💡The Double Power Of ESX

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:

• 💰 More Than Just Dividends: Borrowing Against Your Shares

• 💍 I Do…But At What Cost? The Economics of an Ethiopian Wedding

• 🗝️ The Key Takeaways

Thanks for reading!

What Do Public Companies Mean For Your Wallet ?

Investing

So, Ethiopia is thinking about listing businesses on the Ethiopian Stock Exchange (ESX). First of all, kudos— that’s a big step forward. But what does this all mean to us?

The most obvious reason for listing, of course, is to raise capital. Why rely on friends, family or a bank for funding when you can tap into the wider pool of public investment, right? But, there’s a lot more to it than just securing cash.

It is yet another way to make your money make more money!

Here’s the thing: going public gives businesses a stamp of credibility. It’s saying, “Hey, look at me, I’m the real deal!” This boosts a company’s image with suppliers, customers, and importantly banks. They all love a company with increased transparency and regulatory oversight. 

The added bonus? It creates a liquidity boost for shareholders. If you want out, you can easily sell your shares. Or, if you need cash but don’t want to sell, you can use the shares as collateral for a loan.

What do we mean by liquidity boost? Traditionally, people invested their money in stocks and bonds because they wanted the cash flow from those stocks (dividend) and fixed-deposits or bonds (interest/coupon), money that they could live on without spending the principal investment. The wealthy can even have enough dividend and interest income to finance their lifestyles 🏠 🚗 ⛵

But, in developed economies, things have evolved even further. These days, wealthy individuals are all about tax efficiency. They don’t necessarily expect big dividends anymore. Instead, publicly-listed companies are reinvesting earnings to fuel growth, which translates to capital appreciation. 

Here’s how it works—let's say you’ve got ETB 10 million in shares, and it’s value appreciates by 10% a year. You don’t get any cash, but after a year, you’re ETB 1 million richer. And here's the kicker: you don’t pay taxes on the capital appreciation.

Now, if you’re thinking, “How do you pay for your lifestyle if you’re not getting any cash?” 

Don’t worry, you can borrow money against your portfolio—say ETB 1 million—without paying taxes on it (because borrowing isn’t income). The value of your original investment in shares keeps rising at 10% per year, and you're living the high life. Sure, you’ll pay interest on the loan, but that’s a small price to pay compared to selling your shares and getting hit with 30% capital gains tax.

Now, let’s pause and see if there are hiccups to apply this in Ethiopia.

For a start, this is more suited in an economy that has low inflation and low interest rates, which unfortunately isn’t the case in Ethiopia, for now. Unless share values appreciate above the annual inflation.

Second, and equally important is whether our local banks are ready to handle all this wealth management jazz. Spoiler alert: Available, but not quite.

Offering company shares (a form of incorporeal asset) as collateral is allowed by law and banks do provide loans. But Ethiopian banks don’t have a dedicated wealth management or investment banking departments. We’re still stuck in the old “let’s get as many deposits as possible by the end of the month” mindset.  

But with a little shift in priorities at banks, they could be offering loans to people with solid portfolios who don’t want to sell their assets. Imagine a bank manager calling you offering loans against your shares in publicly-listed companies—better than getting አፓርተማ ይፈልጋሉ calls, right?

And the good news? This doesn’t mean the average person is left in the dust. With lower non-performing loans and a more secure lending environment, banks might start offering tailored and more aggressive products for the everyday ቢጤ. We’re already seeing a trend with non-collateralized loans for individuals and small merchants ranging from ETB 2,000 to 100,000. 

What does this mean to you?

The stock exchange isn’t just a money-making machine for the big players—it can be a game-changer for your business and shareholders. And while the whole “wealth management” thing may still be catching up here, it’s only a matter of time before our banks start playing big league games. 

Keep an eye out, and maybe you’ll be ahead of the curve to securing a wealth plan.

Key Takeaways

1. Publicly-listed Companies: Could mean more for shareholders than what we bargained for…doing away with dividends and embracing capital appreciation

2. Yet Another Collateral: Widening your options to finance your everyday and occasional expenses  

3. High-Quality Collaterals: Means good news for bank ledgers which could lead to more aggressive & tailored products in the horizon.

ፍራንክ Picks 

🚶🏽 Event: Private Sector Growth Forum [ March 5 - 7, AU Headquarters ]

🗞️ In the news: Dangote cements commitment to Ethiopia with $400M

♟️ Innovation: Forex trading platform Exness introduces Amharic language

Ethiopian Weddings & The Price Of Tradition

Finance

Ah, weddings! That magical day when two hearts become one—and two bank accounts take a significant hit.

In Ethiopia, where cultural richness meets grand celebrations, weddings are not just a union of souls but a showcase of tradition, family honor, and, let's face it, financial prowess.

It often feels less like a celebration of love and more like an audition for “Ethiopia’s Got Relatives,” that one event where your parents get to prove just how many people they know.

The guest list includes EVERYONE: the neighbor, the neighbor’s cousin, the cousin’s church group, the guy who sold your mom veggies once in 2009, and even the cat that just wandered by.

So, how does one navigate wedding expenses without turning "I do" into "I owe"?