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Experts warn against swift opening of stock market

Analysts recommend gradual opening of stock market

Investment analysts call for the slow opening of stock exchange from less risky to more risky types of products.

The remark was made in a seminar conference held at Swiss Inn Hotel last week, as the capital market establishment draft proclamation, which will serve as a legal framework to institute a stock market in Ethiopia, is pending an approval by legislators.

“The number of companies and the number of investors on the stock exchange should slowly grow,” said Thomas Ferede, Senior Partner at Cornerstone Advisory Services Plc. “This would give the regulator enough opportunity to perfect the regulation before a large number of companies have their shares traded on the stock exchange and a large number of investors buy and sell these shares.”

According to the draft, the Ethiopian Stock Exchange, which will be formed under a public private partnership, and the Ethiopian Capital Market Authority, which will regulate the exchange, will be established after the approval of the bill.

Emphasizing on the need to apply stringent rules due to the risky nature of stock market, Investment Consultant and Senior Vice President at Cerberus Frontier, Tesfaye Hailemichael suggested the establishment of a stock market based on careful consideration of current status of companies that could potentially be listed.

“It is not something that the country can copy from Kenya or any other country with a capital market. Before allowing the selling and buying of shares, studies must be conducted rigorously,” Tesfaye said. 

Last month, in a conversation platform (Policy Matters) organized by the Office of the Prime Minister, a Senior Macroeconomic Advisor to the National Bank of Ethiopia, Melesse Minale explained that the government has conducted a study and used other researches undertaken by different scholars before drafting the bill.

According to him, best industry experiences have also been taken into consideration. “We have looked back to historical precedence, studies and current standards and practices,” he said.

Raising concerns over the appearance of the stock market, experts also suggested the establishment of investments banks, which they recommend to coincide with the instituting of the capital market.

“Existing banks are following the same business model, which shows there is room for investment banks to succeed in the industry,” said Tesfaye. He added “Diversification into services like investment banking is essential and will have a great role in implementing the stock market in Ethiopia.”