Addis Ababa — The entry of foreign banks into Ethiopia will increase investment and enhance technological capabilities vital to efficient service delivery in the finance sector, economists underscored.
The economists also warn that local banks need to improve their financial and technological capabilities in order to compete their foreign counterparts.
The National Bank of Ethiopia is preparing to grant licenses to at least five foreign banks to enter the country in the next five years.
This is part of a broader move being carried out by the government of Ethiopia to open up the economy to foreign investment, it was indicated.
Ethiopian Economic Association researcher Dr. Abule Mehari said that foreign banks will bring much-needed capital and technology to the Ethiopian financial sector in addition to the efficient services they provide to customers.
"When these banks enter our country, they will bring better service as they arrive in Ethiopia after lots of study and analysis on what kind of strategies to follow to maximize their profit. So they are expected to improve service delivery. They also bring capital and technology to our country, therefore, competition increases in the market that in turn brings better financial service, Abule said.
Dereje Dejene, an expert in development economics, also agrees with the idea of Abule. According to him, foreign banks will help improve the overall efficiency of the Ethiopian financial system and make it more accessible to businesses and customers.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
"When they come in Ethiopia they bring foreign wealth with them. That money will avail financial provisions to be used for various investment. They will bring the money that they have accumulated overseas and that is useful. The other thing is they have better international experiences, therefore they will assist in facilitating international trade in the country," Dejene elaborated.
However, the economists also warned that local banks need to be prepared to compete with the foreign banks by improving their financial and technological capabilities in order to offer the same level of services.
"Our banks are banks that go around every street to make you open bank account in their branches. If you don't bring your book they don't even serve you. That is how backward they are. Therefore, as a regulation, these banks need to be forced to invest in research to help themselves with modern technologies," Abule said.
The economists also advised the government to put a certain mechanism with a view to protecting the Ethiopian financial sector from the domination of foreign banks.
In this regard, the economists urged the government to ensure that the foreign banks are subject to the same regulations as the local ones.
Therefore, apart from creating a conducive working environment for banks coming to Ethiopia, strict monitoring and control should be put in place so that they do not go out of line and create undue economic pressure, they advised.
Overall, the economists pointed out that the entry of foreign banks into Ethiopia is a positive development.
