Prospects for a Securities Market in Ethiopia

Abstract

The paper highlights the need for a securities market the supply and demand prospects for  it as well as some of the challenge of the market. It shows that the financial structure of the country is dominated by commercial banks whose major function is mobilizing short-term liabilities and largely making short-term loans.  The banks’ activities in financing long-term loans are limited. On the other hand, a look at the demand prospects for a securities market suggests that there is sufficient ground to start such a market. The ongoing privatization process as well as the existing and newly-formed share companies will be potential supply sources of the market. Government securities may be another source when and if it resorts in indirect monetary policy instruments.  Demand for stocks may come from portfolio adjustment of individuals, institutional savers, growth and distribution in income and employment.  Initially, the market will be small in size. Nonetheless, it can help fill some of the gaps in the financing of investment activities in the country  Once started, the future growth of the securities market depends on the growth of the overall economy, the extent to which a stable economic, political and regulatory environment is maintained, as well as the capacity to generate professional analysts and managers.