Ethiopia Needs Capital Markets for Its Digital Revolution, Yesterday

Feb 12 , 2022
By Asseged G. Medhin

The world is changing rapidly for companies to fail to diversify their source of funding. Entering the capital market enables them to make the necessary investments to bring new and improved products and services to customers, writes Asseged Gebremedhin, an insurance professional with over a decade of experience in finance.

Companies increasingly deal with the question of how to adapt their products and processes to the digital age, recruit qualified talent and approach succession planning. From world-famous brands, hidden champions and up-and-coming start-ups to the first movers, all have something in common, in a rapidly changing world that is gaining in complexity: they have to become ready for the future.

While companies are striving to tap into new markets and regions, drive innovation and remain competitive, they also want to be attractive to employees, customers and business partners. Things are changing rapidly.

To transform challenges into opportunities, companies need to be open to change. The implementation of growth and transformation plans calls for a long-term strategy and strong internal resources, but usually, it also requires external financial resources. Going public provides companies – including small and medium-sized ones - with sustainable new development opportunities.

Though most parameters are taken in to consideration as selection criteria of changing the firm, more important than a company’s size are its focus and quality. In the money and stock market, an attractive initial public offering (IPO) candidate will have access to competitive products, a sustainable business model and an experienced management team. The capital market is the most effective and the future source of financing.

A long-term, bank-independent source of financing is a key component of a business strategy that is orientated towards the future. While bank loans are linked to maturities and require regular interest payments, a public offering and investments through venture capital provides companies with resources, and is repeatable through capital increases.

The force of the change knocking demands a high degree of agility and soundness. In the capital market, the quality of information, acquisition of advancement and outgoing skills are expected daily assignments. Going public also attracts considerable attention, both from the media and from investors, which in turn increases the company’s brand and product awareness both in the domestic market and internationally. A stronger equity base and more transparency in communication and financial reporting can also improve creditworthiness and even serve as a competitive advantage, as it strengthens the trust of customers, business partners and banks in the long term.

The intelligent networking of people, machines and processes is considered one of the most fundamental changes in the economy, with an impact far beyond work processes and business procedures. Entering the capital market enables companies to make the necessary investments to bring new and improved products and services to customers.

Shaping digital transformation within the company and recruiting qualified personnel are challenges companies face across all sectors. The structural shortage of skilled workers affects small and medium-sized enterprises in particular, as they are often struggling with the fact that they do not have enough visibility to attract highly qualified staff. An IPO boosts public awareness of a company, thus increasing its appeal to potential employees interested in participating directly in their employer’s business success or in working for a listed company.

The capital market will also be helpful for large companies. Independent companies gain a higher degree of freedom, thanks to the blessing the Ethiopian financial sector will get the moment capital markets are implemented and become operational, an opportunity for strategic reorientation and access to an independent source of financing.

By facilitating access to capital for companies of all sizes and from all sectors, any rivals in the capital market or operators, it is possible to contribute to growth and stability in the industry in particular and in the Ethiopian economy in general.

To its credit, the financial sector is becoming adaptive to changes due to eternal forces, paving the way for the capital market and other financing sources. It could be a major force of financing since the size of the population creates an opportunity for a huge market, especially for industry and services. The more a capital market gets its foot in, it will play a significant role as a link between potential creditors and investors and companies.

PUBLISHED ON Feb 12,2022 [ VOL 22 , NO 1137]

Asseged G.Medhin, deputy CEO of Global Insurance Company.

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