Is Ethiopia Ready to Commence Capital Market? Analysis of Potential Beddings, Constraints and the Dubious

Abstract

After the fall of the Derge regime in 1991, Ethiopia has re-oriented its command economy into a market-led economy. Since then gradual structuring and changes have been made in the diverse constituents of the country’s economy. The financial system was liberalized to quill the demand of the market economic model and hasten development though its growth, in terms of diversity and quality, is dawdling. Despite the financial liberalization which enables private firms to emerge, Ethiopia still does not have capital market as the government does not recognize its significance to the country’s development. Debates, however, have been made by the wider academic community, experts and researchers on the importance and development of capital market and pressures on the government to initiate the market have been made by international and national stakeholders. This squabble was the prime reason for undertaking this study to identify the promising factors bedding for the establishment, diagnose constraining factors of the same and why the government is ambivalent based on the primary and secondary data collected from major companies established through shares in an initial public offering, government institutions, officials, academicians, financial experts, proclamations and other official documents. The findings of the study depict that the country’s fast economic growth, expansion of energy, initiators and public inclination to incorporated companies, invest than save push and increase of capital flow to the country are seminally backing capital market development while government’s reluctance, underdeveloped legal and physical infrastructure, immature financial sector, uninformed and small-base domestic investors and nonexistence of skillful and institutionalized market makers are delaying for its development. The study recommends the establishment of market as it is significant to mobilize domestic savings and huge capital to clinch financial gap of financing huge national projects, enhance access to equity fiancé of the private sector and promoting rapid economic development by suggesting possible ways of doing it.

Keywords: Capital market, financial liberalization, Economy, Ethiopia