Legal Aspects of Stock Market Development in Ethiopia: Comments on Challenges and Prospects
| Author | JE Chewaka |
| Position | LLB, LLM, Lecturer of Law at the University of Gondar School of Law. Email: jetulaw@gmail.com. The writer is grateful to Professor Tilahun Teshome for encouraging and supporting me to write on this issue. |
| Pages | 439-454 |
439
Legal Aspects of Stock Market
Development in Ethiopia:
Comments on Challenges and Prospects
Jetu Edosa Chewaka ♣
Abstract
Ethiopia lacks the institutional and legal frameworks that regulate the
market for stock exchange, and in effect, the current stock trading activity
may grow into a largely unregulated space in which everyone speculates
and plays for short-term gains. Introducing stock market amidst the
proliferation of companies in Ethiopia can thus benefit the economy. It is
natural to expect that both companies under formation and investors in
existing companies sell and transfer their shares to third parties giving rise
to the availability of tradable shares in the market. This comment is a
modest attempt to show the desideratum of introducing the legal and
institutional frameworks governing stock market in Ethiopia. It tries to
analyze the existing legal framework on stocks and tries to juxtapose
relevant literature to give picture on the legal aspects of stock market
development. In view of the potential advantage and the concerns raised by
stock market development, I argue that devising legal infrastructure that
accommodates stock market in Ethiopia is a timely issue to catch up with
the global trend, given the current demand for stock trading as revealed by
the over-the-counter markets.
Key words
Companies, over-the-counter, stock brokerage, stock market, Ethiopia
DOI http://dx.doi.org/10.4314/mlr.v8i2.7
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Introduction
It is widely believed that stock markets have the potential to be powerful
engines of economic growth in developing nations such as Ethiopia.1
♣ LLB, LLM, Lecturer of Law at the University of Gondar School of Law. Email:
jetulaw@gmail.com. The writer is grateful to Professor Tilahun Teshome for
encouraging and supporting me to write on this issue.
440 MIZAN LAW REVIEW, Vol. 8, No.2 December 2014
Efficient stock market provides the public with investment opportunities and
mobilizes savings, as well as international capital, for productive corporate
financing.2 It is also argued that market forces serve to discipline
management and public ownership thereby improving the accountability of
the business sector. However, developing a robust and efficient securities
regulation within which the stock market operates is a painstaking task for
many developing countries. In this respect, the challenges squarely recline
on designing the legal frameworks capable of protecting the investor,
preventing systemic crises and promoting the market they govern.3
In the Ethiopian context, the historical development of stock market
traces its roots back to the Imperial period. During this time, Ethiopia
managed to develop the institutions of stock market, such as the “Addis
Ababa Share Dealing Group”.4 However, after the demise of the Imperial
regime, the stock market was abolished due to the introduction of command
economy.5 Since then, except Commodities Market Exchange for agricultural
products under the current regime, no stock market has been legally
designed to trade stocks except for the fragmented and unregulated stock
trading in a dealer market. Presently, although the economic system is
suitable for the stock market to flourish, the desirability of having stock
market is, however, hotly debated on both official and non-official circles.6
In the media, there is discourse regarding the slow pace and low level of
government interest in pursuits toward designing a legal framework that
regulates the establishment and operation of stock market.7
1 John Fagan, The Role of Securities Regulation in The Development Of the Thai Stock
Market, (2002-2003) Columbia Journal of Asian Law, Vol. 16, p. 305.
2 Ibid.
3 Ibid.
4 Ruediger Ruecker (2011), “Market Potential Assessment and Road Map Development
for the Establishment of Capital Market in Ethiopia,” (Private Sector Development
Hub/Addis Ababa Chamber of Commerce and Sectoral Associations), p. 1
5 Ibid.
6 The chief Economist and vice president of African Development Bank, Professor
Mthuli Ncube, recommended that “it is the right time for Ethiopia to invest on the
necessary infrastructure that will enable it to introduce stock market. This will enable
the country to mobilize capital and encourage savings.” He noted that it does not
matter who owns it. But, the modern way of introducing stock market is by setting up
a company formed in public-private-partnership. See New Business Ethiopia Reporter,
“Africa Development Bank Recommends Stock Market to Ethiopia,” available at
7 Ibid.
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