This part of the report shows the potential demand

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This part of the report shows the potential demand and supply sides of the financial market. Demand side (investor base) There is a growing demand for securities markets in Ethiopia. Among many others the following are identified by Yishak (2000). Asset portfolio adjustment Thus far Ethiopians used to hold their assets in the form of cash, bank deposits, physical assets in the form of land, buildings, livestock, precious metals (like gold, silver), vehicles, and hard currency. These are the traditional forms of asset holdings available to Ethiopians. Establishment of securities markets will create another form of asset holding and incentives to diversify asset portfolio for individuals and companies. Investors can buy securities of listed companies and diversify their investment in marketable
JBAS Vol. 4 No. 1 June 2012 17 securities. Besides to portfolio adjustment, the securities market transforms resources from passive forms of asset holding to more active and productive activities and long-term investments. Cope with inflation If securities markets exist in Ethiopia, investors can put their assets into savings accounts, government bonds, corporate bonds, and stocks. As the inflation rate is much higher than the return of the savings account and the government bonds, local investors currently do not have an adequate investment possibility to achieve returns higher than the current inflation. This is a strong indicator for the theoretical demand of alternative investment opportunities such as equity securities. Individuals and institutional savers Under the current legal and policy environment, small savers have limited choice how to hold their savings. The main avenue for them is to put in the banks in the forms of saving and time deposits. The size of private companies and individual saving in the banking sector is surpassing the ongoing liberalization process. What does this imply? The savers are either motivated by the rate of return offered by the banks or the protection motive. If a well functioning and rewarding securities market is established, both of the motives will be satisfied with the securities market. The investment in securities generates more returns c ompared to the bank‘s interest.
18 Tiruneh Legesse Supply side (issuer base) Issuer base refers to the potential number of issuers of securities and the amount of capital to be raised. The following are some of the identified potential issuers of securities in the Ethiopian context. Government securities Regarding debt securities, the only issuer is the Government of Ethiopia. The government is issuing short term (treasury bills) and long term debt securities to finance mega projects (bonds). There are not corporate bonds currently issued in the market. Even in the absence of the corporate bonds, there is a huge supply of government bonds to finance mega projects (e.g.

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