and foreign investors, facilitating economic growth and wealth creation.
Building investor confidence is paramount in Ethiopia’s evolving capital market. Strict guidelines for disclosure, robust corporate governance standards, and the establishment of an Investor Protection Fund are crucial elements in achieving this goal. These measures not only aim to establish trust but also ensure a fair and efficient market environment for all participants. As the capital market continues to develop and mature, maintaining investor confidence is essential to attracting both domestic and foreign investment, thereby contributing to the nation’s economic growth and stability.
The licensing process for capital market service providers has commenced in Ethiopia, marking a significant step in the development of the financial sector. Effective as of 18th January 2024, the ‘Capital Market Service Providers Licensing and Supervision Directive No. 980/2024’ has been implemented to regulate and oversee the licensing procedure. This initiative aligns with the Capital Market Proclamation No. 1248/2021, which came into force in July 2021, establishing the Ethiopian Capital Market Authority responsible for regulating the secondary market in the country. The initiation of licensing reflects a proactive approach to market development, demonstrating the commitment of Ethiopian authorities to foster growth and innovation within the capital market. Collaborative efforts between the Ethiopian finance ministry and African market specialists further reinforce this dedication to advancing the financial landscape in Ethiopia.
As of Friday, 1st March 2024, the latest update reveals that Zemen, Sinquee, Debub Global, and Awash banks all hold shares in the exchange.
While challenges such as limited liquidity and infrastructure gaps persist, Ethiopia’s capital market continues to evolve, poised to play a pivotal role in the nation’s economic trajectory. With abundant resources and a dynamic population, Ethiopia holds immense potential as an attractive investment destination.
Ethiopia is well-positioned to achieve its vision of becoming a leader in African capital markets, promoting prosperity and sustainable development for both its people and the continent as a whole, as long as the government remains committed and works to overcome obstacles.
Sources
ECMA
EBC
African Capital Markets News
Yared Siyum & Associates Law Office (YSA)
