Australia Radio Interview With Dagmawit Moges
To his credit, Yared tried to take the whole discussion surrounding stock exchange one step further by conducting an actual needs assessment survey. The survey, which incorporated financial sector regulators, share promoters and share buyers, revealed that there is a big chunk of the national economy, little shy of five percent of the GDP, existing outside the regulatory reaching.
The study revealed major gaps in Ethiopia’s primary share market. For one, lack of standard for companies to fulfill when they want to float their shares to the public is causing real grievance among investors. “Repeated failure stories in share companies such as Hibir Sugar, Addis Prefab Houses, Sheger City Taxi SC, Timret Agro Processing and many more are showcases as to how unregulated this market is and how damaging it has become,” Yared told The Reporterin a telephone interview.
The problem starts with the initial investment pitch. According to experts, one rarely finds companies which present the real truth regarding the benefit and risk of these projects especially if they are preparing to float shares. Yared’s survey shows that in majority of the cases companies floating initial shares (dubbed initial public offerings) make an exaggerated claim regarding the investment returns.
This is well understood by investors, according to Yared, and because of this, social capital and personal network are the only factors driving investment on shares in Ethiopia. “Investors buy shares when they see personalities they can trust among promoters and investors,” he argues and this is highly irregular.