Hey crew, here’s to another week of cutting through the noise and focusing on what actually moves financial minds forward.

No buzzwords, just the stuff affecting wallets, business & the economy:

🤝 Shareholders Meet Dematerialization

皿 Behind Bars: Prison Economics

Here’s to the 125th weekly edition

Let’s dive in.

Whoever is able to spell ‘Dematerialization’ without reading probably deserves some sort of medal.

Yet, it is now part of the vocabulary of every broker in town.

If you own any shares in a share company, chances are that the company you gave your money to so that it can pay you back in dividends has sent you a

‘You up?… Just kidding silly, of course you are. Time to dematerialize your shares’ text.

This is not a cool new trend that the powers at be at the helm of the Ethiopian Capital Markets have hopped on.

Dematerialization is the process of converting your shares into electronic records so that one day, you can give them to someone, in desperate need (or not), in exchange for money.

Ethiopia is transitioning towards a public market and asset transfers will no longer be the tedious process of handing offer physical proofs of ownership and hoping that the records on your end match those on the other.

It facilitates record keeping, reduces trade and minimizes settlement risks.

By dematerializing, you’re effectively making your assets liquid.

This enables the exchange of securities (fancy term used for shares when they become tradeable on a public exchange like ESX) at a higher pace with immutable transfer records created when your assets (‘securities') change hands.

Right now, the process is brutal.

There’s 4 actors involved: The issuer (Say Dashen if they sold you their shares), You (the investor), Your favorite broker (Let’s say CBE Capital) and then CSD or Central Securities Depository, which is under the National Bank.

Let’s keep it simple:

We have yet to go on this merry-go around but intellectual discussions with people close to the matter have painted this picture so far.

Why This Matters?

Well besides its benefits as stated above, the capital market authorities have made this step mandatory, and rightly so.

If you haven’t already, make sure you have your share certificates handy, otherwise, calming that you own ‘X’ amount of shares and asking the issuing company to double check won’t be enough.

As this is Ethiopia, paper trails are obliged.

Just like the transition from physical pictures to digital memories, the makeover is due with the times.

Prison is not fun. (‘Way to start a conversation guys’)

Bare with us. We’ve never set foot in one but based on the movies, it’s not exactly a place where we want to end up.

So why are we talking about it?

Well, believe it or not, it’s a great place to learn about economics.

Yes, economics…

Topics like these that is.

Look past the dangers of belonging in a highly volatile and unpredictable place that you can’t leave unless your number is called, and you can start understanding what we’re talking about.

Cash is not permitted inside prison walls, so for decades, inmates have created their own market, sometimes called the ‘Inmate Run Market’ or IRM.

They figured whatever can be perceived to have value can become currency.

It used to be cigarettes.

Later stamps and then something called Mackerel, a sardine type fish that is sold at the commissary in a foil pouch.

Like any economy, inmates understood that for any supply, there needs to be demand.

Hair cuts, laundry privileges, cell phones, alcohol, legal counsel from fellow inmates…anything in need can be produced or provided for a price.

That price is currency multiplied by the value.

Like a haircut can cost 50 x Mackerels.

Let’s assume that Mackerels are disbursed through commissary at ETB 10 (bought with actual cash sent by friends and family). We can consider them as new ‘bills’ being printed and then injected into the IRM economy.

Each inmate can get a maximum of 14 Mackerels per week. This means that there is a limit to the number of “notes” floating around.

The prison is effectively the central bank. Change that number to 15 per week and the economy feels it.

Monetary value changes and inflation can slowly creep in.

Economics follows us everywhere.

Whether it is the school playground, the monopoly board game, The Sims virtual reality or the inside of prison walls, there’s supply and demand in some shape or form on display.

The whole idea is built on what has value and who is willing to give up what for that value.

While markets can slowly evolve based on these principles, external stimuli like the injection of an extra Mackerel can have a knock-off effect on the prison economy…