In a move to liberalize its economy, the Ethiopian government has approved a decision allowing foreign banks to set up local subsidiaries by the cabinet on Friday. Ethiopia, a country with a population exceeding 100 million, has been a sought-after market for foreign investors after years of being closed off, as reported by Reuters. The International Monetary Fund projects that Ethiopia’s economy will surpass Kenya and Nigeria to become the second-largest in Sub-Saharan Africa.
Apart from banking, Ethiopia is also opening up to foreign investment in other sectors like telecommunications, transportation, and aviation. The draft law, pending approval by lawmakers, allows foreign banks to establish partially or fully owned subsidiaries or branches in the country. The legislation requires local resident non-shareholder Ethiopians to be included on the boards of directors of foreign bank subsidiaries.
The bill also sets limits on the aggregate shareholding by foreign nationals and foreign-owned Ethiopian organizations in a bank to 40% of total shares and caps direct shareholding by strategic investors at 30%. The Central Bank of Ethiopia sees these regulatory changes as vital to laying a solid foundation for growth and improving the credibility, accountability, transparency, and governance of the banking sector.
Currently, Ethiopia’s banking industry is dominated by the state-owned Commercial Bank of Ethiopia, with all 29 players being locally owned. In an effort to attract foreign investment, the central bank announced plans last year to issue five banking licenses to foreign investors over the next five years. These developments mark a significant shift in Ethiopia’s economic landscape and aim to attract foreign capital to drive growth and development in the country.
