Allowing Foreign Banks to Engage in Finance Sector in Ethiopia Enhances FDI, Int’l Trade

Addis Ababa, July 5/2024(ENA)  The activities being underway to allow foreign banks engage in the finance sector in Ethiopia will help to further promote foreign direct investment (FDI) and international trade, a senior economist Dr. Berhanu Alemu remarked.

In his response to the questions raised by the members of the House of Peoples Representatives on the 36th Regular Session on Thursday, Prime Minister Abiy Ahmed said that the number of banks which were only 17 over the past years have now grown to 32.

Compared to the previous years, the profit generated by local banks has grown by 24% and the government is making preliminary preparations to facilitate the entry of foreign banks into the economic system of the country, the Premier added.

The Prime Minister also called upon local banks in the country to strengthen and modernize their operation systems by utilizing new technologies and deploying skilled professionals to enhance their competitiveness and expand their services accordingly.

Senior Economic Researcher at the Policy Research Institute, Dr. Brehanu Alemu told ENA  that areas of operations that were disallowed for foreign investors in the past  have now been opened for them during the last several reformative years. 

Foreign and local  investors are now encouraged to promote foreign direct investments in line with the Ten Years Perspective Plan of the country which has focused on strengthening the role of the private sector in the economic development of the country, the researched noted.

Legal and operational measures taken to allow foreign banks to operate in the country will enhance competition among the banks allowing them to grow and expand their services, he added. 

He further remarked that the engagement of foreign banks in Ethiopia will help to promote quality and efficient payment services and for attracting more FDI into the country.

The engagement of foreign banks in Ethiopia will also play instrumental role in developing highly skilled manpower and modern technology as well as sustained flow of capital into the country. 

The move will also help to advance the sector and further enhance foreign trade transactions, the researcher added.  

Brehanu recommended that local banks need to introduce new technologies and systems to help them provide efficient and quality services for their customers.

He stressed the need to provide all the necessary support for local banks and be able to effectively control the operations of prospective foreign banks that will operate in the country.

Restrictions made on the level of loans extended to the government will also be useful to implement monitory and fiscal policies and thereby strengthen the capacity of the National Bank to enable it to conduct monitoring and evaluation services in a more effective manner, he further noted.

The fact that the government was allowed to borrow with no restrictions has resulted in siphoning more money into the economic which in turn exacerbates inflation in the country. 

He further remarked that the will help to stabilize the level of inflation and is equally important to collect public revenue in a more meaningful manner.