Ethiopia Opens Banking Sector to Foreign Investments

The Ethiopian parliament has passed a long-awaited law that makes the country's banking sector accessible to international players. With this opening, the government hopes to attract additional foreign investment into one of Africa's largest economies. However, the law stipulates that foreign stakes in banks are limited to a maximum of 40%. This reform is part of a broader attempt to liberalize Ethiopia's economy since Prime Minister Abiy Ahmed took office in 2018. Currently, the state-owned Commercial Bank of Ethiopia dominates the sector. Abiy Ahmed's liberalization efforts have been hampered by a two-year civil war, an unstable currency, and slow-moving reforms. Although the majority of parliamentarians supported the law, there were some concerns about whether local banks would be able to compete with international players. However, the governor of the Ethiopian Central Bank, Mamo Mihretu, argued that increased competition would benefit local lenders. In July, Ethiopia secured a $3.4 billion bailout package from the International Monetary Fund, after a shortage of foreign currency and persistent inflation had burdened the country. As a result, Ethiopia had to float its currency, leading the birr to lose nearly a third of its value against the dollar. This financial aid package aims to boost private sector growth, thereby enabling increased spending in areas such as health, education, investment, and government programs.