👀 Playing Hard To Get

Welcome to the latest edition of ፍራንክ Digest!

Your weekly brief on all things Finance and Investing. Quick, enjoyable reads for busy professionals in 5 minutes or less.

Here’s what’s coming your way:

• 🔏 BUZZ: ESX is calling on ደላላሎች!

• ⏱️ Ready, Set…Wait! Another step towards a Stock Exchange

• 🗝️ The Key Takeaways

Thanks for reading!

BUZZ: Brokers Shy Away from The Stock Market

Investing

Fair to say that we all have one or two ደላላ phone numbers in our contacts.

Delalas play a huge role in linking the buy and sell side of a transaction, they have the 411 on the market, news gets to them first, market prices move when they say so. Overall, they are deeply ingrained in Ethiopian business society.

Even so, it seems like delalas have decided to shy away from the newly established endeavor of high finance a.k.a the Ethiopian Stock Exchange (ESX). 

To be fair, the broker in question has different qualities: in the realm of the stock market, a broker traditionally deals with more sophistication, greater risk and a dynamic market that could be punishing if nuances are not well understood.

Questions can be raised regarding the barrier to entry.

A ‘Securities Broker’ would need to:

• Pay USD 1000 to apply for the license

• Another USD 1,700 for an annual renewal fee

• Add ETB 6 million for the capital requirement

Having said that, the Securities Broker role is actually one of the least financially demanding licenses to acquire as others require a more robust balance sheet for consideration.

It seems that potential participants are struggling to see the ROI since the stock market is still a mystery vis a vis what it’s going to bring to the overall economy.

Another reason why this struggle is highlighted is perhaps the need to have a cultural shift, brokerage services are usually very obscure, with prices and knowledge of the product being sold held closely to the brokers chest usually until the last minute. This is a no no in the context of the stock market as brokers are also viewed as a source of truth, educators to a large extent, bridging any knowledge gap. 

Indeed, a strong community of well informed and trustworthy brokers will create confidence amongst investors, building a solid foundation for the stock market. 

It is ironic that Ethiopia is lacking brokers when they are needed the most during this new paradigm shift: the push to get individuals and institutions alike involved is still an uphill battle for ESX. 

But to their credit, they are looking for alternatives if Plan A doesn’t work. ዞሮ ዞሮ our old buddies, namely banks and other financial institutions might end up filling the void. 

If you think you have what it takes, check out ECMA’s Are you fit to apply page here.

Key Takeaways

1. ESX is struggling to attract brokers for the soon to be launched stock market

2. Despite a relatively low barrier to entry, Securities Brokers seem to struggle to see the ROI especially in the context of the broader economy 

3. A cultural change is desperately needed whereby transparency amongst brokers could be the only solution

ፍራንክ Picks 

🚶🏽 Event: [Dec 5th-7th] African Startup Conference 2024 [5-7 Dec 24’]

🗞️ In the news: EV cars duty tax increases to 20%

♟️ Innovation: Ethio Telecom launches new TV streaming service

Laying The Groundwork For Capital Markets

Finance

Raise your hand if you thought Ethiopia’s economy was all coffee and teff! ✋ 

Well, you’d be more or less right. And yet, at the Capital Markets Summit last week, Ethiopia’s financial scene had its own red-carpet moment.

The Ethiopian Capital Market Authority (ECMA) unveiled the first directive to guide how investors and institutions can participate in the much-anticipated Ethiopian Securities Exchange (ESX).

It’s a 124-page manual that’s supposed to reshape Ethiopia’s economy—basically, a bedtime story for economists. We skimmed through it so you don’t have to but hey, if you love a good read on financial regulation…no judgment here!

The Basics: What’s Happening?

The directive sets up a legal framework for Ethiopia’s budding capital markets, paving the way for securities and derivatives trading and Over-The-Counter (OTC) transactions. The Ethiopian Securities Exchange (ESX) will be the centerpiece of this effort, offering a formal platform for trading shares, bonds, and other financial instruments.

Key features include:

• Licensing Rules: Entities wishing to list on the exchange must meet rigorous standards.

• Investor Protection: Transparency and accountability will be cornerstones.

• Market Structure: It supports government, private entities, and SMEs raising capital through regulated means.

This effort isn’t happening in isolation. It has got back-up singers in the form of heavyweights like the African Development Bank (AfDB) and the International Finance Corporation (IFC), who’ve been advocating for Ethiopia’s financial modernization.

The Nitty-Gritty

1. Who Can Play:

   • Ethiopian individuals, companies, and institutions are front-row participants.

   • Diaspora investors also get a seat at the table, bringing much-needed capital into the local market.

   • Foreign investors? Not yet, but there’s a door ajar for future opportunities.

2. Risk and Safety:

   • ECMA’s directive is focused on transparency and regulation. This isn’t just a “jump in and hope for the best” scenario—there are rules to protect your Birr.

   • Companies looking to list the stock market are vetted, regulated and must meet strict standards, ensuring investor confidence.

3. Education and Awareness:

   • Newbies, relax! The directive includes plans to educate the public about the do’s and don’ts of investing. Much like we are at ፍራንክ Digest!

4. Laying Foundations:

   • ECMA has built this directive as a starting point. Over time, more detailed guidelines will refine and expand the scope.

Why Should You Care?

A functioning capital market can channel resources into productive sectors. That means more jobs, more businesses, and, hopefully, less inflation (please, universe!).

1. Money Moves: Ethiopian companies will have a new, formal way to raise capital. More funds mean more projects, which translates to growth opportunities across sectors.

2. Investment Opportunities: Ever dream of owning a piece of Ethiopia’s next big thing? Now, you might. This directive could make it easier for ordinary citizens to invest. Extraordinary ones too.

3. Economic Stability: By centralizing financial transactions, the directive could reduce risks tied to informal lending and trading systems.

4. Global Spotlight: Ethiopia is signaling to the world that it’s ready for serious investors. This could bring much-needed foreign capital into the economy.

Why Now?

Ethiopia’s financial system is still playing catch-up compared to its peers. While Kenya has a robust stock market, Ethiopia has long operated without a formal securities exchange. The directive changes that, aiming to foster a modern, competitive financial sector.

According to the World Bank, Ethiopia’s economy grew by 6.1% in 2023, but access to credit remains limited, especially for Small & Medium Enterprises (SMEs). This directive, and the ensuing Securities Exchange, could be the game-changer for businesses in need of funding to scale up.

The Fine Print

There’s a lot to get excited about if you’ve got money stashed away, but let’s keep it real: it’s not all sunshine and rainbows. Execution is key, and it likely won’t be smooth sailing:

• Tech & Talent Gaps: Running a stock exchange requires advanced systems and trained professionals. As mentioned above, you’d need stock brokers for one.

• Public Buy-In: Ordinary Ethiopians might hesitate to invest, given limited financial literacy and trust issues.

• Regulatory Growing Pains: Setting up the rules is one thing; enforcing them consistently is another.

Ethiopia’s first capital market directive isn’t just a bureaucratic milestone—it’s a signal to investors, businesses, and ordinary citizens that the country is ready to play in the big leagues. Are we? Well, only time will tell.

Key Takeaways

1. A Financial Evolution Begins: ECMA’s directive is Ethiopia’s first step toward a formal capital market, with the ESX leading the charge.

2. Investments Made Easier: From SMEs to multinationals, businesses will soon have access to structured funding options.

3. A Long Road Ahead: The directive lays the groundwork, but Ethiopia’s stock market journey is just beginning—tech, talent, and public trust will play crucial roles in making it a reality.

Thanks for sticking with us, ፍራንክ family! Keep those wallets smart and your inbox open - we’ll be sliding in next week!