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Home Africa

Foreign banks in Ethiopia: The thin line in between strategy and law

Ermias Wodajo Azmach by Ermias Wodajo Azmach
January 14, 2020
in Africa, Banking, Ethiopia, FDI, Finance
Reading Time: 2 mins read
3.3k 139
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Foreign banks in Ethiopia: The thin line in between strategy and law
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Last week standard bank made official that they are eagerly awaiting and hope Ethiopia will open its finance sector soon. This statement made me wonder how and when did the financial sector  pulled in middle betweeen the tight law and foreign bankers strategy.

Nine foreign banks are operating a representative office in Ethiopia since 2015. The banks include:  European Investment bank, Standard bank, Commerz bank, German bank, KCB bank, Bank of Africa, Ziraat Ban and Export-import Bank of India.

Ethiopian banking law defines a company for purposes of banking as a “capital wholly owned by Ethiopians having its head office in Ethiopia“, while investment law defines domestic investor as an “investment through a company wholly managed and shares fully owned by Ethiopians”. Moreover, the council of ministers regulation 270/2012 left the banking business only for domestic investors.

After PM Abiy came into power, two major progresses were made. Ethiopia’s central bank granted a financial service licence to a foreign-owned company, Africa Asset Finance Company (AAFC), and Ethiopian-born foreign citizens are now allowed to invest in the financial sector.

Then how do the nine foreign banks opened an office in Ethiopia?

The answer is on the Ethiopian membership of African Trade Insurance Initiative (ATI) in 2016. The banks opened an office with a strategic future market assessment and insurance:

  1.  Based on ATI, the government offered them insurance for ‘political risk’, rated by S&P with an ‘A’;
  2. Ethiopian government gave a ray of light to fully open the sector;
  3. Ethiopia is in WTO negotiation (including the financial sector);
  4. COMESA and AfCFTA will deliver early liberalisation and full opening;

Victor Williams, Head of Corporate & Investment Banking, Africa Regions Standard Chartered Bank, told Capital newspaper this week: “The representative office, which was opened in 2015, is led by an Ethiopian banker chosen by the Standard Bank who has helped the bank foster a relationship with both the Ethiopian government and clients. The office also serves as a regional hub for neighbouring countries”.

Williams further stated that “the representative office has afforded the bank the opportunity to learn and understand the market in Ethiopia, as well as position themselves for what they hope will be a fast approaching change in the Ethiopian market, inviting foreign bank institutions”.

“We’ve learned a lot about the country and we are now in a position where we can actually start to advise investors into Ethiopia based on what we’ve learned from being in Ethiopia”. Wiliams further said: “We are hoping the country will open its finance sector soon”.

Conclusion

The liberalisation and opening of the financial sector seems inevitable and the strategy set by foreign banks has caused a striking impact on increasingly opening up the country more. Hence, strategy could push for business even in the thin lines of a law.

Related

Tags: AAFCAfCFTAAfrica Asset Finance CompanyAfrican Trade Insurance InitiativeATIBank of Africabanksbusiness strategyCOMESACommerz bankErmias WodajoEthiopiaEthiopia Central BankEthiopian BanksEuropean Investment BankExport-Import Bank of IndiaFeatureGerman bankKCB BankStandard BankStandard Chartered BankVictor WilliamsWTOZiraat Bankэфиопияأثيوبياエチオピア埃塞俄比亚
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Ermias Wodajo Azmach

Ermias Wodajo Azmach

Ermias Wodajo (LL.B, LL.M in Commercial laws) is a qualified corporate advocate of Ethiopian Federal Courts with extensive practical experience, specific skill and immense achievement in both corporate representation and proactive investment advisory services. Earlier before joining the private practice and immediately after undergraduate degree, were called to serve a challenging task of corruption investigation. He accepted and served for 4 years with highest professional integrity. During this time he has also been selected join the research teams of WB and UNDP set up to conduct Ethiopian Corruption diagnosis. He also served as a research fellow for institution established to support the justice sector and professionals (JOPTC) through research and teaching. After joining the private practice and after his LL.M study, Ermias is well recognised among foreign investors for two major contributions: His notable insight on Ethiopian Industrial parks(Beijing law review, Vol 10, P.23-60, Jan 2019), greatly engaged stakeholders for a better forward and backward linkage of a foreign specific investment.Moreover, he received recognition, from the Attorney General, for SME's corporate pro bono support service in the last consequetive three years. Ermias initiated, developed, engaged and framed a contractual clause for SME's correspondence with major foreign investors. It greatly raised the SME's capital and 15 of them raised huge capital-through local content, forward and backward linkage framework incentives inserted contractual clauses. You may reach Ermias Wodajo @ wodajolaws@gmail.com +251921452593

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