Africa Banking Ethiopia FDI Finance

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

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.

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