Addis Ababa Stock Exchange in 2020

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Finally, the Ethiopian government is poised to set up the country’s first stock market by 2020.

Ethiopia, one of the fastest growing economies in Africa, does not have a stock market. Twenty nine of the 54 African countries have stock markets. For more than 20 years Ethiopian scholars, business leaders, consultants and government officials have been debating on the need to establish a stock exchange.

But now the time is approaching for the establishment of the first Addis Ababa Stock Exchange. A one-page template issued by the Office of the Prime Minister recently indicated that the government was planning to establish a capital market by 2020.

The paper cited poor financial infrastructure, limited financing and poor financial inclusiveness as the major impediments in the finance sector. The government plans to develop a road-map for introducing a trade financing instruments including capital market. Increasing loans to the private sector by 20 percent annually and ensure its fair disbursement and expanding credit registry to micro finance institutions are the key areas that will be addressed in 2019, according to the document.

The targets set to be accomplished by 2020 are enhancing the use of modern financial technology, establish a system enabling e-commerce and digital financing and introduce capital market.

Zemedeneh Negatu, Global Chairman of Fairfax Africa Fund, a strong advocate of establishing a stock market, is excited by the government’s decision. “We are going to have a stock market this time. We have been on this path for 18 years. But now it is no more an academic discussion. We do need a capital market. We are part of the global economy,” Zemedeneh told delegates of the third East Africa Finance Summit held this week in Addis Ababa.

Zemedeneh, who made a presentation at the summit, stated that Ethiopia is by far the largest economy in the world today that does not have a stock market. “If we are part of the global economy, we should not be that unique. We are joining the World Trade Organization. We are doing a lot of things that we should have done a long time ago. We are going to join the global capital market club. We have a bigger GDP than Kenya, there are only two sub-Saharan African countries which have bigger GDP than us — Nigeria and South Africa. I think it is time. We have companies ready to be listed in the stock exchange.”

According to Zemedeneh, there are a number of new institutions required for running a successful capital market.  “We first need to set up a regulatory institution.”

He said that the stock exchange can be incorporated by the private sector but the regulation has to be done by the government. “We need to have stock brokerage firms and investment banks. Stock traders have to be trained and the local accounting and auditing firms have to build their capacity,” Zemedeneh said.

He also believes that financial media has to be established. “The financial media has to be established or the existing ones should extend their financial news coverage. Financial media is also the key component.”

According to Zemedeneh, there are 50 to 70 local companies which can be listed in the stock exchange. “All the banks and insurance companies, which are well regulated, can offer an IPO (Initial Public Offering) the day the Addis Ababa stock market is ready for launch,” Zemedeneh said. “The bottom line we are ready and it is timely,” he added.

The veteran insurer and business community leader Eyessuswork Zafu is delighted with the government’s move to establish capital market. “Miracle is happening in this country. I can see the twinkling light at the end of the tunnel. Two years ago, we were not able to discuss such matters openly,” he said.

Eyessuswork said that the technical studies for the establishment of the Addis Ababa Stock Exchange were done by Ernst and Young twenty years ago.

Some financial experts doubt if the planned Addis Ababa Stock Exchange can be realized by 2020. Abdelmenan Mohammed, a financial analyst, questions if the required financial and technological infrastructure can be built within two years.

Abdelmenan said one of the things required to have a securities exchange is a good accounting information adding that auditing standard should be improved. According to Abedelmenan, the Ethiopian government has enacted a proclamation that compels local businesses to adopt IFRS (International Financial Reporting Standard) and an Accounting and Auditing Board has been established. “Not many companies are adopting IFRS and the board is not yet strong enough to oversee that. How can we have a stock exchange where there is no reliable accounting information?” he inquired. “Stock exchange needs to have the technology infrastructure, reliable accounting information, and trained manpower. It also needs a location. If the stock market is going to be launched after two years how many of these things have been done?” he asked.

Zemedeneh said that the banks and insurance companies have adopted IFRS. “Some companies and government entities are going to do that. That is a start,” he said.

Zemedeneh noted that the accounting and auditing firms have to build their capacities. “We need to set up the regulatory body and formulate the regulation. All the other things have not yet started except the adoption of the IFRS,” he said.

According to Zemedeneh, the World Bank is going to provide the Ethiopian government technical assistance on how to establish a stock market. “I hope they would be able to roll out these things quickly. Two years is a very short period of time. It could be at the end of 2020 or slide to 2021. All the infrastructure need to be prepared.”

Eyessuswork said that the stock exchange could be operational by 2020 or 2021 but the work has to be started now. “You may ask if the required infrastructure is in place. We have been talking about this for more than ten years. We have to start it somewhere. Let us start it. Let us move forward,” he concluded.

Yared Hailemeskel, managing director of YHM Consulting, believes that it is doable. “Once you have the regulation, setting up the trading floor is not a challenging task,” Yared told The Reporter. “ECX has been established here. So why not the Addis Ababa Stock Exchange?” he wondered.

CEO of I Capital Africa Institute, Gemechu Waktolla (PhD), shares Yared’s view. “If the plans are properly executed it can be done within two years. It only needs coordination and hard work. Prime Minister Abiy Ahmed is showing us what can be done within eight months,” Gemechu said.

Abdudelmenan, however, argues that the government needs to have much longer time. “I do not think it will be realizable by 2020 as there are many works to be done. Setting up regulatory body, preparing regulatory framework, developing human resources and technology requires considerable time. Two years is too short to do all these works,” he told The Reporter.

The East Africa Finance Summit is annually organized by I Capital Africa Institute in collaboration with the Public Financial Enterprises Agency, Jimma University and Addis Ababa University.

[www.thereporterethiopia.com]