The Future of Ethiopia’s Economy at Stake

Ethiopia has been seen as one of the last frontiers of untapped growth in Africa. When the federal government decided a couple of years ago to liberalize the telecom sector and put an end to the 125-year-long monopoly held by Ethiotelecom, investors welcomed the news, and citizens for their part leaped for joy. The jubilation was understandable as the quality of the service delivered by Ethio telecom had been substandard, to say the least, and was the main cause, among others, for Ethiopia to be left at the station rather than being onboard the digital economy train.

Recently, the three-decade-old policy stance on foreign banks’ entry was abandoned – a watershed event since the 1990s financial sector liberalization. A proclamation that would allow foreign banks to join the Ethiopian banking industry is in the pipeline. The proclamation allows four entry modalities: acquiring shares in the domestic banks, setting up a subsidiary, opening a branch office, and opening a representative office.

The decision caught many people, even the industry players, by surprise. While the government is optimistic about the benefits (particularly foreign currency inflows) accruing from the entrance of foreign banks, subsequent discussions have shown that many have fears and concerns. It appears that the concerns have alarmed the government to add more restrictive rules.