International Journal of African and Asian Studies - An Open Access International Journal Vol.3 2014 Is Ethiopia Ready to Commence Capital Market? Analysis of Potential Beddings, Constraints and the Dubious Mebrahtu Leake Teklehaimanot, College of Business and Economics, Haramaya University. E-mail: mebratuleake@yahoo.com https://core.ac.uk/download/pdf/234689759.pdf
Addis Ababa had opened up a stock market in the Imperial era in 1950s. A short-lived stock market started informally in the late 1950s and was formally established in 1965.
In 1897 Emperor Menelik II sold shares in France to raise part of the 40 million francs needed to build the Ethio-Djibouti railway line.
In 1906 the first bank in Ethiopia, Abyssinia Bank, floated its shares in Addis Ababa, New York, Paris, London and Vienna.
From 1960 to 1974 share companies were flourishing and shares were traded by the National Bank of Ethiopia through the Addis Ababa Share Dealing Group.
Addis Ababa Bank, Ethiopian Abattoirs, Bottling Company of Ethiopia, Indo-Ethiopian Textiles, HVA Ethiopia, and Tendaho Plantations were some of the share companies whose shares were publicly traded during that time.
All the companies were nationalized in the 1974/75 socialist revolution that shattered the private sector led economy.
https://www.thereporterethiopia.com/article/finance-experts-urge-establishment-stock-market-ethiopia
In February 1963, the National Bank of Ethiopia NBE took the initiative to set up the share dealing group called the Addis Ababa Share Dealing Group.
The share-dealing group facilitated operation of the shares of mainly banks and government bonds.
The National Bank of Ethiopia (NBE) was responsible to set rules and regulations for the market.
However, in 1974 the military government came to power and declared a centrally planned command economy and nationalized all foreign owned companies.
Hence, the infant stock market ceased to exist.
In the Ethiopian context, the historical development of stock market traces its roots back to the Imperial period.
During this time, Ethiopia managed to develop the institutions of stock market, such as the “Addis Ababa Share Dealing Group”.
However, after the demise of the Imperial regime, the stock market was abolished due to the introduction of command economy. Since then, except Commodities Market Exchange for agricultural products under the current regime, no stock market has been legally designed to trade stocks except for the fragmented and unregulated stock trading in a dealer market.
Presently, although the economic system is suitable for the stock market to flourish, the desirability of having stock market is, however, hotly debated on both official and non-official circles.
In the media, there is discourse regarding the slow pace and low level of government interest in pursuits toward designing a legal framework that regulates the establishment and operation of stock market.
During the Imperial Regime, there was a small share trading activity in Ethiopia carried out under the regulatory auspices of National Bank of Ethiopia (NBE), department of Share Exchange.
The NBE also allowed other financial institutions and few private share dealers to participate in shares trading, particularly related to facilitation of transaction of shares and other services in the share markets.
The Addis Ababa Share Dealing Group was one of the private share dealing groups which served as the connecting link for buyers and sellers in an auction process.
Moreover, financial institutions such as Addis Ababa Bank, the Commercial Bank of Ethiopia and the Ethiopian Investment Corporation played an intermediary role in transferring and delivery of traded shares in the form of over-the counter share dealing services.
Ethiopian stock market during the Imperial regime was moderately successful in its pioneering efforts to provide an organized market for companies whose shares were relatively widely held companies despite limited participation of the public and investors to invest in stocks.
Though market capitalization remained small and did not have much impact on the economy, workable share trading environment had been developed.
With the coming of the Dergue regime to power, the introduction of a centrally planned economy resulted in the nationalization of private industries and dissolution of share dealing groups.
Hence, due to state ownership and control of major economic activities, there was no fertile environment for stock market development from 1975 to 1991.
The post 1991 government of Ethiopia has introduced an economic system which encourages the private sector, which is expected to play a critical role in Ethiopia’s economic development. Under the current regime, although major economic sectors are still dominated by the state, various financial and nonfinancial business sectors are open to private investors.
Both private and state owned financial business organizations (banks, insurance and microfinance institutions) are closely regulated by the NBE.