OPPORTUNITIES AND CHALLENGES OF CAPITAL MARKET ESTABLISHMENT IN ETHIOPIA

Abstract

The major goal of this research was to look into the opportunities and challenges of establishing a capital market in Ethiopia. To gather and evaluate primary data, the researcher used a cross-sectional descriptive study design, as well as qualitative and quantitative or mixed research approaches. Employees and managers from consulting firms, university lectures, and investors (both local and foreign) or banks, insurance, transportation, oil, real estate, and construction companies, and other credible sources who have direct contact with Ethiopia's capital market establishment process were the study's target population. Simple random and purposive sampling techniques were used to select the participants. Data was collected through a questionnaire, key informant interview, and document review. Statistical Package for Social Science (SPSS) version 23 was used to evaluate the acquired quantitative data using descriptive statistics such as tables, frequency distribution, and percentage. According to the findings of the study, the formation of a capital market in Ethiopia provides opportunities for easy selling and buying of shares, as well as contributing to the country's economic progress. It also creates opportunities by increasing public trust, determining true/fair share prices, providing investor protection, attracting more domestic and foreign investors, providing effective tools for monetary and fiscal policy, promoting an efficient financial system, improving accounting and auditing standards, and assisting the government's privatization efforts. Despite these opportunities, the study found that establishing a capital market in Ethiopia faces challenges such as a low level of foreign direct investment, the country's macroeconomic instability, low societal awareness of capital markets, corruption and poor governance, poor corporate governance practices, a lack of technological infrastructures, a lack of uniform accounting and auditing standards for the country's business transactions, the high rate of inflation, low level of saving rate in the country, and shortage of experts in the area of capital market. According to the study, an awareness-raising program should be implemented to boost the country's saving rate, which will enhance the amount of money available for investors to engage in the capital market. The study also suggested that the Ethiopian government need to develop a strategy to raise public knowledge regarding the aim and benefits of establishing a capital market in Ethiopia.