Capital markets important to help raise capital from external, domestic sources, says expert

Addis Ababa, December 10, 2022 (FBC) – The capital markets being introduced to Ethiopia are very important to the economy as they would raise capital from external and domestic sources of finance, Senior Policy Advisory Costantinos Berhutesfa said.

It is to be recalled that the government had established an institution and appointed leaders to start the long-awaited capital markets in Ethiopia.

The senior policy advisory stated on a lengthy interview with Ethiopian News Agency (ENA) that starting capital markets in Ethiopia is crucial to the private sector and the Ethiopian economy.

“Capital markets are very important for the national economy in terms of raising capital for development projects that the government or the private sector is undertaking; and capital markets are also very important in terms of building the capital of the private sector.”

He stated that starting capital market will give opportunities for public and private banks, companies and others that are advertising on media outlets to sell shares to have prospects of profit making status that makes investors buying decision easier with minimized risk.

If we have capital markets people will go and buy shares when they see a company is making profit. They will buy shares, the policy advisor added.

“If you advertise, for example, a new company and say the company is going to be a game changer in a sense. Then people will take risks to invest in this company. That is where the capital market is going to be an important player,” Costantinos elaborated.

He, however, believes that introducing capital markets should be aligned with other reforms of economic components.

According to him, capital markets cannot function alone. They have to be part of a sea of other components, including Ease of Doing Business, financial liberalization, transformation and intermediation that are very significant in the development of financial markets in the country.

“So, when you have this kind of capital markets, it is very important that we have Ease of Doing Business and it improves also tremendously.”

Elaborating further, he mentioned the agriculture sector in Ethiopia by pointing out that the country has huge potential in agriculture with 74 million hectares of agricultural land and rivers outflowing 122 billion cubic meters of water annually.

For him, investing in this immense agricultural potential is crucial and needs huge financing. The capital markets will contribute to solving this primary investment challenge, especially for Ethiopian investors.

“With this kind of potential, we have a huge investment challenge in front of us. But most of the problems we have with these challenges is lack of finance.”

Therefore, the capital markets will assist especially Ethiopian investors who want to invest in these huge potential sectors to raise additional fund for agricultural and other projects, he noted.

Costantinos acknowledged that the Commercial Bank of Ethiopia and Development Bank of Ethiopia have been giving agricultural loans to transform the country’s import substitution.

“But the capital markets can raise money from external sources and also from Ethiopians who just keep their money sitting in the banks as saving accounts. They can invest it and get up to 50 percent dividend from capital market,” the economist explained.

The senior advisor further stated that the introduction of the capital markets in Ethiopia will enable domestic companies that want to raise capital in the international stock market to have their prospects of profit making so that investors can buy from anywhere in the world without the need to come to Ethiopia and get investment license.

Ethiopia approved a new Capital Markets Establishment Proclamation in 2021 to provide the legal foundation for the development of capital markets in the country and to support economic development through increased capital mobilization, financial innovation, and risk sharing in investment, as per ENA.