Prudency in companies’ corporate governance deemed crucial as the capital market horizon draws near.
During comprehensive discussions organized by the Addis Ababa Chamber of Commerce and Sectoral Association, Brook Taye, Director General of Capital Market Authority (CMA), underscored that local businesses should have to start implementing the International Financial Reporting Standards (IFRS) that the country officially adopted years ago.
He called on the companies to start using the IFRS as a golden standard for their financial reporting, as it is vital in bringing the capital market to life in Ethiopia.
He told Capital that IFRS is one component that is expected from potential players in the secondary money market, “That is why we are advocating for it.”
According to the stock market practice, there are certain requirements that need to be met by companies who will be listed.

“Fundamental analysis would be carried out by a given company that will be listed at the security exchange. For that reason, the financial statement particularly carried out by external auditors is crucial,” the founding Director General of CMA explains, adding, “On the other side, through the secondary markets, potential investors are investing on the prospect of a company looking for additional capital from the stock market. Thus, a golden standard financial statement is critical to understand the company projection.”
“On our side we are working to facilitate a way to give license to external auditors with qualified standards and ample knowledge to understand the system,” he added.
Brook said that corporate governance of companies is integral to the success of the capital market.
There will be certain qualifications that the authority will set for listed companies, besides the IFRS. “So far we have accountancy professionals who are certified from international organizations like ACCA, but they need to have the capital marketunderstanding. As we said prospect is crucial for capital market so experts are expected to have to understand such kind of principles as their core focus area.”
He said that CMA will define the required principles and facilitate capacity building and trainings in collaboration with auditors and accountants for domestic experts to enhance their capability and gain the license required thereof.
“We will learn from each other to develop the market because it is a collective endeavor that would have a big impact to the country,” he added.
The authority is already preparing for massive capacity building programs including providing support for potential brokerage firms, investors, accountants, legal experts and others to be certified in different programs. For corporate governance, the authority said that it will also work with the relevant companies.
“The company can assign external advisors by itself and prepare for the capital market and on the other side we will also develop defined parameters as a guideline for players to work with potential businesses,” he elaborated.

“As a profession, we may not have investment bankers but we have many accountants. The only thing required is to maybe boost their capacity. Our role is to not only build the institution but also develop market players together,” Brook said.
Hikmet Abdella, Director General of Accounting and Auditing Board of Ethiopia (AABE), said that there are many good local firms and individuals that can support the upcoming capital market. “With little capacity building we can upgrade many firms to fully support the market,” Hikmet said.
“As the number of companies to be listed in the market will not be many in the initial years, AABE has a legal mandate to screen good firms that can support the market in the short run. We will be working with CMA closely on this matter,” she told Capital.
IFRS in Ethiopia was officially adopted in 2014 through the enactment of proclamation and establishment of Ethiopian Audit Board. However experts assumed that there are a lot of defects in applying the system. Starting from the beginning it lacks preparedness before the enactment of the proclamation that pushes the initial implementation roadmap until next year.
One of the major challenges for the implementation of IFRS is lack of sufficient professionals, particularly chartered accountants that are very limited even compared with peer countries in the region, according to the sector experts.
Tilahun Girma, a finance consultant at I Xcel Financial, Management and IT Consultation Company, a company that is licensed from the Ethiopian Management Institute working on consulting companies on financial and management issues, line up financial systems and also consult on IFRS for organizations, argued that there are gaps regarding undertaking prudent IFRS and corporate governance that he mentioned crucial for the upcoming securities exchange.
“One of the reasons is the lack of experienced and trained man power on the IFRS system and lack of technology,” he told Capital.
Tilahun claimed that the country should be ready with regards to sound corporate governance including clean audit reporting capacity on the way to embark the capital market that is expected hit operation by 2024.
He said that higher education institutions need to provide the training that relate with the new accounting and auditing scheme that the country wants to fully adoption.
He added that one of the challenges was technology, to which companies including big ones are using the cracked software, “I consider that there is lack of awareness about the necessity of IFRS at companies.”

He recommended AABE to provide the technology that other countries like Ethiopia implemented for companies who have limited capacity in terms to invest on the software.
He said that there are very few companies implanting the IFRS, “I have concerns over the matter since it would be a challenge when the capital market gets in to operation.”
“On my understanding, the government shall consider small companies to join the capital market gradually but we have to start the implantation of strong corporate governance including IFRS. Whenever they join the capital market, companies whether small or big should be ready starting from now,” Tilahun added.
Despite concurring that there are challenges in the area, Hikmet argued that it is not the number that matters for serving the market rather the capability of the firms.
“There are good local audit firms who have been serving the Ethiopian economy so far. With no doubt the firms who have good staff and organization structure can also support the market. We have been providing training to all audit firms to make them ready for the service,” the Director General said.
“We have discussed this issue at length in the past few years.Issues like number of professional in the country not brings enough.The first roadmap being very ambitious in terms of time line for adoption etc. But the number priority now is that business leaders have not yet appreciated the importance of compliance or at the very basic level do not understand that the management is responsible for financial report of their company,” she elaborated.
She explained that the IFRS which is now required for implementation for big and midsize companies can be afforded to develop required manpower and place the necessary required infrastructure.

“The Financial Reporting Proclamation was enacted eight years ago which is a very longtime to put in place the required manpower and systems, if the owners and managers give attention to this important law of ensuring transparency in the economy. The issue of manpower should not be and cannot be on the agenda now,” she said.
The accounting guru and one of the lead advocates for the implementation of IFRS few years back, who also led on of the leading global auditing institution Ethiopia chapter, further underlined that it should be noted that there are only a handful of firms that serve the global capital markets, Ethiopia cannot be an exception, “We can use this rare opportunity with the coming of the Ethiopia capital market to develop the local accounting and audit profession and related disciplines like actuary and valuation for sustainable growth of the Ethiopia economy.”
“The local capacity we develop in support of the financial system will be useful to the whole economy. This is the objective of the Ethiopian Government’s Homegrown Economic Reform. Not only accounting and audit profession, there is a need to build local capacity to support the planned growth in our economy,” she said, adding, “We need robust capacity building programmes that will serve the public and private sectors .The underlying tone being professionalization in all professions.”

Mobile money service providers oppose the new draft directive of licensing and authorization of payment instrument that states issuers to have a mandatory bank partnership to international remittance service.
Last week, the National bank of Ethiopia (NBE) held a consultative meeting with mobile money service providers, telebirr, Kacha and Safaricom officials to extensively look into the proclamation.
According to the draft, companies can provide services related to issuance of payment instrument, cash in and cash out, local money transfer such as domestic remittance, load to electronic money or bank account, transfer to electronic money or bank account, domestic payment including purchase from merchants, bill or utility payment and over the counter draft.
The draft stated that based on the national bank approval, the licensed payment instrument issuers should have out sourcing agreement with banks or financial institutions to give digital saving, credit, insurance, international remittance and pension.
“Outsourcing is going to be processed by financial institutions who hire an external entity to perform its own internal task,” said one of the participants during the consultation forum on behalf of one of the mobile money operators, adding, “In the payment instrument, issuers will only allow bank outsourced services by signing an outsourcing agreement, which will only give banks power.”
“There won’t be much room for invention, and it’s also less likely that senders will be able to lower their remittance costs. This would also end initiatives to lower remittances arriving through the black market,” one official said indicating that comments and complaints were included during the stakeholders’ discussion on the draft document, with hopes that the national bank will revise the draft.
Currently, mobile money service providers such as telebirr are providing inward remittance services through its own platform.
According to the current banking proclamations, Digital Financial Service institutions including payments, remittances and insurance accessed and delivered through digital channels with foreign investors cannot be able to fully or partly own businesses that provide these services in Ethiopia. Re-amendment has been started ever since the government planned to open the financial sector to foreign companies. A firm that stands to benefit from this proclamation is Safaricom Ethiopia, with its mobile money platform M-Pesa.
Currently, there are two mobile money service providers, Ethio telecom’s telebirr, and Kacha digital financial technologies which is privately. Safaricom is also expected to launch is M-pesa service in Ethiopia as soon as the proclamation is ratified.
The draft stated that for a foreign national peeking interest to engage in mobile money service should pay 150million dollars in investment protection fee. The draft states that a minimum paid up capital for mobile money issuers to be 50million birr while foreign companies are expected to pay in foreign currency.
Mpesa is now undertaking preparations to enter the Ethiopian market after government officials gave the green light last year.
Prior to this, the Safaricom-led consortium which also includes Vodacom and Vodafone was in May granted a telecom license in Ethiopia following a $850 million bid but at the time was unsure of what it would take to get the M-Pesa license.
The draft directive on licensing and authorization of payment instrument issuers now makes it clear that Safaricom will have to pay additional money to get a mobile money license.
Currently, NBE is proposing an aggregate daily transaction limit of 20,000 birr and 300,000 birr for accounts classified as level one and level two respectively with no clarity being given on how the classification will be made.