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Ethiopia : Banking sector opens up to foreign investors

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Ethiopia : Banking sector opens up to foreign investors

After a 30-year ban on foreign involvement in its banking sector, Ethiopia is now contemplating permitting foreign banks to buy stakes in local lenders.

Opening up equity investments in the banking sector to foreigners

A bill currently before the Legislative Assembly would permit foreign companies to acquire stakes in domestic banks. This would enable foreign entities to create subsidiaries, open branches, establish representative offices, and, in some cases, take over struggling local lenders.

The bill requires that :

  • The direct participation of a strategic foreign investor is limited to 30 %.
  • Total participation by non-citizens and foreign-owned companies is limited to 40 %.
  • Investments to be made only in foreign currency

The National Bank of Ethiopia presented the plan in a press release shared in a LinkedIn post.

Draft law approved by the Ethiopian Council of Ministers

These legislations mark a significant step toward fostering growth and enhancing the credibility, accountability, transparency, and governance of the National Bank of Ethiopia. The bill has received approval from the Ethiopian Council of Ministers but still requires legislative approval, as reported by Bloomberg.

Ethiopia aims to attract foreign investment and rebuild the country after a two-year internal conflict ended in 2022. The nation has seen a sharp decline in its foreign exchange reserves and faces the risk of default, making foreign investment crucial for economic support.

In a related development, Kenyan telecommunications company Safaricom launched its M-Pesa mobile money service in Ethiopia in August 2023. Safaricom CEO Peter Ndegwa noted that « the opportunity is huge ».

Five banking licenses for foreign investors within five years

Ethiopia’s banking sector is dominated by the state-owned Commercial Bank of Ethiopia, with all 32 banks being locally owned. Recently, the National Bank of Ethiopia announced it would issue up to five banking licenses to foreign investors over the next five years.

According to the Prime Minister’s Office, the bill was prepared in response to recent economic and technological developments in the global financial sector, as well as a shift in policy. The bill sets up a legal framework and control mechanisms for issuing banking licenses to foreign investors and manages the process. The Board also amended a law related to the creation of the National Bank of Ethiopia (NBE) to address several fiscal policy gaps and ensure the NBE’s financial self-sufficiency.

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