Ethiopian Civil Service University

School of Law

Term Paper on Building a Foundation for Growth: Comparing Approaches to Capital

Market Development and Securities Regulation in Ethiopia

By; Daniel Tamiru Beletie

Submitted to; Tadesse W.( PhD)

Course Title; Financial and Securities Regulation

School of Law

LLM Program (Weekend)

Year I

Section One: Id No; ECSU 2302503

Addis Ababa, Ethiopia

September 6, 2024
Table of Contents Page Number

Absrtact-----------------------------------------------------------------------------------------------
1. Introduction-------------------------------------------------------------------------------------------1
2. Development of Capital Market and Securities Regulation------------------------------------2

3. Comparing approaches to capital market and Securities Regulation------------------------4

3.1. Kenya----------------------------------------------------------------------------------
-----5
3.2. Nigeria---------------------------------------------------------------------------------
-----6
4. The Ethiopian Capital Market and Securities Regulation towards Economic Growth---6
5. Comparative Analysis-----------------------------------------------------------------------------10
6. Conclusion------------------------------------------------------------------------------------------11
7. Recommendations---------------------------------------------------------------------------------11
8. Bibliography----------------------------------------------------------------------------------------13
Abstract

Ethiopia is exploring ways to develop a robust capital market and establish effective securities
regulation to boost economic growth and attract investment. By comparing Ethiopia's potential
approaches with the experiences of three other African countries—South Africa, Nigeria, and
Kenya—this paper seeks to identify best practices and lessons that can guide Ethiopia in
building a strong foundation for its capital markets. These countries represent varying stages of
capital market development, providing a range of perspectives on market structure, regulatory
frameworks and investor protection.
 1. Introduction

A real investment can be realized if adequate funds could be put in place for its
implementation. It is quite customary to identify two categories of funds. They are short term
funds with maturities less than one year and long term funds with maturities longer than one
year. Short term funds are raised in what are usually called money markets. The term capital
market is normally used in connection with long term funds.1

According to business dictionay Capital market consists of primary markets and secondary
markets. Primary markets deal with trade of new issues of stocks and other securities, whereas
secondary market deals with the exchange of existing or previously-issued securities.2

Capital markets are highly susceptible to frauds and manipulations. A company may
deliberately mislead potential investors into buying its securities by painting a rosy picture
about itself in the company prospectus and other publications. In order to protect investors
against frauds, misrepresentations, collusion between brokers, insider trading, and the like
many countries have enacted an elaborate set of legislation, rules and regulations. They have
also established agencies with pervasive powers to control and regulate their capital markets.
In this respect one regulatory mechanism widely used is the mandatory requirement of full and
fair disclosure of information of companies. 3

Despite improvements in securities (bonds and stocks) markets, African capital

markets remain underdeveloped. Excluding South Africa (235 percent of the GDP),
the highest stock market capitalization in Africa was in Mauritius (69 percent of GDP)
in 2018. The capitalization of Mauritius stock exchange was well below the average
market capitalization in the East Asia and Pacific region (83 percent of GDP) and in
high income countries (119 percent of GDP). The underdevelopment of capital
markets may be explained by many factors, including the small size of the domestic
economies, macroeconomic and business environment, quality of institutions,
financial infrastructures, etc. The listing and issuance requirements in most African
stock exchanges are binding constraints in relation to the structure and capacity of
the domestic companies. For example, the lengthy administrative procedures for
listing, the high transaction costs, the lack of training and knowledge about capital

1
Araya Debessay&TadewosHarege-work, Towards the Development of Capital Market in Ethiopia (Last Visited,
September 1, 2024)Availableat: https://eeaet.org/sites/default/files/publications/Araya%20and
%20Tadewos_Towards%20the%20Development%20of%20Capital%20Market%20in%20Ethiopia.

2
BiniyamGetachew, Prospects and Challenges for the Establishment of Capital Market in Ethiopia, ST.Mary’s
University, School of Graduate Studies P, 9, 2017.

3
Ibid.

1
 markets, as well as the lack of transparency in some of these marketplaces are some
key constraining factors for the development of many African capital markets.4

The African Development Bank (the Bank) desires to develop deep and liquid financial
markets in Africa for effective mobilization of financial resources towards the continents’ key
sectors, including infrastructure. Effective capital markets play an important intermediary role
in the mobilization and deployment of long term savings and investments for the financing of
the continent’s Sustainable Development Goals as well as the Bank’ s High priorities. In 2014,
the Bank scaled-up its role in Africa’s capital markets by establishing the Capital Markets
Division to specifically spearhead innovative operations which develop deeper and more
effective capital markets in Africa. The Bank’s approach tackles the challenges under 3 Pillars
to assist in building effective capital markets within regional member countries. The Pillars aim
to (i)create an enabling regulatory environment and stronger capital market institutions by
strengthening the financial markets regulatory framework and architecture in each regional
member countries ; (ii) broaden market participants through sponsoring or investing in
operations designed to increase the number of issuers, broaden the investor base and improve
product offerings; and (iii) collect, manage and disseminate capital markets data to assist in the
development of transparent capital market pricing mechanisms as well assist in capacity
building within capital markets stakeholders in regional member countries. 5Ethiopia has
embarked on bold reforms to open key sectors to competition and attract private investments
and finance in state-owned enterprises, particularly telecommunications, air transport, railway,
maritime, electricity and logistics. A robust financial sector is a major enabler of these reforms.
Consequently, Ethiopia has prioritized the development of a capital market by 2020. 6

2. Development of Capital Market and Securities Regulation:

A well-functioning securities market is conducive to sustained economic growth. There have

been a number of studies, starting from World Bank and IMF to various scholars, which have
established robust relationship not only one way, but also the both ways, between the
development in the securities market and the economic growth. The securities market fosters
economic growth to the extent that it-(a) augments the quantities of real savings and capital
formation from any given level of national income, (b) increases net capital inflow from

4
IssoufSoumaré, Désiré Kanga, Judith Tyson and Sherillyn Raga, Capital market development in sub-Saharan
Africa: progress, challenges and innovations, Working Paper 2, The ODI research series for financial development
in Africa, p, 7, 2021.

5
Request for Expressions of Interest, Capital Markets Development Division, African Development Bank, p,1,2019.

6
Ibid.

2
 abroad, (c) raises the productivity of investment by improving allocation of investible funds,
and (d) reduces the cost of capital. 7

It is reasonable to expect savings and capital accumulation and formation to respond favorably
to developments in securities market. The provision of even simple securities decouples
individual acts of saving from those of investment over both time and space and thus allows
savings to occur without the need for a concomitant act of investment. If economic units rely
entirely on self-finance, investment is constrained in two ways: by the ability and willingness
of any unit to save, and by its ability and willingness to invest. The unequal distribution of
entrepreneurial talents and risk taking proclivities in any economy means that at one extreme
there are some whose investment plans may be frustrated for want of enough savings, while at
the other end, there are those who do not need to consume all their incomes but who are too
inert to save or too cautious to invest the surplus productively. For the economy as a whole,
productive investment may thus fall short of its potential level. In these circumstances, the
securities market provides a bridge between ultimate savers and ultimate investors and creates
the opportunity to put the savings of the cautious at the disposal of the enterprising, thus
promising to raise the total level of investment and hence of growth. 8The indivisibility or
lumpiness of many potentially profitable but large investments reinforces this argument. These
are commonly beyond the financing capacity of any single economic unit but may be
supported if the investor can gather and combine the savings of many. Moreover, the
availability of yield bearing securities makes present consumption more expensive relative to
future consumption and, therefore, people might be induced to consume less today. The
composition of savings may also change with fewer saving being held in the form of idle
money or unproductive durable assets, simply because more divisible and liquid assets are
available. 9The nearly universal goal of nation-states is to become "strong" through economic
growth and modernization. They want to see the rate of increase in GNP go up, per capita
income rises, and efficiency and employment increase. 10Since banks in emerging economies
are mostly owned and run by governments, they extend loans to priority sectors in response to
government directives without due regard to quality, and often at interest rates below the bank's
cost of funds. This leads to inefficient resource allocation and widespread loan d elinquencies. The
prevalence of these problems reduces the level of investments and productivity of capital. Even if

7
Capital Markets and Securities Laws, The Institutes of Company Secretaries of India, Module II, Paper 6, P 7, MP.
Printers, 2017.

8
Ibid.
9
Ibid.

10
AsratTessema, Prospects and Challnges for Developing Securities Markets in Ethiopia: An Analytical Review,
Volume 15, African Development Review Journal, p,3,2019.

3
 government grants and subsidies are available; they tend to introduce market imperfections that
contribute to the distortion of financial prices. These imperfections subvert the positive
allocation role of securities markets. Governments generally are not known to process the
enormous amount of information necessary to make sound allocation decisions. The result is
irrational investment patterns, further distortion due to political influences over economic
decisions, and discrimination against smaller, younger and innovative undertakings. Securities
markets create better opportunities for small emerging companies to raise funds in the venture
capital market since venture capitalists would be more comfortable with investing in new
ventures with the knowledge that possible future divestment can take place through a public
offering at a potentially substantial profit. 11Generally, Securities markets have benefits such
as:Enhancement of savings mobilization, resource allocation, promotion of efficient financial
system, transformation and improvement of capital structure including accounting and auditing
standards, deconcentration of ownership, provision of effective tools for monetary and fiscal
policy, help privatization efforts. 12

Capital markets may spur economic growth by fostering the volume or the productivity of
investment, or both. For the quantity of private investment to increase, larger flows of savings
should find their way into productive projects via the primary market. But this e ffect will
materialize only as long as additional net funding is made available to these firms—that is, as
long as this issuance is not offset by less bank credit or other forms of financing. 13Capital
markets may have an effect on financial stability through a few channels. In the case of the
volume of funding available to firms, capital markets will play a stabilizing role if bond
markets, equity markets, or both counteract credit crunch episodes that hit the banking
system.14
Developed markets with sophisticated infrastructures, such as those in the US and the UK, can
accommodate a wide range of market players and a variety of financial products. Emerging
markets, like those in Kenya and India, provide examples of gradual development; they begin
with more basic market systems and progressively increase in depth and complexity.

3. Comparing approaches to capital market and Securities Regulation

Having in mind the above discussion made, I am going to show the experiences of two selected
African countries (Kenya and Nigeria) on capital market and Securities Regulation. This in
turn will give lessons to the Ethiopian system.

11
Ibid.
12
Ibid.

13
Ana FiorellaCarvajal and Ricardo Bebczuk, Capital markets Development, Causes, Effects, and Sequencing,
World Bank Group, p 23, 2019.

14
Ibid.

4
3.1. Kenya

In the 1980s the Government of Kenya realized the need to design and implement policy
reforms to foster sustainable economic development for an efficient and stable financial
system.
It sought to enhance the role of the private sector in the economy, reduce the demands of
public enterprises on the exchequer, rationalize the operations of the public enterprise sector
to broaden the base of ownership and enhance capital market development. At the time, it
was evident that the commercial banks could not support and sustain a desirable economic
development as they could not offer the necessary long-term credit.
In 1984, a study on the Development of Money and Capital Markets in Kenya was jointly
undertaken by the Central Bank of Kenya (CBK) and the International Finance Corporation
(IFC) withthe objective of making recommendations on measures that would ensure active
development and strengthening of the financial sector. This became a blueprint for structural
reformsin the financial markets. The Government further re-affirmed its commitment to the
creationof a regulatory body for the capital markets in the 1986 Seasonal Paper on “Economic
Management of Renewed Growth”.15

The Capital Markets Authority is the regulatory body with the core responsibility of licensing
and supervising all capital market intermediaries, ensuring proper conduct of all licensed
persons and entities, regulating the issuance of capital market products, regulating securities,
derivative and spot commodity exchanges, promoting market development through the creation
of a conducive environment for product innovation, supporting institutional capacity
development, supporting robust market infrastructure, promoting investor, issuer and
intermediary education and awareness, and protecting investors. Accordingly, the Authority
plays a critical role in the economy by facilitating mobilization and allocation of capital
resources to finance long-term productive investments.16
The CMA has recently constituted a Capital Markets Advisory Committee. The committee
consists of eleven appointed representatives from private-sector organizations, and nine ex-
officio members representing the CMA, National Stock Exchange (NSE), and other non-
commercial organizations. The mandate of the committee is to act as a forum for discussion
between the Authority and stakeholders on all matters pertaining to capital markets. 17

3.2. Nigeria

15
The Capital Markets Authority Handbook, Page 2, 2021, (Last Visited September 1, 2024) Available at:
https://www.cma.or.ke/wp-content/uploads/2023/05/CMA-Handbook-2021/
16
Ibid.
17
Capital Markets in Kenya, (Last Visited September 1, 2024),Available at: https://www.pwc.com/ke/en/pdf/capital-
markets/

5
 The history of capital market activity in Nigeria dates back to pre-independence with the
issuance of bonds by the British colonial authority to fund construction projects in 1946.
Thereafter, more regular sales of government bonds and Treasury bills occurred in the lead up
to Nigeria’s independence in 1960.18

From 1961, the Nigerian capital market has growth tremendously, particularly during the
periods of the indigenization decrees of 1972 and 1977. The securities increased from 8 in
1961 to about 301 in 2008. Over the years, the Nigerian capital market has witnessed relatively
stability and also recorded impressive growth. This has positioned it to positively impact the
economy. There is clear evidence that the capital market remained an important source of
capital for the nation’s economic development in financing infrastructural projects, the
privatization program of the government and banking sector recapitalization in Nigeria. Some
authors conclude that the recent consolidation exercise of major financial institutions and
privatization exercise of most publicly owned enterprises are key indications of government
faith in the capital market to drive growth of the Nigerian economy. 19

The capital market is the segment of the financial market which facilitates the mobilization and
allocation of medium and long-term funds through the issuance and trading of financial
instruments. Such instruments, otherwise known as securities, include stocks and company
shares; commercial and industrial loan stocks and debentures; state government bonds and
stocks; Federal government Development stock bonds, While equities represent ownership
stake in a company which issued them, bonds are debt instruments with the principal and
interest usually payable to the bondholder at specific periods. The main participantsof the
Nigerian capital market are the Securities and Exchange Commission (regulatory), Nigerian
Stock Exchange, stock brokers, trustees, issuing houses, and registrars. The investments are
done by the insurance companies, pension funds, institutional investors and the individual
investors.20

4. The Ethiopian Capital Market and Securities Regulation towards Economic Growth

In recent years, Ethiopia has seen significant economic reforms aimed at liberalizing its
financial sector. Among the major developments is the emergence of a capital market, which
promises to reshape the country’s financial landscape and potentially redefine the role of
commercial banks. This article explores the implications of this shift, analyzing how the capital
market is poised to influence Ethiopia’s economy and the future trajectory of its banking
18
Dave Uduanu, African Capital Markets Challenges and opportunities, CFA Institute Research Foundation, p, 59,
2019.

19
Abu IkponmwosaNoruwa, Nigerian Capital Market: A catalyst for Sustainable Economic
Development, Volume 6, Research Journal of Finance and Accounting, P, 63, 2015.

20
Ibid.

6
 sector. A capital market is a vital component of any economy, facilitating the buying and
selling of financial instruments such as stocks, bonds, and other long-term investments. Unlike
traditional banking, which focuses on lending and deposits, capital markets provide avenues
for businesses and governments to raise funds directly from investors. This direct access to
capital can fuel economic growth by financing infrastructure projects, expanding businesses,
and promoting innovation. Historically, commercial banks have played a crucial role in
mobilizing savings and providing credit to businesses and individuals. However, this model
has limitations, particularly in meeting the long-term financing needs of large-scale projects
and promoting broader financial inclusion.21

Capital markets development is one of the key elements of the Government of Ethiopia
Home-Grown Economic Reform Program and 10-Year Development Plan (2021-2031). In line
with this commitment, the Capital Markets Proclamation (No. 1248/2021) was adopted by the
House of Peoples Representatives in June 2021, which included the establishment of the
Ethiopian Securities Exchange (ESX), the first securities exchange in Ethiopia. With the
support of FSD Africa, a dedicated Project Office has been established
under Ethiopian Investment Holdings to formulate the overarching pre-implementation
operational strategy and successful launch of ESX.22

ESX will be a key part of a broader ecosystem of institutions, markets, and participants that
make up a functioning Ethiopian capital market ecosystem. Putting in place a successful
securities exchange heavily depends on the involvement and participation of market
participants including issuers, investors, intermediaries/service providers, and policy makers.
The lack of a formal securities exchange has significantly hindered the development of the
wider capital market ecosystem and access to increased liquidity. Currently there are no market
intermediaries such as investment banks and stockbrokers that are traditionally found in other
markets across the region, despite Ethiopia possessing one of the largest economies in all of
Africa coupled with a sizable population of over 120 million. As the development of these
market intermediaries in Ethiopia is at its early stage, ESX is required to play a leading role in
the development of the securities market including market awareness raising, increase
investors’ appetite, build market attractiveness to issuers, build capacity of capital market
participants, and in educating the general public.23

21
Capital Newspaper, (Last Visited, September, 1, 2024) Available at :
(https://www.capitalethiopia.com/2024/07/18/the-emergence-of-the-capital-market-and-the-future-of-commercial-
banks-in-ethiopia /

22
Capacity Building Workshop for the Ethiopian Securities Exchange, Concept Note, Bill &Millinda Gates
Foundation, P, 1, 2023.

23
Ibid.

7
 The Ethiopian Capital market is starting with the Stock Exchange, as well as provides
regulated mechanisms for companies to raise funds through debt and equity instruments, then
to follow other options to participate in the capital markets such as the Collective Investment
Scheme (CSI) in due course.24Capital Market Authority (CMA), one of the key institutions is
established by article 3(1) of the proclamation as an autonomous federal government
regulatory authority with its own legal personality accountable to the prime minster of
Ethiopia.25

The role of a regulator is to ensure risks such as Market conduct, liquidity, credit, operational
and systemic risks are mitigated as much as possible.Market conduct risk happens when
individuals trade based on non-public information (insider trading), it undermines market
integrity and deliberate actions to distort market prices or create false impressions can harm
investors (Market manipulation). Market Conduct risks can be addressed through Surveillance
and Enforcement: Regulators monitor trading activities, investigate suspicious behavior, and
enforce rules against insider trading. Similarly, market manipulations can be mitigated by
requiring companies to disclose material information ensures transparency and fair access for
all investors.26

There is an overlap between the financial institutions market conduct regulation and large
companies that are listed on a stock exchange and non-listed entities that raise funds either
through debt and equity instruments. In many countries there are a number of regulators
working in tandem. For example, in Kenya while the Kenyan Capital market Authority have a
number of Regulations (over 30) that deals with specific areas e.g., The Capital Markets (Real
Estate Investment Trust) (Collective Investment Schemes) (Amendment) Regulations, 2023)
and Capital Market (Investment-Based Crowd funding) Regulations 2022) that gives a
framework to regulate the capital markets. Other Countries, such as Australia has various
statutory bodies funded by governments and industry levies that deals with various aspects of
the financial sectors with overlapping responsibilities from market conduct, liquidity and
investor and consumer protections. These agencies have legislative powers to impose penalties
and use the judiciary to correct any misconduct by institutions and company directors. Each
countryhas their own context and legal frameworks, which often is dictated by the size and
maturity of their financial markets.Liquidity risk occurs from liquidity mismatch. The way
regulators can mitigate liquidity risk is by a established mechanism and assess how financial
institutions and markets would perform under adverse conditions. Further by providing

24
Capital Newspaper, (Last Visited, September, 6, 2024) Available at:
(https://www.capitalethiopia.com/2024/07/18/capital-markets-regulatory-risks-and-how-to-mitigate-them /)

25
Capital Market Proclamation No.1248/2021, Article 3(1),(2).

26
Supranote 24.

8
 guidance or directives institutions to maintain sufficient liquid assets to meet obligations during
stress.Credit risk is when a borrower or issuer defaults on its obligations as well as when an
issuer suffers a down grade credit rating- This affects the values of debt securities. As part of
the capital market ecosystem robust credit rating agency is critical.A rating agency assesses the
creditworthiness of financial entities. For instance an agency assigns ratings to their debt
instruments.27

Overall, Credit rating agencies contribute to the efficient functioning of the fixed income
markets by providing an independent source of information on the credit standing of issuers of
debt securities.Other two equally important risks are operational and systemic risks.
Operational risk in capital markets often happens around the integrity and safety of the
technology employed and its ability to withstand cyber-attacks. Cybersecurity breaches can
disrupt trading platforms, settlement systems, and financial institutions. Similarly technological
failures such as glitches can disrupt market operations. Finally, one of an overarching
responsibility of aCapital Markets Regulator is to deal with systemic risk. Systemic Risk is the
possibility that an event at the company level could trigger severe instability or even collapse
an entire industry or economy. When a company is considered “too big to fail,” it means that
its failure could have widespread repercussions. These institutions are either large relative to
their respective industries or make up a significant part of the overall economy.In a capital
market context Regulators have two fundamental ways of addressing Systemic Risks: by
monitoring interconnectedness and imposing additional requirements on systemically
important institutions (Macroprudential policies) and ensuring there is a resolution framework,
that is a plan for orderly resolution of failing institutions prevent contagion. In summary,
addressing regulatory risks in capital markets is crucial for maintaining stability, investor
confidence, and sustainable economic growth.28

Within a fast-evolving financial landscape where access to financial services is made easier
while more risks are being transferred to citizens, financial literacy has become a key life skill
for individuals as well as micro and small businesses. Financial education can help enhance
financial literacy by increasing financial knowledge, skills and attitudes. In turn, this can
contribute to individuals’ (including vulnerable and low income) participation in financial,
economic and social life as well as to their financial well-being. As a complement to financial
inclusion and financial consumer protection, financial education is also important to restore
confidence and trust in financial markets.29

5. Comparative Analysis
With recent significant measures aiming at liberalizing its financial sector, Ethiopia's capital
market is still in its embryonic years. A significant milestone in this process is the formation of
27
Ibid.
28
Ibid.
29
Ibid.

9
 the Ethiopian Securities Exchange (ESX) in 2021, which is in line with the government's
Home-Grown Economic Reform Program (2021–2031). The goal of this development is to
give companies immediate access to cash, which is necessary to fund infrastructure projects
and promote innovation. Nevertheless, because this market is still in its infancy, it is unclear
how well it will mobilize long-term capital.

Kenya, on the other hand, has a more developed capital market thanks to significant reforms
made throughout the 1980s. The establishment of the Capital Markets Authority (CMA)
resulted from the Kenyan government's recognition of the need to increase private sector
engagement and decrease reliance on governmental businesses. Insuring compliance,
monitoring market activity, and safeguarding investors are all important functions of this
regulatory organization. The proactive attitude of the CMA has enabled the mobilization of
long-term finances, thereby promoting economic growth and stability. Kenya, with all its
achievements, nevertheless has to contend with issues including unstable markets and the
constant updating of laws to meet international standards.

Nigeria has a long history in the capital markets, going all the way back to the middle of the
20th century. It has created a wide variety of securities and has been a vital source of finance
for the advancement of its economy and infrastructure. The Nigerian capital market is
governed by the Securities and Exchange Commission (SEC), which also protects investors.
Due in large part to government policies targeted at financial institution consolidation and
privatization, the sector has proven resilient and growing. But Nigeria also faces difficulties
with investor confidence and market stability, particularly in the face of economic volatility.

In summary, Kenya and Nigeria have more developed frameworks that have shown varied
degrees of success and issues, whereas Ethiopia is still establishing the foundation for its
capital market. Ethiopia may learn a lot from Kenya's and Nigeria's experiences, which
highlight the necessity of constant adjustments to adjust to changing economic conditions, a
strong regulatory framework, and investor education. Ethiopia can learn from the achievements
and difficulties of its peers in developing a functioning capital market as it works to forge
ahead.

6. Conclusion

In conclusion, with the creation of its capital market and the Ethiopian Securities Exchange
(ESX), Ethiopia finds itself at a critical juncture in its economic development. With the Home-
Grown Economic Reform Program (2021–2031), the government is committing to liberalizing
the financial sector, which emphasizes how crucial a strong capital market is to spurring
investment and economic growth. The establishment of a well-regulated securities market is

10
 essential for generating long-term capital, improving liquidity, and stimulating innovation as
the nation sets out on its journey.
However, the active involvement of different market participants, such as issuers, investors,
and intermediaries, will be crucial to Ethiopia's capital market's success. The absence of market
intermediaries at the moment is a problem, but it also gives the ESX a chance to take the lead
on projects that raise investor trust, increase market knowledge, and inform the public about
capital market activities.
Furthermore, establishing stability and confidence in the market would depend on tackling
regulatory concerns and guaranteeing investor protection through thorough regulation and
supervision. Gaining knowledge from the experiences of more developed markets, such those
in Kenya and Nigeria, can be extremely beneficial in understanding the significance of
financial literacy and efficient regulatory frameworks.
Ethiopia has the ability to change the financial environment, advance more financial inclusion,
and eventually spur sustainable economic growth as long as it keeps growing its capital market.
In order to build a dynamic and robust capital market that serves the requirements of the
nation's residents and the economy, all parties involved must work together in the coming
years.

7. Recommendations
 Ethiopia ought to give top priority to putting in place a thorough regulatory system that
oversees the capital market. Clear rules for trading procedures, investor protection, and
securities issuance should all be part of this framework. To make sure that rules are strong,
clear, and flexible enough to adjust to shifting market conditions, the Securities and Exchange
Commission and the Ethiopian Securities Exchange (ESX) must collaborate closely.

 National financial literacy initiatives must be put in place in order to promote an investing and
capital market participation culture. These initiatives ought to educate a wide range of
audiences, including as students, business owners, and members of the general public, on the
advantages of investing, the operation of capital markets, and the significance of making well-
informed decisions.
 The creation of market intermediaries, including asset management companies, investment
banks, and stockbrokers, is essential to the capital market's efficient operation. By offering
incentives and support for their establishment, Ethiopia should promote the growth of these
institutions, which would improve market liquidity and make capital mobilization easier.
 Public-private partnerships should be actively promoted by the government to finance
infrastructure projects and other important industries. Ethiopia can meet its enormous
infrastructure demands and offer investors chances for long-term returns by utilizing private
investment through the capital market.
 Ethiopia The government should also support the creation of a variety of financial instruments,
such as bonds, stocks, and collective investment plans, in order to draw in a wider pool of

11
 investors. In addition to improving market depth, this diversification will give investors with
varying risk tolerances a range of options.Establishing robust measures to safeguard investors
is crucial in fostering trust in the capital market. This entails putting in place a system for
resolving conflicts, guaranteeing financial reporting's transparency, and applying severe
sanctions to deceptive behavior. These kinds of actions will support market confidence and
protect investors' interests.

 Ethiopia should make an effort to interact with global regulatory agencies and financial
markets in order to pick up tips from the best and obtain understanding of how markets are run
efficiently. Working together with institutions like the World Bank and the African
Development Bank can yield important resources and technical support for building a strong
capital market. It should also make an effort to interact with global regulatory agencies and
financial markets in order to pick up tips from the best and obtain understanding of how
markets are run efficiently. Working together with institutions like the World Bank and the
African Development Bank can yield important resources and technical support for building a
strong capital market. By doing so Ethiopia can lay a solid foundation for its capital market and
securities regulation, ultimately driving sustainable economic growth and enhancing the overall
financial landscape of the country.

8. Bibliography

 Araya Debessay&TadewosHarege-work, Towards the Development of Capital Market in

Ethiopia (Last Visited, September, 1, 2024)Available at:
https://eeaet.org/sites/default/files/publications/Araya%20and%20Tadewos_Towards%20the
%20Development%20of%20Capital%20Market%20in%20Ethiopia.

12
 BiniyamGetachew, Prospects and Challenges for the Establishment of Capital Market in
Ethiopia, ST.Mary’s University, School of Graduate Studies , 2017.
 IssoufSoumaré, Désiré Kanga, Judith Tyson and Sherillyn Raga, Capital market development
in sub-Saharan Africa:progress, challenges and innovations, Working Paper 2,The ODI
research series for financial development in Africa, 2021.
 Request for Expressions of Interest, Capital Markets Development Division, African
Development Bank,2019.
 Capital Markets and Securities Laws, The Institutes of Company Secretaries of India, Module
II, Paper 6, P 7, MP. Printers, 2017.
 AsratTessema, Prospects and Challenges for Developing Securities Markets in Ethiopia: An
Analytical Review, Volume 15, African Development Review Journal,2019.
 Ana FiorellaCarvajal and Ricardo Bebczuk, Capital markets Development, Causes, Effects,
and Sequencing, World Bank Group, 2019.
 The Capital Markets Authority Handbook, Page 2, 2021, (Last Visited September, 6, 2024)
Available at: https://www.cma.or.ke/wp-content/uploads/2023/05/CMA-Handbook-2021/
 Capital Markets in Kenya, (Last Visited September 1, 2024) Available at:
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