Ethiopia’s parliament has passed long-awaited legislation opening up the country’s banking sector to foreign players on Tuesday (December 17). The government, which approved a draft of the law in June, hopes it will attract foreign investment into one of Africa’s biggest economies.
Foreign ownership of banks will still be capped at 40%, however, according to a copy of the law reviewed by Reuters.
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The move is part of a broader push since Prime Minister Abiy Ahmed came to power in 2018 to liberalize the country’s economy. Currently, the only major player in the banking sector is the state-run Commercial Bank of Ethiopia. Abiy’s efforts have been derailed by a two-year civil war, a destabilized currency, and slow-paced reforms.
While most legislators supported the law, a few expressed reservations that local banks would not be able to compete if foreign actors were let into the country. Ethiopia’s Central Bank Governor Mamo Mihretu said increased competition would help local lenders.
Ethiopia secured a $3.4bn bailout from the International Monetary Fund (IMF) this past July after a foreign currency squeeze and persistent inflation. To receive the funds, Ethiopia had to float its currency which saw the birr lose close to a third of its value against the dollar.
The bailout was meant to spur growth in the country’s private sector which the IMF said would allow for increased spending on health, education, investment and government programmes.
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