Ethiopia has approved its first foreign finance licence as part of prime minister Abiy Ahmed’s continuing economic reform agenda. 

Africa’s second most populous country, Ethiopia, is taking its first steps towards opening its financial sector to foreign companies as prime minister Abiy Ahmed presses ahead with the reform programme he has pursued since taking office at the start of 2018.

As part of a drive to welcome foreign investment into formerly state-controlled sectors, the National Bank of Ethiopia issued a licence on August 7, 2019 to New York-based African Asset Finance Company (AAFC). The licence will authorise the US group to lease imported equipment, including farm machinery and computer servers, to Ethiopian companies. The move is being seen as a way for industry to circumvent currency and capacity constraints.

“It’s crucially important. Ethiopia is trying to liberalise its economy and opening up its financial services sector is an important element,” Frans Van Schaik, chief executive of AAFC, told the Financial Times.

Ethiopia’s parliament also passed a bill on July 31, 2019 giving its diaspora access to the domestic financial sector, permitting them to buy shares in local banks and start lending businesses. The move has led to a renewed interest in the country from the five million Ethiopians living abroad.

Optimism among foreign investors has also increased recently, as Ethiopia attracted a record $6.5bn of inbound greenfield investment in 2018, according to fDi Markets, a Financial Times data service that has tracked greenfield investment since 2003. This record capital expenditure was across 29 greenfield projects, the second highest number of projects the country has attracted in a single year since records began in 2003. 

Ethiopia attracted the most overall FDI in the East Africa region in 2018, and was ranked fifth across the African continent despite a decline of 18% to $3.3bn, according to headline figures in Unctad’s World Investment Report 2019. It has been most successful at attracting foreign investors in the textile sector, which accounts for 18% of the 240 greenfield FDI projects undertaken in the country since 2003.

The financial services sector is not far behind, accounting for 9% of all greenfield FDI projects, and government plans to open a domestic stock exchange in 2020 will likely spur investor interest in the financial services sector of the world’s most populous landlocked country.

Since being sworn in on April 2, 2018, Mr Abiy has pursued reforms such as releasing political prisoners, ending a 20-year war with neighbouring Eritrea, and appointing women to more than half of his cabinet posts. Other measures are expected before the end of 2019, such as the privatisation of state-owned monopoly Ethio Telecom, as well as further privatisation and sale of stakes in companies across other industries such as energy, shipping and sugar.

This article is sourced from fDi Magazine
fDi Magazine

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