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“That is a job for venture capitalists and angle investors; it is absurd that new companies having nothing but ideas actually float shares to the public,” he told The Reporter. Venture capitalists exist to back an idea and take risk; Andualem argues adding that “stock markets don’t bankroll ideas but concrete projects”.
That is where stock exchanges come in handy. Andualem says that the fact that organized exchanges have a set of minimum standards for companies wishing to float shares as initial offering makes them uniquely tailored to the current gaps in Ethiopia’s capital market.
On the other hand, Yared pointed out that lack of regulatory structure is also exposing investors in terms of misappropriation of funds. “Promoters take charge of six to 12 percent of shareholders money and use it to cover their overhead cost while establishing the shareholding company,” he argues; and this makes shareholders particularly exposed to misappropriation.
Nevertheless, the likes of Ermias Eshetu, the newly appointed CEO of the African Renaissance Television Service (ARTS), and former head of Ethiopian Commodity Exchange (ECX), are not convinced that primary market in Ethiopia, with all of its regulatory gaps, can be called a share market and the companies really “shareholding companies”.
Ermias Eshetu is firm in arguing that “we can’t call the existing, fragmented share trading activity a primary capital market”. As far as he is concerned, even in the well-regulated financial sector, shares of financial institutions are not really available to the public; but to those in and around the circles of the founders. “This is not a character of a well-functioning market,” he argues; hence he says that it is high time for an organized stock exchange in Ethiopia.