ECX creates sustainable, favorable market places
Ethiopia has been one of the fastest growing economies in Africa. Central Statistical Agency (CSA) reported Ethiopia has 88 million population second highest next to Nigeria.
Constructing Grand Ethiopian Renaissance Dam (GERD) is the landmark for the country’s economic sustainability. Thus, it shows the capacity of Ethiopia, Ethiopians and Ethiopian Economy (3E Concept).
Ethiopian Opinion Economics reported that Ethiopia is the biggest country in the world without Stock Exchange. Not only Ethiopia, of roughly 200 nations (both official and partially recognized) in the world, 40 of these countries have no stock exchanges . As frontier market investors with a focus on public equities, keeping an eye out on which countries are about to launch new stock exchanges is important as they usually represent promising investment opportunities.
Gazena Erchafo of Economic Research Department, National Bank of Ethiopia(NBE) reported that the Ethiopian financial history shows that following the nationalization of private banks and other financial institutions in 1974 there were only few government banks operating throughout the country till 1994-95 namely Commercial Bank of Ethiopia.
Ruediger Ruecker of Vienna conducted a study on Market Potential Assessment and Road Map Development for the establishment of Capital Market in Ethiopia reported that there is no securities market, except short term government treasury bills, is present yet in the financial market. But in 2008 the Ethiopian Commodity Exchange(ECX) was introduced by highly devoted local experts. On the ECX, coffee, sesame, haricot beans, wheat and maize are traded.
The ECX is a new initiative for Ethiopia and the first of its kind in Africa. The vision of ECX is to revolutionize Ethiopia’s tradition bound agricultural system through creating a reliable and sustainable marketplace that serves all market participants, including farmers, traders, processors, exporters and consumers.
Swedish Agency for International Development Cooperation (SIDA) reported that there are 23 countries that have stock markets in Africa. South Africa has four stock markets, while Zambia and Nigeria have two each. All the remaining 21 countries have one stock market
each. Nairobi Stock Exchange is the oldest stock market in the continent and was launched in 1954.
Henry C Black defined capital or principal fund raised by a corporation through subscriber’s contributions or the sale of shares. Frederic S Mishkin referred the word Stock represents a share of ownership in a corporation. Yuwa Wei in his work, The Development of the Securities Market and Regulation in China defined the Stock market refers to capital market in which stocks of corporations are sold to investors.
A stock exchange is a place or organization by which stock traders (people and companies) can trade stocks. Companies may want to get their stock listed on a stock exchange. Other stocks may be traded “over the counter”, that is, through a dealer. A large company will usually have its stock listed on many exchanges across the world.
Stocks can be categorized in various ways. A Capital market is the center or arrangement that provides facilities for buying and selling of long-term financial claims. It is the market where transactions are made in long term securities such as stocks and bonds. The participants of this market includes various financial institutions, mutual funds, agents, brokers, dealers and other borrowers and lenders of long term debt and equity capital.
Trade in stock marketsmeans the transfer for money of a stock or security from a seller to a buyer. This requires these two parties to agree on a price. Equities (Stocks or shares) confer an ownership interest in a particular company. A stock market or equity market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of stocks (also called shares); these may include securities listed on a stock exchange as well as those only traded privately
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-time trading information on the listed securities, facilitating price discovery.
The stock marketis one of the most important ways for companies to raise money, along with debt markets which are generally more imposing but do not trade publicly. This allows businesses to be publicly traded, and raise additional financial capital for expansion by selling shares of ownership of the company in a public market.
The liquidity that an exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of investing in stocks, compared to other less liquid investments such as property and other immovable assets. Some companies actively increase liquidity by trading in their own shares.
During 2005, Antonio Torrero Mañas conducted a study on The Increasing Relevance of the Stock Market in the World, a new scenario noticed that the share of the United States in world capitalization was of 56.1% in 1983; in 1989, it had decreased almost to a half (29.9%) surpassed by Japan that same year (37.5%). In the second half of the nineties, America recovered strongly due to the colossal growth in technological companies, reaching 47.5% in 1999.
The Japanese stock market was the most important in the world as regards to market capitalization in 1989, when the financial bubble was at its peak; the decrease in the nineties was extremely significant, reaching 13% of the world total in 1999.
The World’s Top 15 Stock Exchanges by Value of Shares Traded were listed namely New York Stock Exchange (USA) Value of Shares Traded in $ 29,910 billion , NASDAQ (USA) Value of Shares Traded in $ 15,320 billion, London Stock Exchange (UK) Value of Shares Traded in $ 10,334 billion, Tokyo Stock Exchange (Japan) Value of Shares Traded in $ 6,476 billion, Euro next (Europe) Value of Shares Traded in $ 5,640 billion, Frankfurt Stock Exchange (Germany) Value of Shares Traded in $ 4,325 billion and other stock exchanges were traded less than $ 2,000 Billion Shanghai Stock Exchange (China), BME Spanish Exchanges ( Spain), Italian Stock Exchange( Italy), Hong Kong Stock Exchange (China S.A.R) Shenzhen Stock Exchange ( china), Korea Exchange(Korea), SWX Swiss Exchange (Switzerland), OMX Nordic Exchanges (Denmark), Toronto Stock Exchange( Canada).
African Continent has 29 exchanges representing 38 nations’ capital markets. 21 of the 29 stock exchanges in Africa are members of the African Securities Exchanges Association (ASEA). One of the oldest exchanges on the continent is the Casablanca Stock Exchange of Morocco, founded in 1929.
The Egyptian Exchange (EGX) was founded in 1883 and the JSE Limited in 1887. The Casablanca Stock Exchange is one of Africa’s ten largest exchanges along with the Johannesburg Stock Exchange, EGX, the Nigerian Stock Exchange, the Namibian Stock Exchange (NSX) and the Zimbabwe Stock Exchange. Other major stock exchanges in Africa are Ghana Stock Exchange, Nairobi Stock Exchange, Casablanca Stock Exchange (Morocco), Malawi Stock Exchange, Nigerian Stock Exchange, JSE Securities Exchange (South Africa), Lusaka Stock Exchange (Zambia) Zimbabwe Stock Exchange are performing in the continent.
[Dr. Sreepada Hegde, Madawalabu University, The Ethiopian Herald]