Learning for the Future

The advent of the government’s joining of capital markets to raise financial resources required for the nation’s growing appetite for infrastructure is praiseworthy. As the country is increasingly becoming a magnate for global investment, we may not afford to alienate ourselves from the global capital markets, the epicenters for the world of finance.

Financial Times, the global authoritative media on business and finance, praised the event with a headline “Investors pile into Ethiopia’s $1bn debut debt sale”. The Economist, the 170-year-old global newspaper, had referred to Ethiopia as “Africa’s fastest-growing non-oil economy” in May 2012. Followed by The Guardian calling the Country “ ‘Africa’s Lion’ with fastest creation of millionaires” in its December 2013 issue.

Amidst all the good names for the country from the global mainstream media, it is not uncommon to be surprised with the fact that many senior level professionals in the country’s financial and business institutions are still not familiar with the basic terminology and practices of the global world of finance. A friendly discussion on ‘market capitalisation’ of some of the major corporations of the planet could trigger confusion for a senior manager at a financial institution, as he may not be familiar with the phrase otherwise commonplace throughout the cubicles of the corporate world.

Owing to our communist era springboard with extremely distressed financial and business practices, the issue of financial illiteracy prevalent with our financial and business institutions and professionals may not be hugely surprising. However, in order to be able to curb future mishaps in the financial industry, it is high time that we got acquainted with the basic theories and practices making up for the past.

As their major competitive advantage is highly trained manpower, banks and other financial institutions throughout the world are known for fighting to grab their fair share of the cream of top brains in finance and business from prestigious higher education institutions before, during and just after the graduation ceremonies. The burden of proof to explain the fact that an institution is the best employer to deserve a target candidate ironically is shifting to the employer. If therefore is true that whoever has the golden brain rules in the game of business.

The financial world has become so inextricably interwoven that the global financial crisis of 2007/08 happened due to and as a result of it. The effect of Collateralized Debt Obligations (CDO’s) that bundled and then unbundled financial instruments in a way that could be sold and re-sold on global capital markets based on stratified tranches of various levels of risk and return were earlier downplayed by many in the industry either due to negligence or as a result of inadequate financial literacy and acumen on the side of sophisticated investors and the unassuming individual investors. The event was reminiscent of what scientists call the ‘Principle of Chaos’ or ‘the butterfly effect’: “a butterfly flapping its wings in New Mexico could have a power to trigger hurricane in China”.

The Ethiopian government worked on its assignment to build the country’s economic status and image; got sovereign rating by reputable global rating companies and hired international firms to prepare the required documents and procedures for the road show to raise the required financing from capital markets. The same applies to our financial institutions in preparing themselves to be part of the global capital arena through building their institutional capacities.

Top-notch economists armed with minute-by-minute details of the micro and macro economic events of the nation shall be the engines of our financial institutions. Sharp business analysts with technical and intuitive capacity to arrive at business valuations of corporations need to be at the forefront of our banks and insurance companies.

Practical researchers highly proficient at working on analysing the operations of the various sectors in the economy are required at the financial institutions not only to arrive at determining the viability of the sectors in order to help decide on the credit worthiness of the loan applicants, but also to lead business institutions to a more viable operations.

As the country is going forward, in the near future, indigenous and international companies operating in Ethiopia might need to raise finance from the international capital markets. Ethiopian financial institutions are expected to spearhead the activities in the modern way and it is high time they prepared themselves for the big show.

Providing a commercial loan of a million Birr to a trader against collateral valued at twice the face value of the debt might not have called for the acumen of a modern financial analyst. But spearheading viable national economic performance and raising millions of dollars with the sophisticated global capital markets will.

By Million Kibret
Million Kibret is managing partner at BDO Ethiopia. He can be contacted at million.kibret@bdo-ea.com.

Published on January 11, 2015 [ Vol 15 ,No 767]



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