ADDIS ABABA — Ethiopia's decision to allow foreign banks to operate in the country for the first time in 50plus years is a big step and marks a significant shift in its economic policy, so said an Economist.
During his stay with News Day, BBC, Global FiarFax Africa Fund Chairman Zemedeneh Nigatu indicated that the decision is big step taken by Ethiopia as it reforms its overall economy, in particular its financial sector.
He said foreign banks have been banned in Ethiopia for more than 50years. There were foreign banks like Banko di Roma and Banko di Napoli, operating in Ethiopia in early seventies. Since then, the socialist government banned not only foreign banks but also private activities.
However, the nation is not only reforming the banking sector but there is a new stock market that is set to start in January , which is another huge step as the country opens up its economy, as to him.
One of the last sectors that was restricted for foreigners, for instance, was the retail wholesale distribution system that is also openingup; he said, stressing that the decision need to be seen holistically.
Currently, there are over 31 banks,of which 28 of them are private and two are state-owned. With the entry of the foreign banks, these banks will face international competition that is good for the economy, he emphasized.
As to him, the decision has taken into consideration Ethiopia'seconomy, which is the third largest in sub-Saharan African that needs large banking sector.
He mentioned that his company is currently advising an international bank - M&A to do possible acquisition.
"Many banks in Africa have shown keen interest to enter Ethiopian financial sector. Banks from Middle East, the Gulf and Asia, China are also seriously consideringentering in to the banking sector. We are looking in to a dozen banks."
He reminded the discussion held frequently about consolidating the banks (31) to at least five banks so that they can be large, competitive and have big balance sheet.By African standards, Ethiopian banks are small, except one of them, Commercial Bank of Ethiopia, he added.
As part of the reform, he further stressed that a very large consolidation from 31 to five large banks is expected for the banks to become competitive.
"Ethiopia's economy has been gradually opening up in almost every sector. There were talks, for example, if the telecom were to open up, but, surprisingly, the telecom has become one of the most telecom in Africa due to the competition and I would expect the same thing in the banking sector."
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Nonetheless, it needs strong regulator, he noted, adding that as long as the regulation and capacity of the central bank is enhanced, which they are doing, there would be no risk.
The move is part of a broader set of reforms aimed at liberalizing the economy and attempting to attract foreign investments thereby stimulating economic growth, it was learned.
