I teach a Principles of Microeconomics course during the fall semester at NYU in Abu Dhabi. One of the more popular parts of the class is our trip to the Abu Dhabi Stock Exchange (ADX), which is just a few blocks from our campus in Abu Dhabi. This is the photograph of my students, with the CEO of the Exchange, Mr. Baloushi.
For many developing countries, stock markets are the quintessential symbols of development. They are the ultimate sign of modernity. Most African nations strived to have stock markets as soon as possible. The arguments in favor of their existence, other than national pride, have never really been spelled out logically, in my opinion. The very first stock markets grew organically from the needs of people. There is the story of the formation of the New York Stock Exchange, from under the buttonwood tree in 1792. The New York Stock Exchange was formed from a real need – it was a place where you could buy a piece of a company in need of some funding.
Many stock exchanges in poorer countries did not grow organically, but instead were imposed by government fiat, particularly in Sub-Saharan Africa. Many of these exchanges trade only a handful of stocks, many of which are majority government-owned. The Ethiopian Commodities Exchange (ECX), which I and collaborators are working on as a CTED project, seems to suggest that for African countries dependent on agriculture, it may be better to establish a commodities exchange rather than a stock exchange. This enables better involvement of a broader section of the population, and probably also a much higher turnover.
Anyway, back to the UAE. There are a respectable number of private companies thriving on the exchange (volume is more than US $100M per day). There is no commodities exchange, although plans have been floated for a while, and initial plans were to establish it on Saadiyaat Island, the location of the forthcoming permanent campus of NYU in Abu Dhabi. There are also plans to merge it with the Dubai Exchange (the Dubai Financial Center). It is always a great experience to visit stock exchanges to see real economics taking place. My students seemed to really enjoy it. We also had some research visitors from the ECX, spending time with us at our Abu Dhabi center, who were happy to visit the ADX, which is much larger than the ECX. I think all of us were bemoaning the fact that the ADX has transitioned to online trading – so the excitement and energy of the open cry system is gone. I am glad to have seen the open cry system at the Ethiopian Exchange, and I am told that they will also be moving to the online system shortly. Ah well.