Are the “Salad Days” for Private Banks Ending?

Teklewold Atnafu, the longest serving governor of The National Bank of Ethiopia (NBE), in his speech on financial liberalization in the country, at the eighth general assembly of the Ethiopian Economic Association (EEA) on July 15, 2000 asked the assembly, “Have we created, through financial sector liberalization, a diversified and deep financial system?” and answers himself “Obviously, there is still a long way to go in this respect. We still don’t have active money and capital markets. The types of financial instruments remain limited. The sector is not well diversified in terms of financial institutions. Competition in the sector is far from being fierce.” Fast forward 13 years and almost nothing is changed, except may be for the competition part, and his institution’s Neanderthal nature and the stifling directives it formulated through the years are partly to blame. And now the sector is facing yet another obstacle.

Why Ethiopian Investors are Avoiding the Manufacturing Sector

In our meetings with Prime Minister Meles Zenawi, he frequently raised questions regarding the lack of private sector dynamism [in Ethiopia]. One of his questions was why Ethiopians with large sums of money invested in urban properties instead of building factories. On another occasion he asked how East Asian governments steered the private sector away from speculation and rent seeking and into manufacturing and technology. He also wished to receive literature explaining concretely how Meiji Japan and post-WWII Korea absorbed technology so quickly from foreign-assisted industrial projects.”

Prime Minister Hailemariam Desalegn, in his first official visit to Kenya in November 2012, elaborated how it will be profitable for Kenyans to invest in Ethiopia. During this meeting with the country’s business people, he mentioned some of the benefits they will reap if they engage in Africa’s second populous nation. He mentioned the natural wealth and cheap labour in the nation to sway his audience. Among other things, he stressed that the country has one of the cheapest electric fare in the world, making it an ideal place to establish a manufacturing plant. But what the Premier short fall of disclosing to the potential investors was how his country is also among the nations where power interruptions and sporadic blackouts and brown outs (reductions in voltage) are all but common, and in fact part of everyday life.