By Asrat Tessema (Ph.D.)

Eastern Michigan University

Professor of Finance, Emeritus

(This article was first published by African Economic Review Journal in 2003.)


Governments in developing countries face increasing difficulties in funding public enterprises through government allocations because of budget constraints due to low savings and population explosion. It has also become increasingly difficult to expect an increase in the flow of foreign private and government capital because of the recent debt crises experienced by some developing countries as well as budgetary uncertainties in the developed countries themselves. This situation has been exacerbated by the opening up of Eastern Europe and the crumbling of the Soviet Union. These European countries have better industrial bases than sub-Saharan African countries like Ethiopia, and thus are likely to attract most of the limited funds available from external sources.

According to the International Finance Corporation (IFC) (1997), Sub-Saharan Africa attracted only $11.8 billion in private capital in 1996 or less than $1 for every $20 invested in developing countries. This region, however, received about 50 percent of the $20 billion annual aid to developing countries and is still mired in extreme poverty due mainly to political and economic turmoil. However, many African countries, including Ethiopia, are in the process of overhauling their economic and political systems and may be opening up the last untapped market in the world. Therefore, if Ethiopia wants to become self-reliant through economic growth and modernization, it will have to develop its domestic capital markets and rely less on foreign sources of capital. Research has shown that development of securities markets1 contributes to economic development through the mobilization of savings and their channeling to the most productive enterprises.

However, the development of securities markets is not an easy task since many of the fundamentals of capitalism required for the development of securities markets represent a major shift in culture for many developing countries. These developing countries have little or no experience with modern market-driven economic mechanisms as a whole, much less with even-more-complex securities markets. Nevertheless, some developing countries eager to avail themselves of the benefits of securities markets sometimes disregard the costs and requirements and push ahead with policies that may not produce the desired effect. About a dozen African countries currently have stock markets in place; Ethiopia is not one of them.

The purpose of this study is to explore the possibilities of developing securities markets in Ethiopia. The study is organized into five sections. The first section provides an historical overview of the Ethiopian private sector. The second section reviews the rationale for developing securities markets. The third section discusses the costs and requirements for developing securities markets. The fourth section deals with the current Ethiopian economic environment and highlights the prospects and challenges for developing securities markets. The last section presents conclusions and recommended actions.

I. A Historical Overview of the Ethiopian Private Sector

Ethiopia, with a population of about 60 million, is the second most populous country in sub-Saharan Africa. It is the only country in Africa that has never been colonized. The last emperor, Haile Selassie, was forced to abdicate in a coup in 1974. From 1974 to 1991 the country was ruled by the Derg, a communist military dictatorship. The present government is controlled by a party that acquired power in 1991 when it won a long civil war against the Derg. The relative role of the private sector in Ethiopia’s economic development has evolved with changes in governments. The changes depended very much on the type of economic system adopted by the governments. The Ethiopian economic environment over the years can be classified into three distinct phases: mixed economy, command economy and market-oriented economy.

The first phase covers the period prior to the 1974 revolution. This period may be characterized as a feudo-capitalistic economic system in which land ownership was the source of income. Land was disproportionately owned by the ruling class and had always been a source of complaint against the government. This period marks the beginning of modernization of the country and the encouragement of private sector participation in economic development. The government issued several proclamations to encourage private domestic and foreign investments. Manufacturing was given a central role with the hope that it would stimulate other sectors of the economy. The government provided several incentives such as tax holidays, tariff protection, remittance of profits, repatriation of invested capital, tax exemptions on imported capital goods and concessions in the form of land leases or land grants. As a result, the manufacturing sector had made steady progress. The contributions of medium and large scale manufacturing industry to GDP grew from about 2 percent in 1961 to about 5 percent by 1973 (UNIDO 1991, page 21).

During the third five-year plan (1968-73, the last for the imperial era), 41 percent of the manufacturing activities was done by the public sector; the rest, 59 percent, was done by the private sector (third five-year development plan, page 231). The share of the private sector in construction was as high as 79 percent.

Although the private sector was given a prominent place, foreign investors dominated it, and the local entrepreneurs’ participation was very low, partly because of cultural bias by the intelligentsia against business and shortage of capital. Business was meant for less educated people. Most educated people regarded government employment as a dignified profession. This attitude was an impediment to development of entrepreneurship. Moreover, the financial sector was underdeveloped and largely owned and controlled by the government. The banks that dominated the financial sector were unable to mobilize enough capital to meet the demand, mainly because of low savings.

A short-lived stock market started informally in the late 1950s and was formally instituted in 1965. The stock market was administered by the National Bank of Ethiopia (the equivalent of the Federal Reserve Board in the United States). The government through the National Bank tried to improve resource mobilization by establishing a share-dealing group that brought together buyers and sellers to participate in an auction process.

The bank laid out rudimentary rules and regulations for the auction market. According to a study by J. D. Von Pischke (1968), former lecturer at Haile Selassie University’s College of Business, the stock market was moderately successful in its pioneering efforts to provide an organized market for companies whose shares were relatively widely held. Workable trading practices and standards had been developed, and a fairly smoothly operating market mechanism had been created.

It was a good start, and no crisis of public confidence had occurred. Market capitalization, however, remained small and did not have much impact on the economy since the participation of the general public was limited. Investors were naturally reluctant to invest in a corporation in which they do not have any personal involvement. Businesses in many developing countries are carried out in a secretive environment, something not possible for a listed stock that is publicly traded. Moreover, opportunities for tax evasion, which is rampant in many developing countries including Ethiopia, would vanish because of a stock market’s requirements of proper bookkeeping and regular reporting of firm activities necessary to safeguard investors from the abuses of corporate insiders.

The private sectors accessible to most Ethiopians were the trade and service industries, which in many cases require relatively less capital than manufacturing, construction and mining. Thus, investors stayed away from projects requiring long-term commitment. Yet, manufacturing increased modestly. Despite a steady growth in manufacturing, there were some problems. First, the sector depended heavily on imported inputs and did not help the development of local resources. Second, due to tax exemptions on imported capital goods, capital intensive technologies were used in most industries. Third, since manufacturing companies were located in only a few urban centers where less than 10% of the population lived, the majority of the population did not feel the impact.

Agriculture remained primitive. There was very limited use of modern technology in agriculture which would have helped increase productivity to meet the growing demand for consumer goods. As a result, prices soared and the spread of drought in the northern parts of the country worsened, triggering the revolution that culminated in ousting the government of Emperor Haile Selassie in February 1974. A new government headed by the military was instituted.

The second phase started in 1974 with a declaration of a centrally-planned command economy. The military government’s first order of business was to nationalize most of the industries and assume ownership and control of virtually all economic activities. The private sector was marginalized.

The infant stock market ceased to exist in 1975. The government introduced a series of policies and reorganized the manufacturing sector into corporations. All medium and large companies came under these corporations. Company managers reported to corporate managers. The government set input and output prices. Company managers had one duty: comply with set goals at any cost. Policies of collectivism at all levels and anti-market policies retarded the economy, and consequently foreigners who owned and operated most of the industries left the country. High-caliber Ethiopian entrepreneurs and qualified work force migrated to neighboring countries and elsewhere in the world. Domestic private investments virtually ceased.

The development policy denied investment incentive to small-scale industries. Their access to credit was limited by the stringent requirements placed on them by the banks, which were all now under government ownership and control. Little institutional support existed to introduce new technology in the private sector; as a result, most small enterprises had very low productivity using basic and outdated machinery and equipment.

The continued adoption of a fixed exchange rate (2.07 Birr for $1 US) resulted in the overvaluation of the domestic currency and undermined the competition of the local firms in the export sector, and thus limited the country’s access to foreign exchange. Moreover, the escalation of the civil war in the north and the severe drought that struck the country once again disrupted normal economic activities. The need to increase the size of the military and to acquire arms necessitated an increase in the defense budget. These increases put further pressure on the country’s meager foreign exchange reserve.

In 1983 the government introduced a new policy encouraging participation by private investors. Among the incentives were tax relief, import and export duty relief, repatriation of capital, and protective tariff measures. Despite such measures, the private sector, most of which had lost confidence in the government, showed little interest in investing in the country. Lack of investment was also reflected in a severe shortage of the foreign exchange needed to finance import of spare parts and foreign inputs.

Shortage of foreign exchange also resulted in a significant decline in capacity utilization by public enterprises, making it difficult to generate adequate revenue. Since the mid-1980s, GDP growth declined steadily, reaching negative figures at times. This resulted in budget deficits that had to be offset by higher external financing grants and higher money supply growth, all of which increased domestic inflation.

In 1990, the government declared a move from a centrally planned to a mixed economy in which the private sector was once again encouraged and some favorable concessions were introduced. However, it was too late and too little to change the trend in light of the unfortunate fall of international coffee prices (the major export of the country). Armed insurgents overthrew the government in 1991.

The third phase started in 1991 and is still continues. By this time the economic and political landscape around the world had changed. With the fall of communism and the emergence of a global economy, many nations around the world were slowly moving towards a market-oriented economy. It became clear that market-based economies fared better than those guided by socialist ideologies.

Despite the socialist orientation of the leaders of the new government, it was in the country’s interest to comply with the new economic order. That meant transforming the economy from a centrally planned to a market-oriented system. Since 1992 the government has undertaken economic reforms by adopting the Structural Adjustment Program that meets International Monetary Fund (IMF)/The World Bank requirements. The program’s main emphasis was the liberalization of both factor and commodity markets, as well as privatization and commercialization of state-owned enterprises.

As a result, new investment codes aimed at stimulating both domestic and foreign private sector investments have been enacted. In October 1992 the Ethiopian currency, birr, was devalued by a sizable amount to a level that reflected its approximate value. In May 1993, foreign exchange auctioning was introduced and as such allocation of foreign exchange to the private sector improved. The government also liberalized foreign trade policy by abolishing export taxes on various items.

In general, the relative role of the private sector is being enhanced by the new economic policy with the professed intent of creating an enabling environment, which would unleash the potential of the private sector. At the same time, Ethiopia’s history of state intervention in the economy and the antipathy and suspicion towards private business still lingers. The financial sector reform so important for the realization of the private sector potential is not moving at an appropriate pace. The government has allowed establishment of private banks by private citizens. As a result, six private commercial banks and eight private insurance companies have started operating, but they are not large enough to have much impact.

The largest and oldest commercial bank which has many branch offices in the country is still owned and controlled by the government. For the most part, interest rates are still determined administratively in favor of public enterprises and major private companies, thus crowding out most of the smaller enterprises. The dynamism of the economy is curtailed by the near exclusion of this segment from economic activities.

The country suffers from poor economic and social infrastructures such as roads, power, telecommunications services, water supply, appropriate schools and hospitals. Another impediment to private sector development is the lack of securities markets. The recent border conflict with Eritrea (once a province of Ethiopia, independent de facto since 1991, de jure 1993) is another problem diverting the government’s attention away from economic development. The outcome of the conflict is uncertain. Political disruption almost always affects economic activity as businesses postpone investments, scale down growth projections and may even consider moving capital elsewhere.

II. A Review of the Rationale for Developing Securities Markets

The nearly universal goal of nation-states is to become “strong” through economic growth and modernization. They want to see the rate of increase in GNP go up, per capita income rise, and efficiency and employment increase. A growing literature argues that stock markets provide services that boost economic growth and contribute to the achievement of these goals. (See Bencivenga, Smith and Starr (1996), Levine (1991), and Obstfeld (1994)). Theoretical disagreements about the importance of stock markets for economic growth also exist. (See Mayer (1988); Stiglitz (1985, 993); Devereux and Smith (1994); Shleifer and Summers (1988); and Morch, Shleifer and Vishny (1990a, b).

Levine and Zervos (1996) conducted an empirical study and reported a strong positive correlation between stock market development and long-term economic growth. Furthermore, they provided data on the trend in stock market activities in the recent past.

During the period between 1985 and 1995, world stock market capitalization rose from $4.7 trillion to $15.2 trillion, and emerging market capitalization jumped from less than 4 percent to almost 13 percent of total world capitalization. Over this decade, the trading of shares in emerging stock exchanges rose from less than 3 percent of the total value of transactions on the world stock exchanges to 17 percent. In addition, Korajczyk (1996) shows that emerging markets have become more integrated with world capital markets2 during the past seven years. Consequently, portfolio equity flows to emerging markets jumped from $150 million in 1984 to over $39 billion in 1995.

However, due to the relative underdeveloped nature of equity markets in Africa, the region has attracted a disproportionately small share of recent international private capital flows to developing countries. Little current financial research focusing on African equity markets is being done. The region has not received the attention that Latin America and Southeast Asian countries received in the literature.

Recently, however, recognizing the potential benefits of a well-functioning equity market, several African countries have made important efforts to establish and invigorate stock exchanges. These include Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Namibia, Nigeria, South Africa, Tunisia, Uganda, Zambia and Zimbabwe. With the exception of South Africa they are all small both in terms of size (capitalization) and numbers of listed companies; and are infrequently traded (see table 1).

[Table 1]

In the developed countries the existence of securities markets is frequently taken for granted since their development is considered a natural outgrowth of the free-market system. Only in times of considerable turmoil in the markets is policy toward them given much attention. For developing countries in transition from a centrally planned to a free-market economy, however, policy with regard to securities markets must be more deliberate, and should involve consideration of sensitive economic, political and social issues. In analyzing the net effect of developing securities markets, one must understand benefits to developing securities markets as well as their costs and requirements.

Review of the literature indicates that well-functioning securities markets have the following benefits:

1. Enhance savings mobilization.

Stock and bond issues serve to increase the national savings rate by creating incentives to invest. Since securities are risky investments, they generally earn higher returns than more secure instruments such as bank savings deposits. They also offer investors the option to diversify across industries, thus improving their risk/return tradeoff. This is a better option than putting all one’s savings into a small business where one’s entire livelihood would have to depend on the success of that particular business.

2. Help in resource allocation.

In a market economy, issues of securities help raise capital for projects whose outputs are in the highest demand by society, and those enterprises which are most capable of raising productivity. Thus, efficient enterprise management is rewarded by access to investment funds. Securities prices serve as a means by which investors express their confidence in enterprise prospects and management. Without securities markets, companies must rely on internal resources (retained earnings) for investment funds, on bank financing or on government grants or subsidies. Such forced reliance on self-finance penalizes young companies whose products may have greater future demand. These new and growing enterprises often have little in the way of retained earnings.

Bank loans are important source of capital throughout the world, but are limited by the amount of deposits banks are able to mobilize. As a result, banks tend to be very conservative in their lending policies, thereby penalizing younger or emerging companies whose business risk is higher than those faced by established firms, and yet contribute to the dynamism and future growth potential of the economy through innovations. Thus, the role of the private sector is limited by the exclusion of this important segment from the activity.

Since banks in emerging economies are mostly owned and run by governments, they extend loans to priority sectors in response to government directives without due regard to quality, and often at interest rates below the bank’s cost of funds. This leads to inefficient resource allocation and widespread loan delinquencies. The prevalence of these problems reduces the level of investments, productivity of capital and the volume of savings.

Even if government grants and subsidies are available, they tend to introduce market imperfections that contribute to the distortion of financial prices. These imperfections subvert the positive allocation role of securities markets. Governments generally are not known to process the enormous amount of information necessary to make sound allocation decisions. The result is irrational investment patterns, further distortion due to political influences over economic decisions, and discrimination against smaller, younger and innovative undertakings.

Securities markets create better opportunities for small emerging companies to raise funds in the venture capital market since venture capitalists would be more comfortable investing in new ventures with the knowledge that possible future divestment can take place through a public offering at a potentially substantial profit.

3. Promote efficient financial system.

Securities markets break the oligopoly that would be enjoyed by the banks in the absence of securities markets. The government does not automatically have privileged and subsidized access to funds and must compete on equal terms. Securities markets provide impetus for the establishment of financial prices based on scarcity values rather than on administrative fiat. Such market-determined financial prices and investment options, in turn, attract more savings, creating a virtual circle of innovation and mobilization that contributes to the overall efficiency of the financial system.

4. Help term transformation and improve capital structure.

Healthy debt/equity ratios are important for a robust economic system. Corporations in many developing countries are undercapitalized. In the absence of equity markets, debt/equity ratios inevitably rise. First, in growing companies, retained earnings and fresh cash injections from the controlling shareholders usually cannot keep pace with the needs for more capital, thus slowing growth. Second, outside investors require liquidity and some sense of security that can be provided only by an organized marketplace.

When active secondary markets for securities exist, savers can be induced to provide the long-term funding that corporations seek because savers are assured that the markets can provide them with liquidity. Thus, what is the equivalent of short-term investment for the security purchaser is transformed into long-term financing from the issuer’s perspective. The more efficient matching of asset and liability maturities that result means less financial risk for companies and thus a more stable economic environment in general. Moreover, the availability of equity capital through the markets decreases the overall debt/equity ratios of business, which may (in the absence of such financing) reach levels at which default risk outweighs the advantage of increased leverage.

5. Allow deconcentration of ownership.

Equity sales provide for a wider participation in enterprise management and for a wider distribution of corporate profits. These factors would help allay the fear that a few individuals or groups linked to the ruling party would dominate the private sector. Wider distribution of corporate profits develops a general sense of ownership and an assumption of responsibility on the part of the citizen. People will now be united by their common defense of their business interests, and ethnic and religious differences would gradually dissipate.

6. Improve accounting and auditing standards.

Securities purchasers rely in part on corporate information provided in financial reports to make their investment decisions. The development of securities markets is usually accompanied by increased reporting standards and requirements, which contribute to the efficiency of the markets and their mobilizing and allocating functions. A regular disclosure of adequate, reliable and timely information makes it possible to compare performance of various companies. The development of widely accepted accounting procedures, checked by independent external auditors is also an important benefit derived from the development of securities markets. Availability of good information helps corporations make better decisions and provides better statistics for economic policy makers. Good information may even help tax authorities collect taxes in a more efficient and equitable fashion. The need for disclosure of financial information is a strong incentive for the improvement of accounting and auditing standards.

7. Provide effective tools for monetary and fiscal policy.

When an economy has well-developed securities markets, it can conduct monetary and fiscal policies through these markets. The Anglo-American style economies conduct monetary policy through open-market operations. These economies affect the market interest rate and money supply by buying and selling securities in the open market. Governments in these countries can finance their deficits by issuing bonds in the open market. Therefore, a government deficit does not necessarily bring about an increase in money supply and thus inflation.

Economies with only a commercial banking system have to conduct their monetary policy and deficit financing through the banking system. Open market operation is not available. The only effective tools are direct credit controls, ceilings on loans and interest rates, as well as reserve requirement manipulations. Also, deficit financing is carried out by either borrowing directly from the central bank or by selling bonds to commercial banks. Consequently, deficit financing puts pressure on the money supply and leads to inflationary pressures. As a result, financial repression is common in countries with banking-oriented financial systems. Full-scale financial sector reform (liberalization) may be impossible unless the economy has well-developed securities markets.

8. Help privatization efforts.

Public investments vastly exceed private investments in transitional economies. Economists widely believe that privatization of state enterprises will reduce losses and create efficiency. However, transitional economies generally lack the financial infrastructure and the legal framework to engender privatization efforts. Yet, these economies often like to privatize state enterprises. One of the most notable problems associated with privatization of state enterprises is the lack of well-developed domestic equity markets. An inadequate supply of capital due to low savings, low gross national product and limited access to international capital markets has been an impediment. One of the main challenges for transitional economies is, therefore, to improve the quality of financial intermediation and resource allocation to contribute to a more rapid rate of economic growth that would lead to higher levels of savings and investments.

The establishment of securities markets would ensure the existence of not only a primary market for the initial public offering but also a secondary market for shares after firms have been privatized. Without such markets, individual share owners would be unable to adjust their portfolios as required. This would increase the risk and uncertainty faced by investors, thus increasing the cost of capital to firms issuing equity to raise capital. The marketability of shares is a key element in the ability of firms to attract private investors who would have options to liquidate their holdings. Securities markets development and privatization of state enterprises are two sides of a coin in the sense that a government cannot hope to carry out meaningful privatization unless securities markets adequate enough to finance them exist.

III. Costs and Environmental Requirements for Securities Markets

The benefits of securities markets do not come without certain problems, which are inherent in the system. Some of the costs inherent in securities markets as discussed in the literature include:

1. Market cycles.

During the early stages of securities markets development the supply of stocks and bonds is limited, manipulation is relatively easy, investors are unsophisticated, underwriters and brokers are inexperienced, and securities legislation often has loopholes. As a result, economic cycles are more difficult to predict. Thus, the job of a financial analyst would be very difficult during the early years of development.

2. Interest rate fluctuations.

The fluctuations in interest rates, which occur in a financially competitive environment, make planning more difficult for both borrowers and savers. The additional efforts required for information gathering and decision making in such environments, together with the need for borrowers and savers to adjust their positions more frequently over time, constitute costs brought about by a liberalized financial system.

3. Intermediation and regulation.

The institutions and individuals that constitute the securities markets fall into the following categories:
. Participants which are the savers and users of capital (individuals, corporations and governments),
. The financial institutions and intermediaries that channel capital from savers to users,
. Supporting and supervisory entities which are typically government bodies that facilitate and regulate the activities of the participants.
The market itself has two levels:
. The primary market where newly-issued securities of newly-created or existing enterprises trade.
. The secondary market where trading in outstanding shares is done.
The specialized services of financial intermediaries in securities markets are costly, yet indispensable. The strategic position that financial intermediaries hold in the market system in terms of access to information and control over transactions can lead to profiteering behavior that decreases the benefits accruing from the mobilizing and allocating functions of the securities markets system as a whole. The reporting requirements also represent costs to participating firms. In addition, firms have incentives to falsify such reports, which result in distorted investment decisions on the part of securities purchasers that may lead to decreased government tax revenues. Such expenses related to the organization and function of regulatory agencies as securities commissions, stock exchanges and administrative organs represent monitoring costs associated with the control of securities markets abuses.

4. Income inequalities.

While securities markets provide wider investment choices for savers and also serve to spread ownership in companies, it is likely that in the initial stages of securities markets development, the benefits of securities ownership will accrue to a limited group of investors. According to Wai and Patrick (1973), until a wide range of firms (in terms of size) and savings units (in terms of distribution of income and wealth) participate in the securities markets directly or indirectly (through mutual funds, pension funds, insurance companies, etc.), the development of the capital market, particularly the market for equities, is likely to increase the inequality of income and wealth distribution. A vigorous program of wealth distribution through highly progressive income taxation is one countermeasure, although it is fraught with its own problems.

Obviously, each of these costs of securities markets operation is significant and may have the potential to undermine the concomitant benefits through both economic and political reaction. However, the experience of many countries in introducing securities markets shows that the existence or creation of certain political, economic, policy and institutional environments can smooth the process of securities markets development for the following reasons:

1. Political environment.

Political uncertainty is detrimental to any investment. Investors’ projection of future political conditions, both domestic and international, directly affects their willingness to invest in such risky financial assets as stocks and bonds. Government stability and consistency in applying financial and economic policies tends to increase investors’ confidence and to increase the flows of capital from savers to productive investments.

2. Economic environment.

The key environmental factors for the success of securities markets include sufficient demand for and supply of securities. Financial and commodities prices that do not depart too much from scarcity values and low or predictable inflation are necessary. Demand for securities depends on the amount of capital available for investment in the hands of individuals and institutions. In very low per capita income nations and where corporate investment funds are in short supply, demand for securities cannot be expected to be high.

The degree of familiarity of potential investors with the securities markets operation affects demand. The existence of investment alternatives affects both the demand for and the supply of securities. Thus, bank deposit interest rates, tax policies, and the capitalization of securities markets are all considered by owners of capital when they make investment decisions. Investors must be convinced that the risks of securities ownership are likely to be offset by returns that sufficiently adjust for those risks as compared with more secure investments.

The supply of securities is as important to the smooth operation of a market as the presence of demand for them. When too few securities are available for purchase and trading, it may be difficult to attract investors, who may doubt that a large enough market exists to ensure the liquidity of their investments. The result will be a shallow, sluggish market that does not perform its function. In cases where demand for securities is high but few issues are available, securities prices may rise to unrealistic levels. Experts believe that a minimum number of issues required for the successful institution of a stock market is 20 profitable companies (Wai and Patrick, 1973).

3. Policy environment.

To encourage development of healthy securities markets, legal inducements that affect the supply and demand for securities are helpful. Such incentives include tax exemptions or reductions for income derived from capital gains and/or dividends from securities issued by publicly traded companies; tax credits for owners of publicly traded shares; tax deferral for dividends, interest and capital gains from securities purchased for retirement funds; and tax breaks for companies that list their shares on exchanges. While governments have important policy roles in the early stage of securities market development, their future involvement should be primarily catalytic and supervisory to create a sense of confidence in the public about the market.

4. Institutional environment.

Four related institutional areas are very important for the success of securities markets. First, corporation and securities laws are important for protecting both the interests of companies and those who purchase the securities they issue. Second, securities markets work most efficiently when such intermediaries as brokers, dealers, underwriters and the like are knowledgeable, professional, skillful, honest, and have sufficient resources to perform their functions. Third, legal or regulatory standards for these professionals are important for the assurance that financial intermediaries possess such qualities. Enforcement of securities laws, accounting regulations, and professional standards should be carried out by government securities and exchange agencies, or through the auspices of such self-regulating bodies as exchange administration organizations. Fourth, accounting and auditing standards are necessary to provide comparable financial information. This information is critical to making sound investment decisions.

In summary, despite the impetus to economic growth that the development of securities markets can provide, the costs associated with such development can be substantial. The magnitude of such costs and the capacity to manage them depend on a complex set of factors in many spheres. The experience of a range of developing countries in instituting securities markets indicates that their beneficial effects do not come automatically, and that cyclic phases of development are the rule. Securities markets remain sensitive to changes in the macro and micro environments affecting issuers and purchasers. The degree of government intervention in support of capital market development through fiscal and monetary policies is critical.

Furthermore, the question of how much market orientation of the economy as a whole is required in order for securities markets to play a beneficial role is uncertain, but clearly it must be substantial. These observations must be kept firmly in mind as we now examine the environment for developing securities markets in Ethiopia.

IV. Environment for Developing Securities Markets in Ethiopia

Research shows a strong positive correlation between overall securities markets development and long-term economic growth and that the association is robust. (See Levine and Zervos, 1996.) As a result, a worldwide movement exists to encourage development of securities markets in developing countries and transitional economies of Eastern Europe, and countries of the former Soviet Union.

In Africa, the African Capital Market Forum (ACMF) is leading the effort assisted by the Organization of African Unity (OAU) and the African Economic Commission, both headquartered in Addis Ababa, Ethiopia. At the 6th Conference of African Finance Ministers in mid-September of 1997 held in Addis Ababa, the ACMF and the inter-governmental group of experts discussed financial market development and integration in the African continent. The participants made several strong recommendations including developing of stock exchanges in Africa and integrating them. They endorsed the idea of regional exchanges that would allow member states access to a much larger pool of external funds besides increasing mobilization of domestic capital. Of course, these changes call for harmonizing security laws and accounting and auditing standards.

For its part, the Ethiopian government has been studying the possibilities of developing a stock exchange. The government has sent a delegation of experts from the National Bank of Ethiopia to some African and Asian countries to see how securities markets operate. Pressure also may be coming from the International Monetary Fund (IMF) and the World Bank to open up the economy by developing securities markets. As recently as September 1998, a panel discussion organized by the Addis Ababa Chamber of Commerce underscored the need to develop a stock exchange in Ethiopia. The panel highlighted the need to look beyond the banking system for additional capital by providing investors with choices that induce them to save and invest.

In the last ten years, Ethiopia has been in the process of transforming itself from a centrally planned to a market-oriented economic system. Early on, the government redefined its role in such a way that it would be engaged only in regulatory aspects and strategic economic activities, while playing a primary role in creating an enabling environment for the private sector.

In Ethiopia, public enterprises are being restructured and some have been privatized. In addition to privatization, commercialization of state enterprises is underway. The government issued a series of investment proclamations (1992, 1996, 1998) with many incentives intended to attract both domestic and international investors. The incentive package, however, does not compare favorably with those found in many developing countries, thus placing Ethiopia at a competitive disadvantage. (See Tsegaye Teklu (1994)).

Moreover, the existing barriers to investment in Ethiopia are so great as to render the benefits provided in the proclamations immaterial to the investment decisions by investors. The most frequently cited complaints by potential investors have to do with the bureaucratic process. The working relations between the central and regional governments do not seem to be clearly defined. As a result, potential investors run into many obstacles in getting access to land, power and telecommunications services. This may be one of the reasons why the number of investment projects implemented by the business community is far below the number of licenses issued. Formulation of favorable policies and issuance of regulations alone are not sufficient to encourage private sector activities. A faulty implementation puts the finest blueprints into disarray. Furthermore, some aspects of the proclamations limit the areas of investment by foreigners. The latest proclamation (1998) addresses some of these limitations, and allows foreign investors to invest in energy projects, telecommunications and the transport industry.

Ethiopia needs massive investment to upgrade its road network, supply of energy, water and telecommunication services to provide the necessary infrastructure to potential investors. These are areas, perhaps, in which foreign investors with capital as well as new technology should be invited to participate. Investments in those major infrastructures would create employment opportunities for those who would be laid off as state enterprises are restructured and privatized, and thus alleviate the problem that would be encountered when the breadwinner in an extended family loses his/her job which is typical in countries like Ethiopia.

Ethiopia also needs to overhaul its educational system in such a way that it addresses the country’s manpower need. The current system is elitist and does not prepare students for anything other than entering the university. High school graduates are functionally illiterate. If they do not make it to college, they simply have to join the ranks of the unemployed. The magnitude of this problem is exacerbated by the percentage of high school graduates who do not make it to college. For instance, 160,000 students took the college admission test during the 1997/1998 academic year and only 12,000 (less than 8 percent) made it. The remaining 148,000 will be added to the already bloated unemployed work force. Ethiopia would have a competitive advantage of low wages and a large labor force if its labor force were trained properly.

Higher education continues to be the responsibility of the central government while primary and secondary schools are run by the regional governments. Education in Ethiopia for the most part is still free to students. The Addis Ababa University (AAU) system is the largest in Ethiopia and one of the oldest universities in Africa. Its graduates have proven without any doubt that they could compete at a global level and make it in any field imaginable.

Newer colleges in the various parts of the country are being elevated to universities for what seems to be political reasons. The national university (AAU) operates under conditions of overcrowded classrooms, deteriorating physical facilities, lack of resources for such things as textbooks, reference materials, computers, laboratory equipment and consumables. Lack of textbooks, reference materials and the inability to make copies of handouts for students have been major impediments to effective teaching. Faculty members have to learn to improvise and make do with minimal resources. Given the relatively high cost of establishing and operating universities, it would not be in the country’s interest to add universities when the existing one is suffering from lack of adequate support, financial or otherwise. This simply diverts resources from Addis Ababa University, affecting the quality of its programs.

Lack of a skilled labor force has been cited as one of the reasons why foreign investors are not attracted to developing countries like Ethiopia. The government, instead of adding universities by opening one in each regional state, should strengthen the national university and expand intermediate schools for high school graduates (who could not make it to college) to learn some skills they could use. Thus, a skilled labor force would be readily available and would be attractive to foreign investors coming to the country.

Although the 1998 Investment Proclamation Act expands the areas in which foreign investment is encouraged, foreigners are still not allowed to invest in the financial sector. Ethiopian law forbids any foreigner, including a foreign bank, to own shares in an Ethiopian bank. The law also forbids foreign banks from conducting any banking activities in Ethiopia. This isolation of the Ethiopian banking system from the international banking community has perhaps the most important and far-reaching of the several consequences emanating from the restrictions upon foreign investment imposed by the Ethiopian government. By denying foreigners any role in the Ethiopian banking industry, the government has closed an obvious source of much needed capital for banks.

Perhaps more significantly, the government has also closed an important source of impartial information to potential foreign investors. Many investors, especially those who are new to a country or region, rely upon their international banks not only for banking services but also for information. For most businesses contemplating starting operations in a foreign country in which they have not previously invested, an important part of their due diligence investigation is an appraisal of the investment environment and the general business climate.

A local branch of their bank can usually be trusted to provide the kind of information an investor needs about the practical realities (as opposed to the theoretical legal opportunities) of the local business climate. Because of its contacts with the local business community, the local branch of a potential investor’s bank can also perform a second valuable function by finding and evaluating particular investment opportunities. Ethiopia deprives foreign investors of these services from their international banks.

If a potential foreign investor is unable to get information from his/her bank, he/she must rely upon the government’s investment promoters and other local sources which have interests which differ from those of the foreign investor. Information from these sources not only lacks the impartiality which an investor expects of his/her international bank, but these national sources are unable to perform a comparative analysis which can assist the investor to determine in which country, among many possibilities, to make an investment.

Similarly, the restriction upon foreign insurance companies and upon foreign investment in Ethiopian insurance companies also deprives the country of badly needed capital. Another effect of these restrictions in the financial sectors of the economy is that foreign banking and insurance businesses do not establish branches or subsidiaries in Ethiopia in which Ethiopians can receive training in the latest techniques and procedures and thereby develop skills needed both by them and by the country. This increases the difficulty of every investor because it inhibits the growth of a pool of skilled personnel.

The financial sector requires highly skilled manpower to undertake the vast range of tasks needed to mobilize and allocate resources as effectively as possible. It also needs help from the government. The role of the government should take the form of regulations to monitor and enhance bank solvency and limit finance sector instability. Building the confidence of the general public in the operation of the capital market in general, and securities markets in particular, is a critical aspect of development of capital markets. A well-functioning private sector enhances the development of securities markets.

Developing securities markets in Ethiopia face several direct challenges:
 Low level of public awareness about securities markets (the degree of awareness by potential investors of investments in stocks and bonds affects demand for securities).
 Lack of public confidence in share investment (after 17 years of socialism, there is neither the tradition nor the trust in share companies).
 Lack of institutional capacity to facilitate securities trading
 The underdeveloped state of the bond (debt) market due to the historical prominence of bank financing.
 A low level of private sector development and a low level of market orientation in the economy (there is still government interference in the market).
 Easy access to loans by wealthy and financially sophisticated Ethiopians, and probably those with a strong link to the party ruling the country.
 Problems with the supply and demand for securities at least initially (a reasonable number of companies whose shares are publicly traded and a variety of individuals and institutional investors). When too few stocks and bonds are available for purchase and trading, it may be difficult to attract investors who may doubt the existence of a large enough market to insure liquidity. On the other hand, in a very low per capita income country like Ethiopia and where investment funds are in short supply, demand for stocks and bonds cannot be expected to be high.
 Absence of input by the business community in the formulation of economic policy by the government (There is no mechanism in place to solicit input from the business community).

Many prospects (opportunities) for developing securities markets exist in Ethiopia:
 Ethiopia has considerable unexploited resources. Ethiopia’s known natural resources include gold, platinum, tantalum, soda ash, potash and natural gas. Except for gold, none of these resources has been exploited on a large scale. Ethiopia also has considerable unexploited fertile land. Agriculture plays a key role in the economy, although the country still uses primitive technology and the climate is subject to recurrent droughts due to irregular rain.
 Ethiopia, with over 60 million people (second most populous in sub-Saharan Africa), provides one of the largest potential markets in Africa.
 Ethiopia’s process of transition from a centrally planned to a market-oriented economic system and the process of economic liberalization underway is encouraging.
 The privatization efforts going on would help with the supply problems, particularly if a public offering of shares is used as the method of privatization.
 The existence of many profitable companies, which can potentially benefit from floating shares to the public.
 The existence of institutions like the country’s Pension Fund, insurance companies, credit unions, etc., with large sums of money. If allowed to invest, they would boost the demand for securities.
 The gradual improvements of the incentive packages in the successive investment proclamations help attract new investors including Ethiopians with foreign passports.
 The debate going on in academics, the business community at large and the government circle is encouraging.

V. Conclusion and Recommendations

One of the main challenges for developing countries like Ethiopia is to improve the quality of financial intermediation and resource allocation to contribute to a more rapid rate of economic growth. Recent developments in sub-Saharan Africa hint at benefits to be gained as a result of opportunities from the domestic capital market. More than a dozen African countries have now put in place stock exchanges.

At the same time, the interest in emerging stock markets by international investors is increasing largely due to the possibilities of above average long-term capital gains. In Ethiopia, bank-based financing of investments is still prevalent. Such a system leads to a greater degree of control over the private sector by a relatively small group of agents. This stricture could be avoided by putting more reliance on market-based financing. Reliance on debt financing, on the other hand, has weakened domestic entrepreneurship and has favored government or family group ownership with excessive debt ratios. To avail capital to the most productive enterprises, there seem to be strong arguments for developing an equity market in Ethiopia as an alternative to debt financing. Unlike banks, equity investors will share in both the benefits and costs of risky projects (enterprises) and, unlike banks, their return is not limited to a fixed interest rate but will rise with the profitability of an enterprise.

Ethiopia is in the midst of economic transformation from a centralized to a market economy. A successful transformation requires gradual development of the capital markets to support economic activities. International experience shows that no universal blueprint or model can address every country’s needs. This suggests the need for flexibility in the choice of methods in economic reform that must take into account the unique features of a country, particularly in terms of the level of economic development and administrative capacity. The success also depends on how carefully it is implemented, as there is much potential for good or bad. It takes time to develop the country’s rudimentary institutional infrastructure to run the operations of securities markets.

The following recommendations are suggested. They should not be taken as a blueprint but rather as a general road map, which can be revised as experiences are gained.

The successful development of securities markets requires the existence of sufficient demand and supply of stocks. Demand for stocks
depends on the amount of capital available for investment in the hands of individuals and institutions. The supply depends on the number of companies willing to list their company to trade shares publicly.

The first and foremost task in increasing the demand for securities is to educate the public about securities markets using the public media. Organize forums where the business community and the general public can learn about the benefits and costs of investing in securities markets. At the same time improve the political and legal environment in order to build the confidence first of the domestic business community and then of the international investors.

A legal system which not only allows for a clear definition of the rights and responsibilities of the contracting parties, but also provides for cost effective enforcement of covenants. Through its regulatory power, the government can do much to reduce uncertainty by increasing information flows, by punishing those who engage in forbidden activities, and by taking measures to enhance investor confidence. The securities laws may be copied from countries with situations similar to Ethiopia.

Another way of creating demand for securities is lifting all the legal restrictions from institutional investors like the largest government pension fund, public and private insurance companies and credit unions so that they can fully participate in the securities markets.

As far as the supply side is concerned, movement towards active private sector development, in conjunction with enabling privatization programs and liberalization of trade and capital flows, will help boost the supply of securities. The Ethiopian government can help this process by using public offering of shares in future privatizations of state enterprises. Although the lack of dependable financial data poses valuation problems, public offering of shares as a modality of privatization would result in broad ownership of firms. Broad ownership of firms would give citizens a stake in the country’s economy, thus reducing the resistance generated by the discomfort of the layoffs due to privatization and the suspicion that state enterprises are being sold to individuals or groups with political links to the ruling party. Other private firms may also benefit from going public. The advanced nations have a number of reasons why firms in general consider going public. Among these reasons are:
 Availability of significant funds for such purposes as working capital requirements, development of new products, expansion of existing ones, paying off debt and for research and development activities;
 A publicly traded company is in a more favorable situation to finance acquisitions with its own stock as an alternative to using cash;
 Issuance of equity would help expand debt capacity thus allowing the firm to access more readily available sources of debt at attractive interest rates.

Many of these advantages also exist for companies going public in Ethiopia. Experts believe that the minimum number of issues required for the successful institution of a stock market is 20, each representing a “float” of 25 percent of enterprise capital. (See Van Agtamael (1984) p. 45). Ethiopia definitely has more than 20 profitable firms that can pay more in dividends than what banks currently pay in interest.

Reducing government securities-holding requirements by banks and savings institutions would encourage government agencies and state enterprises to issue bonds to raise capital in the open market by offering attractive rates. The banks and savings institutions would then be able to invest in the securities markets, thus creating demand. In order to avoid bank runs, however, the government, through its regulation, may limit the equity participation by banks and savings institutions to protect depositors. Other measures the government should take to encourage public ownership of private firms include tax exemptions or reductions for income derived from capital gains and/or dividends from stocks issued by publicly traded companies.

Most importantly, the government should help in the development of the debt market by expanding auction programs for treasury bills, and federal investment bonds, together with the development of a framework for primary dealer networks in the secondary market. Along with the public debt market, the corporate debt market, which will expand financing options for private enterprises, needs to be developed. The establishment of bond-rating agencies will facilitate the development of the debt market. This is important, because in many countries the development of the bond market precedes the development of the equity markets.

Securities markets work most efficiently when brokers, dealers and the like are knowledgeable, professional, skillful, honest, and have sufficient training and resources to perform these functions. The govern-ment, among other things, should permit private and state banks to act as market makers until such time that the stock exchanges start issuing licenses to dealers and brokers. The government should enlist the services of the International Finance Corporation (IFC) for operational and technical advice in training government staff and staff of financial institutions (e.g. accountants, financial analysts and lawyers) responsible for the operational, supervisory and regulatory aspects of securities markets activities. This would help in upgrading the quality in terms of technical skills and analytical capacity of the personnel in the securities markets business.

Furthermore, substantial banking sector reform, including privatization of the largest commercial bank, is necessary. It is also important to enhance the authority and capacity of the central bank in order to improve the health and competitiveness of the financial sector. For the National Bank of Ethiopia to fulfill its role as the monetary and supervisory authority more effectively, its authority and capabilities may have to be considerably enhanced by ensuring greater autonomy and improving its technical capacity. A vigorous and independent regulatory body is essential for conducting monetary policy through open market operations and purely on economic considerations.

The dissemination of market information is another integral part of securities markets development. Since the competition among developing countries to attract foreign capital is very intense, there is a need to make concerted efforts to disseminate market information to potential investors abroad. A coherent and integrated strategy to market the country based on providing pertinent and timely information to the international investors would help attract direct and indirect (portfolio investment through an Ethiopian country fund) investments and invigorate the securities markets.


Securities markets are markets that provide medium and long-term equity and debt funds in negotiable forms that are issued by corporations and governments through financial institutions directly to individuals and different holders

2 Capital markets include both securities markets and “non-securities markets”. Non-securities markets provide non- negotiable medium and long-term debt funds through financial institutions such as commercial banks and savings and loan institutions.


Bencivenga, Valerie R., Smith, Bruce D., and Starr, Ross M. (1996) “Equity Markets, Transaction Costs, and Capital Accumulation: An Illustration,” World Bank Economic Review, Volume 10, No. 2, May, pp. 241-265

Berhanu, Taye (1995) “Entrepreneurship and the Development of the Private Sector in Ethiopia” in the Proceedings of the First Annual Conference on Management in Ethiopia, Addis Ababa, November, pp. 228-261

Bicksler, James L. (1978) “Gains from Portfolio Diversification into Less Developed Countries’ Securities: A Comment,” Journal of International Business Studies, Spring/Summer, pp. 113-115

Debessay, Araya and Harege-Work, Tadeos (1994) “Towards the Development of Capital Market in Ethiopia” in the Proceedings of the Third Annual Conference on the Ethiopian Economy, Addis Ababa, August, pp. 227-235

Degefe, Befekadu (1994) “Strategies and Macroeconomic Policies for the Development of the Private Sector in Ethiopia” in the Proceedings of the Third Annual Conference on the Ethiopian Economy, Addis Ababa, August, pp. 33-50

Devereux, Michael B., and Smith, Gregor W. (1994) “International Risk Sharing and Economic Growth,” International Economic Review, 35(4), August, pp. 535-50

Errunza, Vihang R. (1977) “Gains from Portfolio Diversification into Less Developed Countries’ Securities,” Journal of International Business Studies, Fall/Winter, pp. 83-99

Girma, Abu (1994) “Problems and Prospects for the Emergency of a Stock Market in Ethiopia” in the Proceedings of the Third Annual Conference on the Ethiopian Economy, Addis Ababa, August, pp. 207-255

Glen, Jack D. and Brian Pinto (1994) “Emerging Capital Markets and Corporate Finance,” Columbia Journal of Business, Vol. XXIX, No. 2, Summer, pp. 31-43

Hale, David D. (1994) “Stock Markets in the New World Order,” Columbia Journal of Business, Vol. XXIX, No. 2, Summer, pp. 15-28

International Finance Corporation (1997), Emerging Stock Markets Factbook. World Bank, Washington D.C.

Kebede, Gulilat (1994) “Privatization and Public Enterprises Reform Modalities and Sequencing” in the Proceedings of the Annual Conference on Privatization and Public Enterprise Reform in Ethiopia, Addis Ababa, pp. 201-217

Kenny, Charles J. and Moss, Todd J. (1998) “Stock Markets in Africa: Emerging Lions or White Elephants? “ World Development, Vol. 26, No. 5, pp. 829-843

Korajczyk, Robert A. (1996) “A Measure of Stock Market Integration,” World Bank Economic Review, Vol. 10, No. 2, May, pp. 267-289

Levine, Ross (1991) “Stock Markets, Growth and Tax Policy,” Journal of Finance, 46(4) , September, pp. 1445-1465

Levine, Ross and Zervos, Sara (1996) “Stock Market Development and Long-run Growth,” World Bank Economic Review, Volume 10, No. 2, May, pp. 323-339

Mayer, C. (1988) “New Issues in Corporate Finance,” European Economic Review, 32, pp. 1167-1188

Morck, Randal; Shleifer, Andrei, and Vishny, Robert W. (1990a) “The Stock Market and Investment: Is the Market a Sideshow?” Brookings papers on Economic Activity, 2, pp. 157-215

Morck, Randal; Shleifer, Andrei, and Vishny, Robert W. (1990b) “Do Managerial Objectives Drive Bad Acquisitions,” Journal of Finance, March 45(1), pp. 31-48

Perotti, Enrico C. and Oijen, Pieter Van (2001) “Privatization, Political Risk and Stock Market development in emerging economies” Journal of International Money and Finance, No. 20, pp. 43-69

Seyoum, Girma (1994) “The Financial Sector in Ethiopia: Problems and Views on Privatization of the Sector” in the Proceedings of the Second Annual Conference on Privatization and Public Enterprise Reform in Ethiopia, Addis Ababa, pp. 271-296, November

Seyoum, Girma (1995) “An Enabling Environment for Entrepreneurial Development in Ethiopia” in the Proceedings of the First Annual Conference on Management in Ethiopia, Addis Ababa, November, pp. 167-227

Shleifer, A., and Summers, L. (1988) “Breach of Trust in Hostile Takeovers,” in ed., A. Auerback, Corporate Takeovers: Causes and Consequences, Chicago, University of Chicago Press, 33-36

Stiglitz, Joseph E. (1985) “Credit Markets and the Control of Capital,” Journal of Money, Credit and Banking, 17(2), May, pp. 133-152

Stiglitz, Joseph E. (1993) “The role of the State in Financial Markets,” Proceedings of the Annual Bank Conference in Development Economics, pp. 19-52

TGE (1994a ) “Licensing and Supervision of Banking Proclamation No. 84/1994” Negarit Gazeta, 53rd Year, No. 44, Addis Ababa, January 31

TGE (1994b ) “Licensing and Supervision of Insurance Business Proclamation No. 86/1994” Negarit Gazeta, 53rd year, No. 46, Addis Ababa, February 1

Teklu, Tsegaye (1994) “Foreign Investment Possibilities and Constraints in Ethiopia” in the Proceedings of the Annual Conference on Privatization and Public Enterprise Reform in Ethiopia, pp. 219-251

UNIDO, (1991) “Ethiopia: New Directions of Industrial Policy,” Industrial Development Review Series, Vienna

Imperial Ethiopian Government -(1968-1973)- Third Five Years Development Plan

Van Agtmael, Antoine W. (1984) “Emerging Securities Markets: Investment Banking Opportunities in the Developing World,” London: Euromoney Publications

Von Pischke, J. D. (1968) “Share and Share Trading in Addis Ababa,” Haile Selassie I University, Addis Ababa

Wai, V. Tan; Patrick, Hugh T. (1973) “Stock and Bond Issues and Capital Markets in Less Developed Countries” in IMF staff papers, July, pp. 253-317

Wole, Solomon (1994) “Profile of the Private Sector in Ethiopia,” in the Proceedings of the Third Annual Conference on the Ethiopian Economy, Addis Ababa, August, pp. 21-32

Wole, Solomon (1994) “Reform in the Industrial Sector Public Enterprise,” in the Proceedings of the Annual Conference on Privatization and Public Enterprise Reform in Ethiopia, pp. 181-199

Table1. Sub-Saharan African Stock Markets

Year established Listings (No. of domestic companies) 1996 Capitalization (U.S. $Million) Value traded (U.S. $ Million) 1996
1990 1996
Botswana (1989) 12 NA 326 31
Ivory Coast (1976) 31 549 914 19
Ghana (1989) 21 NA 1492 17
Kenya (1954) 56 453 1846 67
Malawi (1996) NA NA NA NA
Mauritius (1989) 40 268 1676 78
Namibia (1992) 12 NA 473 38
Nigeria (1961) 183 1372 3560 72
South Africa (1887) 626 137540 241571 27202
Swaziland (1990) 6 17 1642 8
Zambia (1994) 5 NA 229 3
Zimbabwe (1946) 64 2395 3635 255

Malaysia 621 48611 307179 173568
Brazil 551 16354 216990 112108
U.K. 2433 848866 1740246 578471
U.S.A. 8479 3059434 8484433 7121487

Source: IFC (1997), NA denotes not available.