The Ethiopian Capital Market Authority officials revealed up to a dozen directives currently in the hands of the Board of Directors to see the light of day in a couple of weeks. The slew of directives is expected to foster up to 15 new business licenses and address critical intergovernmental operations.

Brook Taye, the Authority's head and former advisor at the Ministry of Finance, disclosed this at a panel organised by the Addis Abeba Chamber of Commerce & Sectoral Association to consult stakeholders last week.

Brook told Fortune several safeguards against systemic risk would be put in place by the Authority, including monitoring structure and the implementation of a compensation fund to address loss resulting from the failure of a capital market service provider. He also remarked foreign banks joining the market will be regulated by the authority after listing by the ESX.

Partnering with the Authority and Ethiopian Security Exchange (ESX), the metropolitan chamber has lined up a list of speakers to address law and service providers' issues when the capital market becomes functional.

The workshop ushered the project manager of the currently underworks Ethiopian Securities Exchange (ESX), Michael Habte, an economist with stints of employment in several large financial institutions such as Citibank, Bloomberg and Lucy Investment partners. The ownership structure of the ESX will be 75pc private investments and an adjustable 25pc stake by Ethiopian Investment Holdings.

The theme of international work and career experience is ubiquitous throughout the senior staff assembled to spearhead Ethiopia's entry or re-entry into capital markets. Even the moderator for the workshop Yohannes Arega whose daytime job is as an advisor to the Authority, was employed at JP Morgan Chase, Merrill Lynch and Morgan Stanley.

The room, full of executives of commercial banks and the private sector, was treated to a lengthy discussion on the nature and modality of capital markets by the senior staff from the Authority.

Ethiopia is one of the largest economies in the world, void of capital markets today. Following the seizing of power by the communist military junta Derg in the 70s, the nascent capital market started by Haileselassie I was suddenly halted.

After decades of pleading from the private sector, the current administration ushered in a proclamation a couple of years ago, defining roles and participants for establishing an Authority to administer capital markets. The proclamation was heralded and put together by pundits within the financial sector.

Hanna Tedla, who is serving as a senior legal advisor to the Authority, stated the necessity of creating an enabling policy environment for capital markets to thrive.

Hanna, who has prior experience working as a financial regulator at the US Securities and Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA), introduced the essence of capital markets and what is traded in the market to the awestruck audience.

She outlined how primary markets are where securities are created, while secondary markets are where these securities can be traded. She also remarked the creation would significantly improve access to finance for businesses through the issuance of equity, bonds and securities traded in the market.

The Authority reports to Prime Minister and is responsible for registering and granting licenses to all parties involved in the sector, excluding lawyers, accountants and media that might offer tips on stocks. This will involve brokers, market makers, credit rating agencies, investment banks and an investment advisor.

The activities of the Authority have been embraced warmly by many within the private sector who have been yearning for capital markets for quite some time.

Ermias Amelga, former wall street banker and founder of multiple businesses in Ethiopia, said he is already working on a company that will participate in the capital market. He believes capital markets are the pillars and cornerstones of financial infrastructure.

"An economy can't function without a financial infrastructure," he said.

For Ermias, whether or not capital is international or domestic is not pertinent. He conceives the restrictions on capital flow as a bottleneck for economic growth and firmly believes foreign banks should not have been left out thus far.

According to Ermias, commercial banks should have invested portions of their earnings in upgrading themselves.

He attributes responsibility for the underdevelopment of startups to the retail banking sector, which only gives loans per collateral basis without daring to engage in risk.

"Capital markets offer high returns precisely because they are risky," he told Fortune.

The founder and former CEO of Zemen Bank has warmly received the 2021 proclamation on capital markets and its current trajectory. After introducing bottled water to Ethiopia two decades ago, the entrepreneur who came to public attention expects to out-compete any foreigner with his knowledge of the local business environment.

He suggested that Ethiopia would become an epicentre of capital markets in the continent within a decade.

President of the Pan African Chamber of Commerce and economist Kibour Ghenna advised careful selection of foreign players entering the domestic capital market when speaking to fortune. He reasons while the dearth of capital is frustrating to businesses, without a nuanced selection process by the authority, some will come with dollars and leave with dollars.

Kibour also underscored the importance of a watchful eye by the government to mitigate insider trading while noting that capital markets will invigorate local businesses.

Ermias and Kibour concurred with the notion that commercial banks in Ethiopia will be shorthanded if they are to engage in capital markets. Kibour regards the existence of symmetric information in the market as paramount in upholding the integrity of the capital market and preventing systemic risk.

At the event, Sirak Solomon, who had served as a founder at the Ethiopian Commodities Exchange (ECX) and later as its Chief Compliance Officer, handed the bank executives something to mull over about the segregation of retail banking and investment banking services within capital markets.

"Not in your [Banks] current condition," he said.

PUBLISHED ON Feb 04,2023 [ VOL 23 , NO 1188]

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