CHALLENGES AND PROSPECTS OF ESTABLISHING STOCK MARKET IN ETHIOPIA

Abstract

Ethiopia currently does not have a stock market except treasury bills and government bonds; however, share companies including financial institutions, brewery and cement factories are being set up using equity finance rose from the public by Initial Public Offerings (IPOs). Financial institutions, including contractual saving institutions have accumulated equity capital; profitable projects are established and may establish to raise equity capital for stock market. This study aimed at identify factors that affect the development of stock market such as macroeconomic development, government reaction towards stock market investment, financial sectors development and initiate the government to establish stock market. Relevant primary data was collected by interviewing key informants drawn from eleven different organizations that directly or indirectly involved in stock market development. The discussions based on the checklist were the primary data gathering tools to assess stock market development infrastructures and provide contextual information about the stock market development within the system. Thus, separate moderated discussions were also carried out with participants drawn from sample organizations in the structures. Documents believed to be relevant had been also reviewed for the stock market development study, including, strategic objectives, indicators outputs/results, activities plan, procedures, policies rules and regulations on stock market development infrastructures, stock management, accounting, audit reports, etc. Data was then summarized based on the basic keyinfrastructures needed to establish stock market in the country. Despite the presence of private share companies and contractual saving institutions in the country, result of this study indicated an authorized institution and legal infrastructure is not in placed yet to operate stock market thus far. Given these findings, therefore, it is conclude that establishing stock market under the current situations of development of key institutional and legal infrastructures is unlikely in Ethiopia.