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Ethiopia, with a population exceeding 100 million, is one of Sub-Saharan Africa’s largest economies and has long been an attractive prospect for foreign investors despite being closed off for decades.
In a significant move towards economic liberalization, Ethiopia will allow foreign banks to set up local subsidiaries and permit foreigners to acquire shares in domestic lenders. This development follows the cabinet’s approval of a bill on Friday aimed at opening up the banking sector as part of broader economic reforms.
The country, long isolated from international investors, is now inviting foreign participation in key sectors such as banking, telecoms, transportation, and aviation.
According to the bill, “A foreign bank which is well established, reputable and financially sound may be allowed to establish (a) partially or fully owned foreign bank subsidiary, or open a foreign bank branch, or a representative office, or acquire shares of a bank.”
The draft law, pending approval by lawmakers, stipulates that foreign bank subsidiaries must include local resident non-shareholder Ethiopians on their board of directors. Furthermore, the total shareholding by foreign nationals and foreign-owned Ethiopian organizations in any bank will be capped at 40%, with direct shareholding by strategic investors limited to a 30% stake.
The National Bank of Ethiopia (NBE) stated, “These legislations represent a significant step in laying a strong foundation for growth and enhancing the credibility, accountability, transparency, and governance of the National Bank of Ethiopia.”
Currently, Ethiopia’s banking sector is dominated by the state-owned Commercial Bank of Ethiopia, with 29 local banks operating in the market.
In a related development, the central bank announced in May of the previous year that it would offer five banking licenses to foreign investors within the next five years, signaling a deliberate and gradual approach to opening the market to international competition.
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