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Part 1
2. Part 2
The article analytical review of the prospects and challenges of developing securities markets in
Ethiopia has five parts. The first part explains socioeconomic theories Ethiopia from the fall of
communism and the emergence of capitalism, and mentioned that many countries around the world
are moving toward market-oriented economies and securities markets are springing up on all
continents around the globe. Securities markets have come to symbolize to many the essence of
capitalistic economic relations.
The prevalence of these problems reduces the level of investments, productivity of capital and the
volume of savings. Such market-determined financial prices and investment options, in turn, attract
more savings, creating a virtual circle of innovation and mobilization that contributes to the overall
efficiency of the financial system. The development of securities markets is usually accompanied by
increased reporting standards and requirements, which contribute to the efficiency of the
markets and their mobilizing and allocating functions. Some of the costs inherent in securities markets
as discussed in the literature include: During the early stages of securities markets development,
the supply of stocks and bonds is limited, manipulation is relatively easy, investors are
unsophisticated, underwriters and brokers are inexperienced, and securities legislation often has
loopholes. The institutions and individuals that constitute the securities markets fall into the following
categories.
The key environmental factors for the success of securities markets include sufficient demand for and
supply of securities. The existence of investment alternatives affects both the demand for and the
supply of securities. To encourage development of healthy securities markets, legal
inducements that affect the supply and demand for securities are helpful.
In summary, despite the impetus to economic growth that the development of securities markets can
provide, the costs associated with such development can be substantial. The magnitude of such costs
and the capacity to manage them depend on a complex set of factors in many spheres. The experience
of a range of developing countries in instituting securities markets indicates that their beneficial
effects do not come automatically, and that cyclic phases of development are the rule.
To sum up, one of the main challenges for developing countries like Ethiopia is to improve the
quality of financial intermediation and resource allocation to contribute to a more rapid rate of
economic growth. This suggests the need for flexibility in the choice of methods in economic
reform that must consider the unique features of a country, particularly in terms of the level of
economic development and administrative capacity. The successful development of securities
markets requires the existence of enough demand and supply of stocks. Demand for stocks
depends on the amount of capital available for investment in the hands of individuals and
institutions. The first and foremost task in increasing the demand for securities is to educate the
public about securities markets using the public media. Organize forums where the business
community 10 and the public can learn about the benefits and costs of investing in securities
markets. At the same time improve the political and legal environment to build the confidence first
of the domestic business community and then of the international investors. Broad ownership
of firms would give citizens a stake in the country's economy, thus reducing the resistance
generated by the discomfort of the layoffs due to privatization and the suspicion that state enterprises
are being sold to individuals or groups with political links to the ruling party. This is important,
because in many countries the development of the bond market precedes the development of the
equity markets. The dissemination of market information is another integral part of securities markets
development.
3. Part 3
The format of financial income statements is designed to meet the needs of the target audience. The
target audience comprises the government, investors, among others. This research makes the implicit
assumption that the primary audience for income statements is investors, and it expands on that
assumption by looking at the relationship between earnings announcements and stock price
changes.
The article's major point is to identify and show challenges as low level of public awareness about
securities markets; lack of public confidence in share investment; lack of institutional capacity to
facilitate securities trading; underdeveloped state of the bond (debt) market; low level of private sector
development and a low level of market orientation in the economy; easy access to loans by wealthy
Ethiopians; problems with the supply and demand for securities at least initially. There is neither
the tradition nor the trust in share companies; due to the historical prominence of bank financing;
there is still government interference in the market; there is no mechanism in place to solicit input
from the business community as a cause for the challenges stated above.
On the other side, states that many prospects (opportunities) for developing securities markets exist
in Ethiopia. The prospects are Ethiopia has considerable unexploited resources; one of the largest
potential markets in Africa; the economic liberalization which has taking place in Ethiopia are
quite encouraging; the privatization efforts going on would help with the supply problems
(government is withdrawing from profit making activities and is transferring state owned
enterprises into private ownership) particularly if a public offering of shares is used as the method of
privatization; the existence of many profitable companies, which can potentially benefit from
floating shares to the public; the existence of institutions like the country‘s Pension Fund, insurance
companies, credit unions, etc., with large sums of money. If allowed to invest, they would boost the
demand for securities; the gradual improvements of the incentive packages in the successive
investment proclamations help attract new investors including Ethiopians with foreign passports; the
debate going on in academics, the business community at large and the government circle is
encouraging.
To sum up the article discussed the prospects for developing securities markets exist in Ethiopia:
Ethiopia has considerable unexploited resources. Agriculture plays a key role in the economy,
although the country still uses primitive technology and the climate is subject to recurrent
droughts due to irregular rain. The existence of many profitable companies, which can
potentially benefit from floating shares to the public. And as well the above benefits the writer also
mentioned the existed a problem like, the supply and demand for securities at least initially (a
reasonable number of companies whose shares are publicly traded and a variety of individuals and
institutional investors). When too few stocks and bonds are available for purchase and trading, it
may be difficult to attract investors who may doubt the existence of a large enough
market to insure liquidity. On the other hand, in a very low per capita income country like
Ethiopia and where investment funds are in short supply, demand for stocks and bonds cannot be
expected to be high.
4. Part 4
The second part explored challenges and costs of the market. The summary includes the article’s
purpose, methods, results, discussion, and citations necessary. This part emphasis on creating
demand for securities is educate the public about securities markets using the public media and by
lifting all the legal restrictions from institutional investors, and deals with some ideas of stock market
by comparing the present situation in Ethiopia. And also, about the legal system, rights and
responsibilities of the contracting parties and cost- effective enforcement of covenants. legal
restrictions from institutional investors like the largest government pension fund, public and private
insurance companies and credit unions so that they can fully participate in the securities markets. And
also, the use going public Even though we agree on the points the article raise, it does not cover the
whole area, in this section, we add some aspects of the challenges as well as benefits
Allowing foreign banks to operate in Ethiopia will bring both prospects and challenges to the
incumbent state-owned commercial and private banks in particular and the financial sector in
general. As evidenced from literature, foreign bank entry to the domestic market will bring
immense opportunity to the Ethiopian banking market, and create strong competition
challenge between foreign and domestic banks and within the domestic banking
institutions,
Accordingly, allow/encourage merger of local credit loan institutions,
The need for cybersecurity protection and education of professionals and
consumers/listed companies is needed,
5. Part 5
Finally, it is to be borne in mind that the launching of organized secondary markets must be
preceded by: (i) instituting a proper authority to regulate and monitor the security market
operations, and (ii) proclaiming well-drafted companies’ legislation that would streamline the
operations of share companies as well, and securities legislation to organize the dealings in
securities of all forms in the country.
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Reference
Asrat Tessema, Ph.D. Paper presented at Ethiopia Forum: Challenges and Prospects for
Constitutional Democracy in Ethiopia International Center, Michigan State University
East Lansing, Michigan, March 22-24, 2019
S.P Kannan's &Letenah Ejigu Wale, Bahir Dar University, PhD, Identifying
Opportunities, Challenges and Infrastructure Requirements for Establishing Secondary
Market in Ethiopia, December 2012
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