Borkena
Toronto – On Tuesday, the Ethiopian Parliament approved Proclamation 1359/2024, allowing foreign banks to operate in the country.
“This proclamation is historical and groundbreaking in nature as it reorients the central bank’s primary objective towards maintaining price stability,” the National Bank of Ethiopia stated following the parliament’s approval of the legislation.
The Ethiopian Parliament is dominated by the ruling Prosperity Party, which controls over 95 percent of the seats.
Three opposition members voiced concerns against the bill, citing the financial and technical limitations of private banks in Ethiopia.
Desalegn Chanie, who represents the National Movement of Amhara (NaMA)—a party weakened by internal divisions— sees the law’s approval as a sign of Ethiopia losing its policy independence.
“Have we done our homework? … The approval of this law is tantamount to declaring the demise of private banks,” Desalegn argued. He highlighted that many private banks in Ethiopia, most of which are less than five years old, lack the financial and technical capacity to compete with foreign banks.
Desalegn also pointed out that many Ethiopians have invested in these newly established banks. He suggested that the banks should have merged to build stronger capacity before foreign banks were allowed in. Additionally, he expressed concerns about the regulatory capacity of the National Bank of Ethiopia and warned that foreign banks could facilitate capital flight.
Abebaw Desalegn, another opposition parliamentarian, shared similar concerns, calling the legislation “untimely.”
Prominent economists in Ethiopia, such as Kebour Ghenna, have expressed opposition to the privatization rush, warning of potentially disastrous consequences for the country’s economy.
The National Bank of Ethiopia defended the legislation, stating, “The new proclamation provides the National Bank of Ethiopia with a much-improved legal foundation to ensure macroeconomic stability and growth, to maintain the safety and growth of the financial sector, and to enhance the efficiency and effectiveness of the payment system.”
Mamo Mihretu, the governor of the National Bank and a former World Bank employee, addressed the parliament, responding to opposition concerns. “Opening up the banking sector does not mean deregulation. Rather, it strengthens our regulatory capacity,” he explained.
According to Mamo, foreign banks entering Ethiopia will have the option to open branches, partner with local banks, or establish representative offices.
Historical Context
Until Prime Minister Abiy Ahmed took office in 2018, Ethiopia followed a government-regulated economic model while the notion of “free market economy” was not entirely absent. Foreign banks were prohibited to protect local financial institutions, which were seen as unable to compete with international counterparts.
The approval of this legislation is part of the macroeconomic reforms introduced by Abiy Ahmed’s administration under the “homegrown economic growth program.”
In July, the government implemented a market-based forex exchange regime, resulting in the depreciation of the Ethiopian Birr by more than 100 percent. When the policy was introduced, one US dollar equaled approximately 58 Ethiopian Birr. As of now, the exchange rate exceeds 124 Ethiopian Birr.
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This could be good news for consumers especially borrowers. It also creates new jobs for the desperately unemployed. Money is cheap and has been so for almost two decades here in the West. Competition will create incentivized options for current and potential local entrepreuners. When I see the photo of this bank official and look into his background, it gives me confidence that the old country is very capable hands.