If you have been confused by the talk of stock markets in Ethiopia, you are not alone. Most people in our country are clueless about the stock markets in general, and an Ethiopian stock market in particular. So we will make it easy and start from the basics.
What is a stock?
A stock (also referred to as a share) is a guarantee that represents ownership of a fraction of a corporation. This gives the owner a claim over the corporation’s profits and assets. If you buy a stock/share in a bank, you are entitled to a fraction of its profits and you can also sell the share for a higher price in a future time. For example, if you buy a 1000 birr share in an Ethiopian bank, you will get a yearly dividend that ranges from 200 to 300 birr on average.
What is the stock market?
A stock market is a market where financial items such as stocks and bonds are sold. There can be multiple stock trading venues in a country or a region that allows transactions in stocks and other forms of guarantee.
What are the advantages of a stock market?
A stock market shows the performance of companies through their stock’s price. The higher the share prices, the more the company is perceived to be performing well. This creates completion among businesses, as it rewards the best companies and punishes those that don’t perform well.
The public can see which companies are performing well before investing their hard-earned money. The best companies get more investment and grow larger, making the country more efficient as a whole. Everyone is better off.
Does a stock market exist in Ethiopia?
Ethiopia had a share dealing group called the “Addis Ababa Share Dealing Group” during the imperial era. However, after the communist government replaced the monarchy, a command economy was put into place and the stock market was abolished. Since then an Ethiopian stock market has not been allowed to exist as a formal institution, and there are only unregulated and fragmented dealer markets.
What is going on now with regard to the stock market formation in Ethiopia?
The government has announced its intentions to start a stock market. Recently, a draft “Capital Markets Establishment Proclamation” is en-route to ratification by the parliament. This is an important step forward in the establishment of a regulatory body for the stock markets. We hope that soon, Ethiopia will have a vibrant stock market scene that contributes to its development efforts.