Establishing a Regulated Capital Market: Process, Opportunities, Challenges, and Lessons Learned

Establishing a Regulated Capital Market: Process, Opportunities, Challenges, and Lessons Learned

By Hana Tehelku, Director General, Ethiopian Capital Market Authority

The formal Capital Market journey in Ethiopia began in 2019, when capital market development was prioritized as a key pillar in Ethiopia’s Homegrown Economic Reform Program. The ambition was bold but necessary: to transition from a system dominated by short-term lending to one that encourages long-term investment, ownership, innovation, and economic resilience. That ambition became reality with the enactment of the Capital Market Proclamation in 2021, which established ECMA as the regulatory authority tasked with building Ethiopia’s capital market from the ground up.

This work goes far beyond regulation. It’s about building a system that enables businesses to access long-term capital, protects investors, promotes transparency, and creates opportunities for professionals, entrepreneurs, and young people across the country. Capital markets are not just financial infrastructure; they are about unlocking human potential and enabling people to dream bigger, grow stronger, and participate meaningfully in Ethiopia’s future.

Establishing the market required building institutions, crafting the regulatory framework, developing capacity, and ensuring an enabling environment. Strong institutions are essential.

Equally important was the legal framework. Setting rules for licensing, disclosure, and enforcement. These provisions are designed to protect investors, safeguard market integrity, and ensure fair competition. Ethiopia’s framework is aligned with international best practices but adapted to its local context.

Capacity building was another critical pillar. Training regulators, issuers, intermediaries, auditors, and legal experts remain central. Initiatives such as IPO clinics and international partnerships are helping bridge gaps in expertise.

An enabling environment also requires macroeconomic stability, policy coordination, and regulatory alignment. Transparent communication, investor outreach, and engagement with the diaspora community are helping foster trust and inclusiveness.

Being a latecomer has given Ethiopia the advantage of hindsight. Lessons from peer countries allowed it to sidestep costly mistakes and adopt proven strategies. Technology has been central to this learning, with electronic securities, digital trading, and CSD systems, and real-time market surveillance are expected to widen participation and support financial inclusion.

The journey, however, is not without hurdles. A shift toward transparency and disclosure is difficult in a system long dominated by informal practices and limited accountability. Resistance to change among market participants is strong. Investor confidence remains fragile; any early missteps in disclosure or enforcement could erode credibility. Capacity constraints across the ecosystem are also another challenge.

In conclusion, Ethiopia’s path to establishing a regulated capital market is both necessary and ambitious. Success depends on strengthening institutions, embedding technology, and balancing regulation with market development. The opportunities are vast, but going alone is not the way forward. Thinking regional is imperative.

Relative to other regions, Africa’s per capita participation in the capital market is very low. Regional integration has the potential to unchain Africa’s financial constraints. It will give the market diverse instruments, efficient infrastructure, depth, liquidity, and scale. A Pan-African capital market may seem like a dream today, but it is a strategic necessity for Africa’s future. The question should not be whether to integrate, but how and how fast.