Benefits of Capital Market to Ethiopia

I can see that much has been said about the benefits of capital markets for any country in general. It has been stated by the government that introducing a capital market in Ethiopia is important for the country's economic development and prosperity. Today, I want to write about how introducing capital markets in Ethiopia is viewed from junior economists' perspectives(just my idea shortly).

The first benefit it brings to our country is seen from the side of an increase in foreign direct investment(FDI) in Ethiopia. An increase in FDI, in turn, affects the balance of payments of the country by reflecting an inflow of foreign currency into Ethiopia. Not only in the flow of foreign currency but also, it increases investment in the country by foreigners. If FDI inflow to Ethiopia exceeds FDI outflow from Ethiopia, there will be a budget surplus, which, in turn, will help offset budget deficits and mitigate inflation, which becomes the most prominent problem of the country. See, reducing inflation will, in turn, have its own benefits to society, maybe by creating a stable country in peace and many more.

The second benefit lies in reducing the unemployment rate of the country. Wondering how to do it? Just follow me. Take the internship role I had at Ethiopian Securities Exchange (ESX) , bro! It is just a job experience where I am gaining practical skills and knowledge, so isn’t this internship brought to me because of the capital market? Wait, it's not all; let me get back to my personality of being a junior economist. The introduction of capital markets in Ethiopia and running these markets functionality it needs labor (human capital). When running it, the capital market authority, investors, Investment banks, dealers and securities exchange need a labor force (I have friends who joined Ethiopian Capital Market Authority 's Young Leaders Program, by the way). Employing new labor force (adding labor force which plays pivotal role in running capital market) is the same with just increasing employment rate. Isn’t it?

The third benefit lies in benefiting companies. Companies and business startups can benefit from capital markets. Who knows? One company may need to raise funds for its business operation purposes, or maybe the person who owns that company needs to retire and transfer ownership of that company to another person who can make it functional. The person who is about to retire or wants to hold only some portion of that company will need to issue shares of that company to the person who is interested in being a shareholder of that company. Can he do that without capital markets then? Maybe he can if he is able to find someone who wants to buy the shares from him, but it will be more reliable for the one who is listing that company on the securities exchange, as he might not find any person who is interested in buying that company without the help of Ethiopian Securities Exchange (ESX) . The capital market will facilitate capital raising for the companies that issue shares, and bonds and individuals who want to be shareholders easily through the Ethiopian Securities Exchange platform. Introducing capital markets means helping companies issue securities easily and helping individuals and investors to be shareholders of those companies easily. It makes sense, right?

The last benefit lies in the fact that the capital market will be helpful for investors. Guess what? Individual investors can become shareholders easily. They just go to the ESX platform, check which companies are listed there, and choose which ones are really interesting to them. Then, they can become shareholders of that company within minutes if they want to do so. But that is not the only benefit for investors; the capital market will also help individuals with risk diversification (which means investing, for example, 25% in Ethio Telecom, 25% in Airlines, and 50% in Hospitals or anything else – in other words, they don’t put all their eggs in one basket) and provide an alternative saving mechanism that yields better interest, which is even better as it is not affected much by inflation, devaluation, and other factors.

Generally speaking, there are many more advantages of capital markets to Ethiopia. These are: Capital Formation, Diversification of Investment Opportunities, Efficient Allocation of Resources, Job Creation, Wealth Creation, Enhanced Corporate Governance, Foreign Investment Attraction, Liquidity and Market Efficiency, Infrastructure Development, and Facilitation of Government Financing.

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