- Experts caution Ethiopia on foreign investment risks amid liberalization
As Ethiopia opens key sectors for foreign investment and privatizes major enterprises, scholars caution that doing so without a robust financial security system and strong regulatory capacity could be counterproductive. They advise the government to carefully balance liberalizing the economy with protecting national interests.
Ethiopia has already liberalized sectors such as telecommunications and is set to allow foreign entities into its financial industry. Notably, Safaricom, a Kenyan telecom provider, acquired stakes in Ethiopia’s telecom sector. In a significant shift, on June 14, 2024, the Ethiopian cabinet approved a bill allowing foreign lenders to establish local subsidiaries and acquire shares in local banks. The bill is pending parliamentary approval.
The proposed law would permit reputable, financially sound foreign banks to set up wholly or partially owned subsidiaries, open branches, or purchase shares in existing banks. Foreign nationals could be hired as senior executives, but Ethiopian residents must be included on the boards of foreign banks operating in the country.
However, experts warn that the arrival of foreign investors could pose national security risks if strong regulatory and security measures are not in place. The experience of nations like Sri Lanka and during the 1997 Asian Financial Crisis highlights the dangers of weak financial systems and sudden capital flight. Similar issues have affected countries like India, Greece, and Argentina.
Economist Atlaw Alemu (PhD) warns that foreign investment, without a strong financial foundation, could lead to capital flight and undermine Ethiopia’s economic sovereignty. He also emphasized the potential risks if foreign investors were to withdraw, threatening financial independence and increasing foreign interference.
In recent years, Countries are increasingly adopting digital payment systems, driven by the need for efficiency, security, and convenience. However, this rapid technological advancement has introduced new vulnerabilities. Studies indicate that cyber-attacks and digital espionage now pose a greater threat to national security.
Cybersecurity is another growing concern. Ethiopia has foiled over 4,550 cyber-attacks in the first six months of the current fiscal year. According to INSA, a successful attack could have caused losses of up to million 186 USD. Forbes ranks Ethiopia as the eighth most vulnerable nation to cyber threats, highlighting the need for enhanced cybersecurity measures.
In his part, scholar Costantinos Berhetesfa (PhD), emphasized that the National Bank of Ethiopia must focus on establishing new interest rate policies, improving the flow of money, controlling and enhancing financial security measures. These changes are crucial for building a stable economic landscape that can support investment and stimulate economic activity.
A public policy scholar Costantinos Berhetesfa (PhD) stresses that the National Bank of Ethiopia must improve financial security measures, interest rate policies, and the flow of money to build a stable economy capable of supporting foreign investment. However, critics argue that the National Bank lacks the experience to lead a market economy and advocate for bringing in international experts to guide Ethiopia through the transition.
Costantinos also mentioned that by leveraging international knowledge and best practices, the National Bank could implement reforms that align with the demands of a dynamic market economy. This approach could ultimately strengthen investor confidence and promote sustainable growth in Ethiopia’s economic landscape.
Atlaw further emphasized the risks of financial subservience and potential loss of economic autonomy, urging strategies to strengthen the domestic financial system and ensure its resilience against external pressures.
“As we navigate this digital landscape, it is imperative to prioritize cyber security to safeguard our personal information and national security against rapidly evolving threats,” Costantinos stated.
He highlighted recent microeconomic reforms designed to attract foreign investors, aiming to create a more favorable business environment that encourages international capital inflow and fosters economic growth. This strategy seeks to generate job opportunities for citizens by introducing modern technological systems, addressing issues related to foreign currency shortages and the prevalence of black money.
Atlaw emphasized the transformative potential of foreign investment, noting that an influx of international financial institutions could create a competitive environment.
Both experts emphasize the importance of protecting national sovereignty while benefiting from foreign investment. Strengthening the domestic financial system, prioritizing cybersecurity, and leveraging international knowledge are crucial steps to ensuring sustainable economic growth.
BY FIKADU BELAY
The Ethiopian Herald September 8/2024
