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Ethiopia

As economy stalls, Abiy plans to open banking sector

The government is edging towards liberalisation to bring in investors rattled by instability and geopolitical rivalries

Prime Minister Abiy Ahmed's government has set up a committee to work on banking liberalisation which is due to release a draft code for financial sector reform by December.

This would break with decades of barring foreign banks from competing with national banks in the country. But Abiy is yet to announce any timelines for easing the restrictions on foreign lenders.

On the agenda since Abiy came to power in 2018, financial sector liberalisation has become more urgent as the government responds to the shortage of foreign exchange and new investment since the war with Tigray region started in November 2020.

'We will bring foreign banks because we need additional wealth and hard currency,' said Abiy in February. Alemante Agidew, who chairs the Liberalisation Committee, says the new code will lead to the creation of 'a capital market and opening up of the economy for foreign players.'

As with telecoms, where Safaricom has secured a lucrative contract, some of Kenya's biggest companies, including Kenya Commercial Bank and Equity Bank, are among those eyeing the Ethiopian market as they increase their reach in the region (AC Vol 62 No 25, Safaricom sticking around). KCB's recent merger with Banque Populaire du Rwanda (BPR) formed the second-largest bank in Rwanda.

Both groups have been waiting for Ethiopia to open up. KCB has been running an office in Addis Ababa since 2015; Equity opened one in 2019 following a deal in 2012 that allowed Kenyan banks to open representative offices in Ethiopia but barred full banking operations for direct lending and deposit-taking.

The Kenyan banks' representative offices could not generate deposits or lend directly to Ethiopian companies and households but they could conduct research and credit assessments. That allowed them to lend from their headquarters in Kenya.

Abiy's government's liberalisation of its banking regulations might provide a chance for Safaricom to move into a second, and larger, market of mobile money users.

Under the terms of the telecoms liberalisation, the state-owned Ethiotel was initially allowed a monopoly over its 'Telebirr' mobile money services. That was to enable it to build up a base in the national market – before allowing in more experienced outside operators.

Competition for telecoms and banking customers in Ethiopia's 110 million-strong market is stepping up (AC Dispatches 15/9/22, Safaricom and Vodafone get EU's green light for mammoth telecoms investment with Addis Ababa). According to the World Bank, just 35% of Ethiopians had bank accounts in 2017, compared to the average of 43% across Africa.



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