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Ethiopia: Investment bank law may herald creation of stock exchange

By Loza Seleshie
Posted on Wednesday, 28 April 2021 10:02

A client uses an automated teller machine (ATM) at the Commercial Bank of Ethiopia in Addis Ababa
A client uses an ATM at the Commercial Bank of Ethiopia in Addis Ababa, Ethiopia, July 31, 2019. REUTERS/Maheder Haileselassie Tadese

Ethiopia has been progressively opening its banking sector since 2016. As the country moves ahead with its liberalisation process under Abiy Ahmed’s leadership, the pace of reform has picked up. But with the recent flop of telecom privatisation; partly because of fears around security, will financial sector opening fare differently? The fate of investment banks will be closely linked to moves to open an Ethiopian Stock exchange, and the wider privatisation process.

Since 2018, the list of sectors open to foreign investment has expanded, including logistics and telecoms.

In February, the Ethiopian Parliament completed a draft law to allow partial foreign entry into the banking sector – a stark contrast to the government’s more hostile position a year ago

What are the provisions of the draft law? How will it impact the banking sector? And what are its wider ramifications?

Slow to bloom

Ethiopia showed signs of opening its banking sector to foreigners in 2016 after adhering to the African Trade Insurance Agency (ATIA)

Backed by regional and international institutions, COMESA and the World Bank, the ATIA aims to attract foreign direct investment (FDI) by offering “ insurance against political upheaval, expropriation and problems with exchange controls on trade” as noted in The Economist. 

Following this, nine foreign banks have opened liaison offices: